Can cross-listing relax financial frictions in trade and equity holdings? A sector-level analysis

Previous studies have documented the positive mutual relationship between bilateral aggregate goods trade and asset holdings. This article examines whether financial frictions play an important role in this mutual relationship. Instrumental variable Poisson pseudo maximum likelihood (IV-PPML) estimation method is applied to a new panel of data on US imports and foreign equity holdings in 20 manufacturing sectors from 43 countries over the period 2001–2007. The results confirm the significantly positive relationship between goods trade and equity holdings, and show that financial frictions are an important factor causing this positive correlation. In addition, we find that equity cross-listings in the US stock markets provide external funds to relax financial frictions and promote goods trade. This impact varies with different measures of financial frictions in developing and developed countries.     

FINANCIAL FRICTIONS AND NEW EXPORTER DYNAMICS

This article studies the role of financial frictions as a barrier to international trade. We study new exporter dynamics to identify how these frictions affect export decisions. We introduce a borrowing constraint and working capital requirements into a standard model of international trade, with exports more working capital intensive than domestic sales. Our model can quantitatively account for new exporter dynamics in contrast to a model with sunk export entry costs. We provide additional evidence in support of our mechanism. We find that financial frictions reduce the impact of trade liberalization, suggesting that they constitute an important trade barrier.     

Contractual frictions and margins of trade

A recent body of work has shown that quality of national institutions that enforce written contracts plays an important role in shaping a country’s comparative advantage. The current paper contributes to this literature by providing a comprehensive analysis of the mechanisms through which institutional frictions affect the pattern of aggregate trade flow by distinguishing its effect on the intensive and extensive margins. We find that better contracting institutions not only increase the probability of exporting (the extensive margin) but also enhance the export sales after entry (the intensive margin), particularly in industries where relationship-specific investments are most important. With around two-third to three-fourth share (depending on the definition used), the contribution of institutions along the intensive margin dominates that along the extensive margin. The benefits of improved institutions, particularly via the intensive margin, favor the less developed countries over the more developed ones. In addition, better contracting institutions increase the probability of survival of export products in more contract-intensive industries in particular. These findings are robust to measuring the intensive and extensive margins using a more granular export data based on firm-level aggregates, as well as the variety and destination based definitions.     

中国遭遇国际贸易摩擦的必然性与合理性研究

2008年全球性金融危机之后,贸易保护主义重新抬头,中国遭遇的国际贸易摩擦愈演愈烈。但是通过贸易理论分析和世界经济、中国经济的发展实践来看,中国遭遇国际贸易摩擦有其必然性和合理性,它是中国经济和对外贸易所处历史阶段下的必然产物,国际贸易摩擦有其存在的合理性。     

Reconciling the WTO Effects on Trade at the Extensive and Intensive Margins

Empirical studies examining the impact of World Trade Organization (WTO) membership have produced disparate results. These studies, however, have focused on total aggregate trade flows. In this paper, we utilize disaggregated product level data to examine the impact of WTO membership on the product level extensive and intensive margin of imports. Utilizing the Poisson Pseudo-Maximum Likelihood (PPML) estimation that allows for heteroskedasticity in trade data and accounting for several estimation issues, we do not find a positive impact on either margins between WTO member country-pairs. Once we examine asymmetries in trade flows across countries based on their level of development, we find that developing WTO members experience an increase in the extensive margin from industrial member countries. Additionally, the industrial WTO members also experience an increase in the extensive margin from developing WTO members. Results suggest that WTO facilitates the North–South trade relationship, which has been largely absent in trade literature.     

US–Japan Trade Frictions: The Past,the Present,and Implications for the US–China Trade War

The United States and Japan have been involved in trade frictions over a number of products including textiles, steel, automobiles, semi‐conductors, and agricultural products over the last 50 years. US–Japan trade frictions have taken basically two forms: (i) the United States attempting to restrict Japan's exports to the United States; and (ii) the United States attempting to increase its exports to Japan by “opening” the Japanese market. By putting pressure on Japan to adopt necessary measures, the United States sought to achieve two main objectives: (i) to reduce its trade deficit vis‐à‐vis Japan; and (ii) to protect and/or promote US industries. The United States failed to achieve the first objective, while some success was achieved for the second objective. The United States triggered a trade war against China with the objectives of: (i) reducing the bilateral trade deficit; and (ii) stopping unfair trade practices by Chinese firms such as violations of intellectual property rights and forced technology transfer. Based on the experiences from the US–Japan trade frictions, the United States may achieve some success for the second objective, but not for the first. The chances of achieving the second objective would increase if the United States cooperates with countries such as Japan and the European Union, which are faced with similar problems.     

Trade Frictions and Market Access of Developing Countries: A Product‐level Empirical Investigation

This paper examines the effects of trade frictions on export market access at the product level and the role these frictions have on the ability of developing countries to access world markets. We find distance and trade frictions are determinants of the probability of success in entering foreign markets. We examine whether there are any systematic biases from these frictions that further limit market access for exporters from developing countries. Our results suggest that developing countries are not differentially impacted by these factors.     

Tariff effects on MNC decisions to engage in intra-firm and arm's-length trade

Abstract .  Using confidential firm-level data from the Bureau of Economic Analysis (BEA) on activities of U.S. multinational corporations (MNCs) and their Canadian affiliates, we study the dramatic growth of intra-firm and arm's-length U.S.-Canada trade over the 198495 period. We find that decisions to engage in intra-firm and arm's-length trade are essentially unrelated to tariff and transport cost reductions over this sample period. Thus, we find that the increase in trade occurred almost entirely on the  intensive  rather than the  extensive  margin. This is consistent with case study evidence in Keane and Feinberg (2006), where MNC executives consistently indicate that the modest tariff reductions of the 198495 period were not sufficient to justify fixed costs of overhauling international supply chains. Our results have important implications for recent influential models of international trade that rely on sensitivity of intra-firm trade to tariffs at the  extensive  margin to explain how small tariff declines could have led to the explosion of intra-firm trade since the 1980s. We also find that initial conditions (i.e., 1983 tariffs) are uncorrelated with whether firms engaged in intra-firm or arm's-length trade activity at the start of the sample period. This result is surprising as it implies that firms/industries with a greater propensity to engage in trade were not, in general, successful at lobbying for more favourable tariff treatment.     

Aid for trade and international transactions in goods and services

The empirical literature on aid for trade (AfT) mainly considers its effects on merchandise trade and investment. In this paper, we provide an in‐depth analysis of the relationship between AfT and trade in services using both aggregate and bilateral data. We find a statistically weak effect of AfT on both goods and services trade in our aggregate analysis once we account for endogeneity in the AfT–trade relationship. In contrast, the bilateral analysis suggests that AfT, in particular that allocated to services activities, especially economic infrastructure, has a positive effect on recipients’ merchandise exports to donor countries. This novel finding is robust across different lag structures and provides evidence of complementarities between services AfT and goods trade.     

Measuring internal trade distances: a new method applied to estimate provincial border effects in Canada

In this paper we suggest an improved methodology for comparing the intensity of trade across and within national and provincial boundaries. Earlier efforts to assess border effects for provinces or for countries without internal trade statistics made fairly arbitrary assumptions about average distances for internal trade flows. We improve on earlier efforts by taking more complete account of the distribution of population within each province or country. Internal distance is estimated as a population-weighted average of intra-city and intercity distances as well as distances to and within rural areas. We find higher estimates of internal distances, and hence border effects, than found in previous studies.     

Paving the Road to Export: Assessing the Trade Impact of Road Quality

Assessing the trade impacts of domestic transport costs is data demanding and analyses that examine the effects of road quality, a critical aspect in regional and public policy, practically do not exist in the international trade literature. The few studies available rely mostly on distance-based measures as proxies of transport costs which impede analyzing the trade effects of transport-infrastructure improvements. In this paper, we combine highly disaggregated records of export flows with detailed geo-referenced information of the Colombian transport network, including its road quality, as well as real measures of transport costs of shipping goods within the country to measure the trade impacts of improving road quality. We find that the trade effects of improvements in road quality are relatively small on average; however, there is considerable heterogeneity in the magnitude of the effects. We show that longer routes have larger shares of their roads in poor conditions; accordingly, the trade impacts of shipments originated in remote regions are found to be quite substantial.     

Networks or neighborhoods? Correlations in the use of publicly-funded maternity care in California

This study focuses on “network effects” in the utilization of publicly-funded prenatal care using Vital Statistics data from California for 1989-2000. Networks are defined using 5-digit zip codes and a woman's racial or ethnic group. Like others, we find evidence that the use of public programs is highly correlated within groups defined using race/ethnicity and neighborhoods. These correlations persist even when we control for many unobserved characteristics by including zip code-year fixed effects, and when we focus on the interaction between own group behavior and measures of the potential for contacts with other members of the group (“contact availability”). However, the richness of our data allows us to go further and to conduct several tests of one important hypothesis about networks: that the estimated effects represent information sharing within groups. The results cast doubt on the idea that the observed correlations can be interpreted as evidence of information sharing. In particular, we find estimated effects to be as large or larger among women who have previously used the program as among first-time users.     

Aggregate productivity and aggregate technology

Aggregate productivity and aggregate technology are meaningful but distinct concepts. We show that a slightly modified Solow productivity residual measures changes in economic welfare, even when productivity and technology differ because of distortions such as imperfect competition. Our results imply that aggregate data can be used to measure changes in welfare, even when disaggregated data are needed to measure technical change. We then present a general accounting framework that identifies several new non-technological gaps between productivity and technology, gaps reflecting imperfections and frictions in output and factor markets. Empirically, we find that these gaps are important, even though we abstract from variations in factor utilization and estimate only small average sectoral markups. The evidence suggests that the usual focus on one-sector DSGE models misses a rich class of important propagation mechanisms that are present only in multi-sector models.     

Sudden stops, financial frictions, and labor market flows: Evidence from Latin America

While the aggregate effects of sudden stops and international financial crises are well known, the disaggregated channels through which they work are not well explored yet. In this paper, using job flows from a sectoral panel dataset for four Latin American countries, we find that sudden stops are characterized as periods of lower job creation and increased job destruction. Moreover, these effects are heterogeneous across sectors: we find that when a sudden stop occurs, sectors with higher dependence on external financing experience lower job creation. In turn, sectors with higher liquidity needs experience significantly larger job destruction. This evidence is consistent with the idea that dependence on external financing affects mainly the creation margin and that exposure to liquidity conditions affects mainly the destruction margin. Overall, our results provide evidence of financial frictions being an important transmission channel of sudden stops and in the restructuring process in general.     

Disentangling barriers to internationalization

Abstract. Recent literature on multinational firms has focused on low productivity as a barrier to the internationalization of firms. But labour market frictions or financial constraints may also hamper internationalization. In order to assess the importance of these barriers, we present new empirical evidence on the extensive and intensive margin of exports and foreign direct investment (FDI) based on micro‐level data of German firms. First, we find a positive impact of firm size and productivity on firms’ international activities. Second, labour market frictions can constitute barriers to foreign activities. Third, self‐reported financial constraints have no impact on firms’ internationalization decisions. JEL classification: F23, G2     

Decentralized international exchange

Abstract.  We utilize a random‐matching model to examine the relationships between market frictions and international trade. In our setting, an individual may choose to search abroad where she may have a cost advantage, but is less likely to meet potential trading partners, owing to higher market frictions. Interestingly, we find that international trade may be associated with lower welfare than autarky. We show how this is due to price distortions resulting from bargaining when there are opportunities for exchange across countries. JEL classification F10, C78, D83     

The trade creation effect of immigrants: evidence from the remarkable case of Spain

Abstract This paper investigates the immigration‐trade link using data on individual exporting transactions and immigrants in Spanish provinces between 1995 and 2008. We quantify the impact of new immigrants on the extensive margin (number of transactions) and intensive margin (average value per transaction) of exports. We find that immigrants significantly increase exports and that the effect is almost entirely due to an increase in the extensive margin. Consistent with the idea that immigrants reduce the fixed cost of exporting, we find stronger effects for differentiated goods and for countries that are culturally distant from Spain.     

International Service Transactions: Is Time a Trade Barrier in a Connected World?

Firms’ international fragmentation of production has recently widened its focus from outsourcing of intermediates to off-shoring of business services such as software program development and international call center networks. Although many services are intangible and non-storable, gravity model estimates show that geographical distance between business partners matters less for commercial service transactions. Rather, time zones can be a driving force of international service trade by allowing for continuous operation over a 24 hours business day (continuity effect) when a proper division of labor is feasible and countries are connected to electronic communications infrastructure (ICT). But even when ICT provides alternatives for face-to-face interaction, time zones can act as a barrier when coordination problems with sleeping business partners occur (synchronization effect). In this paper, we find empirical evidence for the continuity effect in trade of business services, which is robust to measurement and sample size. Even more important is that the effect of time zones on service trade depends on access to ICT. An improvement of ICT infrastructure will affect business service trade at long time zone distances significantly more than trade at short time zone distances.     

BETTER LATER THAN NEVER? AN EXPERIMENT ON BARGAINING UNDER ADVERSE SELECTION

A central result in the literature on bargaining with asymmetric information is that the uninformed party (buyer) can screen the informed party (seller) over time. Screening eliminates trade failures that are otherwise common in the presence of adverse selection, but the downside of the bargaining institution is the cost associated with repeated offers and time frictions. This article reports an experimental test of these predictions. We find that rates of trade are substantially higher in the bargaining institution than in control treatments in which we remove the possibility to make repeated offers (take‐it‐or‐leave‐it offer) or the time frictions. However, we also observe a persistent overdelay before agreements are reached, that is, bargaining takes longer than theoretically predicted. This lowers efficiency below its predicted level and below the level observed in the take‐it‐or‐leave‐it offer institution. We identify possible channels for overdelay in the form of fairness preferences and loss aversion, concluding that there are important behavioral deviations from the standard model that are detrimental to the efficiency of bargaining under incomplete information.     

The Border Effect and the Nonlinear Relationship between Trade and Distance

The border‐effect literature confirms that sub‐national units tend to trade more with the rest of their country than with foreign markets. However, it is likely that ongoing processes of trade integration will generate a trade‐off between internal and external integration for sub‐national units within countries. In this paper we estimate the internal and external border effect, using a novel dataset that captures intra‐ and international shipments between Spanish regions and regions in eight European countries with alternative treatments of the nonlinear relationship between distance and trade.