Importing,Exporting, and Innovation in Developing Countries

This study shows the persistent differences in evolution of firms when they are grouped according to their trade orientation as: two‐way traders (both importing and exporting), “exporters‐only”, “importers‐only”, and nontraders. Extending the existing models of firm evolution into an open economy setup by incorporating the importing decision, a simple model is presented and it is empirically shown that: (i) globally engaged firms are larger, more productive, and grow faster than nontraders; (ii) two‐way traders are the fastest growing and most innovative group who are followed by exporter‐only firms; and (iii) estimating the export premium without controlling for import status is likely to overestimate the actual value by capturing the import premium. Robustness of the results is shown by providing evidence from the panel data constructed from the original dataset and controlling for variables that are likely to affect firm evolution.     

International Trade and Collective Bargaining Outcomes: Evidence from German Employer–Employee Data

In theoretical trade models with variable mark‐ups and collective wage bargaining, exposure to international markets might reduce the exporter wage premium. We test this prediction using linked German employer–employee data covering the years 1996–2007. To separate the rent‐sharing mechanism from assortative matching, we exploit individual worker information to construct profitability measures that are free of skill composition. Our results show that rent‐sharing is less pronounced in more export‐intensive firms or in more open industries. The exporter wage premium is highest for low‐productivity firms. In line with theory, these findings are unique to the subsample of plants covered by collective bargaining.     

Employment,job turnover,and trade in producer services: UK firm‐level evidence

Abstract We provide the first firm‐level evidence of the impact of the trade in producer services (‘offshoring’) on the labour market. Using a new data set from the UK that measures trade in services at the firm level, we find no evidence that importing intermediate services is associated with job losses or greater worker turnover. Using regression to control for observable differences between firms that import service inputs and those that do not, we show that firms that start importing intermediate services experience faster employment growth than equivalent firms that do not. This seems likely to be the result of positive demand shocks, which cause a simultaneous increase in employment, output, and use of imported service inputs.     

The Impact of Exporting and Export Destination on Manufacturing Wages: Evidence for Sub-Saharan Africa

This paper investigates wage effects of trade status of African firms. Using data for manufacturing firms, we find a positive overall association between individual earnings and export status. Moreover, the skill wage premium in exporting firms is significantly higher. These results are consistent with either trade inducing higher wages in the exporting country, or with more productive (higher wage) firms self‐selecting into exporting. The results are not robust, however, to disaggregation by export destination. Exporting to outside Africa generates a negative wage premium whereas exporting to African markets yields a positive premium in export firms of the exporting country. This suggests that there is a disciplining effect on the wages of exporting firms only when exporting is to more competitive markets.     

Trade liberalization and markups: Micro evidence from China

This paper presents evidence from highly disaggregated Chinese firm-product data that, given productivity, input tariff reductions induce an incumbent importer/exporter to increase product markups. We further investigate empirically the mechanisms underlying this trade liberalization effect, and find that input tariff reductions decrease marginal costs, and their effects on markup adjustments are more profound among firms with higher import dependence. Moreover, we exploit unique features of Chinese data by comparing results for two trade regimes: ordinary trade (wherein firms pay import tariffs to import) and processing trade (wherein firms are not subject to import tariffs). While the aforementioned trade liberalization effects and mechanisms only apply to ordinary trade, processing trade samples are used in a placebo test. The paper also shows that more productive firms charge higher markups for products. All these findings are robust to alternative markup measures including one estimate using physical-quantity output data, different production function specifications, a subsample consisting only of pure exporters, and estimations based on our theoretical derivations.     

Heterogeneity of imported intermediate inputs and labour: evidence from India’s input tariff liberalization

This article explores whether the nature of imports matters when examining the effects of trade on plant-level labour outcomes. Previous literature that examines this question mainly considers imported intermediate inputs as a homogenous group and is unable to reach a consensus on the effects of input tariff liberalization on employment and wages of skilled and unskilled workers. Exploiting detailed product-level information available on intermediate inputs from plant-level data for the Indian manufacturing sector, I distinguish between plants that import mainly for quality considerations as opposed to plants that seek imports as cheaper alternatives to domestic inputs. I find that strong complementarities exist between skilled workers and imported inputs for plants importing high-quality inputs. For plants importing intermediate inputs mainly as a cost-cutting strategy, input tariff liberalization leads to an increase in employment of both skilled and unskilled workers, but a decline in skill composition. This can best be explained as a strategy that achieves economies of scale. On average, as input tariffs liberalize, importing plants employ more workers and pay higher wages than non-importing plants.     

Does international openness affect the productivity of local firms?

This paper examines how international openness can change firm productivity in south‐eastern Europe (SEE), a crucial question for middle‐income countries. Using firm‐level data for six transition economies over the 1995–2002 period, we identify whether foreign ownership and propensity to trade with more advanced countries can bring about higher learning effects. We find that: (i) foreign ownership has helped restructure and enhance the productivity of local firms in four out of six countries; (ii) exporting to advanced markets has a larger impact on productivity growth in four countries, especially when the firm's absorptive capacity is taken into account; (iii) in contrast, exporting to the less competitive markets of the former Yugoslavia seems to negatively affect productivity growth in three countries; and (iv) learning effects from importing are similar to those from exporting. Our results suggest that trade liberalization is not uniformly beneficial. Regional composition of trade flows and absorptive capacity of local firms matter. Thus, trade liberalization within the SEE region may not provide a substitute for a general trade liberalization which includes access to the more competitive markets of countries belonging to the Organization for Economic Co‐operation and Development.     

Misreporting trade: Tariff evasion,corruption, and auditing standards

Official international trade statistics report commerce between every pair of countries twice: once for the importing country and once for the exporter. In principle, the two values differ only by transport costs, but as has long been recognized, they also differ systematically with product‐level tariffs. We aggregate across products to construct a dataset of annual aggregate bilateral trade, separately for the importer and exporter reports. With these data, we show that the reporting differences also vary systematically with country characteristics aside from tariffs: incomes, auditing standards, corruption, and trade agreements.     

Trade liberalization,forward‐looking firms,and welfare

We set up an oligopolistic model with two exporting firms selling to a third market to investigate the welfare implications of trade liberalization when the exporting firms are forward‐looking. The results show that with cost asymmetry trade liberalization encourages the exporting firms to engage in tacit collusion, which may not only be detrimental to the domestic welfare, but also to the consumer surplus of the importing country. Moreover, we find that tacit collusion is less sustainable if the government of the importing country imposes a lower (higher) tariff on the more (less) efficient exporting firm. If a nonforward‐looking or a forward‐looking cost‐efficient domestic firm exists in the importing country, then trade liberalization also encourages tacit collusion.     

Uniform Versus Discriminatory Tariffs

We analyze the non‐cooperative interaction between two exporting countries producing differentiated products and one importing country when governments use optimal policies to maximize welfare. The analysis includes product differentiation, asymmetric costs, and Bertrand competition. For identical exporting countries we demonstrate that the importing country always prefers a uniform tariff regime while both exporting countries prefer a discriminatory tariff regime for any degree of product differentiation. If countries are asymmetric in terms of production cost then the higher‐cost exporter always prefers the discriminatory regime but the lower‐cost exporter prefers the uniform regime if there is a significant cost differential. With cost asymmetry the announcement of a uniform tariff regime by the importer is not a credible strategy since there is an incentive to deviate to discrimination. This implies an international body can play a role in ensuring that tariff agreements are respected.     

Cross-listing premium in the US and the UK destination

This paper tests the main hypothesis that firms that cross-list have higher valuations, and provides evidence on the valuation effect of cross-listing on a major non-US market, the UK compared to the US market from source countries in the Asia-Pacific region in 2003–2004. We find evidence that there is a cross-listing premium in both markets. However, the evidence on whether the premium is significantly different in the two countries is mixed. Using univariate, OLS and random effects methods, we find some evidence that the premium in the US is higher, but using a treatment effect methodology we find that the difference is not robust.     

Optimal Border Policies for Invasive Species Under Asymmetric Information

This paper analyzes the problem faced by a border protection agency if endogenous exporter abatement activities affect invasive species risk, allowing for unobservable differences in abatement cost. We show how the optimal inspection/penalty regime differs from the symmetric information case. Departing from previous literature, we allow for technical assistance, a policy instrument specifically permitted and commonly employed under Article 9 of the World Trade Organization Sanitary and Phytosanitary Agreement. We find the information asymmetry can make it optimal for the importing country to provide technical assistance grants for exporter risk abatement, even if it would otherwise be inefficient. Further, we show that fungibility of technical assistance with inputs in other sectors of the exporting economy affects the qualitative nature of optimal policy. If technical assistance has no outside value in the exporter’s country, optimal policy is characterized by a menu of contracts balancing higher tariffs with lower penalties for being caught with an invasive. If technical assistance can be used in other sectors of the exporter’s economy, it can introduce countervailing incentives making a uniform tariff/penalty combination optimal.     

Network effects,homogeneous goods and international currency choice: New evidence on oil markets from an older era

Conventional wisdom has it that network effects are strong in markets for homogenous goods, leading to the dominance of one settlement currency in such markets. The dominance of the US dollar in global oil markets is said to epitomize this phenomenon. We question this presumption with evidence for earlier periods showing that several national currencies have simultaneously played substantial roles in global oil markets. European oil import payments before and after World War II were split between the dollar and non‐dollar currencies, mainly sterling. Differences in use of the dollar across countries were associated with trade linkages with the United States and the size of the importing country. That several national currencies could simultaneously play a role in international oil settlements suggests that a shift from the current dollar‐based system toward a multipolar system in the period ahead is not impossible.     

International Trade,Technology, and the Wage Gap: Evidence from Granger‐causality Tests*

In this paper, we propose an alternative approach under which to examine the source of the increased wage gap between skilled and unskilled workers in US manufacturing. Rather than imposing the assumptions inherent in a given structural form, we posit a long‐run equilibrium relationship between international trade, technology, and the wage premium using a vector error‐correction model. We first test for the existence of a long‐run relationship using cointegration tests. If a cointegrating relationship is found, we then conduct tests on the direction of the long‐run relationship and of Granger causality. We apply our approach to each two‐digit and four‐digit SIC industry and find evidence in support of international trade being an important source of the wage gap. Our results suggest that it is premature to dismiss international trade as a possible suspect behind the rising wage premium.     

Trade costs,quality and the skill premium

We develop a monopolistic competition model with non‐homothetic factor input bundles where increasing quality requires increasing use of skilled workers. As a result more skill abundant countries export higher quality, higher priced goods. Using a multi‐country dataset, we test and confirm the findings in Schott ( 2004 ) of a positive effect of skill abundance on unit values identified with US data. We extend the core model with per unit trade costs leading to the Washington apples effect that goods shipped over larger distance are of higher quality. The combination of high‐quality goods being relatively skill intensive with the Washington apples effect implies that countries at a larger distance from their trading partners display a higher skill premium. Simulating our model, we find that a doubling of distance of a country relative to all its trading partners raises the skill premium in a country by about 1.6%.     

Imported input varieties and product innovation: Evidence from five developing countries

We examine how access to imported intermediate inputs affects firm‐level product innovation in five developing counties. We combine trade data with survey data on innovation and develop a method to determine whether new inputs were essential for the product innovation. We find evidence that the number of newly imported varieties has a significant impact on product innovations that rely on new inputs and provide suggestive evidence that this effect comes from access to better quality imports. We extend our analysis to assess the consequences of the increase in the number of Chinese exporting firms on product innovation in developing countries.     

The Exporter Wage Premium Reconsidered—Destinations,Distances and Linked Employer–Employee Data

This study uses detailed, reliable and up‐to‐date linked employer–employee data that take account of both the demand and the supply side of the labor market to challenge the conventional wisdom of a universal exporter wage premium. It investigates whether for German establishments an exporter wage premium can be found irrespective of export destination and the distance between export origin and destination. As expected, it finds that exporters generally pay higher wages than non‐exporters, but it also shows that only exporting to certain countries is associated with a wage premium. Moreover, such a premium exists only for establishments that ship goods over a relatively long distance.     

Firm productivity and importing: Evidence from Chinese manufacturing firms

This paper investigates various aspects of the relationship between firm productivity and importing for a large sample of Chinese firms between 2002 and 2006 making a distinction between the origin, variety, skill and technology content of imports. Employing a random effects probit model and a propensity score matching with difference‐in‐differences (PSM–DID) approach and treating imports as endogenous in our measure of total factor productivity (TFP) (De Loecker 2007), we test the self‐selection and learning‐by‐doing hypotheses. Our results show evidence of a bi‐directional causal relationship between importing and productivity. Although importing firms tend to be more productive before entering the import market, once they start importing firms experience significant productivity gains for up to two years following entry. We also find evidence of learning effects following the decision to import, which is stronger when import starters source their products from high‐income economies, import a wider variety of products and import products with a higher skill and technology content. A number of robustness checks confirm the learning effects of importing on TFP growth.     

Second thoughts on the exporter productivity premium

Abstract Contrary to the prevailing interpretation, this paper shows that the central models of trade with heterogeneous firms ( Melitz 2003 ; Bernard et al. 2003 ) exhibit ambiguous predictions for the exporter productivity premium. This prospect arises because of differences between theoretical and empirical representations of firm productivity. Instead of marginal productivity, we examine in both models the theoretical equivalent of empirically observable productivity (value‐added per employee). Given the presence of fixed export costs or heterogeneous mark‐ups and trade costs, the observable productivity of exporters in proximity to the export‐indifferent firm turns out to be lower than that of non‐exporters; that is, the productivity distributions overlap. The paper reviews empirical literature that reports non‐positive exporter productivity premia in firm‐level data and discusses implications for empirical research on exporter performance, including learning and the role of non‐parametric regressions (stochastic dominance, quantile regressions), fixed costs, and productivity distributions.     

Estimating the effects of non‐discriminatory trade policies within structural gravity models

We propose a simple method to identify the effects of unilateral and non‐discriminatory trade policies on bilateral trade within a theoretically consistent empirical gravity model. Specifically, we argue that structural gravity estimations should be performed with data that include not only international trade flows but also intra‐national trade flows. The use of intra‐national sales allows identification of the effects of non‐discriminatory trade policies such as most favoured nation tariffs, even in the presence of exporter and importer fixed effects. A byproduct of our approach is that it can be used to recover estimates of the trade elasticity, a key parameter for quantitative trade models. We demonstrate the effectiveness of our techniques in the case of most favoured nation tariffs and “time to export” as representative non‐discriminatory determinants of trade on the importer and on the exporter side, respectively. Our methods can be extended to quantify the impact on trade of any country‐specific characteristics as well as any non‐trade policies.