Distorted Trade Barriers: A Dissection of Trade Costs in a “Distorted Gravity” Model

It is common in the trade literature to use iceberg transport costs to represent both tariffs and shipping costs alike. However, in models with monopolistic competition these are not identical trade restrictions. This difference is driven by how the two costs affect the extensive margin. We illustrate these differences in a gravity model. We show theoretically that trade flows are more elastic with respect to tariffs than transport costs and find a linear relationship between the elasticities with respect to tariffs, iceberg transport costs, and fixed market costs. We empirically validate these results using data on US product‐level imports.     

市场邻近、供给邻近与中国制造业空间分布-基于中国省区间投入产出模型的分析

探究制造业空间分布的成因和机理是深入理解我国区域差异成因的基础。NEG理论认为由市场邻近和供给邻近所决定的贸易成本是制造业地理集中的主导因素之一。本文利用2002年中国省区间投入产出模型,计算了分省区两位码分类制造业部门的市场邻近与供给邻近,在区分部门特性和区域属性影响的基础上,验证了贸易成本及其他要素对制造业部门空间分布的影响。在现阶段的生产成本水平下,贸易成本是影响我国制造业部门空间分布的重要因素。     

Beyond Icebergs: Towards a Theory of Biased Globalization

In contrast to domestic trade, international trade inherently requires more intensive use of skilled labour with expertise in areas such as international business, language skills, and maritime insurance, and the transoceanic transportation is more capital intensive than the local transportation. In the presence of such bias in factor demands, globalization caused by an improvement in the export technologies can lead to a worldwide increase in the relative prices of the factors used intensively in international trade. Furthermore, a worldwide increase in the factors used intensively in international trade can lead to globalization. To capture these effects, we develop a flexible approach to model costly international trade, which includes the standard iceberg approach as a special case. More specifically, we extend the Ricardian model of trade with a continuum of goods by introducing multiple factors of production and by making technologies of supplying goods depend on whether the destination is home or abroad. If the technologies of supplying the same good to the two destinations differ only in total factor productivity, the model becomes isomorphic to the Ricardian model with the iceberg cost. By allowing the two technologies to differ in the factor intensities, our approach enables us to examine the links between factor endowments, factor prices, and globalization that cannot be captured by the iceberg approach.     

Search cost,trading strategies and optimal market structure

The theory of Walrasian equilibrium yields a set of prices at which the aggregate competitive demand for each commodity equals its aggregate competitive supply. However, even at equilibrium prices the theory of competitive equilibrium does not explicitly offer explanation regarding the manner in which trades are actually executed. This paper considers a model where trade takes place in a decentralized fashion and examines in a dynamic game-theoretic framework, the role of social institution of money and markets in facilitating exchange. The steady state Nash equilibrium derived in the paper demonstrates how, depending on the level of transaction costs associated with a market setup (synonymously, trading posts to exchange possible pairs of goods) appropriate monetary trade emerges, which like a hub and spoke network (Starr and Stinchcombe, 1999) makes some markets non-functioning and in equilibrium only the markets having trade through the medium of exchange continue to exist. However, despite the obvious advantages of a market setup in reducing search costs, pure random search for a complementary trading partner (as considered by Ostroy and Starr, 1974; Kiyotaki and Wright , 1989; and others) prevails in many economies, especially, in many developing economies. This paper models this feature of developing economies by introducing differences in transaction costs across agents and shows why sustainable equilibria might exist exhibiting random search for certain commodities even in the presence of established markets.     

Some Economics of Integrated and Segmented Markets

For the purposes of the discussion in this paper, whether markets are integrated or segmented is endogenous and is determined by the interaction of demand parameters, tariffs, transportation costs, and arbitrage. Given certain restrictions, it is shown, in equilibrium, that policymakers choose tariffs to segment markets. The effects of trade liberalization (reducing all tariffs to zero) in an endogenous market structure framework are determined and compared to the existing literature. The results differ substantially, highlighting the importance of explicit modeling of costly arbitrage in imperfectly competitive models.     

市场一体化、非对称性贸易成本与制造业集聚*

国内市场一体化将会对中国制造业的空间分布造成何种影响？本文通过构建统一的理论分析框架验证了国内市场一体化影响制造业集聚的两种机制：其一是贸易成本总体水平的调节效应,其二是贸易成本非对称性的直接效应,而调节效应的方向则取决于模型理论范式选择。此外,本文基于中国区域间投入产出数据,系统地测算了中国地区间的非对称双边贸易成本,并基于测算结果进行回归分析。实证结果表明,在中国制造业发展初期,市场结构总体符合IRS MC范式设定,此时贸易成本的调节效应倾向于促进制造业在东部沿海区域集聚。伴随着制造业生产技术的成熟,制造业市场结构开始呈现CRS PC范式特征,此时市场一体化对制造业集聚的调节效应不再显著。     

Impact of international trade under dual labor markets

A country's unemployment rate can be affected by technology choice and the opening of international trade. This general equilibrium model examines the impact of international trade with the presence of dual labor markets in which manufacturing firms engage in oligopolistic competition and choose technologies with different marginal and fixed costs to maximize profits. In a closed economy, it is shown that an increase in labor market efficiency or a population increase induces manufacturing firms to adopt more advanced technologies and the wage rate in the manufacturing sector increases. With the existence of a continuum of technologies, technology choice is not a source of firm heterogeneity. The opening of international trade leads to an increase in the wage rate in the manufacturing sector and the price of the agricultural good. When countries are identical, international trade always increases national welfare.     

Product Market Integration and Wages in Unionized Countries

This paper addresses the effects of product market integration on wages. We develop a two–country general equilibrium model of international trade with imperfectly competitive product markets and unionized labor markets. Integration is modelled as either a fall in fixed or variable trade costs. A reduction in fixed trade costs leads to an unambiguous decrease in wages, whereas a reduction in variable trade costs has an ambiguous effect on wages.
JEL classification : F 15; J 5; L 13     

Financial market development and trade openness: evidence from emerging economies

International trade is said to be the engine of economic growth. Despite an enormous effort to explain this phenomenon, the relationship between financial market development and trade openness and integration into the world economy is still an enigma. This article investigates the relationship between financial market development and trade openness. To do this, we develop a long-run and short-run model (a bounds testing approach to cointegration) for 18 emerging economies over the period 1980 to 2011. Estimates from all models show that financial market development, including both the stock market and the banking sector, has significant effect on trade openness in both short-run and long-run phenomena in the majority of countries. Despite many similarities among emerging economies, additional evidence suggests that the link between either stock market development or banking sector development with trade openness works via each country’s specific structure.     

Forward looking dynamics in spatial CGE modelling

This paper sets up a spatial dynamic CGE framework by combining the optimal growth model of saving and investment under adjustment costs and the spatial CGE model with Dixit–Stiglitz structure in the modern sector. Because of increasing product diversity on the dynamic equilibrium path, the model belongs to the category of semi-endogenous growth models. We overcome the difficulty of existing multiregional models to correctly approximate the infinite horizon equilibrium by employing a theoretically consistent terminal condition. The distinction of goods, factors, firms, and households by location, and the incorporation of trade costs in the model allow to study a variety of issues in regional and transport economics. We describe the model calibration and a tailor-made solution algorithm. The functionality is demonstrated using two illustrative examples.     

Trade, Entry Barriers, and Home Market Effects

This paper re‐examines the relationship between entry barriers and home market effects and departs from recent work by using returns to scale as a direct measure of entry barriers as opposed to relying on the level of product differentiation as an indirect proxy for barriers to entry. In contrast to earlier work, results of this study do not indicate a significant relationship between home market effects and entry barriers. In addition, examination of trade costs reveals the importance of these costs in the numéraire sector. These two observations are consistent with the theoretical prediction that home market effects are insignificant in the presence of symmetric trade costs across sectors. Consequently, a more direct measure of barriers to entry and an explicit consideration of trade costs indicate that the link between home market effects and barriers to entry is not as strong as predicted by previous work.     

对外开放、贸易成本与中国制造业聚集

贸易成本的变化是影响制造业空间聚集的重要因素;区域对外贸易成本的差异,促进了国内制造业向沿海地区聚集;区域市场的分割削弱了“国内市场效应”,致使制造业聚集呈现低水平特征。提高内地开放程度、缩小地区间外贸成本差距和促进国内市场一体化、降低区际贸易成本是实现区域协调发展的有效途径。     

Who is afraid of capital mobility? on taxation of labor income and the level of public services in an open economy

This paper deals with the effects of international capital mobility on the taxation of labor income and on the size of the public sector. It employs a model of the labor market where national trade unions set the wage level in their country and national governments set the tax rate of a proportional labor-income tax. The tax revenues are used to finance a public good and unemployment benefits. In this model, competition between the national trade unions caused by international capital mobility leads to full employment, and the governments supply the public good on the first best level. As no unemployment benefits have to be financed, the tax on labor income may decline with the introduction of capital mobility. These tax cuts may even overcompensate the unions for the wage decline.     

International transatlantic trade liberalization: zooming in on regional impacts

The current study analyses the impact on a Portuguese small island regional economy of the Transatlantic Trade and Investment Partnership (T-TIP) between the EU and the USA. A dynamic Computational General Equilibrium (CGE) model detailing six household categories, 45 sectors, and four trading partners is used. Previous studies used aggregate variables and, largely, were based on the structure of the national economy. For a small, integrated economy, foreign trade statistics comprise an underestimation, given that most of the trade occurs through national logistics centres. Taking into account the national integration effects, gross domestic value was estimated to be higher than in other studies. Using equivalent variation, the estimated welfare impact is positive for all six household categories. Value-added suffers mixed impacts depending on the sector. It is negative for fisheries, ambiguous for agriculture and positive for tourism and transportation. The contribution of the current study is to highlight the importance of looking beneath the trade block and national conclusions particularly when regional economic policy is relevant as is the case in Europe. Better knowledge of welfare, regional and sector impacts allows for improved development and mitigation policies.     

A new estimator for trade costs and its small sample properties

This paper discusses the estimation of parameters of a traditional transportation model, as it is typically present in so-called Takayama–Judge type spatial price equilibrium models. In contrast to previously used estimation methods, observations of regional prices as well as of trade costs are used in a direct estimation of the first order conditions. The proposed method uses bi-level programming techniques to minimize a weighted least squares criterion under the restriction that the estimated parameters satisfy the Kuhn–Tucker conditions for an optimal solution of the transport model. A penalty function and a smooth reformulation are used to iteratively approximate the complementary slackness conditions. Monte-Carlo simulations are used to trace out some properties of the estimator and compare it with a traditional calibration method. The analysis shows that the proposed technique estimates prices as well as trade costs more precisely than the traditional calibration method. It is suggested to apply the same method to a range of linear and quadratic models.     

Changes in Technology and Preferences: A General Equilibrium Explanation of Rapid Growth in Trade

We use a computable general equilibrium model in an explanation of the recent rapid growth in Australia's trade, particularly intra-industry trade. Relative to previous studies of trade growth based on multiple regression analysis, our approach allows us to: (i) work at a detailed industry level; (ii) use primary variables to represent changes in technology and preferences rather than proxies; and (iii) use a framework based on explicit microeconomic foundations. We find that most of the growth in Australia's trade relative to GDP is explained by changes in technology and preferences.     

Home bias in multimarket Cournot games

We explore the role of trade costs for the home bias in trade. In a series of Cournot duopoly experiments with a home and an export market, we compare output choices when firms face different levels of trade costs. We find that there is two-way trade in identical products and that firms hold the majority market share in their home market. The resulting home bias turns out to be, however, stronger than that predicted by theory, and it even occurs without trade costs. Tacit collusion contributes to the home bias observed in our experiment but does not offer a full explanation for the phenomenon.     

Intersectoral Adjustment and Policy Intervention: the Importance of General‐Equilibrium Effects*

We model adjustment costs in a general‐equilibrium setting using a “transport sector.” This sector provides services needed to reallocate a factor of production across two other sectors. A market imperfection in the transport sector causes adjustment to occur too slowly in the absence of government intervention. The government has a restricted menu of second‐best policies to remedy this imperfection. Given this restricted menu, the optimal policy choice depends on the government's ability to make commitments. The key to these results is our replacement of the black box of adjustment costs with an explicit model of these costs.     

TRANSPORTATION COSTS,AGRICULTURAL PRODUCTIVITY,AND CROSS‐COUNTRY INCOME DIFFERENCES*

I study the role of transportation for development by introducing regional trade and a transportation sector into the standard two‐sector model of agriculture–nonagriculture. Low transport productivity can distort the allocation of resources across geographically dispersed production units within sectors and between agriculture and nonagriculture. I infer cross‐country transport productivity disparities from observed domestic transport costs and transport infrastructure stocks. “Endowing” rich countries with the transport productivity of poor countries would reduce their income by 10%. Combining transport productivity disparities with disparities in nonagricultural productivity and arable land the model yields a 50% higher rich–poor income ratio than the two‐sector model.