Global Value Chains,Horizontal Intra-Industry Trade and the Heterogeneous Firm

This paper examines global value chains at the level of the heterogeneous firm. The context is a world of horizontal intra-industry trade, characterized by imperfect competition and product differentiation at the firm level. Standard microeconomic tools are employed to assess the effects of inter-firm dissimilarities in both demand and supply on firms’ responses to changes in trade policy. In this set-up, dissimilarities in firm characteristics play roles similar to factor endowments and technology differences in traditional trade models. When cross-border production sharing (“fragmentation”) is introduced into this framework, those differences in firm characteristics determine the degree to which individual firms will enter into production networks. In this context, horizontal and vertical intra-industry trade elements interact in their effects on firm decisions. Traditional comparative advantage considerations still govern the choice of off-shored activities, while direct competition between imports and exports expands the range of possible outcomes. Finally, it is shown that cross-border production sharing reduces the sensitivity of firms to variations in exchange rates, matching a phenomenon that has been observed in traditional country-level models.     

The Role of Migration in the Variety and Quality of Trade: Evidence from Germany

We explore the migration‐trade nexus in the case of Germany over the period 2000–09, disentangling the two dimensions of intra‐industry trade (vertical and horizontal). We find that immigration is positively and significantly related to intra‐industry trade. However, the magnitude and statistical significance of migration's impact on trade are considerably higher for horizontal intra‐industry trade and increase with the difference in the level of development between Germany and the partner countries. This pattern is consistent with the view that information flows between migrant communities and their country of origin may be more important for consumer goods (where trade in varieties prevails) and that this information effect is more important if trading countries are very different.     

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.     

Endowment Differences and the Composition of Intra‐Industry Trade

The empirical relationship between differences in endowments and different types of trade is investigated in this paper. Although net trade (NT) and vertical intra‐industry trade (IIT) are both broadly viewed as reflecting endowment differences, we suggest that there will be systematic differences in the way their shares of trade adjust as endowment differences become larger. Empirical evidence for European Union trade with its 52 major trading partners confirms this. The share of horizontal IIT (net trade) decreases (increases) for all increases in absolute endowment differences, but the share of vertical IIT can both increase and decrease with increases in endowment differences.     

垂直专业化:经济全球化中的贸易和生产模式

垂直专业化的生产和贸易是当今经济全球化中最重要的现象之一。中国作为一个大国和发展中国家,垂直专业化的程度相对较高。随着中国加入WTO,跨国公司的垂直专业化战略模式将深入到中国的每一个角落,渗透在人们的生产生活中,对此,中国企业必须有自己的应对方案。     

Foreign market entry,upstream market power,and endogenous mode of downstream competition

In a differentiated duopoly model of trade and FDI featuring both horizontal and vertical product differentiation, we examine whether globalization and trade policy measures can generate welfare gains by leading firms to change their mode of competition. We show that when a high-quality foreign variety is manufactured under large frictions due to upstream monopoly power, a foreign firm can become a Bertrand competitor against a Cournot local rival in equilibrium, especially when the relative product quality of the foreign variety is sufficiently high and trade costs are sufficiently low (implying higher input price distortions due to double marginalization). Our results suggest that such strategic asymmetry is welfare improving and that the availability of FDI as an alternative to trade can make welfare-enhancing strategic asymmetry even more likely, especially when both input trade costs and fixed investment costs are sufficiently low and trade costs in final goods are sufficiently large.     

DOHA DEVELOPMENT ROUND: REACHING BEYOND TRADE LIBERALIZATION

Abstract.  While the WTO process of multilateral trade liberalization encounters increasing resistance, in part because the most difficult issues have finally risen to the top of the agenda, market-based forces are contributing to international economic integration. One of the most potent is cross-border production networks. This paper explores the implications of such networks for trade policies and development strategies. It argues that participation in production networks requires trade policy adjustments and domestic reforms that can and should be undertaken unilaterally and that such changes will improve the climate for WTO negotiations.     

中国农产品产业内贸易影响因素的实证研究

本文首先运用Grubel-Lloyd计量法和GHM分解法对1997—2008年中国农产品产业内贸易以及垂直型和水平型农产品产业内贸易水平分别加以测度,然后运用面板数据从国家层面对中国农产品产业内贸易影响因素进行了实证研究。结果表明:人均收入差距、外商直接投资、农产品贸易不平衡、贸易伙伴的贸易开放度是影响中国农产品产业内贸易的主要国家层面因素;区域优惠贸易安排、地理距离、市场规模因素对中国农产品产业内贸易发展也有不容忽视的影响。     

The Impacts of WTO Membership on Economic/Trade Relations Among the Three Chinese Economies: China, Hong Kong and Taiwan

Based on CGE model simulations, the present study examines the impacts on the growth of GDP, social welfare, the terms of trade, the volume of trade and trade dependence, under alternative scenarios of a WTO with and without the membership of China and Taiwan. In general, the three Chinese economies, China, Hong Kong and Taiwan, will be benefited by China and Taiwan's WTO memberships. The world trade will increase by more than $130 billions in real terms ($63.6 billions of exports and $66.5 billions of imports). Among them, more than 60 percent will be shared by China, and 10 percent shared by Taiwan. The intermediate role of Hong Kong in trade and investment relations across the Taiwan Strait will diminish, Taiwan's trade dependence on China will increase, but China's trade dependence on Taiwan will decrease. However, trade flows across the Taiwan Strait will focus more on intra‐industry trade.     

Interdependence in multinational production networks

Abstract Most multinational firms today operate multilateral production networks. Most existing empirical analyses, however, have focused on firms’ choice between producing at home and investing overseas. This paper uses detailed French multinational subsidiary data to examine the effect of existing production networks on multinationals’ entry decisions. The paper finds strong horizontal and vertical interdependence across multinationals’ foreign production locations, but little interdependence between home and foreign production when third‐country effects are taken into account. This result constitutes a sharp contrast to the conventional emphasis and highlights the importance of investigating foreign direct investment in the context of multinational production networks.     

Vertical specialization in North–South trade: Industrial relocation,wage and welfare

This paper presents a North–South trade model with vertically linked industries and examines how declining costs of trade across stages of production encourage vertical specialization and affect wages and welfare. As trade costs fall below a threshold, the production of all final goods relocates to the South and vertical specialization emerges. In some industries, production of intermediate goods also relocates against comparative costs because of benefits of co‐location, and further declines in trade costs lead to reshoring. A country may temporarily lose from falling trade costs, but both countries can be better off after trade costs fall sufficiently.     

Discriminating Among Alternative Theories of the Multinational Enterprise

Recent theoretical developments have incorporated endogenous multinational firms into the general–equilibrium model of trade. One simple taxonomy separates the theory into "vertical" models, in which firms geographically separate activities by stages of production, and "horizontal" models, in which multiplant firms duplicate roughly the same activities in many countries. The authors nest a horizontal and a vertical model within a hybrid (unrestricted) "knowledge–capital model" and estimate the specifications with data on US foreign direct investment activity. In the nested econometric tests, the data sample cannot distinguish statistically between the unrestricted model and the restricted horizontal model, indicating that the latter captures virtually all of the determinants of FDI. The tests overwhelmingly reject the vertical model.     

Trade Policy in Lobbying Equilibrium: With Non‐Traded and Traded Final Goods and Intermediate Inputs

The paper derives trade policies endogenously for final consumption and intermediate input industries in the presence of a non‐traded sector. Contrary to what the existing literature suggests, results show that there is no definite relation between lobbying status and the direction of trade policy of an industry. Trade protection of an industry depends on how its consumption (horizontal) and production (vertical) linkages with other industries reinforce or cancel out its lobbying efforts. To cite a few results, (i) an organized industry may face trade tax, whereas an unorganized one may obtain protection; (ii) an organized downstream industry may not be able to impose trade tax to an unorganized upstream industry, (iii) an organized upstream industry may not hurt unorganized downstream industry, (iv) lobby for non‐traded industry alone can influence trade policies, and (v) lobby for traded industry affects the size of the non‐traded sector in the economy.     

Trade costs and foreign direct investment

This paper focuses on an apparent conflict between the theory of foreign direct investment (FDI) and recent trends in the globalized world. The bulk of FDI is horizontal rather than vertical, and standard theory predicts that horizontal FDI is discouraged when trade costs fall. This seems to conflict with the experience of the 1990s, when trade liberalisation and technological change led to dramatic reductions in trade costs yet FDI grew much faster than trade. Two possible resolutions to this paradox are explored. First, horizontal FDI in trading blocs is encouraged by intra-bloc trade liberalisation, because foreign firms establish plants in one country as export platforms to serve the bloc as a whole. Second, cross-border mergers, quantitatively more important than greenfield FDI, are encouraged rather than discouraged by falling trade costs.     

Fragmentation and multinational production

This paper examines the consequences of falling transport costs for intermediate goods, and shows how this leads to the spatial fragmentation of production. As firms divide their production between countries they become either vertical multinationals (if upstream activities are labour intensive) or horizontal multinationals (if downstream activities are labour intensive). In the former case the volume of world trade increases, and in the latter it falls. Fragmentation need not narrow international factor price differences, which depend on the factor intensity of the activities that relocate.     

Disentangling the migration-trade nexus: the pro-trade effects of immigrants and emigrants in the presence of vertical and horizontal product differentiation

This paper presents an exploration of the migration-trade nexus taking the case of Italy by crossing the two dimensions of migration (immigration and emigration) and the two dimensions of intra-industry trade (vertical and horizontal). This empirical strategy proves useful in refining interpretation of econometric results. In general, we find that both immigration and emigration are positively and significantly related to intra-industry trade. However, the magnitude and the statistical significance of the impact of migration on trade vary, depending on the type of trade flows considered (vertical or horizontal), the direction of migration (immigration or emigration) and the partner countries considered (OECD or non-OECD). In particular, we find that immigrants from non-OECD countries have a positive and significant impact on both ‘variety trade’ and ‘quality trade’, while immigrants from OECD countries significantly affect ‘variety trade’ only. Emigrants to non-OECD countries have positive effect only on ‘variety trade’. These findings are largely consistent with predictions deriving from theoretical models of intra-industry trade and from the literature on migration-trade nexus.     

中国与东北亚各国和地区农业资源整合前景

处于发展更低阶段的中国 ,与高收入东北亚国家和地区整合农业资源 ,实行区域经济一体化 ,是各方的根本利益所在。各国和地区农业与非农产业间的水平分工 ,农业的垂直分工 ,是现阶段农业资源整合的具体形式。这需要各方、主要是高收入国家和地区的农业集团克服短视 ,推动贸易—投资自由化。     

中美木质林产品产业内贸易的实证研究——基于1992—2009年的进出口贸易数据

采用UNcomtrade数据库的中美木质林产品贸易数据,利用G-L指数、G-L修正指数、Aquino指数、Brülhart边际产业内贸易指数及Thom&McDowell水平型和垂直型产业内贸易指数,对1992—2009年中美木质林产品产业内贸易的水平和结构进行实证分析。结果表明:中美木质林产品产业内贸易水平总体较低,贸易方式仍以产业间贸易为主;中美木质林产品贸易的增长由产业间贸易和产业内贸易共同引发;产业内贸易方式以垂直型产业内贸易为主。     

Fragmentation and East Asia's information technology trade

This article studies the growth and determinants of information technology (IT) trade in the Asia-Pacific region. We argue that the rise of IT trade must be understood within the context of increasing vertical fragmentation of production processes that has occurred over the past two decades. To evaluate this empirically, we estimate a set of pooled bilateral IT export equations for eight Asian countries, the USA and the EU, where foreign direct investment (FDI) inflows are introduced as a proxy for fragmentation. We apply a panel cointegration approach that allows for heterogeneity in short-run dynamics and in fixed effects. Consistent with production fragmentation, we find that the evolution of IT trade can be explained in part by traditional income and relative price effects but also by FDI inflows.     

Cross-border mergers in vertically related industries

We construct a tractable model of an oligopolistic industry that allows us to capture the role of the vertical structure in the incentives for and implications of cross-border horizontal mergers. We show that vertical integration can increase the gains from cross-border mergers. We also demonstrate how market concentration interacts with costs in the decision of a relatively efficient foreign firm located in one country (source) to merge with a disintegrated or an integrated firm in another country (target) when the industry is vertically related. Absent any merger incentives in an autarkic equilibrium, we demonstrate that vertical integration can raise the incentives for diversification in production and add to the gains from cross-border horizontal mergers. Any additional gain from cross-border horizontal mergers, due to the existence of a vertically integrated production structure, is shown to be sensitive to the relative market concentration across countries. Cross-border mergers will be triggered by a relatively cost-efficient source taking over a disintegrated target when pre-merger competition among the disintegrated firms is relatively intense but, otherwise, the initial target will be a vertically integrated firm.