Fragmentation and trade: US inward processing trade in the EU

Fragmentation and Trade: US Inward Processing Trade in the EU. — Fragmentation, which refers to the splitting up of a previously integrated production process into separate components, is seen as one of the reasons for the increasing globalization of the world economy. This paper undertakes an empirical study of the extent of US inward processing trade (IPT) in the EU, which we use as a proxy for fragmentation in trade. We also provide empirical evidence on the determinants of the distribution of US IPT across manufacturing sectors in the twelve EU member states. Our results give support to the importance of comparative advantage for the sectoral distribution of US IPT. Also, we find that the labour costs and the level of US FDI stocks affect US IPT in EU peripheral countries, while they do not seem to have any impact on EU core countries.     

Tests of the empirical classification of horizontal and vertical intra-industry trade

Tests of the Empirical Classification of Horizontal and Vertical IntraIndustry Trade. — Using longitudinal data this paper shows the separation of international trade in (a) inter-industry trade, (b) horizontal intra-industry trade, and (c) vertical intra-industry trade used in the empirical trade literature to be non-stable at the individual product level. The high level of vertical intra-industry trade mentioned in the empirical literature probably covers up many products shifting between e.g. vertical and horizontal intra-industry trade. The paper therefore questions the work of the last decade in the measurement of intra-industry trade.     

‘LONG SLOW BOOM’?: MANUFACTURING IN NEW ZEALAND, 1945–70

Many studies of post-war New Zealand economy are highly critical both of economic policy and of the business sector, emphasising protection, complacency and sclerosis. This article argues that such accounts are excessively simplistic and, by analysing the structure and performance of New Zealand manufacturing during 1945–70, suggests that there was considerable innovation in both technological and organisational spheres. The result was that, to a greater extent than current accounts allow, New Zealand manufacturing pursued efficiency and international competitiveness.     

Firm size-specific trade effects of regional trade agreements: Estimating extensive and intensive margins of trade

We estimate the impacts of Korean firms’ participation in regional trade agreements (RTAs) on the extensive and intensive export margins by identifying exporting firms based on their firm size—small and medium-sized enterprises (SMEs) and large enterprises (LEs) at the 5 399 HS six-digit commodity level—and specifying characteristics of RTAs from 2004 to 2015. We apply the EK Tobit estimation technique to control zero trade and the OLS estimation with importer-product and time fixed effects to alleviate the endogeneity problem. We find that firm size, product type, and depth of RTA significantly matter. Specifically, we find that deeper RTAs with larger, developing, and closer members significantly enhance the export creation effects of SMEs and LEs. Regarding the firm size-specific effects, we find that SMEs are less sensitive to exploiting RTA participation but more sensitive to the import market size, bilateral and relative trade costs, and the RTA characteristics. LEs’ export creation is mainly driven by the intensive margin, while SMEs’ export creation is driven by extensive and intensive margins (slightly more by the extensive margin). For the product-specific effects, we find that Korea's major exportable products such as chemicals, basic metals, motor vehicles, and transport equipment generate significantly strong export creation effects for both LEs and SMEs through their participation in RTAs.     

On the empirical distribution of the Balassa index

On the Empirical Distribution of the Balassa Index. — The concept of revealed comparative advantage as measured by the Balassa index is widely used in practice to determine a country’s weak and strong sectors. Interpreting the Balassa index is difficult, however, in view of the limited knowledge to date on the distribution of this index. We analyze theempirical distribution of the Balassa index and its stability and properties over time, using Japan-European Union trade data. It appears that the distribution is relatively stable over time and that the widely used rule that “a Balassa index above one” identifies a strong sector, selects about one-third of all industries. On the other hand, the distribution appears to differ markedly across countries.     

A multidimensional analysis of the international performance of U.S. manufacturing industries

A Multidimensional Analysis of the International Performance of U.S. Manufacturing Industries. — This study analyzes the determinants of three alternative measures of the international performance of U.S. manufacturing industries: export shares, the average number of foreign markets served, and the intensity of foreign direct investment. The factors affecting these three variables and various interactions among them are estimated econometrically using a sample of 37 U.S. industries. Overall, variables reflecting industrial organization, technological innovation, and scale economies are found to be more significant than traditional factor-proportions or labor-cost factors in explaining U.S. manufacturing performance in overseas markets.     

Competitiveness and external trade performance of the French manufacturing industry

Competitiveness and External Trade Performance of the French Manufacturing Industry. - This paper evaluates the competitiveness and external trade performance of the French manufacturing industry during the 1980s and early 1990s. It reviews developments in a broad range of competitiveness indicators, showing that the manufacturing sector appears to have maintained its competitive position, discusses developments in export market shares, and estimates a vector error correction model relating the trade ratio to relative unit labor costs, domestic and foreign demand, and nonprice competitiveness. Variance decompositions suggest that fluctuations in price and nonprice competitiveness account for about two-fifths of fluctuations in manufacturing trade flows.     

Specialization patterns in Europe

Specialization Patterns in Europe. — This paper analyzes whether specialization has increased in European Union countries, and discusses whether specialization patterns are consistent with predictions of trade theory. There is evidence of increasing specialization in some EU countries between 1968 and 1990, and some industries have become more concentrated geographically. The observed pattern of specialization broadly follows trade theory. In particular, those industries that have become more concentrated geographically are characterized by high scale economies and high intermediate-goods intensity, providing some support for new trade theories.     

The potential trade effects of an FTA between the EU and Russia

The Potential Trade Effects of an FTA between the EU and Russia.- This paper analyzes some of the potential economic effects of free trade agreements between the EU and Russia and the other European CIS countries using standard indicators of trade patterns. It confirms that it would not be feasible for the EU to conclude such an agreement with Russia alone. It is also shown that, if the current high tariff levels are maintained in the CIS countries, they may not benefit from an agreement with the EU. More generally, the authors question the economic motivation for countries such as Russia in seeking free trade agreements with industrial countries which already have low levels of external protection.     

Has the Canada-US trade agreement fostered price integration?

Has the Canada-US Trade Agreement Fostered Price Integration? — This paper assesses the Canada-US Trade Agreement (CUSTA) from the perspective of market integration. Using monthly data on producer price indices and the exchange rate of both countries for the 1974:1–1996:1 period, a Johansen procedure is used to test for a long-run equilibrium or cointegrated price system among the price series. In addition, to determine whether product markets are converging after the implementation of CUSTA, a Kaiman filter or time-varying parameter analysis is used. Empirical evidence supports the conclusion that CUSTA did not cause price integration or convergence, rather for the two markets convergence and integration were well established prior to CUSTA. The success of CUSTA appears to be in maintaining Canadian access to the US market in the face of rising US protectionism.     

Trade Openness and Vertical Integration: Evidence from the U.S. Manufacturing Sector

The present article aims to empirically examine a relationship between trade openness and the pattern of vertical integration using the six‐digit North American Industry Classification System (NAICS) of U.S. manufacturing data from 2002 to 2006. We use the index of vertical integration made out of inter‐plant transfers data by the U.S. Census Bureau, and we consider three proxies of trade openness—import penetration, export shares, and trade penetration. The empirical results substantiate 2000 theoretical proposition that trade openness undermines motives for vertical integration.     

Cross-country interdependencies in growth dynamics: A model of output growth in the G7 economies, 1960–1994

Cross-Country Interdependencies in Growth Dynamics: A Model of Output Growth in the G7 Economies, 1960–1994. — Recently developed methods in time series analysis are employed to study output growth across the G7 economies. The methods accommodate the interdependencies that exist between economies’ growth, and provide the means for analyzing the sources of shocks to output growth and for examining the time profiles of the shock effects. Sophisticated dynamic adjustments in output are identified, due to lagged responses to shocks, the feedback of effects across countries, and the differential speeds of response to different types of shock. Among the shocks considered, those to world trade and oil prices are shown to significantly affect many countries’ output levels.     

Production sharing and trade flows: A comparative analysis of Japan and the US

This paper examines the determinants of trade flows in parts and components related to global production sharing in machinery industries, using a newly compiled panel dataset for Japan and the US over the period 1988–2005. The findings show the importance of labour costs, and the quality of the legal system and physical infrastructure in attracting production sharing, as suggested by theory. It is also found that US production networks in the electronics industry have a regional focus on Asia, while those in the automobile industry are concentrated in North America. On the other hand, Japanese production networks in both industries are concentrated in Asia.     

Does North-South horizontal intra-industry trade really exist? An analysis of the toy industry

Does North-South Horizontal Intra-Industry Trade Really Exist? An Analysis of the Toy Industry. — In a combination of a case study approach and econometric analysis, bilateral intra-industry trade between high income countries and low income countries in the toy industry is investigated. In a number of products there is important bilateral intra-industry trade between both groups of countries. Econometric analysis in which a number of the explanatory variables used were quantified on the basis of the information supplied by the industry-spokesmen yields results which strongly support the view that the bilateral IIT between the high income countries and the low income countries in the toy industry is determined significantly by horizontal product differentiation and economies of scale.     

R&D and the Export Decision of New Firms

Recent literature on the firm‐level decision to export has focused on identifying factors that influence the export decision by firms regardless of the number of years they have been in operation. This article, alternatively, examines the factors that influence new firms to export within the first four years of operation. The results support two key findings that have commonly emerged from entrepreneurial case studies: (1) There is a positive link between research and development (R&D) and early internationalization, and (2) international ties of managers, as is evidenced by the effect of foreign‐born owners, positively impact the firm's decision to export. The former result is the emphasis of this article. In addition, we find that innovation spillovers from neighboring firms impact the export decision of new firms that engage in R&D.     

Country-specific factors and the pattern of horizontal and vertical intra-industry trade in the UK

Country-Specific Factors and the Pattern of Horizontal and Vertical Intra-Industry Trade in the UK. - A large number of empirical studies have investigated the relationship between country-specific factors and total intra-industry trade (IIT). One important shortcoming of this literature is that it ignores the distinction between horizontal and vertical IIT and ignores the fact that they may have different determinants. This paper disaggregates UK IIT into its horizontal and vertical components and, using bilateral trade data, estimates a series of models incorporating countryspecific variables. The results suggest that vertical IIT is more important in the UK than horizontal IIT and that the inter-country pattern of vertical IIT is systematically related to a range of explanatory variables.     

Exchange rates and European countries’ export prices: An empirical test for asymmetries in pricing to market behavior

Exchange Rates and European Countries’ Export Prices: An Empirical Test for Asymmetries in Pricing to Market Behavior. — This paper uses forward instead of spot exchange rates to test for the presence of asymmetries in the response of export prices to exchange rate movements on a wide sample of European Union exporter countries and highly disaggregated product categories. In most cases, the data give support to the hypothesis of a symmetric pricing to market behavior during periods of depreciation and appreciation of the exporter’s currency.     

On the trade,growth, and welfare effects of intellectual property rights protection

To examine how intellectual property rights protection affects trade, growth, and welfare, I develop a two-country R&D-based growth model in which final goods firms in both countries determine the range of imported varieties in the overall use of intermediate inputs. I show that strengthening patent protection in either country increases the range of imported varieties of intermediate goods and stimulates economic growth in the country that strengthened patent protection. Moreover, I also show that the Nash equilibrium level of patent protection is stronger than the globally optimal level of patent protection.     

China and the WTO: Tariff offers,exemptions, and welfare implications

China and the WTO: Tariff Offers, Exemptions, and Welfare Implications. — Trade reforms have opened the Chinese economy and the reforms offered for WTO accession involve further liberalization. To assess the implications of these offers, the authors take into account the tariff exemptions that are especially important in China’s trade regime, and the reductions in the variability of tariffs at the tariff line level required by the WTO offers. The offers will result in real income gains of over $ 50 billion, benefitting China and its major trading partners. Omitting the tariff exemptions is shown to result in over-estimation of the benefits from liberalization, while focusing on average tariff reductions leads to under-estimation.     

The importance of technology-based intersectoral linkages for market share dynamics

The Importance of Technology-Based Intersectoral Linkages for Market Share Dynamics. — The paper introduces technology-based intersectoral linkages (or technological spillovers) in an empirical model of international market share dynamics. The Pavitt taxonomy is applied as a yardstick for interpreting the empirical results. Overall, the results appear to be broadly consistent with the criteria behind the taxonomy, on the relative importance of the different factors of competitiveness in the different sectors. In particular, unit labour costs appear to play the largest role in supplier-dominated industries, ‘own sector’ technological activity plays the largest role in science-based industries, upstream linkages in scale-intensive and downstream linkages in specialized-supplier types of industries.