A dynamic analysis of the impacts of export taxes: The case of Argentinean soy and beef markets

Argentina plays an important role in the global soy market as one of the world's leading exporters of soy products. In an effort to shift its agricultural sector's focus to value‐added exports and to raise revenue, Argentina's government has maintained a regime of differential export taxes on soy products. In addition to soy products, Argentina is a major producer, consumer and exporter of beef. However, over the last decade it has relinquished much of its world market share as its beef exports have fallen because the government has periodically imposed a ban on exports of beef along with maintaining an export tax. As the soy and livestock sectors are inextricably linked, owing to both industries’ intensive land use and the utilisation of soymeal as a feed supplement for cattle, trade policies in one sector have pronounced cross‐sectoral impacts. This study develops a theoretical model of these different sectors and trade policies, incorporating the dynamic decisions of cattle stock management. The model is calibrated to real‐world data on the Argentinean economy, and the impacts of trade liberalisation are quantified. Key results show modelling the various intersectoral linkages and the dynamic implications of cattle stock is essential for obtaining accurate estimates.     

How Do Exporters React to Changes in Cost Competitiveness?

Various international institutions such as the European Commission, the ECB and the OECD often use unit labour costs as a measure of international competitiveness. The goal of this paper was to examine how well this measure is related to international export performance at the firm level. To this end, we use Belgian firm‐level data for the period 1999 to 2010 to analyse the impact of unit labour costs on exports. We find an estimated elasticity of the intensive margin of exports with respect to unit labour costs between −0.2 and −0.4. This elasticity varies between sectors and between firms, with more labour‐intensive firms having a higher elasticity. The microdata also enable us to analyse the impact of unit labour costs on the extensive margin. Our results show that higher unit labour costs reduce the probability of starting to export for non‐exporters and increase the probability of exporters stopping. While our results show that unit labour costs have an impact on the intensive margin and extensive margin of firm‐level exports, the effect is rather low, suggesting that pass‐through of costs into prices is limited. The latter is consistent with recent trade models emphasising that not only relative costs, but also demand factors such as quality and taste matter for explaining firm‐level exports.     

The impact of the yuan‐dollar exchange rate on Mexican manufacturing exports to the US: A cointegration approach

This paper makes use of three econometric methods and three time intervals to evaluate the long‐term effects of several key variables on Mexican manufacturing exports to the US . The evidence across econometric techniques and sample periods systematically indicates that: (i) a real depreciation of the yuan‐dollar exchange rate reduces Mexican manufacturing exports by lowering the price of Chinese goods in the US market; (ii) a depreciation of the peso‐dollar real exchange rate generates a strong supply‐side effect due to the high import content of Mexican manufacturing exports, which ultimately leads to lower (rather than higher) sales in the US ; and (iii) external demand and labour productivity are positively related to manufacturing exports, whereas real wages are negatively related. Therefore, a falling external demand for Mexican manufacturing products or a real depreciation of the Chinese currency could, to some extent, be offset by increasing labour productivity faster than wages. These findings reflect two fundamental problems of the Mexican economy: (i) low investment in high‐quality formal instruction and proper training programs, which gives rise to severe bottleneck points for faster labour productivity growth and (ii) excessive reliance of the export‐oriented manufacturing industry on foreign suppliers of intermediate inputs.     

Factor Prices,Factor Substitution and Exporting in US Manufacturing Affiliates Abroad

This paper uses the unique matched individual parent and affiliate data from the foreign investment survey of the Bureau of Economic Analysis to examine how US firms of different industries and capital intensities at home adapt to lower costs of labour and other host‐country characteristics in their foreign production. We find that foreign affiliates of US multinationals carry their parent firms’ technology with them in producing abroad. That is, affiliates of capital‐intensive parents produce in a relatively capital‐intensive manner wherever they are located. Despite these resemblances to their parents, affiliates produce in a more labour‐intensive manner where labour is cheaper and also where the scale of production is small. We found no evidence that more labour‐intensive firms selected production locations where labour was cheaper. Labour costs dominated the methods of production but not its location. Affiliates that export are more responsive in their factor proportions to the labour costs where they produced than affiliates selling only in their host countries. The probability that an affiliate would export, however, did not seem to be much affected by factor proportions. It was much more closely related to the scale of the affiliate's operations; larger affiliates were more likely to be exporters.     

Exports,Foreign Direct Investment and Employment: The Case of China

This paper analyses the growth of production and employment in China during the period 1978 to the early 1990s. It argues that the Chinese experience with export‐led growth provides an excellent case study of the phenomenon of a vent for surplus resources provided by exports, identified by Adam Smith in the Wealth of Nations and elaborated by Hla Myint. The paper extends the Smith‐Myint model of ‘vent‐for‐surplus’ productive capacity to ‘vent‐for‐surplus’ resources by allowing for foreign investment flows. The ‘vent‐for‐surplus’ effect of exports on employment and growth is examined in a dynamic labour demand framework for a panel of township and village enterprises (TVEs) in China.     

EU Enlargement and the Portuguese Economy

The main focus of the present paper is on the emerging and likely future trade effects of enlargement. Though our particular concern is with Portugal, we set the scene by comparing the trade structures of the 10 countries of Central and Eastern Europe (i.e. the eight CEE accession states plus Bulgaria and Romania) – including an analysis of the individual cases of the Czech Republic, Hungary and Poland – with those of the EU15 as a whole, and with those of the 4 EU cohesion countries. The elimination of trade barriers between incumbents and accession states will have two trade‐related effects on EU incumbents: an increase in bilateral flows with the CEEC and a shift effect as the CEEC displace some incumbent exports to EU markets. The first effect is likely to be strongest for those incumbents for which there is a strong overlap between their export structure and the import structure of the CEEC. Portugal emerges as one of the economies with the least overlap. The displacement effect, we conclude, is likely to be particularly strong in the case of Portugal, given the high degree of similarity between Portuguese exports and those of the CEEC. Portugal appears to be ‘being squeezed from below’ in that, for the majority of its traditional export sectors, the CEEC became progressively more competitive during the second half of the 1990's. Portuguese specialisation was increasingly confined to low‐technology, low‐added‐value sectors with declining demand, as strong FDI inflows to the CEEC led to an increasing preponderance of more dynamic sectors in their export structures. Thus, Portugal is also being squeezed from above. This suggests that there may be substantial industrial disruption, in response to which labour‐market flexibility and dynamic entrepreneurial response is crucial. Intersectoral mobility is generally easier the more highly educated the workforce – an indicator on which Portugal scores poorly. The Portuguese labour market, however, displays a high degree of flexibility, consistent with its long lasting low rate of unemployment. Continued flexibility will help minimise these likely adjustment costs. Besides the trade and industry effects, other topics considered in the paper include the implications of enlargement for Portugal's ability to attract FDI, the likely consequences for Portugal of inward migration from the CEEC to the EU, and the implications of enlargement for Portugal's budgetary relations with the rest of the EU.     

China,India and the Commodity Boom: Economic and Environmental Implications for Low‐income Countries

The international role of China has risen steadily for two decades – and has become even more important in the current global recession. The growing supply of labour‐intensive manufactured exports from China has been accompanied by a huge expansion in its imports both of raw materials and of skill‐intensive manufactured parts and components. This ‘offshoring’ of intermediates production by a large, labour‐abundant economy has economic and environmental implications for other developing economies. More recently, the rapid expansion of the Indian economy and trade indicates that it too will soon exert similar effects on global markets. We sketch a model showing how the growth of these developing‐country ‘giants’ generates adjustment pressures on other developing economies. We discuss in particular how differences in relative factor endowments of resource‐rich economies can produce quite different outcomes in the context of product fragmentation and expanding commodity trade. We also explore the effects on production, trade, environment and prospects for future growth in resource‐rich economies, particularly in the context of weak institutions and other market failures. We illustrate these different impacts by considering the cases of Indonesia, Malaysia and Thailand and highlight implications for growth, development and policy.     

Composition of trade flows and the effectiveness of fiscal devaluation

We empirically explore whether the magnitude of the effects of fiscal devaluation, which consists of reducing the employers’ social security contribution rate and increasing the value‐added tax rate, depends on the composition of trade flows. Our sample comprises data on bilateral balances of trade between 28 European Union (EU) Member States and their main EU trade partners over the 2000–14 period. We use robust ordinary least squares regressions, controlling for the country‐pair and time fixed effects, to test whether there are differences in the sizes of relationships between these taxation forms and bilateral trade balances for different types of goods, by distinguishing between: (i) consumer, intermediate and capital goods; and (ii) labour and capital‐intensive goods. Our results show that the overall effectiveness of fiscal devaluation depends on the composition of trade flows. Value‐added tax is more strongly (positively) associated with (bilateral) balances of trade in consumer goods, compared to balances of trade in capital and intermediate goods. The employers’ contribution rate, in contrast, is more tightly (negatively) related to balances of trade in capital goods. The latter finding also holds true for trade balances of labour‐intensive goods compared to balances of capital‐intensive goods.     

Outward foreign investment and export structure: a case study of Taiwan's FDI in Malaysia

As Taiwan's outward FDI was primarily motivated by the relatively lower costs of land and labour in the host countries, one tends to expect that the structure of production and exports in Taiwan would shift toward higher capital and skill intensity. The structure of Taiwan's exports to the ASEAN-4 was concentrated more in higher human and physical capital intensities than Taiwan's total exports to the world. Moreover, Taiwan's exports to the ASEAN-4 were more concentrated on intermediate goods and machinery. A case study of Taiwan's outward FDI in Malaysia indicated that three of the five leading industries that accounted for a large shares of changes on FDI stocks and corresponding export commodities were the same. Pooling estimates also show that FDI has a small but positive impact on Taiwan's exports to the host country. The study further showed that Taiwan's FDI in Malaysia includes mixed tactics of ‘defensive’ and ‘aggressive’ strategies in various industries. In terms of the influence of the presence and economic role of ethnic Chinese on Taiwan's outward FDI, the study showed that the ‘Chinese connection’ has not been a significant factor in determining the industrial distribution of Taiwan's FDI in Malaysia.     

Mind the Gender Wage Gap – the Impact of Trade and Competition on Sectoral Wage Differences

This paper examines differences between women’s and men’s wages in 18 selected OECD countries in the period 1970 to 2005. The study is based on 12 manufacturing sector‐ and skill‐specific sets of panel data on the gender wage gap. We apply a system generalised method of moments (GMM) estimator to the extended version of the conditional gender wage gap convergence equation, controlling for sector concentration and industry‐specific measures of openness using a difference‐in‐difference approach: trade‐affected concentrated sectors versus trade‐affected competitive sectors. The results indicate that: (i) an increase in sector concentration is associated with wage gap growth; (ii) both import and export penetration are associated with a reduction of the high‐skill gender wage gap growth in concentrated industries; (iii) there is evidence of a widening impact of trade on the medium and low‐skill occupational gender wage gap growth in less competitive industries; (iv) institutional regulations of the labour market have an impact on the development of the gender wage gap: for highly‐skilled labour an increase in labour market regulation raises the growth of the gender wage gap, while for medium‐ and low‐skilled workers, it lowers it.     

EXCHANGE RATE BANDS OF INACTION AND PLAY‐HYSTERESIS IN GERMAN EXPORTS—SECTORAL EVIDENCE FOR SOME OECD DESTINATIONS

A non‐linear model is applied, where suddenly strong spurts of exports occur when changes of the exchange rate go beyond a zone of inaction, which we call ‘play’ area—analogous to mechanical play. We implement an algorithm describing path‐dependent play‐hysteresis into a regression framework. The hysteretic impact of real exchange rates on German exports is estimated based on the period from 1995Q1 to 2010Q3. Looking at some of the main export partners of Germany outside the euro area and some of the most important tradeable sectors we find significant hysteretic effects for a part of the German exports.     

Assessing Export Competitiveness through the Lens of Value Added

Extensive changes in the organization of world trade over the last two decades have renewed concerns about countries’ ability to compete in export markets. The impact could be especially large in industries that participate in global value chains (GVCs). This study assesses the recent export performance of 56 countries in five industries associated with GVCs using an index of normalised revealed comparative advantage (RCA) that can be compared across industries and countries and new data on the domestic value added in exports from the OECD's Trade in Value‐added database. For a number of the GVC industries, countries identified as the most competitive based on gross exports are often found to be less competitive when evaluated in terms of domestic value added. Business services are an important exception; several countries appear more competitive on a value‐added basis than based on conventional measures of gross exports. Despite concerns about hollowing out, a number of major industrial countries remain highly competitive in one or more GVC industries, even from the perspective of domestic value added. A value‐added approach to RCA provides insights that are not apparent from an exclusive focus on gross exports.     

Short‐term Consequences of Trade Reform for Industry Employment and Wages: Survey of Evidence from Colombia

Recent research has focused on the short‐ to medium‐term implications of trade reforms for the labour market outcomes and poverty in poor economies. This article summarises the evidence on the short‐term consequences of the Colombian trade reform initiated in 1985 for industry employment and industry wages. Although the reform reduced manufacturing tariffs on average by 40 percentage points from 1984 to 1994, tariff declines were not significantly associated with labour reallocation across sectors. The reform, however, was associated with bigger declines in relative industry wages in sectors that experienced bigger tariff cuts. This evidence is in line with the predictions of short‐ to medium‐run models of trade in which labour is not mobile across sectors. It is also consistent with the predictions of models where imperfectly competitive industries share rents with workers and trade reduces the firms’ profit margins and thus workers’ rents.     

The Extensive and Intensive Margins of Exports: The Role of Innovation

An important prediction of trade theories is that innovation can improve a country’s export performance. Using data on patents granted by the US as a proxy for innovation and data on manufacturing exports from 105 countries over the period 1975–2001, I investigate the extent to which innovation increases the number of products traded (the extensive margin) and the export value of each product (the intensive margin). The empirical results show that (i) innovation has a positive and significant effect on both the extensive and intensive margins. The intensive margin contributes 70 per cent of the effect, and the extensive margin accounts for 30 per cent. (ii) The effect of innovation on exports is stronger for low‐income countries than for high‐income countries. (iii) More innovative countries export greater quantities and charge higher prices, suggesting that innovation increases the product quality of exports.     

Spillover Effects from Inward FDI on the Exporting Decisions of Chilean Manufacturing Plants

We study the presence of spillover effects on three exporting decisions (likelihood, quantity, propensity) of Chilean manufacturing firms during the period 2001–2004. Evidence suggests that Chilean firm’s export likelihood is positively affected by other domestic firms’ exports. In contrast, exports by MNEs operating in Chile negatively affect Chilean firm’s export likelihood, although MNE-employment generates positive spillover effects, suggesting externalities in human capital. We also find evidence of spillovers from MNE activity on the proportion of production the firm exports (export propensity), but not on how much they decide to export (export quantity).     

Drivers of Export Demand: A Focus on the GIIPS Countries

This study investigates the drivers of export demand in the peripheral economies of the Euro Area, namely Greece, Ireland, Italy, Portugal, and Spain (GIIPS), for the period between 1980 and 2012. Recently, several authors have pointed out that changes in trade export shares are not associated with major terms of trade disturbances; rather, they are the result of other underlying factors commonly defined as ‘non‐price competitiveness’. Starting from this premise, the study extends the traditional imperfect substitute trade model to include a measure of non‐price competitiveness: real capital stock. The latter is a measure of a country's total resource base and captures the presence of product differentiation and product innovation. The results show a significant link between export demand and cumulative investments. In the short‐term, GIIPS exports are dominated by the movements of worldwide real income, while changes in price and non‐competitiveness take longer to affect export performance. In the long‐run, all three variables play a significant role in pushing exports.     

Does vertical specialisation increase productivity?

This paper investigates the impact of global value chain (GVC) participation on productivity. It uses data on trade in value‐added from the World Input‐Output Database. The results based on a panel estimation covering 13 sectors in 40 countries over 15 years suggest that participation in GVCs is a significant driver of labour productivity. Backward participation in GVCs, that is, the use of imported inputs to produce for exports, emerges as particularly important. An increase by 10% in the level of GVC participation increased average productivity by close to 1.6%.     

The Fallacy of Composition: A Review of the Literature

This paper reviews the literature on the fallacy of composition with an emphasis on labour‐intensive manufactures. It briefly addresses the protectionist and the partial‐equilibrium versions of the argument before focusing on general‐equilibrium considerations and the debate on the manufactures terms of trade of developing countries. The review indicates a potential fallacy of composition problem in labour‐intensive manufactures, where competition among different groups of developing countries for export market shares may constitute a new form of the fallacy of composition. The likelihood of a country that exports labour‐intensive manufactures to become subject to the fallacy of composition rises with the increasing integration of several strongly populated low‐income countries into world markets, while it declines with continuous structural change and favourable aggregate demand conditions particularly in developed and the advanced developing countries.     

Trade and Innovation in Services: Evidence from a Developing Economy

Studies on innovation and international trade have traditionally focused on manufacturing because neither was seen as important for services. Moreover, the few existing studies on services focus only on industrial countries, even though in many developing countries services are already the largest sector in the economy and an important determinant of overall productivity growth. Using a recent firm‐level innovation survey for Chile to compare the manufacturing and ‘tradable’ services sector, this paper reveals some novel patterns. First, even though services firms have on average a much lower propensity to export than manufacturing firms, services exports are less dominated by large firms and tend to be more skill intensive than manufacturing exports. Second, services firms appear to be as innovative as – and in some cases more innovative than – manufacturing firms, in terms of both inputs and outputs of ‘technological’ innovative activity, even though services innovations more often take a ‘non‐technological’ form. Third, services exporters (like manufacturing exporters) tend to be significantly more innovative than non‐exporters, with a wider gap for innovations close to the global technological frontier. These findings suggest that the growing faith in services as a source of both trade and innovative dynamism may not be misplaced.     

Who Gains From Nominal Devaluation? An Empirical Assessment of Euro‐area Exports and Imports

In early 2013, rumours about the euro‐appreciation gained momentum, which may lead to decreases in exports and increases in imports of the member states. Therefore, we investigate the impact of changes in the nominal euro exchange rate vis‐à‐vis major currencies on export and import performance of nine different euro‐area countries. To disentangle the ‘true’ equilibrium elasticities Stein's unbiased risk estimate (SURE) system error correction models (SSECM) are estimated for nominal exchange rate changes versus the rest of the world or other major currencies. To differentiate between price level changes and changes of the nominal exchange rate, a country's export and import equation is estimated using separately the nominal rate and the relative price/unit labour cost as regressors. Results of Wald tests indicate that assuming both variables to have the same influence on exports and imports is misleading. Whether the relative price/unit labour costs elasticities are high or low depends crucially on which indicator is chosen, while the effect of nominal exchange rate changes can be estimated robustly for all countries in the sample. In particular, France and Spain are hit by a euro‐appreciation since their exports are highly exchange rate elastic. However, for France, this effect is at least partly offset by an also negative exchange rate elasticity of imports.