Financial liberalization and the relationship-specificity of exports

We investigate the causal impact of equity market liberalizations on sectoral export performance across 91 countries (1980–1997). The increased availability of external finance has boosted trade of industries that intensively use relationship-specific inputs, and lowered exports of industries using standardized inputs.     

Financial Dependence and International Trade

Does financial development translate into a comparative advantage in industries that use more external finance? The author uses industry‐level data on firms’ dependence on external finance for 36 industries and 56 countries to examine this question. It is shown that countries with better‐developed financial systems have higher export shares and trade balances in industries that use more external finance. These results are robust to the use of alternative measures of external dependence and financial development and are not due to reverse causality or simultaneity bias.     

Trade liberalisation,market competition and wage inequality in China's manufacturing sector

Economic reforms of the late 1980s have contributed to rapid economic growth in China. While the overall standard of living has improved, economic growth has also resulted in an increase in income inequality. Rising income inequality can increase social tensions that can impede further economic growth. By making use of firm level panel data, this paper focuses on the impact of increased market competition and trade liberalisation on skilled–unskilled wage inequality in China's manufacturing sector. A theoretical model is used to argue that trade liberalisation and market competition can affect skilled–unskilled wage inequality. Based on this result, an econometric model is specified. The empirical analysis presented in this paper shows that increased trade liberalisation has contributed to an increase in skilled–unskilled wage inequality in China's manufacturing sector. However, increase in market competition has the opposite effect.     

The heterogeneous effect of finance on international trade

Is the impact of financial development on international trade heterogeneous – being positive, negative or null – across manufacturing sectors? And is it dependent on the level of sectoral requirement on external finance for capital need? To examine these questions this article uses a panel trade database on 21 manufacturing sectors in 80 countries between 2000 and 2009. The analysis demonstrates that the effect of financial development on trade is indeed heterogeneous by estimating a coefficient for each sector and showing that the signs and significance levels vary across them. The article also demonstrates that sectors with strong reliance on external finance export higher volume from countries with developed financial system and that financial development reduces trade in industries with low financial dependence level.     

金融发展对国际贸易结构影响的实证分析*

本文利用外部金融依赖度、有形资产率两个与金融市场相关的指标对金融发展水平与贸易结构的关系进行了实证分析。通过把贸易行业SITC 4位分类数据转换成工业行业ISIC 3位分类数据后,利用多国行业面板数据,对出口贸易结构进行了回归。6个金融发展水平指标的回归系数都表明,金融发展会促进外部金融依赖度高的行业出口和形成比较优势,但是金融发展不利于有形资产率高的行业出口并且会降低其比较优势。对行业净贸易额和净出口比较优势表示的贸易结构进行稳健性检验,结果进一步证明了金融发展是影响贸易结构和比较优势的一个重要原因。     

Trade Liberalisation and the Trade‐Off Between Growth and the Balance of Payments in Latin America

The broad purpose of trade liberalisation is to raise the rate of growth of countries on a sustainable basis, consistent with the achievement of other macroeconomic objectives. In this article we consider whether trade liberalisation in 17 countries of Latin America has improved the trade‐off between gross domestic product (GDP) growth and the trade balance, allowing the countries to grow faster without sacrificing foreign exchange. We find that in the aftermath of liberalisation, the majority of countries did grow faster, but at the expense of a deteriorating trade balance. Testing formally for the impact of trade liberalisation in a full model of trade balance determination, we find that only in Chile and Venezuela has the trade‐off unequivocally improved. In other countries there has been a significant deterioration or no change. Nine out of the 17 countries have grown faster post‐liberalisation than pre‐liberalisation but, except for Chile and Venezuela, at the expense of a wider trade or current account deficit.     

Credit constraints and growth gains from governance

This paper contributes to the governance literature by analyzing the specific mechanisms through which governance affects economic growth: The credit channel. Specifically, it investigates the growth impact of governance on industries with different levels of dependence on external finance. Better governance mitigates credit market imperfections by increasing transparency and accountability and reducing government-policy distortions, promoting productive investment and entrepreneurship development, with a disproportionate impact on sectors that depend on external finance. This paper indeed finds that countries with well-functioning governments are better at providing growth and investment environments for the expansion of industries that rely heavily on external finance and the formation of new establishments in these industries, when controlling for financial development. These results are robust to possible reverse causality, different specifications, subsamples and outliers.     

Does Trade Liberalisation Promote Economic Development?

The last twenty years have seen an extraordinary number of trade liberalisation episodes in developing countries. Some have been voluntary, most have been policy conditioned under the aegis of the Bretton Woods agencies. This paper begins by setting out the background to these trade reform programmes and details their ingredients. It then goes on to review the evidence extant on liberalisation and growth and reports new evidence. The latter suggests that liberalisation does tend to enhance growth, albeit with a lag. The paper concludes with an analysis of the lessons learned from experience with liberalisation in terms of credibility, timing and sequencing.     

European monetary union, adjustment, and exchange rate variability

This paper uses a three-country, three-good, factor-specific model of trade with wage rigidities to investigate how European Monetary Union is likely to affect exchange rate variability. Focusing on international macroeconomic adjustment under both exogenous and optimizing monetary policies, it shows that the relative variability (against external currencies) of the euro and a basket of predecessor currencies depends on the relative sizes and specialization patterns of countries and the relative importance of different shocks. Monetary union is likely to decrease (increase) aggregate European exchange rate variability for shocks to industries in which large (small) euro area countries specialize.     

Resource-based industrialization in the developing countries: A survey

This survey at

shed light on the potential contribution of industrialization based on resource processing to efficient growth, employment creation, greater equity and economic independence. The use of capital-intensive methods to reduce raw material costs appears to confer comparative advantage on countries with cheap capital. Lower transport costs due to substantial weight reduction in processing may counter this advantage for some stages of processing, but does not universally favor LDC exporters. Most major producers export sufficient quantities to achieve scale economies typical of resource processing, but economies of scale are a barrier in processing for the domestic market in all except the largest LDCs. External economies of industrialization are also thought to favor processing in the industrial countries, but potential linkages could stimulate some complementary investments in LDCs. Because resource-based industries are not impressive contributors to direct or indirect employment creation, they are likely to perpetuate the pattern of dualism and inequality present in typical resource-rich countries.Third-world exporters may be barred from entry into resource processing by the dominance of multinational firms in the metals and petroleum industries; by shipping conference freight rates that discriminate against processed commodities; and by importing country tariff structures that provide substantial effective protection against many LDC semi-processed exports. Processing of natural resources for export tends to continue the broad pattern of trade, financial and technical dependence of developing countries, although market dependence may decrease at some stage of processing. Home-oriented processing avoids market dependence, but cannot escape outside dependency on technology, management and finance.     

Stages of diversification in a neoclassical world

Recent research has documented a U-shaped industrial concentration curve over an economy’s development path. How far can neoclassical trade theory take us in explaining this pattern? We estimate the production side of the Heckscher–Ohlin model using industry data on 44 developed and developing countries for the period 1976–2000. Decomposing the implied changes in industrial concentration over time shows that at least one third of these changes seems to be explained by a Rybczynski effect. This result suggests that capital accumulation led poor countries to diversify their industrial production, while rich countries made their production more concentrated in highly capital-intensive industries.     

Flexible exchange rates as shock absorbers

In this paper we analyze empirically the effect of terms of trade shocks on economic performance under alternative exchange rate regimes. We are particularly interested in investigating whether terms of trade disturbances have a smaller effect on growth in countries with a flexible exchange rate arrangement. We also analyze whether negative and positive terms of trade shocks have asymmetric effects on growth, and whether the magnitude of these asymmetries depends on the exchange rate regime. We find evidence suggesting that terms of trade shocks get amplified in countries that have more rigid exchange rate regimes. We also find evidence of an asymmetric response to terms of trade shocks: the output response is larger for negative than for positive shocks. Finally, we find evidence supporting the view that, after controlling for other factors, countries with more flexible exchange rate regimes grow faster than countries with fixed exchange rates.     

The impact of trade liberalisation on exports, imports and the balance of payments of developing countries

This paper uses panel data and times series/cross section analysis to estimate the effect of trade liberalisation on export growth, import growth, the balance of trade and the balance of payments for a sample of 22 developing countries that have adopted trade liberalisation policies since the mid-1970s. We find that liberalisation stimulated export growth but raised import growth by more, leading to a worsening of the balance of trade and payments. To the extent that this has constrained the growth of output and living standards, the findings have important implications for the sequencing and degree of liberalisation.     

Trade liberalisation and inequalities in Nepal: A CGE analysis

In this paper we examine the effects of trade liberalisation on inequality in the small developing country of Nepal. We use a Computable General Equilibrium approach applied to a newly developed social accounting matrix, simulating three liberalisation scenarios: (i) import liberalisation; (ii) export liberalisation; and (iii) import and export liberalisations implemented together under different exchange rate regimes. Outcomes reveal that industry reallocation following liberalisation does not respond to classical trade theory expectations about factor intensity and abundance. On the distributive side, liberalisation seems to increase the high-skilled/low-skilled gap and favour rich households relatively more. However, since under fixed exchange rate also the two poorest household groups increase their income levels, liberalisation may also expected to be beneficial for poverty alleviation.     

Managerial versus Production Wages: Offshoring,Country Size,and Endowments

We explore the role of trade in differentiated final goods as well as offshoring of tasks for inequality both within and between countries, emphasizing the distinction between managerial and production labour. We extend Grossman and Rossi‐Hansberg (2012), where task trade is driven by external economies of scale, by considering asymmetric endowments. Identifying possible equilibrium patterns of task trade, we find little scope for two‐way trade if endowments are asymmetric. Our numerical simulations identify non‐monotonicities between the level of offshoring and measures of within‐country as well as between‐country inequality.     

A note on quantitative trade restrictions, income effects and wage inequality

This paper examines the effects of conversion of one type of physical trade restrictions into another on the intra-country wage inequality in a standard 2 × 2 × 2 Heckscher–Ohlin–Samuelson model. It shows that a conversion of an import-quota into an equivalent voluntary export restraint raises wage-inequality in the country importing the unskilled-labor intensive good and lowers the wage-inequality in its trading partner. This result does not depend on whether the unskilled-labor intensive good or the skilled-labor intensive good was initially subject to an import quota. Conversion of the import-quota into an equivalent import tariff, on the other hand, may lead to a rise in wage inequality in both countries. The driving force behind these results is the real income effect that conversion of one type trade restriction instrument into another results in.     

The impact of exchange rate volatility on commodity trade between the US and Thailand

The impact of exchange rate volatility on trade flows continues to occupy the international finance literature. More recent studies have deviated from the traditional approach of using aggregate trade flows and have employed trade data at commodity level. This study investigates the impact of exchange rate uncertainty on the trade flows of 118 US exporting industries to Thailand and 41 US importing industries from Thailand. We find that exchange rate uncertainty has short-run effects on the trade flows of most industries. In the long-run, the main determinants of the trade flows are the level of economic activity in both countries.     

Trade between symmetric countries,heterogeneous firms,and the skill premium

Abstract This paper examines the effects of trade liberalization between symmetric countries on the skill premium. I introduce skilled and unskilled labour in a model of trade with heterogeneous firms à la Melitz (2003) and assume a production technology such that more productive firms are more skill intensive. I show that the effects of trade liberalization on wage inequality crucially depend on the type of trade costs considered and on their initial size. While fixed costs of trade have a potentially non‐monotonic effect on the skill premium, a drop in variable trade costs unambiguously and substantially raises wage inequality.     

Trade, technology, and unemployment: the role of endogenous skill formation

Abstract .  This paper analyses trade in an asymmetric  2 × 2 × 2  world, where the two countries ('Europe' and 'America') differ in their preferences towards wage inequality. Fair wage considerations compress wage differentials in both countries. European workers are more averse to wage inequality, and Europe is characterized by lower wage differentials and higher unemployment. Allowing for endogenous skill formation, the effects of a globalization shock, global technological change, and a change in the educational capital stock on skill premia and employment levels are derived. In contrast to a model with exogenous factor supplies, international wage and unemployment differentials are affected by global shocks.     

From Fixed to Float: A Competing Risks Analysis

This paper examines the determinants of the exchange rate regime of a country. A competing risks model is estimated. It is found that the way a country exits a fixed exchange rate regime is affected non-linearly by the duration of the peg. In addition, countries with a lower growth rate of reserves, higher occurrence of banking crises, higher concentration of trade and lower degree of capital-account liberalisation are more likely to experience a crisis-driven exit.