STRATEGIC TRADE AND DELEGATED COMPETITION WITH ENDOGENOUS QUALITY CHOICE: IS EXPORT POLICY NEEDED?

This paper introduces the relative‐performance contract into a vertically differentiated product market and examines how the optimal trade policy and quality choice respond to the incentive mechanism. We find that the high quality firm makes better use of the delegation than the low quality firm in a cross‐border decentralized model. The main difference between the present paper and the strategic trade theory literature is that in this paper the optimal policy is free trade, which does not depend on whether firms compete by prices or quantities, and on whether the goods are substitutes or full complements.     

Should Small Countries Fear Deindustrialization?

Will small countries deindustrialize when opening up to trade with large countries? Donald Davis (1998 ) shows that for the home market effect to lead to deindustrialization of small countries, trade costs for homogeneous goods must be sufficiently smaller than trade costs in differentiated goods, a condition which is not supported by empirical evidence. We show that if differentiated goods production uses tradable inputs small countries can become deindustrialized when trading with a sufficiently large country and if trade costs are low.     

Payment choice in international trade: Theory and evidence from cross‐country firm‐level data

When trading across borders, firms choose between different payment contracts. Theoretically, this should allow firms to trade‐off differences in financing costs and enforcement across countries. This paper provides evidence for this hypothesis employing firm‐level data from a large number of developing countries. As predicted, international transactions are more likely paid after delivery when financing costs in the source country are high and when contract enforcement is low. We extend the theory and also show empirically that the more complex an industry is, the more important is contract enforcement and the less important are financing costs for the contract choice.     

Trade Policy and Access to Retail Distribution

The paper develops a model in which foreign and domestic manufacturers producing differentiated goods sell through spatially differentiated retailers. There is free entry into retailing but access to the retail distribution network (by manufacturers) may be controlled. The author considers a domestic vertical control mechanism in which domestic retailers carry only domestic brands (termed “domestic dealing”) and compares the use of tariffs on imports and the enforcement of domestic dealing restrictions as means of increasing domestic welfare. It is shown that domestic dealing will always be prohibited when tariffs can be used. When trade policy is not available, however, domestic dealing may be desirable.     

Trade credit use and competition in the value chain

Trade credit is a major source of finance in value chains in developed and emerging economies. Despite its ubiquitous use, this is one of the first empirical studies that analyzes why the use of trade credit varies along the value chain. We argue that competition faced by firms at different stages in the value chain and enforcement mechanisms that stimulate repayment jointly determine the use of trade credit. We distinguish two dimensions of competition, that is, rivalry and customer bargaining power. Competition may stimulate firms to provide trade credit to keep customers from switching to other suppliers. Yet, high contract enforcement costs relative to the value of the transactions, reduce the willingness to offer trade credit. We find empirical evidence showing that competition does not (strongly) influence the use of trade credit in the retail market, whereas it does in the markets for wholesalers and millers. We interpret these results as suggestive evidence that the retail, wholesale and milling market segments differ in terms of the enforcement costs involved in the provision of trade credit. Rivalry at the retail market segment makes switching easy for customers, even in case of default. As enforcement of repayment in this market segment is difficult and costly, trade credit appears to be a risky and less attractive marketing instrument for retailers. In contrast, in the wholesale and milling market segment, trade credit is widespread as stakeholders know each other, making informal mechanisms effective in supporting the enforcement of trade credit repayment.     

Standardization of intermediate goods and international trade

Abstract.  This paper analyzes the relationship between standardization of intermediate inputs and international trade. We employ a two-country, general equilibrium model with differentiated manufacturing goods. Production of manufacturing goods requires specific intermediate inputs, which can be either specialized or standardized. Standardization and the pattern of trade are determined endogenously in our model. In this framework we derive the effects of trade integration, that is, a decline in trading costs for intermediate goods, on the equilibrium outcome.     

Country size,income level and intra-industry trade

This study investigates three testable hypotheses of intra-industry trade., It begins by developing a theoretical, two country model., The model explicitly includes two goods: differentiated products and homogeneous goods., Then three empirical hypotheses are derived as follows., The share of intra-industry trade will be large: (a) if the two economies are of similar size, (b) if the capital-labour endowment ratio of both countries is similar, and (c) if the total size of the two economies is large., From the cross-sectional analysis using 1970–1994 data, results are obtained that support the model., Furthermore, the results are confirmed using panel analysis on the pooled data.,     

Intraindustry trade in intermediate goods

Since intermediate goods play such a vital role in foreign trade, this paper develops a model that explains the benefits from intraindustry trade in differentiated intermediate goods. In comparison with a situation of autarchy, this type of trade causes an increase in the number of intermediate good varieties. In this way, the producers of final goods will benefit from intermediate good varieties, which are closer to the ideal for a specific production process. At the same time, the producers of intermediate goods will, under conditions of international division of labor, benefit from economies of scale.     

Intra‐industry Trade Liberalization and the Environment

This paper examines how trade liberalization affects national and global pollution in a multi‐country model incorporating monopolistic competition and intra‐industry trade as well as inter‐industry trade. Each country produces skill‐intensive differentiated goods and labor‐intensive goods. Pollution is a by‐product of production but pollution abatement can be undertaken. Regardless of country characteristics, if the differentiated‐good sector is sufficiently cleaner (dirtier) then, without any change in environmental taxes, a multilateral reduction in import protection accorded to the differentiated good or to both goods typically leads to a decline (rise) in pollution in all countries. Pollution havens tend not to arise.     

Communication Costs and Trade of Differentiated Goods

This paper investigates how the decline of communication costs affects the pattern of trade in differentiated goods. It is found that the development of information technology (IT) has significantly increased US imports of differentiated goods after the 1970s. In addition, the modern communication technology has assisted small economies from exporting homogeneous goods to exporting more and more differentiated goods in recent years.     

Impact of tariff rates on the probability of trade relationship survival: Evidence from ASEAN+6 manufactured goods

This article explores the links between imported trade relationships, their duration and tariff rates. We use survival analysis to investigate how the probability of trade relationship survival is affected by the difference in the tariff rates. We use the ASEAN+6 as the basis of our report and consider a total of 89 trading partners for manufactured goods from 1996 to 2011. Our findings are as follows. First, low‐tariff trade survives longer than high‐tariff trade of manufactured goods. Second, we find a significantly negative correlation between tariff rates and duration, and regional trade agreements help prolong the length of trade relationships. Third, the hazard ratios of intraregional differentiated goods and the parts and components trade are lower. We have also obtained robust results for distinct specifications through consideration of production networks and Rauch's product classification. Finally, we believe that these findings could be used as a reference for other economic organizations working toward the diminution of tariff rates.     

The border effects in Spain: an industry-level analysis

A gravity-model approach is used to estimate the magnitude of the internal border (home bias) and external border (frontier) effects in Spain using industry-level trade flows. We find that the average border effects are about 30 and 10, respectively. Next we explore the variation in the industry-specific border effects. First, the border effects are larger in highly product differentiated industries. Second, the internal border effect is twice bigger for trade in intermediate goods than for trade in final goods. Third, conditioning on the geographic concentration of firms reduces significantly the internal border effect.     

Differentiated Products,Vertical Related Markets,and Optimal Export Policy

This paper studies the optimal export policy in the context of a vertically related industry with differentiated products, and analyzes the effects of the degree of product substitutability and market structure on the determination of such a policy. It is shown that the results obtained in a similar model with homogeneous goods rivalry no longer hold when the goods are differentiated. Indeed, the degree of product substitutability plays an important role in the determination of export policies, and also determines whether a country can be better off under a trade policy war compared to free trade. The use of a differentiated product setting also allows one to compare export policies and countries' welfare levels under both Cournot and Bertrand competition. It is found that the results of the comparison are also sensitive to the degree of product substitutability.     

Indra-Industry Trade,Endogenous Technical Change,Wage Inequality and Welfare

By using alternative intra-industry trade models (1. New goods cannot be introduced into the economy; 2. The possibility for a set of capital goods available in the economy to vary; the models consider the existence of intersectoral linkages), I show by means of Applied General Equilibrium (AGE) analysis that trade rises wage inequality between skilled and unskilled workers; but the impact on wage inequality is far larger, when countries are assumed to exchange differentiated capital goods. The latter result has been obtained by using an imperfect competitive model, which embodies a sector bias technological change that arises from trade. In addition, the gains from trade, insignificant under the standard trade hypotheses, are extraordinarily large when endogenous technological change is taken into account. The main policy conclusion is that if policy makers of flexible wage economies introduce trade barriers to reduce wage inequality, these protective measures, by affecting the diffusion of technology, would cause a large welfare loss. [D58, f12, F43, J3, O3]     

Efficient contract enforcement

We study how the efficient choice of contract enforcement interacts with the efficient allocation of capital in a simple production economy. Contract enforcement makes trade possible but requires an aggregate investment of capital that is no longer available for production. In such an economy, more dispersion in ex-ante marginal products makes it optimal to invest more resources in enforcement. Furthermore, implementing the optimal allocation requires a specific distribution of the cost for enforcement across agents that is not monotonic and results in a redistribution of endowments. At the efficient solution, agents at the bottom of the endowment distribution benefit the most from investment in enforcement and these investments lead to a reduction in consumption and income inequality.     

United Nations Sanctions on North Korea's Luxury Goods Imports: Impact and Implications

This article examines the impacts of UN Security Council sanctions on North Korea's banned luxury goods imports from 2004 to 2017 by investigating the bilateral trade flows between North Korea and its 71 trading partner countries. This analysis provides some evidence that the sanctions were effective only for those countries that implemented the sanctions. Overall, it is difficult to conclude that United Nations Resolution 1718, which was mainly targeted to ban luxury goods exports to North Korea, was effective in curtailing North Korea's import of luxury goods for the time period from 2006 to 2007. The article argues that the lack of a clearly defined list of luxury goods and the lack of enforcement are important reasons for the ineffectiveness of the sanctions.     

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.     

Information and the persistence of private-order contract enforcement institutions: An experimental analysis

We study an experimental market in which some sellers are prone to moral hazard, and in which a private-order contract enforcement institution exists that can mediate trade and prevent sellers from reneging on their contractual obligations. Using the institution to resolve the moral-hazard problem is costly. We demonstrate that in this market, the utilization of the private-order contract enforcement institution may make public and private market signals uninformative and inhibit learning. We study whether this potential information externality can limit adaptation away from the private-order institution when it is efficient to do so. Consistent with theory, we find inefficient persistence when the institution is used, but by contrast, efficient adaptation in other situations. Providing information to individuals who are using the private-order institution allows them to partially adapt.     

Poor institutions as a comparative advantage

Classic theories of comparative advantage point to factor productivity and factor abundance as determinants of specialization and trade. Likewise, geography and topography can determine trade patterns. Institutions, however, are increasingly seen as important sources of comparative advantage. A global drug prohibition regime implies that institutional quality matters more than traditional sources in the drug trade. This paper theoretically models trade patterns of illicit goods and confirms the role of institutions empirically with respect to the drug trade. In particular, illicit enterprises gain force in countries where resources are scarce, drug enforcement is uncertain, and institutions are weak in absolute terms and relative to neighboring countries. I propose several policy alternatives that emphasize economic opportunity for the poor and institutional quality that complement drug prohibition.     

Tariffs in a Ricardian Model with a Monopolistically Competitive Sector: the Role of Nontradables

It is shown that for a small open economy the welfare effects of a tariff on the import of the brands of a differentiated good depends crucially on the pattern of trade. The literature has shown that welfare rises when the domestic brands are nontraded. But when the domestic brands are traded, the imposition of a tariff lowers welfare by shifting demand towards the nontraded homogeneous good which causes exit from the differentiated goods industry.