Trade Theory Research Articles

The 'New' Economic Theories

This paper has two main goals. The first is to study the links between the “new” economic theories, this is, the “new” trade theory, the “new” growth theory and the “new” economic geography. These are three apparently distinct strands of economics, yet they have a common motivation: the role of increasing returns and the consequent market structure (imperfect/monopolistic competition). The second goal is to present the “new” economic theories as case studies in what concerns the debate over modelling and its role in the progress of economics. Since these theories contribute fundamentally by applying new modelling techniques to old real world problems, they add something to economic knowledge to the extent that we accept formalisation as a source of progress in economics.

Did Inter-Regional Trade Agreements Bring Mutual Benefits? An Empirical Scheme of Indonesian Commodity Exports in Asean-China Free Trade Area

The purpose of the study was to determine the effect of ASEAN-China Free Trade Area (ACFTA) on Indonesia's leading export commodities to China, Hong Kong and ASEAN countries. The methodology used is the model used below is based on New Trade Theory, which involves Comparative Advantage determinants including the total size of the country's economy, similarities in economic size, and differences in relative endowment factors. From the intended purpose, the results of this study are that commodities experiencing the largest growth in exports to all countries in 2010 were commodities with codes: 15, 87, 29 and 40. Meanwhile, commodities with code: 87: Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof, and 27: Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes, were export commodities whose growth was relatively stable, while commodities with code 26: ores, slag and ash, actually declined, and the potential for Indonesian trade cooperation with ASEAN-4 is still wide open. This was marked by an increase in Indonesia's exports to ASEAN-4 in 2010.

Virtue, Production, and the Politics of Commerce: Genovesi’s “Civil Economy” Revisited

Antonio Genovesi’s economic-political treatise on civil economy was a major contribution to debates in the mid-and late eighteenth century on the nature of political economy. At that time, Genovesi’s book was extensively translated and discussed across continental Europe and Latin America, where it was read as a foundational text of political economy similar to Adam Smith’s Wealth of Nations. The aim of this article is to contribute to the analysis of the mutual implication between the economic and the political order of society by revisiting Genovesi’s theory of civil economy, which he defined as “the political science of the economy and commerce.” First, the article retraces Genovesi’s conception of civil economy as a branch of political science and the role of “virtue” in ordering the polity according to “the nature of the world.” Second, it explores Genovesi’s theory of production as an inquiry into the proportionality conditions that productive activities should meet for a well-functioning polity to persist over time. Third, our argument emphasizes the importance of Genovesi’s analysis of production structures for his theory of internal and foreign trade. In this connection, the paper investigates Genovesi’s idea that the maintenance of a country’s “trading fund” should be the fundamental objective for its internal and external trade policies. These policies, according to Genovesi, should be consistent with the context of the body politic under consideration and the economy’s proportionality requirements for any specific stage of development.

The US trade dispute: blunt offense or rational strategy?

ABSTRACTThis article evaluates the recent protectionist US trade policy and the retaliation of the EU and China. The article employs a New Quantitative Trade Theory model and an Armington model for comparison. The simulation results show that US car tariffs are a credible threat to the EU, but the steel and aluminum tariffs are not. China suffers considerably from the US tariffs, especially the latest extended, tightened tariffs. The retaliation measures of the EU and China, however, do not cause significant US welfare losses compared to the situation without mutual trade policy.

Examining intra-African tourism: A trade theory perspective

Background: Around the world, domestic and regional travel is considered the backbone of the tourism industry, with as much as 80% of international visitors within the same region, however, various factors permit or deter tourists to move around freely. The arguments of tourism promoting trade and vice versa, are both valid. Since trade can promote tourism in Africa it implies that regional integration is necessary to foster regional tourism.Aim: This article seeks to determine whether trade theory is able to explain intra-African tourism. This was done by applying four theoretical models of international trade to bilateral African tourism flows.Method: Using panel data from 25 African countries over a 10-year period, this research shows that intra-African tourism flows can best be explained by the gravity theory.Results: Cultural and geographic proximity, as well as the development of the destination country, dictates intra-African tourism. Additionally, African countries that already have an advantage in worldwide tourism receipts also benefit from intra-African tourism.Conclusion: This research contributes to a greater understanding of the determinants that attract African travellers to other African countries, which holds important implications for both policymakers and destination managers.

Insider Trading, Macroeconomic Risk and Network Theory

A company insider possessing material nonpublic information can profit by trading in the stocks of her company. Moreover, since in an interconnected economy shocks propagate from one firm to another, she can also profit by trading in stocks of connected firms (e.g. suppliers and customers). In this article, I will show that these “network trades” create a moral hazard problem because they allow insiders to profit from risk-creation. In particular, by investing in a riskier project an insider produces larger fluctuations in the stock price of her company and of the connected firms. She can then use her privileged position to obtain early information on the direction of these fluctuations and then profit by engaging in network trades. Most importantly, the insights from network theory reveal that risk creation is more profitable for insiders that operate in industries that have a larger impact on macroeconomic risk, and hence network trades can play a key role in increasing the overall level of risk to which the economy is exposed. Given the severity of the 2007-2009 crisis, this insight offers a new and powerful rationale for regulating trades made by insiders on private material information. In particular, I advocate a reform divided in two steps: In a first phase, disclosure of network trades should be mandated to investigate whether they are a pervasive phenomenon and whether they produce abnormal returns for the insiders. In a second phase, if the data suggests that network trades are indeed pervasive and lead to abnormal profits, the following reforms should be implemented: (i) network trades on private material information should be banned, at least in the most central sectors; (ii) the rule requiring insiders to disgorge short-term profits when trading in the stocks of their corporation should also be extended to network trades.

Strategic areas of Ukraine’s national economy development under modern globalization transformation conditions

Introduction. The international economic community is promoting the principles of free trade theory, the principles of liberalization and the “invisible hand effect”, as well as the countries specialization and the erasure of national economic borders in the context of modern globalization processes. However, such recommendations are not always appropriate for countries with underdeveloped national economies and for countries that have not undergone a long period of development under conditions of national protectionism. Therefore, the article is devoted to the search of strategic directions for the national economy development under the conditions of modern globalization changes and economic and political instability. Purpose. Although Ukraine has adhered to the requirements and recommendations of international economic organizations over the past years, there has been no economic breakthrough in the country. Public life standards are not rising; according to various economic estimates and international rankings, Ukraine continues to hold weak positions. This situation requires special research and search for ways of entering the national economy of Ukraine to new positions. Methods. In the article methods of analysis and comparison of international experience and practice, methods of collection and systematization of statistical data’s are used. Results. The problems of low Ukrainian competitiveness among other countries have been revealed by taking into account the scientific literature analysis, international experience of national economies development in different countries and statistical data on the Ukrainian national economy. The priorities and principles of national production and industrial development, which ensure the competitive country’s position in the current globalization conditions, have been determined. The article shows Erik S. Reinert’s point of views, highlighted in the book “How Rich Countries Got Rich And Why Poor Countries Stay Poor” which relate to the critique of the recommendations regarding adherence to the free trade theory and specialization, as well as the liberalization principles and the “invisible hand effect”. The problems of the Ukrainian national economy development with postcolonial syndromes that are manifested in socio-psychological, managerial, cultural, as well as in economic behavior and peculiarities of national economy have been disclosed. Discussion. The necessity of structural changes in national production, as well as changes in scientific-educational, taxation and pension system, investment policy, overcoming oligarchy, and corruption, and excessive government intervention in a business have been substantiated. Three main components of the strategic national economy development have been proposed, concerning effective science education reform in order to strengthen the innovational capabilities and technological capacities of national production; reducing external debt and dependence on external creditors, orienting the financial sector towards serving and investing the in real economy; creating strong social, political and national, ethical and spiritual values in the society.

Assessment of the transforming impact of global value chains on international trade

The article discusses the problems of international fragmentation of production and global value chains and how they relate to modern aspects, trends and challenges of international trade development. Methodologically the research rests upon the key principles of classical and alternative theories of international trade, the theory of value chains and the basic theories of foreign investment. In the course of the study, the authors apply both general theoretical (formalization, synthesis, analysis) and particular (measurement, comparison, observation) research methods. The main results of the research are as follows: a conceptual rethink of the nature of today’s international trade in terms of influencing factors of global production decomposition; theoretical justification and criticism of contemporary approaches to the organization of value chains between developed and developing countries; the formulation of measures to modify trade and economic policy in the current system-related and structural challenges of value chains’ transformation. The authors conclude that instability of modern global value chains in the world production and international trade is due to the unsteady dynamics of the global economy, industrial differentiation of global value chains, changes in international strategies of multinational companies, innovation and digitalization of global production networks.

Debates over Dirigisme during the 1930s: The Case of Bulgaria

:During the 1930s and early 1940s, the problems of economic dirigisme and its theoretical analysis attracted the attention of Bulgarian economists. To some extent, it was compensation for the fact that they missed the socialist calculation debate of the interwar period. Their analyses were placed within the framework of a demand and supply core, combined with various other theoretical approaches. The Bulgarian academic economists identified a number of problems associated with the long-term functioning of the regulated economy: impossibility of the state apparatus to control spontaneous market forces by means of governmental regulation, inherent administrative constraints for government and public officials to introduce and control strict and conscientious implementation of all the laws and normative acts of the system of economic dirigisme, etcetera. A new theory of international trade was developed, the author of which attempted to break away from the old-fashioned labor theory of value. The main content of his concept lies in the claim that protectionism, in certain cases, may have positive economic consequences.

The impact of virtual water strategy on domestic inter-regional agriculture products trade of China

Faced with increasingly severe pressure on water resources, virtual water and virtual water trade theory provide a feasible solution to improve global water use efficiency for agricultural product and to alleviate the pressure on water resources in water-scarce countries or regions. However, virtual water strategy has not been considered in domestic inter-regional agriculture products trade of China. In this research, we will create scenarios, from two aspects of economy and the allocation and utilization of water resources, to study the impact of virtual water strategy on domestic inter-regional agriculture products trade of China. Two kinds of scenarios will be created. One kind of scenarios does not consider the virtual water strategy, which only consider the economic revenue - net social revenue maximization scenario. The other kind of scenarios considers the virtual water strategy - water resource balance scenario. And we will research the impact of virtual water strategy will be made on domestic interregional agriculture productions trade of China. The result shows that virtual water strategy could make advantage impact on the allocation and utilization of water resources by domestic inter-regional agriculture products trade of China. But domestic inter-regional agricultural products virtual water trade of China considered the virtual water strategy would cause great negative impact on net social revenue.

Country-Specific Determinants of Intra-Industry Trade in Pharmaceuticals: The Case of Poland and Its European Union Partners

Trade cooperation between European Union countries is based mainly on intra-industry trade, consisting in the simultaneous import and export of similar products belonging to the same industry (commodity group). The present study has investigated the country-specifi c determinants of intra-industry trade between Poland and its European Union trading partners in pharmaceutical products during the time period 2004-2016. To this end, an econometric model for panel data was constructed. The research shows that the intensity of intra-industry trade in Poland-EU trade in pharmaceuticals is determined by several key factors. The intensity of trade with particular EU countries and the size of general government expenditure on health in the countries of trading partners have a positive impact on the development of this type of exchange. A factor that signifi cantly and simultaneously affects the intensity of intra-industry trade is the degree of imbalance in the trade balance in pharmaceutical products with individual trading partners. The development of intra-industry trade is also limited by factors related to the level of economic development of trading partners. The study confi rmed that the greater the differences in the level of GDP per capita between Poland and the trading partner, the less intense intra-industry trade. Also, the growth of GDP per capita in the countries of trade partners is not conducive to the development of intra-industry trade in Poland’s trade in pharmaceuticals. The direction of the impact of this variable (GDP per capita) on the intensity of two-way trade obtained in this study does not confi rm the predictions of the theory of intra-industry trade. However, the negative impact of this factor can be explained by the specifi city of pharmaceutical products that are purchased by consumers generally only in justifi ed situations resulting from health or life protection.

Russia-EU gas game analysis: evidence from a new proposed trade model.

This paper represents a new proposed trade model of "Intercountries Trade Force (ITF)" which is inspired by Intermolecular Interaction Forces in chemical sciences, and has potential to compensate for the deficiencies of the gravity trade model proposed by Jan Tinbergen in 1962. The main differences between our new model and the earlier gravity trade theory are (i) there is a time-variant variable called the gravity index (GI) which means that the earlier gravity theory was treated as only a variable in our new proposed model and (ii) our new proposed trade model has a higher chance of adoption in the real trade world rather than the earlier gravity trade model which always needs to be expanded by scholars. In order to empirically test our new proposed trade model, we applied it in an empirical econometric model to analyze the Russian gas export to the EU member states, not explored earlier. Results revealed that our new trade proposed model adjusts with the empirical energy trade pattern.

Economic self-interest, information, and trade policy preferences: evidence from an experiment in Tunisia

We address a central question about the integration of developing countries into the global economy: what factors affect public support for such globalization. Do public preferences toward trade correlate with its economic consequences or sociocultural resonances? Using a nationally representative survey experiment in Tunisia, a majority Muslim, developing country, we investigate whether providing information about trade’s distributional consequences causes respondents to connect their economic self-interest to their trade policy preferences. Respondents seem to understand their economic self-interest, and information provision enhances this. Information about the likely benefits of trade causes people in the export-oriented sector to respond more positively to trade liberalization, as economic theory predicts. Information about its costs has confounding effects on those in import-competing sectors; those involved in global value chains maintain support for trade more than those outside such production chains who become protectionist. We find scant evidence that sociotropic, political, or cultural variables influence trade attitudes. Contributing to the recent debates over trade policy preferences, we show that public preferences align most strongly with their economic self-interest as derived from recent trade theories.

Offshoring and skill overlap: An empirical investigation

AbstractConventional international trade theory predicts that bilateral offshoring flows will be highest when two countries have very different relative factor endowments. In contrast, the new trade theory contends that offshoring is more likely to exist when countries’ relative factor endowments are similar. This paper empirically tests the relationship between offshoring and relative factor endowments, measured by the skill overlap index between two countries and finds evidence that there is an inverted U‐shape relationship. Our empirical results predict that the rise in educational attainment in China will motivate U.S. multinationals to send their tasks to China in the short run; over the long run, however, U.S. multinationals will have fewer incentives to send their tasks to China. This finding sheds new light on the current trade tensions between the United States and China and has implications for trade policy.

Is Austria’s economy locked-in in the CESEE region? Austria’s competitiveness at the micro-level

This paper analyses the competitiveness of Austrian manufacturing industries by comparing the performance of Austrian firms with the Western European firms using recent estimates of total factor productivity (TFP) across Wider Europe (EU-28 plus Western Balkans) during the period 2007–2015. According to the TFP estimates, Austrian firms with larger turnovers, and less employment, in regions with less regional-industrial concentration of labour have become more competitive in terms of TFP. Using firm’s TFP and other characteristics aggregated by industries across Wider Europe, a structural gravity model for exports is estimated. In line with the Ricardian models of trade and new trade theories, results show that larger trade across countries in the sample is driven by intra-firm trade, and comparative advantages that are measured as better efficiency of industries in terms of simple average of TFP growth of firms and more allocation of capital to more efficient firms. Comparing the actual values of exports from Austria to Central, East and Southeast Europe (CESEE) with the counterfactual predicted values of the structural gravity model, I find that since 2012 excessive exports were directed to Western Europe rather than to CESEE. In a robustness check using unilateral exports value, these interesting findings also confirmed that a potential Austrian lock-in effect in the CESEE region reversed and trade diverged to the more competitive market of Western Europe.

Reassessing the link between firm size and exports

This paper re-examines the link between firm size and exports. The new theories of international trade emphasize firm heterogeneity as the theoretical basis of export behavior. In the context of this heterogeneity, this paper uses the quantile regression methodology to analyze the effects of firm size on firm export propensity (percentage of exported sales). The paper confirms the existence of a positive relationship between firm size and export propensity but finds that the conventional estimates of the elasticity of export propensity with respect to firm size on the average of the export propensities’ distribution underestimate the effect at the bottom of the distribution and overestimate the effect on the rest. Consequently, policies aimed at increasing exports should focus their efforts on increasing the size of those firms with a lower export propensity.

Performance of Sectors’ Export and Their Effects on Economic Growth in Ethiopia: (Disaggregate Approach)

In numerous trade theories; economist argue export orientation boosts total productivity and output growth through its sympathetic effect on the efficiency of resource allocation, capacity utilization, economies of scale and technological advancement. But some other state that the effects of export varies country to country and items to items depending on the level of development. Having these and others arguments in mind, the performance as well as the short run and long run effects of disaggregate export on Ethiopian economic growth mainly designed in advance. To this end, the 41 years data has been collected from different sources and analyzed using both descriptive and econometric techniques. The findings of descriptive analysis reveal the performance of agriculture and service exports have been improved in amid 1992/93 and 2014/15. In particular it is portrayed that the unprecedented service export has been leading the export sector throughout post reform period. Conversely, with minor improvement; the performance industry export has been poor throughout the study period. Likewise the result of VECM model reveals; in the long run all sectors’ export significantly affect economic growth and in the short run their individual contribution is insignificant to the economy. In sum albeit the short run contribution of each disaggregate export to economic growth is insignificant, since their donation is significant in the long run; indispensible measure should be taken to develop export in general and each disaggregate export in particular. Key words : disaggregate export, economic growth and VECM model JEL Code T07 DOI : 10.7176/JESD/10-11-05 Publication date :June 30 th 2019

Effects of Exchange Rate Determinants on Financial Performance of Multinational Companies

Foreign exchange is one of the macroeconomic variables which affect the financial performance of firms. Fluctuations in the foreign exchange rate have an effect on the operating cashflows, investment decisions, profits, sales and a firm’s market value. Foreign exchange rate level is determined by various factors which include the balance of payment, terms of trade, inflation and government borrowing. Given the importance of multinational firms to the economy of Kenya, it is crucial to determine the effect of determinants of foreign exchange on their performance. The objective of the study was to determine the effect foreign exchange determinants on the financial performance of multinational companies in Kenya. The independent variables included balance of payment, government debt, terms of trade and inflation. Measurement of financial performance was done using return on equity and return on assets. The study was anchored by the balance of payments theory, Keynesian theory of public debt, theory of international trade and the quantity theory of money. The study sampled four multinational companies operating in the nation of Kenya. The period covered by the study was 2002-2017. Data collected for the study was from both the central bank publications and financial statements of multinational companies. Study data was evaluated using panel data. The fixed effects model was used for the study. The study established that the balance of payments had a negative as well as statistically significant impact on return on assets. The study also established that government debt had a positive and significant effect on return on assets. Terms of trade and inflation were found to have positive but statistically insignificant effects on return on assets. The balance of payment and inflation had a negative and statistically significant effect on the return on equity. The terms of trade was found to have a positive but statistically insignificant effect on the return on equity. Government debt had a positive and statistically significant effect on return on equity.

The effect of share ownership structure on ex-dividend day stock price behavior

PurposeThe purpose of this paper is to explore whether share ownership structure plays a role in determining the ex-day pricing of dividends. If share ownership structure, specifically the proportion of the firm’s stock held by individuals vs institutions, has an effect on the ex-dividend day stock price behavior, the ex-day premium is expected to be different for firms with different ownership structures.Design/methodology/approachTo investigate whether the ex-day pricing of dividends is affected by the proportion of the firm’s stock held by individuals vs institutions, the author look into the ex-day premium. The ex-day premium is calculated by dividing the difference between the closing price on the cum-dividend day and the closing price on the ex-dividend day by the amount of the dividend.FindingsConsistent with both the tax-based theory and the dynamic trading clientele theory, the author find that the ex-day premium decreases with the level of individual ownership. Consistent with the short-term trading theory, the author also find that the ex-day premium increases with the degree of investor heterogeneity, defined as the product of the proportion of the firm’s stock held by individual investors and the proportion held by institutional investors.Originality/valueThe author believe that this study contributes to the literature by providing useful evidence that share ownership structure affects the ex-day pricing of dividends, and thus this study will be of interest to the readers of managerial finance.

Analyzing Energy Export Patterns from the Commonwealth of Independent States to China: New Evidence from Gravity Trade Theory

The issue of energy trade is crucial for both the Commonwealth of independent States (CIS) region as a top energy exporter and for China as the top energy importer in the world. This study tries to investigate and analyze energy trade patterns running from the CIS to China by applying the panel-gravity trade equation over the period from 2001–2017. The major results revealed that the gravity theory fits the data well. In addition, the findings of this study suggested that the estimated coefficients across all three panel estimators (fixed effect, random effect, and FMOLS) are very similar. Further, the empirical results demonstrated that an increase in GDP and income accelerates the Chinese energy imports from the CIS. Our findings supported the H-O theory, where the difference in income showed a positive influence on the China -CIS energy trade volume. I also discovered the positive impact of the openness level. However, the results indicated that the trade-distance nexus is negative for energy export volume running from the CIS to China.