Interacting factor endowments and trade costs: A multi-country, multi-good approach to trade theory

We provide a synthetic analysis of the different ways in which countries participate in the world economy. Classic trade questions are reconsidered by generalizing a factor-proportions model to multiple countries, multiple goods or multi-stage production, and country-specific trade costs. Each country's production specialization, trade and welfare is determined by the interaction between its relative endowment and its trade costs. We consider the effects of allowing one good to ‘fragment’ into component and assembly production. The volume of trade and welfare levels are higher with fragmentation for most countries, although for many countries these variables fall with fragmentation.     

Technology, endowments, and the factor content of bilateral trade

We derive testable restrictions relating the factor content of bilateral trade to bilateral differences in technology and endowments. This departs from the Heckscher-Ohlin-Vanek theorem which compares the factor content of net trade with factor abundance. We test the theoretical restrictions using a unique dataset that covers 41 developed and developing countries with disparate endowments and technology. We find evidence supporting the predictions. In addition: (1) The factor content predictions perform best for country pairs with larger endowment differences, and (2) for trade between capital-abundant countries, Ricardian international technology differences matter more than Heckscher-Ohlin factor endowment differences.     

Diversification cones, trade costs and factor market linkages

This paper finds non-uniform differences in the distribution functions of factor usage intensities among 10 rich OECD countries. The 10 countries form three distinct groups such that the between-group differences are more pronounced than within-group differences and capital-abundant countries are in capital-abundant groups. The estimation works even if the same industry codes represent different goods across countries in the data. The finding is consistent with the multiple-cone factor proportions theory with zero trade costs with each group being one cone. An alternative interpretation is non-zero trade costs. Both interpretations imply weak factor market linkages between the countries in different groups.     

Retail trade and payment innovations in the digital era: a cross-industry and multi-country approach

Abstract

This article introduces a novel approach to payment innovations. It t identifies a cross-industry (retail trade and retail banking) and multi-country (USA, some Western European countries and Japan) approach to the interaction between these industries and the new retail payment systems from the 1970s to the mid 1990s. It documents and discusses the different trajectories that have been seen in the different competitive environments, particularly in regard to payment cards. It also analyses the involvement of bankers and retailers in the evolution of card payment systems and their contribution to the global adoption of bank cards. These processes have occurred within a framework in which sectoral boundaries have taken precedence over the payment alternatives associated with cross-industry solutions.     

Trade booms, trade busts, and trade costs

What has driven trade booms and trade busts in the past and present? We employ a micro-founded measure of trade frictions consistent with leading trade theories to gauge the importance of bilateral trade costs in determining international trade flows. We construct a new balanced sample of bilateral trade flows for 130 country pairs across the Americas, Asia, Europe, and Oceania for the period from 1870 to 2000 and demonstrate an overriding role for declining trade costs in the pre-World War I trade boom. In contrast, for the post-World War II trade boom we identify changes in output as the dominant force. Finally, the entirety of the interwar trade bust is explained by increases in trade costs.     

Investigating when religious culture increases trade credit: A signaling theory approach

Drawing on signaling theory, we propose that religious culture leads suppliers to alter their beliefs about their customers’ trustworthiness. Strong religious cultures are interpreted as a signal of fewer agency problems and less information asymmetry, which helps firms gain more trade credit from suppliers. The empirical tests performed in this study show that firms headquartered in areas with strong religious cultures receive more trade credit than other firms. This positive relation is more prominent when such firms are located in areas with lower levels of social trust. A further analysis reveals that the increasing effect of religious culture on trade credit eases financing constraints. Overall, our findings indicate that religious culture can be a broad indicator of firms’ ethical preferences that influences their access to trade credit by signaling their potential for a high level of trustworthiness.     

The resource reallocation costs of fixed and flexible exchange rates: A multi-country extension

For a sample of nineteen countries for 1972–79 we test the hypothesis that reallocation costs associated with temporary disturbances to the export sector of an economy are equal under fixed and flexible exchange rates. This test is an extension of earlier work indicating that in the special case of Canada, reallocation costs do not differ significantly under fixed and flexible rates. The degree of industrialization and openness of the countries included in the sample varies greatly; so it is interesting that the Canadian result generalizes to all but two cases. These results suggest that even during periods of considerable exchange rate variability, unnecessary resource reallocation costs may not be a significant disadvantage of a flexible exchange-rate system.     

The role of endowments,technology and size in international trade: new evidence from product-level data

Using product-level trade data, we empirically investigate the export patterns of more than 150 countries in their exports to the USA, Brazil, India, and Japan. We document strong evidence that exporters specialize according to their relative factor endowments, technology, and economic size. More developed, capital abundant countries are found to export products of higher unit values and a wider range of products to developed, emerging and developing markets. More developed, economically larger, and technologically advanced countries are also the major exporters of new products, spanning a wide range of product categories with high unit values. Our findings provide important insights into the macro phenomenon that a large proportion of the global trade takes place among developed economies, and that the latter are also major exporters to developing markets.     

Overlapping free trade agreements and international trade: A network approach

In our work, we have analysed the effect of the hub‐and‐spoke nature of free trade agreements (FTA s) on trade. Contrary to previous analyses, we have considered the effects of the country's position in the FTA network on the bilateral trade of the hub country. We have conducted an in‐depth analysis of the global network of FTA s, focusing particularly on its evolution in the last 15 years. We have utilised a panel data set covering the period 1960–2010 to investigate the effects of the hub‐and‐spoke on trade. Our results show that the countries that are more connected to FTA s export more than those that are less involved, although not all the partner countries you can connect with are the same. An increase in the number of spokes that have no link between them has, on average, a negative effect on the trade of the hub, which indicates that signing FTA s with every country is not the optimal strategy for increasing trade. However, if we consider the way new FTA s change the relative position of a country, we can see that if new FTA s make the country more central or less constrained in the network, these new agreements have a strongly positive and significant pro‐trade effect.     

Entry,trade costs,and international business cycles

Are firm entry and fixed exporting costs relevant for understanding the international transmission of business cycles? We revisit this question using a model that includes entry, selection to exporting activity, physical capital accumulation and endogenous labor supply. We determine that once the stochastic process for exogenous productivity is calibrated to consider the endogenous dynamics in TFP created by the number of firms and the time series volatility of entry is calibrated to the data, our model yields minimal departures from the Backus et al. (1992) benchmark. The richer model shares all of the successes of the previous model in terms of the volatilities of aggregate quantities, as well as its failures, in terms of replicating patterns of international co-movement and the volatility of international relative prices.     

Entry,trade costs,and international business cycles

Are firm entry and fixed exporting costs relevant for understanding the international transmission of business cycles? We revisit this question using a model that includes entry, selection to exporting activity, physical capital accumulation and endogenous labor supply. We determine that once the stochastic process for exogenous productivity is calibrated to consider the endogenous dynamics in TFP created by the number of firms and the time series volatility of entry is calibrated to the data, our model yields minimal departures from the Backus et al. (1992) benchmark. The richer model shares all of the successes of the previous model in terms of the volatilities of aggregate quantities, as well as its failures, in terms of replicating patterns of international co-movement and the volatility of international relative prices.     

Realizing the gains from trade: Export crops, marketing costs, and poverty

This paper explores the role of export costs in the process of poverty reduction in rural Africa. We claim that the marketing costs that emerge when the commercialization of export crops requires intermediaries can lead to lower participation into export cropping and, thus, to higher poverty. We test the model using data from the Uganda National Household Survey. We show that: i) farmers living in villages with fewer outlets for sales of agricultural exports are likely to be poorer than farmers residing in market-endowed villages; ii) market availability leads to increased household participation in export cropping (coffee, tea, cotton, fruits); iii) households engaged in export cropping are less likely to be poor than subsistence-based households. We conclude that the availability of markets for agricultural export crops help realize the gains from trade. This result uncovers the role of complementary factors that provide market access and reduce marketing costs as key building blocks in the link between the gains from export opportunities and the poor.     

Per capita income,market access costs,and trade volumes

There is strong empirical evidence that countries with lower per capita income tend to have smaller trade volumes even after controlling for aggregate income. Furthermore, poorer countries do not just trade less, but have a lower number of trading partners. In this paper, I construct and estimate a general equilibrium model of trade that captures both these features of the trade data. The key element of the model is an association between trade costs (both variable and fixed) and countries' development levels, which can account for the effect of per capita income on trade volumes and explain many zeros in bilateral trade flows. I find that market access costs play an important role in fitting the model to the data. In a counterfactual analysis, I find that removing the asymmetries in trade costs raises welfare in all countries with an average percentage change equal to 29% and larger gains for smaller and poorer countries. Real income inequality falls by 43%.     

J-curve in Turkish bilateral trade: A nonlinear approach

ABSTRACT

This study aims to bring further evidence on recent developments of the J-curve literature by employing linear and nonlinear autoregressive distributed lag (ARDL) approaches for Turkish bilateral trade data with respect to 18 European Union member countries over the period from 1990Q1 to 2017Q3. Findings obtained from the nonlinear ARDL model yield more support for the J-curve phenomenon compared to the linear model. This result provides evidence of an asymmetrical impact of appreciations and depreciations on the Turkish bilateral trade balances and suggests that allowing for nonlinearity in the adjustment process gives better results in terms of the J-curve effect.     

The evolution of world trade from 1995 to 2014: A network approach

This paper employs network analysis to study world trade from 1995 to 2014. We focus on the main connective features of the world trade network (WTN) and their dynamics. Results suggest that countries’ efforts to attain the benefits of trade have resulted in an intertwined network that is increasingly dense, reciprocal, and clustered. However, these features do not correspond to a linear aggregation of the characteristics of its constituents (trade sectors). Trade linkages are distributed homogeneously among countries, but their intensity (i.e. their value) is highly concentrated in a small set of countries. The main connective features of the WTN were not affected by the 2007–2008 international financial crisis. However, we find that the crisis marks a turning point in the evolution of the WTN from a two-group (led by the US and Germany) to a three-group (led by the US, Germany, and China) hierarchical structure.     

Counter-arguing as barriers to environmentally motivated consumption reduction: A multi-country study

This research extends previous literature on environmentally motivated consumption reduction (EMCR) with a cross-cultural investigation across 28 European countries. The paper elucidates how European consumers' knowledge and perceived seriousness of climate change inhibit the activation of counter-arguments, with implications for EMCR. More specifically, counter-arguing is a critical barrier to reduce EMCR. The developed model is based on the novel premise that the contingency variables, which qualify the impeding role of this barrier, are anchored at different levels. To account for individual and societal aspects simultaneously, multi-level analysis combines large-scale data from a Eurobarometer (n = 16,095) with secondary data at the societal level (n = 28). The results confirm that counter-arguments as barriers for EMCR and their attenuation through knowledge and perceived seriousness substantially varies across societies. Our results reveal that the collectivism/individualism dimension is most relevant in qualifying the impact of counter-arguments on EMCR. Building on our findings, impact-level-maps of counter-arguments and country clusters aid international marketers of environmentally friendly products to flexibly tailor their marketing campaigns. For policy-makers, our results further highlight that rather than raising knowledge with educative campaigns, perceptions of seriousness should be targeted to foster EMCR and inhibit counter-arguing.     

Unemployment,tariffs and the theory of international trade

In this paper, we introduce diminishing returns to scale in Brecher's model of international trade with unemployment and then investigate some issues embodied in the theory of international trade. Our principal results are that tariffs need not improve a country's terms of trade and that capital accumulation also need not result in a predictable change in the terms of trade.     

Local costs of distribution,international trade costs and micro evidence on the law of one price

This paper connects trade flows to deviations from the law of one price (LOOP) in a structural model of trade and retailing. It accounts for the observed cross-country dispersion in prices of goods, based on retail price survey data, by focusing on two sources of goods market segmentation — (i) international trade costs, and (ii) non-traded input costs of distribution. I find that a multi-sector Ricardian trade model, ala Eaton–Kortum, augmented with a distribution sector, can account for the average price dispersion for a basket of goods fully and generates 70% of the variation in price dispersion across goods within the basket. While tradability of goods is important in explaining the average price dispersion for the basket of goods, distribution costs are important in explaining why, within the basket, some goods show more price dispersion than others.     

Social responsibility of countries and their international trade: A gravitational approach

This article presents an econometric study based on a gravitational model estimation of the link between the prevailing social conditions in a country and its exports. It is based on an original indicator of social conditions: the Responsible Competitiveness Index (RCI) launched in 2007 by AccountAbility, the organisation that introduced the international AA1000 Standard. The regressions initially show a positive connection between the social responsibility of the countries and their exports. It is not a linear connection but shows a bell-shaped curve stronger in countries with lower levels of social responsibility (Southern countries): it can be negative in countries with high levels of social responsibility (Northern countries).