Trade Costs Research Articles

The politics of tariff cooperation in the presence of trade costs

AbstractThis study explores how income inequality among individuals in each country and trade costs depicting geographic distance between countries impact economic welfare and regime choice under representative democracy, comparing three trading regimes: most favored nation, customs union, and free trade agreement. We examine two cases: one in which trade costs are incurred symmetrically among all countries, and the other in which no trade costs are incurred among the potential member countries, but only between them and nonmembers. In each case, we identify the political feasibility of each regime as well as the impact on the average welfare levels.

Potential climate-induced impacts on trade: the case of agricultural commodities and maritime chokepoints

This study assesses the potential macro-economic effects of climate change affecting operations in three maritime chokepoints, i.e., the Panama Canal, the Suez Canal, and the Turkish Straits. The analysis focuses on agricultural commodities. It couples a “logistics” model of maritime trade flows with a Computable General Equilibrium model considering three modelling alternatives: (1) increase of “iceberg trade costs”, (2) shadow import tariffs, and (3) shadow export tariffs. Methodologically, we found a comforting qualitative agreement across methodologies in predicting the direction of changes in the main economic variables under scrutiny. However, negative GDP performances are more frequent and larger using the first method that also tends to predict lower import contractions than the other two methods. The impact assessment, examining storylines of climate-change-induced events delaying chokepoints operations, highlights that climate change impacts on chokepoints’ operations can convey detectable effects on production and prices of agricultural commodities associated with negative GDP impacts worldwide. In addition, although trade re-composition generates winners and losers, total losses tend to prevail. The combined GDP losses of the three chokepoints can reach $34 billion (2014 prices) in 2030. It shows that weather events in remote locations, such as the Panama Canal, can have cascading effects on the EU, with potential losses of USD 2 billion $ in GDP. North Africa, Middle East and Sub-Saharan Africa are particularly vulnerable. They suffer from a drop in imports of agricultural commodities and GDP losses in all the three cases. This impact assessment emphasizes another mechanism at play that could increase the asymmetry and the adverse distributional impacts of climate change on agriculture.

Impact of Herding Behavior on Mutual Fund Performance

n this study, we look at how herd mentality affects the efficiency of mutual funds. It is well-documented that investors often engage in herding behaviour in the financial markets, when they blindly follow the actions of others rather than evaluating information independently. Yet, there has been a dearth of empirical research into its particular consequences for mutual funds. To analyse the impact of herding behaviour on fund performance, this research uses a thorough dataset of mutual fund returns and investor flows. The first step of the research is to use literature-established metrics to determine whether mutual fund investors herd. After that, we use risk-adjusted returns, volatility, and alpha to evaluate the herding behaviour vs. fund performance connection. The research further delves into the ways in which herding affects the performance of funds by looking at things like trading fees, liquidity restrictions, and market circumstances. Herding behaviour has a substantial impact on mutual fund performance, according to preliminary data. However, the exact nature of this impact varies across fund kinds and market conditions. Although herding may provide short-term gains in price momentum and liquidity-driven returns, it eventually causes mispricing and reversals if it continues. In addition, less liquid asset classes may have their long-term performance eroded by herding-induced trading costs and portfolio churn. These results have consequences for fund managers and investors alike. By learning the ins and outs of herd mentality, investors may make better investing choices that stay true to their long-term value drivers and avoid the traps of herd mentality. To lessen the impact of market emotion on fund performance, fund managers should be aware of investors' herding tendencies so they can create portfolios and use risk management methods. Keywords – Herding Behavior, Mutual Funds, Investor Behavior, Market Sentiment, Performance Measurement

Political relations and trade cooperation of the Belt and Road initiative: research on trade network based on strategic emerging industries

PurposeThe purpose of this study is to examine the impact of political relations on trade in strategic emerging industries (SEIs) in the Belt and Road initiative (BRI) associated countries. This investigation encompasses not only from the perspective of bilateral political relations but also the political intervention of third parties.Design/methodology/approachThe study employs the temporal exponential random graphmodel to analyze the dynamic structure and influencing factor of SEIs trade network among 150 BRI-associated countries from 2015 to 2020.FindingsThe results indicate that the trade of SEIs in the BRI-associated countries exhibits a pattern of concentrated exporters and decentralized importers. Amicable bilateral political relations foster trade cooperations in SEIs, while political pressure from the United States has the opposite effect. Furthermore, compared with the influence of third parties, the BRI has created a more robust trade environment characterized by political mutual trust.Practical implicationsBRI-associated countries should strengthen their political communication, and endeavor to transform political consensus and shared vision into concrete collaborative projects, while mitigating geopolitical uncertainties through a sound risk evaluation system. Moreover, they should establish a more transparent and consistent consultation mechanism and leverage the BRI trade network to foster balanced and mutually beneficial partnerships that minimize rivalry and dependence on a single market.Originality/valueThis study goes beyond observed trade cost and incorporates the political factor into the determinants of the BRI trade, thereby expanding the theoretical boundaries of existing BRI research. Also, this study employs bilateral trade data to construct SEIs trade networks (SEITNs) along the BRI route. It provides a comprehensive understanding of the dynamic determinates of the SEITNs will provide valuable practical guidance for enhancing and expanding trade and cooperation among BRI-associated countries.

Optimal scheduling of integrated energy systems with a ladder-type carbon trading mechanism and demand response

Introduction: To achieve the “dual carbon” goal, the integrated energy system (IES) needs to take into account both economic and low-carbon requirements while meeting the growing energy demand.Methods: Therefore, an optimal scheduling model for low-carbon economic operation is proposed. Firstly, a more accurate carbon emission model is used to consider the actual carbon emission of gas load, to improve the original carbon emission model. A ladder-type carbon trading mechanism is introduced to further constrain the carbon emission of IES. Then, the demand-side response model is proposed, which uses the time-of-use price and mutual substitution of electricity, heat, and gas loads to curtail, time-shift, and substitute the load. Finally, an optimal scheduling model with minimum energy purchase cost, wind and photovoltaic curtailment cost, demand response cost, and carbon emission cost is constructed, which is solved by the GUROBI solver.Results: Through comparative simulation analysis of 6 cases, the results show that the objective function considers the traditional carbon trading cost to reduce carbon emission by about 19.3% compared with the case without considering. After adopting the ladder-type carbon trading mechanism, the carbon emission of IES can be further limited by about 0.35%, and the appropriate carbon trading base price is explored. In addition, after the demand response, the energy purchase cost, carbon trading cost, and carbon emission of IES are reduced by about 3.4%, 18.5%, and 36.2%, respectively, compared with those before the demand response. The simulation results verify the effectiveness of the proposed model.

EVALUATING THE IMPACT OF INNOVATION ON BILATERAL TRADE IN NIGERIA

Purpose: the study examined the impact of innovation categorised into copyright, patents, and innovation index, on bilateral trade flows and trade costs on manufactured bilateral trade in Nigeria. Theoretical Framework: challenges facing the international trade such as high import and export tariff, taxes, deflation and inflation, unemployment and in one way or the other affect the economic growth of Nigeria. There is need to investigate the impact of innovation on bilateral trade flows and trade costs on manufactured bilateral trade in Nigeria. Methodology: the study adopted an ex post facto research design. Data were subjected to various diagnostic test ranging from descriptive statistics, unit root test, using Micro-soft excel and E-View 10 and econometric modelling. The researcher employed an econometric method of analysis which makes validation to become necessary. Because it outlines the summary statistics which will display the statistical summary and properties of the variable included in the model. Findings: Some research found a positive but non-significant relationship between technological innovation and economic growth and others showed just a positive relationship. Digital advancement was also shown to exhibit a significant effect on economic growth in Nigeria. Research, Practical & Social Implication: The most consensus recommendation, was an increase in budgetary allocation for the technological development.

Does market microstructure affect time-varying efficiency? Evidence from emerging markets

This study advances beyond the conventional singular factor analysis and considers multiple market microstructure components to investigate time varying informational efficiency. This holistic approach deepens the comprehension of the intricate interplay among diverse microstructure facets. This study employs the System Generalized Method of Moments (SGMM) model to mitigate potential endogeneity pitfalls. The dataset comprises firm-level data from five emerging markets, for the period 2001–2020. After controlling for a battery of macroeconomic factors and idiosyncratic risk, this study finds that liquidity, volatility, thin trading, and trading cost are the key determinants of time varying efficiency. In comparison anonymous trading, tick size, and automation are not found to have a significant influence. The results are robust for an alternative choice of sample periods and alternative estimation methods. Individual and institutional investors should consider market microstructure components while designing asset allocation strategies.

COVID‐19 pandemic in Ethiopia: Socioeconomic impacts and government recovery measures

AbstractThe study assesses the implications of the COVID‐19 pandemic and the government responses for the economic performance and poverty incidence in Ethiopia for the fiscal years of 2019/20 and 2020/21. It accounts for the impacts of the pandemic on factor productivity, trade costs, export demand, tourism, remittances and foreign direct investment (FDI). An economy‐wide multi‐sectoral model determines impacts at macroeconomic, sectoral, and household levels. A poverty analysis module characterises the effects of the pandemic on food poverty headcount, gap, and severity. Results show that the COVID‐19 impacts could have been significant across all macroeconomic metrics had the government not intervened through fiscal and spending measures. However, much of the recovery through government intervention was driven by agricultural and food processing sectors while output in manufacturing, construction and services sectors continued to be negatively affected. Without government intervention, the food poverty headcount would have increased by about five percentage points. The government measures have mitigated that effect allowing food poverty to reach pre‐COVID‐19 values in 2020/21. Nevertheless, with all measures combined, poor urban households may have been left behind and would require more targeted support to compensate for a significant loss of income.

Impacts of deep trade agreements on trade and welfare – An application to China joining the RCEP and CPTPP

Using a quantitative trade model, this paper evaluates the trade and welfare effects of deep trade agreements in an application to China joining the RCEP and CPTPP. By feeding trade cost shocks from the changes in RTA deepness into the model, we find substantial gains from incorporating legal enforceability and dispute settlement provisions in both agreements. With the CPTPP being deeper than the RCEP, our counterfactual exercise of China joining the CPTPP shows that 69% of its welfare gains come from deepening RCEP provisions to the CPTPP level. For the RCEP members, the gains from deepening non-tariff-related core provisions are quantitatively important.

On the quadratic variation in limit order markets

This paper explores the quadratic variation (QV) as an alternative measure to the bid-ask spread in limit order markets when observed at high resolution. Although the spread cannot be precisely estimated because of microstructure noise, the QV of the price series, consisting of the transaction prices and midquotes (an expanded filtration of transaction prices), in limit order markets is an important property of high-frequency datasets. An empirical examination of a sample of stocks from the NASDAQ 100 is used to estimate and examine the QV. The examination is done at high resolution (subsecond timescale). The QV of our sample best fits a log-normal distribution with higher skewness. The QV of trades (29.73E–05) is distant from the QV measured with pretrade and posttrade price series, as they are characterized by a high range in QV. Similarly, the QV is generally lower with pretrades than posttrades. Using a high resolution, the revealed state of the limit order book presents a solution that reduced the impact cost of trading. The QV is higher with the limit order book (68.5E–05) than with trades. A measure called the limit-to-market order signal shows a consistent pattern of decline in stocks with increasing activity. The limit-to-market signal ranged from an average of 3.55 in the first quartile of stocks based on messages to 1.84 in the third quartile. This signal decreases because of a relatively larger decline in uncertainty in QV using the limit order book.

The Effects of Roads on Trade and Migration: Evidence from a Planned Capital City

A large body of literature studies how infrastructure facilitates trade. We ask whether infrastructure also facilitates migration. Using a general equilibrium trade model and rich spatial data, we study the impact of a large, plausibly exogenous shock to highways in Brazil on both goods and labor markets. We find the highway system increased welfare by 2.8 percent, of which 76 percent was due to reduced trade costs and 24 percent to reduced migration costs. An implication of costly migration is spatial heterogeneity in benefits: the range of welfare improvement is 1 to 15 percent, as opposed to uniform gains with perfect mobility. (JEL H54, H76, O18, R23, R42, R53)

Asymmetric trade costs, domestic value chains and global value chains in China: mechanism and effect assessment

Previous research mostly evaluates global value chain embeddedness at the country level rather than considering the expansions of global value chains at the regional level within a country, and pays little attention to the mechanism linking global value chains and domestic value chains. Therefore, a substantial part of the variation in global value chain embeddedness at the regional level remains unexplained. Using Chinese interregional input-output tables in 2002, 2007, 2010, and 2012, this study investigates the impact of the asymmetric trade cost on global value chain embeddedness in China, and the underlying interaction mechanisms between domestic value chains and global value chains. The findings show that the asymmetric trade cost may widen the gap in the degree of global value chain embeddedness between bilateral trade regions, which unveils the variation in global value chain embeddedness at the regional level from the perspective of the asymmetric trade cost. Furthermore, domestic value chains may promote global value chains through improving collaboration, reducing transaction costs, and enhancing industrial competitiveness. In closing, this study reveals that the exacerbating effect of asymmetric trade costs on the disparity in global value chain embeddedness among regions becomes more pronounced in the presence of a significant gap in domestic value chain integration.

Long‐run impacts of the conflict in Ukraine on grain imports and prices in Africa

AbstractRussia's invasion of Ukraine has threatened global grain supplies as it reduces production and exports while increasing trade costs. While the overall share of Africa's trade with Ukraine and Russia is small, the concentration of imports in products such as wheat, other grains, and fertilizer is critical to food security. This paper investigates the long‐term impacts of the conflict on grain imports and prices in Africa. We use a long‐run general equilibrium trade model to study three scenarios that may evolve as a consequence of the conflict: (1) a heavily reduced Ukrainian production of wheat and other grains; (2) rising trade costs with Ukraine and Russia due to disrupted trade routes in the Black Sea and the sanctions against trading with Russia; and (3) an outright ban on Russian grain export. The model simulations show that the conflict severely affects grain imports, raising local prices for wheat and other grains, with especially strong effects in high import‐dependent countries. That creates risks for food security in some African countries.

ε‐ces preferences and trade

AbstractKimball preferences possess properties that make them a powerful tool for multi‐sector applied general equilibrium. While they are homothetic, they also can be made arbitrarily close to constant elasticity of substitution (ces) preferences, thereby sharing some of their properties ‘by continuity’. We develop a trade model which brings together traded and nontraded sectors, variable markups, and costly trade for this rich class of homothetic preferences. We characterize the consequences—for both sectors—of trade liberalization in traded sector. Numerical simulations for a calibrated version of the model reveal that the elasticity of utility with respect to trade costs is about 25%–27%, depending on whether traded and nontrade goods are complements or substitutes.

Optimal scheduling of integrated wind- photovoltaic-hydrogen energy system considering hydrogen application and waste heat recovery

In order to further promote the use of renewable energy sources such as wind-pv-hydrogen and carbon emission reduction in the park integrated energy system, battery fuel cell waste heat recovery is less considered and has a greater economic value, in this context, the paper proposes an optimal scheduling strategy for the park-level integrated energy system with hydrogen fuel cell vehicles (HFCV) taking into account the fuel cell waste heat recovery in order to improve the economic efficiency and stability characteristics of the system. In this paper, a fuel cell waste heat recovery model is constructed, followed by the introduction of a tiered carbon trading model, and then a scheduling model is constructed with the objective of minimizing the sum of the system's energy purchase cost, carbon trading cost, and the penalty cost for abandoning the wind and solar, and solved by CPLEX. Finally, the effectiveness of the proposed strategy is demonstrated through the analysis of a simulation example, which leads to a 30.7% reduction in the total system cost, a reduction in carbon emissions by 18.8% and a 34.2% reduction in the system's purchased energy cost compared to the conventional model.

Cryptocurrency anomalies and economic constraints

The asset pricing literature documents a growing list of predictable patterns in the cross-section of cryptocurrency returns. But can they be forged into viable trading profits? We answer this question by examining the interplay between economic restrictions and return predictability in cryptocurrency markets. We find that size and volume anomalies originate from micro-cap coins of negligible economic importance. Conversely, the momentum effect prevails in larger cryptocurrencies but incurs substantial trading costs and extracts alphas largely from short positions. Most abnormal returns occur primarily in bull markets and fade over time. Therefore, protocols for identifying tradable cryptocurrency anomalies should focus on long positions, account for transaction costs, consider hard-to-trade coins, and emphasize performance in recent years.

Trade creation and export diversion: Thailand’s plastic and rubber under the ASEAN-China free trade agreement

This study aims to investigate the impact of the ASEAN-China free trade agreement on plastic and rubber trading, focusing on trade creation and export diversion. The collected data include 11 intra-bloc countries and 23 extra-bloc countries from 1990 to 2021, analyzed using STATA17. The gravity model is applied to the international trade framework. First, the unit root test is used to confirm the stationary nature of the data. Then, the methods are compared, employing fixed effects and a robust Poisson maximum likelihood estimator. The bilateral dummy variables are used to estimate the directional impact of trade agreements on export volume. The result demonstrates that the ASEAN-China free trade agreement establishes trade creation and export diversion. It has had a positive impact on the export value of plastic and rubber in Thailand over the past 30 years, but in terms of trade creation is less than export diversion. This means that exporting plastic and rubber to extra-bloc countries will gain more benefits than trading with member countries under the ASEAN-China free trade agreement. However, trading under the ASEAN-China free trade agreement may continue, but export volumes of plastic and rubber will decline. According to the findings, it can be suggested that Thailand’s government has to have a comparative advantage in product and strong competitiveness. Meanwhile, the ASEAN-China free trade agreement should not only focus on trade tariffs but also improve customs clearance to reduce trade costs. AcknowledgmentI would also like to extend my thanks to my parents for their support and encouragement throughout my studies.

Intraday variation in trading costs: Evidence from the TSPP

AbstractWe examine changes in the intraday pattern of trading costs between pilot and control stocks during the US Securities and Exchange Commission tick size pilot program (TSPP). We find that intraday trading costs are relatively unchanged between pilot and control stocks in pre‐ and post‐TSPP periods. We find that differences in trading costs between pilot and control stocks during the TSPP are lower in the morning and greater toward the close. We also find that intraday differences in quoted depth between pilot and control stocks during the TSPP is lower at the beginning of the day, increases during the day, and falls toward the close of trading.

Does it matter how we ship the good apples out? On specific tariffs, transport modes, and agricultural export prices

AbstractFree‐on‐board (FOB) export prices for identical products from the same origin often differ across destinations, even when accounting for the trade costs and attributes of the destination country. One explanation for this observed price difference is per‐unit trade costs, and the ability of exporters to vary their markups and/or product quality. Using a novel dataset that details trade flows between countries by mode of transport, we estimate the transport mode‐specific effect of a per‐unit trade cost, specifically specific tariffs, on the FOB export prices of agricultural products. We find an elasticity of specific tariffs to export prices of 1.8%. However, the estimates are heterogeneous across modes of transport. The elasticity of specific tariffs to export prices is 2% for air transport, 5% for road transport, and .3% for sea cargo. Since the observed positive export price effect can reflect product quality differences or markups, we account for the quality element and find that for a given product quality, markups increase with increasing specific tariffs. This form of price discrimination is less pronounced for higher‐quality products that are predominantly shipped by air.

Smart Rebalancing

The sometimes vast gap between live results and paper portfolio performance is caused in part by trading costs, discontinuous trading, and missed trades or other frictions, along with asset management fees. Smart beta and factor strategies are not exempt from this sort of “implementation shortfall.” This paper provides new evidence on the efficacy of prioritizing transactions so as to focus portfolio turnover on the trades that offer the strongest signals and hence the highest potential performance impact. Rebalancing filters of this sort can capture much of the factor premia for a long-only paper portfolio while cutting turnover and trading costs relative to a fully rebalanced portfolio.