International Trade in Services—Editorial Introduction

This special issue of JITC focuses on the globalization of trade in services and the effects on small open economies. It looks at a number of issues relating to international trade in services to re-evaluate the degree to which services are traded and tradable, the degree to which such trade is increasing, the implications of globalization and off-shoring and the policy responses required both to foster international integration in services and to react to the likely economic implications.     

The General Agreement on Trade in Services: Doomed to Fail? Does it Matter?

Little progress has been made to date in using the GATS framework to lock-in already implemented unilateral reforms, let alone in inducing new liberalization. The same is true for rule-making efforts. A number of potential explanations for the lack of traction are identified and assessed. These include limited feasibility of using the reciprocity mechanism to mobilize domestic export interests; less need for reciprocity to achieve global welfare improvements in policy; weaknesses in domestic regulatory capacity; and uncertainty/asymmetries regarding the magnitude and distribution of costs and benefits of policy reforms. All these factors play a role in reducing the scope for the GATS to be an effective instrument to help governments overcome domestic and international policy externalities. Changes in negotiating modalities and focus could help strengthen the relevance of the GATS as an instrument of multilateral cooperation.     

Does International Trade Cause Economic Growth? A Survey

This study surveys the literature on the relationship between international trade and economic growth, and succinctly reviews the role of GATT/WTO in fostering free trade. Most studies support the gains of trade and recognise the substantive contributions of GATT/WTO in fostering free trade; the evidence is, however, not ubiquitously unambiguous. The macroeconomic evidence provides a dominant support for the positive and significant effects of trade on output and growth, while the microeconomic evidence lends larger support to the exogenous effects of productivity on trade, as compared to the effects of trade on productivity. The GATT/WTO remains surrounded by barriers to trade and avowed preferences for preferential trade agreements. The strength of the argument for the gains of trade needs to be evaluated in juxtaposition with several methodological and measurement issues that surround the trade‐growth empirics. Most studies focus on partial equilibrium analysis of trade policy and ignore the general equilibrium aspects of macroeconomic policy. It is difficult to disentangle the effects of trade policies from those of other macroeconomic policies and unequivocally interpret the observed correlations between trade policies and economic growth. Trade is one of the several catalysts of productivity and growth and hence its contribution is contingent on its weight in economic activity.     

Does International Trade Catch Up with National Trade of Countries? Yes

The article applies an index suggested by Jeffrey Frankel on how to measure the gap between the intensity of national versus international transactions of a country to more than 100 countries over four periods between 1990 and 2005. The gap stands for “incomplete” globalization. It is shown that the gap has steadily declined for most countries over the sample period, irrespective of income levels. While larger economies are still less globalized than small economies, differences in domestic market size have become less important as a dividing line between more and less globalized economies.     

Does Policy Instability Matter for International Equity Markets?

We test whether policy risk is systematically priced in equity returns across 49 countries from 1995 to 2013. We construct two global policy risk factors based on the ratings from international country risk guide. They capture the policy risk from government instability (GOVLMH) and the quality of bureaucracy (BURLMH). Both factors are significantly and positively related to equity returns and the BURLMH factor carries a monthly risk premium of 65 basis points. A country with weaker economic and institutional conditions has more risk exposure to the BURLMH factor whereas a country with high democracy has more risk exposure to the GOVLMH factor. Overall, our study reveals the importance and complexity of policy risk in international equity markets.     

Trade Credits and Bank Credits in International Trade: Substitutes or Complements?

Trade credits are an important financing tool for internationally active firms. This is surprising, as trade credits are generally more expensive than bank credits and thus a costly substitute for bank financing. In this paper, we investigate the relation between trade credits and bank credits for exporting firms. We develop a theoretical model and show that trade credits convey a quality signal which reduces the risk of the transaction and may thus facilitate obtaining additional bank credits. Hence, exporters who are not able to obtain bank credits in the first place use trade credits and bank credits complementarily. Using panel data on large German manufacturing firms, we provide supportive evidence for our theoretical predictions. In general, trade credits and bank credits are substitutes. For financially constrained exporters, the overall substitution effect is attenuated which is consistent with a positive signalling effect.     

Does Value for Money Create Advocates? A Study in the International Airline Services Industry

ABSTRACT

New carriers and business models have dramatically transformed the aviation industry. Using feedback ratings from 109 carriers and 36,710 passengers, this study first shows that emerging market airlines typically offer better value-for-money propositions than their established competitors. The study then relates perceived value for money with recommendation intention. The relationship is very strong without significant outliers; true loyalty shown by such customer advocates drives a service firm's profitability. Even the best entrenched airlines should not ignore this change in competitive climate, but respond by focusing on value for money as the standard for their business model's value proposition.     

Do Trade Agreements Stimulate International Trade Differently? Evidence from 296 Trade Agreements

In a seminal article, Rose (2004) found that the assumed positive impact of the WTO on international trade was questionable. This finding has been scrutinised and modified in subsequent research, using different data sets, econometric methods and separating the WTO from other forms of trade agreements. A key characteristic of the subsequent literature is the rather simplistic way in which trade agreements are treated whereby all trade agreements are lumped together. Trade agreements come, however, in many different forms and shapes. This study addresses these differences in trade agreements. Using a unique database of 296 trade agreements, we distinguish 17 trade‐related policy domains and indicate whether the agreements contain legally enforceable commitments. This extensive and novel taxonomy of trade agreements enables us to allow for the possible heterogeneity of the impact of trade agreements on international trade. Using a gravity model, we find that trade agreement heterogeneity indeed matters for international trade and that countries experience significant trade increases due to comprehensive trade agreements even if not all participants are in the WTO.     

Does Corporate Social Responsibility Matter in Asian Emerging Markets?

This study addresses the question whether corporate social responsibility (CSR) matters in Asian Emerging Markets. Based on CSR scores compiled by Credit Lyonnais Securities (Asia), we assess the CSR performance of major Asian firms over a period of 3 years, from 2001 to 2004. The results show that there is a positive and significant relation between CSR and market valuation among Asian firms. We further find that CSR is positively related to the market valuation of the subsequent year. More importantly, Asian firms are rewarded by the market for improving their CSR practice.     

The Effect of Foreign Direct Investment on International Migration: Does Education Matter?

Using migration data in 1990 and 2000, we find that inward foreign direct investment (FDI) in non‐OECD countries affects the out‐migration of individuals with tertiary and secondary education to OECD countries originating the investments, but has no significant effect on the out‐migration of individuals with primary education. Distinguishing between linkage and home effects, our results show a dominant home effect of FDI for individuals with tertiary education, but a stronger linkage effect for those with secondary education. The existing stock of former migrants in foreign countries influences the out‐migration of individuals with primary education.     

Maximum-Revenue and Optimum-Welfare Tariffs in International Mixed Duopoly: Does the Order of Firms’ Move Matter?

This paper examines the effect of privatization on the priority of the maximum-revenue tariff and the optimum-welfare tariff in a mixed oligopoly with partial privatization and foreign competition. Major findings of this paper are that: firstly, in a mixed duopoly with partial privatization and asymmetric marginal costs, when the marginal cost of the privatized firm is higher than a critical value, the optimum-welfare tariff will be lower than the maximum-revenue tariff regardless of the order of firms?? move; secondly, if the degree of privatization is sufficiently high and cost is symmetric, the optimum-welfare tariff will be higher than the maximum-revenue tariff; thirdly, if the degree of privatization is sufficiently high and the domestic firm is highly ineffective in production, under Stackelberg public leadership, the optimum-welfare tariff is low and then it is more possible that the optimum-welfare tariff is lower than the maximum-revenue one.     

Corporate Environmental Responsibility in Polluting Industries: Does Religion Matter?

Using a sample of Chinese listed firms in polluting industries for the period of 2008–2010, we empirically investigate whether and how Buddhism, China’s most influential religion, affects corporate environmental responsibility (CER). In this study, we measure Buddhist variables as the number of Buddhist monasteries within a certain radius around Chinese listed firms’ registered addresses. In addition, we hand-collect corporate environmental disclosure scores based on the Global Reporting Initiative (GRI) sustainability reporting guidelines. Using hand-collected Buddhism data and corporate environmental disclosure scores, we provide strong and robust evidence that Buddhism is significantly positively associated with CER. This finding is consistent with the following view: Buddhism can serve as social norms to evoke the consciousness of social responsibility, and thereof strengthen CER. Our findings also reveal that the positive association between Buddhism and CER is attenuated for firms with higher law enforcement index. The results are robust to various measures of Buddhism and a variety of sensitivity tests.     

Does Religion Matter to Equity Pricing?

For a sample comprising 36,105 U.S. firm-year observations from 1985 to 2008, we find that firms located in more religious counties enjoy cheaper equity financing costs. This result is robust to a battery of sensitivity tests, including alternative assumptions and model specifications, additional controls for noise in analyst forecasts, and various approaches to addressing endogeneity. In another set of tests, we find that the equity pricing role that religion plays comes predominantly from Mainline Protestants. We also document that the effect of religiosity on firms?? cost of equity capital is larger for firms (periods) lacking alternative monitoring (regulation) mechanisms as measured by lower institutional ownership (the pre-SOX era), implying that religion plays a corporate governance role. Finally, we find that the importance of religion to equity pricing is concentrated in firms that suffer lower visibility, which tend to be more sensitive to local social and economic factors. By examining the links between religiosity and valuation at the firm level, we provide strong, robust evidence supporting the perspective that religion facilitates economic development.     

Managing Trade Show Campaigns: Why Managerial Responsibilities Matter?

This article examined the relationship between managerial responsibilities for important trade show tasks and the marketing performance of exhibiting firms. Drawing theoretical insights from the functionalist perspective of managerial roles and organizational role theory, this article proposed and validated theory based, multiple, task-managerial responsibility linkages using a large international b2b trade show as a context. The empirical results indicated that the marketing performance of exhibiting firms was enhanced when (a) middle managers were assigned the trade show objective setting task, (b) lower and middle managers were involved in the trade show selection decision and (c) lower managers executed the booth management task. The paper concluded by discussing the theoretical and practical implications of these findings.     

Does Size Matter in Firm Performance? Evidence from US Public Firms

This paper reexamines the determinants of firm performance and, in particular, the role that firm size plays in profitability. A fixed‐effects dynamic panel data model for over 7,000 US publicly‐held firms during the period 1987–2006 provides evidence that profit rates are positively correlated with firm size in a non‐linear manner, holding an array of firm‐ and industry‐specific characteristics constant. In addition, industry‐specific fixed effects play a negligible role in the presence of firm‐specific fixed effects.     

How Much Does Wealth Matter in the Acquisition of Financial Literacy?

The acknowledged widespread lack of financial literacy casts serious doubts on the ability of individuals to make financial decisions. Some studies suggest that financial experience can affect financial knowledge and that household financial wealth can be a factor leading to the acquisition of financial literacy. This article investigated the determinants of financial literacy using the 2006 wave of the Italian survey on household income and wealth. Empirical results indicated that wealth has a positive but small effect on the degree of financial knowledge.     

Does Antidumping Address “Unfair” Trade?

While antidumping laws were originally developed as the international trade analogue of domestic competition or antitrust policies, most vestiges of competition policy disappeared early in their evolution. Nonetheless, the formal justification for modern antidumping practice remains founded on countering “unfair” trading practices and preserving competitive markets. We update and consolidate a relatively thin literature that has examined this issue formally. Applying a “likelihood of predatory practice” index to the European Union’s use of antidumping proceedings over the period 2001 to 2010, we find more antidumping cases that suggest competition policy concerns than do previous studies, although these are still a minority.