The determinants of bilateral trade

Abstract.  In this paper we present a monopolistic competition model that incorporates asymmetric trade barriers and international differences in production costs. The model implies a highly non‐linear bilateral trade equation. Estimation of this equation yields parameters for the elasticity of substitution and trade costs that are more reasonable than those found in previous studies. A simulation indicates that trade liberalization will shift trade from rich countries to poor countries and from within continental trading partners with preferential trade agreements to intercontinental trading partners. JEL Classification: F1     

Measuring fixed costs for firms’ use of a free trade agreement: Threshold regression approach

By employing the threshold regression method, we estimate the average tariff equivalent of fixed costs for the use of a free trade agreement (FTA) among all existing FTAs in the world. It is estimated to be around 3%.     

Productivity and efficiency at english football clubs: a random coefficient approach

This paper analyzes productivity and efficiency of English professional football clubs from 1981–1982 to 2010–2011, using a random coefficient stochastic distance frontier (SDF) model. Our Bayes factor analysis indicates that this model is strongly favored over the commonly used fixed coefficient SDF model. Our empirical results show that clubs in our sample operate at different levels of technical efficiency and technical change. Our further analysis using ordered logistic regression suggests that technical efficiency is more important than technical change in predicting whether clubs in our sample are promoted or relegated.     

The impact of trade costs on exports: An empirical modeling

Studies, which have discussed some of the important issues concerning the measurement of trade costs, have conceded that the literature is still in the early stages of understanding and measuring what the real costs are. It is in this context, decomposing trade costs into ‘natural’ costs, ‘behind the border’ costs, ‘explicit beyond the border’ costs, and ‘implicit beyond the border’ costs, this paper suggests a method to measure the impacts of these components on changes in exports between countries in the absence of complete information on all the components of trade costs in home and partner countries. Empirical measurement has been demonstrated using 1999 and 2004 trade data from Pakistan. The results show that Pakistan's export growth between 1999 and 2004 came mainly from the reduction in both ‘explicit and implicit beyond the border’ trade costs in partner countries.     

The determinants of international reserves in the emerging countries: a nonlinear approach

In this article, we adopt a nonlinear approach to examine the dynamics of the international reserves holdings by the emerging economies. To do so, we estimate the demand for international reserves with a Panel Smooth Transition Regression (PSTR) model that loosens two restricting hypotheses, homogeneity and time-stability. We find evidence for the presence of a nonlinear behaviour in the demand for international reserves, a result that is new to the literature. The coefficients are found to change smoothly, as a function of two threshold variables – out of five candidates tested in total. Our specification accounts for the acceleration of foreign exchange reserves accumulation that the linear specifications fail to explain.     

The determinants of trade performance: influence of R&D on export flows

A theoretical model is presented, in which supply side differences between countries determine international trade flows. This model is empirically tested at a sectoral level for a group of EU countries, within a framework that focuses on changes through time and differences between countries. The results show that the validity of the theoretical model is limited at sectoral level. However, as expected, we find that the variable representing technological differences is significant and correctly signed for high-technology sectors. The evidence points to the existence of different production functions across countries and to the importance of supply side factors in determining the direction and the terms of trade.     

The determinants of trade credit use: the case of the Tanzanian rice market

Most small businesses in the developing economies suffer from a lack of access to formal external finance. One important alternative source of finance for these entrepreneurs is trade credit. Applying a unique data-set containing data on specific trade relations between rice wholesalers and rice retailers in Tanzania, we analyse the determinants of trade credit demand and supply in this market, using a simultaneous equation modelling approach. The analysis shows that while the demand for trade credit is primarily determined by the extent to which retailers need external funds, supply is mainly driven by wholesalers’ incentives to attract and keep clients. Moreover, wholesalers’ willingness to provide credit increases if they have better information about the possibility that the customer will fail to repay the credit.     

The determinants and profitability of switching costs in Chinese banking

This article models the determinants of bank switching costs in China in terms of bank characteristics and non-bank variables. It also determines the contribution of switching costs to banks’ profits. Using a sample of 151 banks over the period 2003–2013 it reports a positive relationship between bank profitability and switching costs. The main result is that bank size measured by total assets has a complex relationship with switching costs. Competition between small banks creates the incentive for lock-in and increased switching costs whereas very large banks are less exercised by lock-in and switching costs.     

Macroeconomic determinants of the world trade disputes

This article is whether and how the world macroeconomic environments influence the world trade disputes. We use two-pronged approach. First, we try to answer the question whether and how global macroeconomic environments are attached to the count of the world trade disputes. Even if the traditional literature captures it at the national-level, global picture needs to be completed. The second question we address is that given the set of trade dispute initiating countries, whether and how differently high-, middle- and low-income countries respond to their macroeconomic environments in their decision-makings of trade disputes initiations. The universe in the second question is a selected set of the filing countries only, not all countries on this planet. One can capture the behaviours of the countries involved in the trade disputes under certain macroeconomic circumstances. The period is from 1995 to 2008, covering all records of trade disputes since the birth of the World Trade Organization (WTO).     

Estimation of TFP growth: a semiparametric smooth coefficient approach

This article uses a semiparametric smooth coefficient model (SPSCM) to estimate TFP growth and its components (scale and technical change). The SPSCM is derived from a nonparametric specification of the production technology represented by an input distance function (IDF), using a growth formulation. The functional coefficients of the SPSCM come naturally from the model and are fully flexible in the sense that no functional form of the underlying production technology is used to derive them. Another advantage of the SPSCM is that it can estimate bias (input and scale) in technical change in a fully flexible manner. We also used a translog IDF framework to estimate TFP growth components. A panel of U.S. electricity generating plants for the period 1986?C1998 is used for this purpose. Comparing estimated TFP growth results from both parametric and semiparametric models against the Divisia TFP growth, we conclude that the SPSCM performs the best in tracking the temporal behavior of TFP growth.     

Deconstructing gravity: trade costs and extensive and intensive margins

Abstract This paper uses data on US exports to decompose exports into the number of exporting firms (the extensive margin) and average export sales (the intensive margin). We show how a range of proxies for trade costs has different impacts on the two margins. Distance has a negative effect on both margins, but the magnitude is considerably larger for the extensive margin. Most of the variables capturing language, internal geography, infrastructure and import cost barriers work through the extensive margin. We show that these results are consistent with a Melitz‐style model of trade with heterogeneous firm productivity and fixed costs.     

TFP growth and its determinants: a model averaging approach

Total Factor Productivity (TFP) accounts for a sizable proportion of the income differences across countries. Two challenges remain to researchers aiming to explain these differences: on the one hand, TFP growth is hard to measure empirically; on the other hand, model uncertainty hampers consensus on its key determinants. This paper combines a non-parametric measure of TFP growth with Bayesian model averaging techniques in order to address both issues. Our empirical findings suggest that the most robust TFP growth determinants are time-invariant unobserved heterogeneity and trade openness. We also investigate the main determinants of two TFP components: efficiency change (i.e., catching up) and technological progress.     

The core periphery model with asymmetric inter-regional and intra-regional trade costs

We generalize the model of Krugman (J Polit Econ 99(3):483–499, 1991) to allow for asymmetric trade costs between regions and for (asymmetric) trade costs that are internal to the regions. We find that industrial activity, in a region, is enhanced by higher costs of importing and lower costs of exporting (more precisely, by a higher ratio between the two trade costs). This suggests that countries may impose tariffs on imported goods and seek to remove the import tariffs in other countries (unilateral protectionism) in order to foster industrial activity. Industrial activity is also promoted by lower domestic internal trade costs and higher foreign internal trade costs (more precisely, by a lower ratio between the two trade costs).     

The determinants of FDI in Turkey: A Markov Regime-Switching approach

This paper considers movements of Foreign Direct Investments (FDI) in Turkey, and therefore, to understand the dynamics of FDI, runs several nonlinear FDI equations in which the basic determinants of FDI in Turkey are determined through Markov Regime-Switching Models (MSMs). The statistical properties of Markov Regime-Switching time series models are more desirable than those of conventional time series or panel regression models. Through these properties of MSMs, i) one can observe structural changes, if they exist, in FDI equations through time, ii) if, in fact, the true FDI regression equation follows a nonlinear relationship, MSMs fit data better than the linear models. This paper eventually follows maximum likelihood methodology of Markov Regime-Switching Model (MSM) to search for the possible structural changes in level and/or trends and possible changes in parameters of independent variables of FDI–MSM equations through the transition probabilities. In conclusion, this paper yields the outcome that Turkish FDI growth equation has significant structural changes in level and trend and that has significant coefficient shifts in explanatory variables. These explanatory variables are Turkish GDP Growth, Labor Cost, the Electricity Price Growth, the growth in average prices of High Sulphur Fuel Oil, Cooking Coal, Steam Coal and Natural Gas, Export Growth, Import Growth, Discount Rate and Country Risk Indexes for Turkey, US and EU, respectively, within the time interval from 1988 first quarter to 2010 second quarter.     

Country and industry-level determinants of vertical specialization-based trade

Abstract

This paper investigates country and industry-level determinants of vertical specialization-based trade. Industries that engage in this pattern of trade are identified through their use of offshore assembly provisions in the US tariff code. Findings explain why industries engage in vertical specialization-based trade and shed light on factors that enter production location decisions. Identifying factors that encourage vertical specialization-based production and trade will enhance our understanding of industry strategy and how trade patterns will evolve as the process of globalization continues. Results suggest vertical specialization-based trade will continue to grow relative to total trade.     

Quantifying nontariff barriers in Ukraine: a comprehensive trade cost approach

Great strides have been made recently in the theoretical approach to quantifying nontariff barriers. Modifying an approach proposed by Novy (2013), this article attempts to understand the extent of nontariff barriers between Ukraine and its major trading partners in goods by fashioning a new approach to trade in services as well. I provide the first comprehensive estimates of ad valorem equivalents of the nontariff measures that exist in Ukraine.     

Industrial organization implications of QR trade regimes: Evidence and welfare costs

Evidence of the relationship between trade regimes, concentration and profitability in semi-industrial countries' manufacturing sectors is reviewed. This evidence is used to justify the formulation and simulation of a three sector general equilibrium model in which the manufacturing sectors's behavior is linked to the degree of restrictiveness of the QR regime. Simulations are conducted with several variants of the model to ascertain separately the effects of introducing economies of scale, firm entry/exit, departures from competitive pricing, and interactions between entry and pricing rules. Numerical results suggest that a 20 percent rationing rate of intermediates and consumption goods can have welfare costs of about 2.0 percent of national income in the absence of economies of scale and industrial organization interactions with the trade regime. When industrial organization features are included, the costs of the same 20 percent rationing quadruples.     

Asymmetric effects of trade costs on entry modes: Firm level evidence

Standard foreign direct investment (FDI) theory suggests that falling trade costs should discourage horizontal FDI. Most FDI is horizontal. Yet, the world witnessed an FDI boom in 1990s, a period of striking falls in trade barriers. This paper carries out an empirical analysis with rich, firm-level data on the activities of Swedish multinationals around the globe in manufacturing sectors from 1987 to 1998 to shed light on this apparent conflict. The analysis is based on the predictions of a recent literature with an industrial organization (IO) angle: Trade costs have asymmetric effects on foreign expansion modes. This view posits that falling trade costs encourage entry realized as mergers and acquisitions (M&As), one of the potential explanations for the conflict between received theory and recent trends in FDI. Empirical results confirm the findings of this recent literature and add to it by testing its extensions.