Intra‐industry Trade Liberalization: Why Skilled Workers are More Likely to Support Free Trade

This paper presents a theoretical model and empirical analysis that connects the prevalence of intra‐industry trade with increased wage inequality from trade liberalization in both skilled and unskilled labor abundant countries. The Stolper–Samuelson effect is incorporated into an intra‐industry trade liberalization (intra‐ITL) hypothesis where skilled labor opposes protectionism in all countries engaged in intra‐industry trade because skilled workers gain at the expense of unskilled workers from multilateral trade liberalization within the skill‐intensive sector. We examine empirical evidence on whether skilled individuals are more supportive of trade liberalization than unskilled individuals across 31 countries with different levels of intra‐industry trade and skill endowments. We find that the extent to which countries engage in intra‐industry trade in high‐tech commodities is strongly linked with the intensity of opposition to protection by skilled labor. Regression results strongly support our hypothesis that skilled workers, almost everywhere, are more likely to support free trade.     

Converging in divergent ways

This paper focuses on intra‐industry trade (IIT) between Central, Eastern and South‐Eastern European (CESEE) countries and the EU‐15. It assesses the determinants of intra‐industry trade by combining a detailed product‐level (HS‐6) trade‐flow database with country‐level structural, monetary and institutional variables. Estimates are obtained with System‐GMM and dynamic fractional response models. Our results suggest that structural factors driving IIT differ in the region, notably perceptions of corruption and the distance in the stock of physical capital from the EU‐15. On the other hand, nominal variables such as the competitiveness of corporate taxation and the flexibility of exchange rate regimes contribute to the increase in intra‐industry trade in the whole region.     

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.     

Testing the Linkages between Trade and Productivity Growth

The authors examine the effect of trade on productivity growth using data from nine manufacturing industries across 12 OECD countries over the period 1978–97. Because causality between productivity growth and trade share runs both ways, geographical characteristics of countries are used to instrument for average bilateral trade volumes over the 20‐year period. In addition, to exploit the time‐series nature of the data, the authors construct a panel dataset and employ dynamic panel data techniques. After controlling for industry‐specific heterogeneity, the results indicate that increased exposure to trade, in particular higher import volumes, exerts a positive influence on industries' productivity growth. However, the effect is rather small.     

Productivity growth from an international trade perspective

This paper presents a framework to assess the relative importance of three key sources of productivity growth that international trade research focuses on: (1) inter‐industry specialization; (2) intra‐industry reallocation of resources across heterogeneous firms; and (3) technological progress. We illustrate how to apply the framework by deciphering the productivity dynamics of the Swiss manufacturing industry. We find that intra‐industry reallocations are the most important source of growth in aggregate total factor productivity, spurred by the productivity growth of large, incumbent firms and the entry of new firms. Inter‐industry specialization and general technological progress, nevertheless, remain important supplementary sources of productivity growth.     

No risk and some fun? Trade and wages in the enlarged European Union

This paper analyses the relationship between openness to trade and wages at the industry level (15 manufacturing and 6 service industries) in 25 EU countries over the period from 1995 to 2005. By applying a cross-country and industry-specific approach, it is possible to control for unobserved heterogeneity at both country and industry levels. We also differentiate between intra and inter-industry trade and we try to assess the relative importance of foreign wages versus domestic productivity developments in an open environment. We find that trade is not an important driver of wages, since the wage response to trade is small. Moreover, in line with the Stolper-Samuelson reasoning, the overall wage impact is always positive if significant in central and eastern Europe, while in western Europe we often observe a negative response, particularly in resource-based industries. Nevertheless, increased trade reinforces the productivity-wage link and weakens the co-movement of wages in eastern Europe, while there is less evidence of a similar wage-disciplining effect of trade in the west.     

Monopolistic Competition and North–South Trade

This paper examines the consequences of opening to international trade for a developing economy with open urban unemployment and rural–urban migration, where the urban sector is monopolistically competitive. It is shown that there exists a threshold level of urbanization prior to which increases in product variety will be reflected in increased urban unemployment, that opening to intra‐industry trade with a high‐wage economy (i.e. North–South trade) will reduce the rate of urban unemployment by a greater amount than intra‐industry trade with a similar economy, and that trade intervention in the South may lower welfare by reducing varieties produced in the North.     

The Roles of Innovators and Labor in a Schumpeterian Factor Endowments Based Model of Intra‐industry Trade

This paper builds a model of Schumpeterian innovation and trade that emphasizes endowments of innovators and labor as a key factor in determining the pattern of trade. The model suggests a strong complementarity between intra‐industry and inter‐industry trade. The pattern of inter‐industry vs intra‐industry trade is analyzed using the Grubel–Lloyd index. The theoretical model predicts that the prominence of intra‐industry trade is a nonlinear function of the ratio of the proportion of world knowledge domestically generated to the domestic share of the world labor supply. Strong empirical evidence for this key result is presented and implications are discussed.     

Similarity in trade structures,integration and catching‐up1

In this paper, we look at the role of export composition in the growth process, considering how increased similarity in trade structure among countries can induce catching‐up in income levels in a group of countries in transition. We analyze the sectoral export patterns of the Central and Eastern European countries (CEECs) by comparing them to those of the current members of the European Union (EU), focusing on countries’ specialization as suppliers for the EU market, and we assess whether similar export patterns foster the catching‐up process of the CEECs. Our main result is that similarity in export composition has a positive, significant and non‐linear impact on catching‐up, and seems to be driven by the growth of the main export market and delocalization of production more than by other factors.     

Intra‐industry Trade Liberalization and the Environment

This paper examines how trade liberalization affects national and global pollution in a multi‐country model incorporating monopolistic competition and intra‐industry trade as well as inter‐industry trade. Each country produces skill‐intensive differentiated goods and labor‐intensive goods. Pollution is a by‐product of production but pollution abatement can be undertaken. Regardless of country characteristics, if the differentiated‐good sector is sufficiently cleaner (dirtier) then, without any change in environmental taxes, a multilateral reduction in import protection accorded to the differentiated good or to both goods typically leads to a decline (rise) in pollution in all countries. Pollution havens tend not to arise.     

GROWTH,INTER‐INDUSTRY AND INTRA‐INDUSTRY COMPETITION AND WELFARE*

In this paper we introduce strategic interaction between firms in an R&D growth model which captures both the intra‐industry competition between firms operating within an industry and the inter‐industry competition between firms in different industries. We show that the more substitutable the goods produced within each industry (across industries) are, that is, the more intense the intra‐industry (inter‐industry) competition, the higher is the growth rate. In the comparison between social optimum and a decentralized economy, it is shown that the market outcome is characterized by inefficiently high entry of firms within each industry and insufficient productivity growth.     

North–South Trade Liberalization and Economic Welfare

We consider a general equilibrium model of a developing economy (the South) that opens to trade with a developed economy (the North). The southern economy is characterized by open urban unemployment and rural–urban migration, a competitive agricultural sector and a monopolistically competitive manufacturing sector. Hence, there is potential for both inter‐ and intra‐industry trade to arise on liberalization, in addition to distortionary effects of duality. Southern comparative advantage in agriculture may arise from the labor market distortion and the basis for intra‐industry trade is love for variety. We characterize various configurations of the trade pattern, and the resulting welfare consequences of opening to trade in this context. We illustrate a new mechanism under which in some circumstances it may be possible for trade liberalization to lower economic welfare in the South.     

ICT and Productivity in Europe and the United States Where Do the Differences Come From?

In this paper we analyse labour productivity growth in 51 industriesin European countries and the United States. Using shift-sharetechniques we identify the industries in which the U.S. is leadingmost strongly. With a detailed decomposition analysis we identifywhether the sources of the U.S. advantage are due to fasterproductivity growth, higher industry productivity levels relativeto the country aggregate, different employment shares or fasterchange in employment shares of rapidly growing industries. Theresults show that U.S. productivity has grown faster than inthe EU because of a larger employment share in the ICT producingsector and faster productivity growth in services industriesthat make intensive use of ICT. Wholesale and retail trade andthe financial securities industry account for most of the differencein aggregate productivity growth between the EU and the U.S.(JEL N10, O47, O57)     

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.     

The effects of public expenditures on labour productivity in Europe

Empirica - In this paper, we analyse the effects of public expenditures and their structure on productivity growth in industry and services in the European Union (EU) countries (1996–2017)....     

Industry-specific determinants of vertical intra-industry trade: the case of EU new member states’ agri-food sector

The determinants of intra-industry agri-food trade are analysed to only a limited extent in the literature. This article investigates the industry-specific determinants of vertical intra-industry agri-food trade between new member states of the EU and the other EU countries for the period 1999–2010 by applying a dynamic panel data model. Results suggest that IIT is mainly low vertical in nature, suggesting regional export of low-quality products to EU markets. Results also show that vertical product differentiation and FDI are positively related to VIIT, suggesting that quality growth and investments foster vertical intra-industry trade. As to productivity and factor endowments a negative relationship with VIIT was found, implying the labour abundant and similar nature of NMS agricultural sectors.     

Endowments,Specialization, and Policy

The paper explores the relationship between industry shares in production and their determinants including factor endowments, technology, and government policies, in a GDP–function framework. We use a new international panel dataset on production and trade compiled by the World Bank. As an intermediate step we calculate Hicks‐neutral productivity indices that vary across industries, time, and countries. We find that own‐TFP is robustly associated with industry shares across time and countries and that, after correcting for these productivity differences, output shares are related to factor endowments (Rybczynski effects) in a plausible way. Once Rybczynski effects are controlled for, we find little evidence of demand‐side policies (import tariffs) affecting the allocation of resources; we find, however, more role for supply‐side policies as the relative size of capital‐intensive industries is positively associated with infrastructure–capital endowments.     

Trade, Human Capital, and Technology Spillovers: an Industry-level Analysis

This paper studies whether trade promotes North–South and South–South technology spillovers at the industry level, and how the absorptive capacity of the South affects the impact of the technology spillovers. Using data from 16 manufacturing industries in 25 developing countries from 1976 to 1998, the paper shows: (i) North–South trade‐related R&D has a substantial impact on total factor productivity in the South; (ii) South–South trade‐related R&D also promotes technology spillovers but with a smaller magnitude; and (iii) human capital is very important in facilitating North–South and South–South technology spillovers: an increase in human capital could lead to over three times the size of technology spillovers from an increase in trade‐related foreign R&D.     

Trade efficiency and economic development: evidence from a cross country comparison

Economic theory suggests that development is enhanced through income growth, which is driven through increased trade. However, the empirical evidence of such a relationship most of the times is proved to be weak. In this study we try to determine the factors influencing this relationship by measuring ‘trade efficiency’. Using the data envelopment analysis (DEA) window method for a sample of 16 OECD countries, we obtained the efficiency scores and the optimal output levels for the inefficient countries for a time period of 5 years under consideration. Results drawn from the broadly used ratio analysis were also compared to the results derived from the DEA model. Our empirical findings show that ‘trade efficient’ countries have clear characteristics like low-exchange rates for exports, low R&D intensity, high-value intra industry trade and positive impact of net trade on their gross domestic product.     

External economies as a mechanism of agglomeration in EU manufacturing

Productive externalities are significant determinants of agglomeration, not deeply studied at the industry and international level. We analyse the impact on productivity growth of technological externalities, both inter- and intraindustry, national or international, at the industry level for the EU countries and the period 1995–2002. The results confirm the advisability of considering international externalities when countries are taken as regions, whose omission underestimates national spillovers. Together with national endowments and a central geographical position, the growth of productivity is encouraged by national and international specialization as a general result; moreover, it is fuelled by stronger interindustry spillovers and productive diversification, a result more evident for high technology industries, while lower technology industries are more sensitive to the omission of international externalities. Economic integration seems to be relevant, because supranational regions with less friction for goods and factor movements are more likely to take advantage of external economies as a mechanism of productivity growth and agglomeration.