A tale of competition between Eastern and Southern Europe

This paper assesses the relationship between EU manufacturing imports from the southern EU and the CEEC. First we set up an Almost Ideal Demand System (AIDS) for imports of 12 EU countries from EU-South and CEEC at the disaggregated NACE level, differentiating between final and intermediate goods. Then we analyze the correlation between the sign of elasticities of substitution and various explaining variables. Final goods imports are strongly complementary and intermediate goods imports are substitutive. An increase in the high-skilled to low-skilled labor ratio in the EU-South or in the degree of intra-EU multinationality lowers competition in intermediate goods trade between the EU-South and the CEEC. JEL no. F14, F15     

Patterns and determinants of international fragmentation of production: Evidence from outward processing trade between the EU and Central Eastern European countries

Patterns and Determinants of International Fragmentation of Production: Evidence from Outward Processing Trade between the EU and Central Eastern European Countries. — In this paper we investigate a specific form of international fragmentation of production, that is, the form giving rise to international trade for reasons of processing. Data on textile and apparel trade between EU countries and Central European countries show that the magnitude of trade for reasons of processing greatly overshadows that of final trade. The industry appears to be affected by a process of international fragmentation whose understanding requires a new definition of the concept of comparative advantage. Our analysis suggests that this fragmentation is activated by labor cost differentials as well as by reasons of geographic and cultural proximity.     

Horizontal and vertical intra-industry trade between Eastern Europe and the European union

Horizontal and Vertical Intra-Industry Trade Between Eastern Europe and the European Union. — The share of intra-industry trade (IIT) in total trade between central and east European nations and the EU is broken down into various components. Vertical IIT is found to account for 80 to 90 percent of total IIT. Controlling for country-specific effects, it is positively associated with product differentiation, labor intensity of production, economies of scale, and foreign direct investment (FDI). Horizontal IIT is also positively correlated with FDI and product differentiation; however, a significant negative relationship is found for scale and labor intensity.     

Eastern European trade and the Austrian labour market

Eastern European Trade and the Austrian Labour Market. — Recent years have seen a major break in trade relations between Western and Eastern European countries. Austria experienced a large bilateral trade creation with these countries. In this paper, the authors take a closer look at the impact this trade growth had on the Austrian labour market. To differentiate as far as possible between different segments of the labour market, they concentrate on unemployment experience and wage growth for a panel of individual workers in Austrian industry. The results show rather small employment effects, the impact on wage growth is more pronounced with interesting modifications for mobile and immobile workers.     

中间品进口多样化、企业创新与工资水平

基于2000-2006年中国制造业企业数据库以及进出口海关数据库的匹配数据引入企业创新机制效应检验中间品进口多样化的工资溢出效应。研究表明中间品进口多样化、企业创新均能显著提高企业的工资水平。进一步考察企业的出口状态、所有制结构及企业所属地区差异后发现中间品进口多样化对出口企业、外资企业以及东部地区企业的工资影响更为显著。分位数回归结果进一步显示中间品进口多样化及企业创新对工资分布高分位企业的工资影响更为显著。基于中介效应模型的传导机制检验，认为中间品进口多样化通过节约成本、提升生产率及企业创新影响中国制造业企业工资水平的利润共享机制存在。在控制成本效应及生产率效应两种机制之后，企业创新成为中间品进口多样化作用于企业工资的新机制。     

On the trade,growth, and welfare effects of intellectual property rights protection

To examine how intellectual property rights protection affects trade, growth, and welfare, I develop a two-country R&D-based growth model in which final goods firms in both countries determine the range of imported varieties in the overall use of intermediate inputs. I show that strengthening patent protection in either country increases the range of imported varieties of intermediate goods and stimulates economic growth in the country that strengthened patent protection. Moreover, I also show that the Nash equilibrium level of patent protection is stronger than the globally optimal level of patent protection.     

The role of banks in financial integration: evidence from new EU members

EU enlargement involves the simultaneous liberalisation of goods and financial markets. While the issue of free trade in capital versus goods has frequently been the subject of study in international economics, the emphasis has typically been on physical capital (machines etc) rather than financial capital. This paper considers this distinction in a world with asymmetric information, moral hazard and hence credit rationing, and explores the resulting ambiguous theoretical predictions via an econometric analysis of the entry of the Central and Eastern European Countries to the EU.     

China's Free Trade Ports: Effective Action Against the Threat of De‐globalization

With sluggish external demand and increasing trade protectionism by the USA and the European Union, China is facing severe challenges in implementing its deeper, ongoing reforms. To respond actively to such challenges, the Communist Party of China's 19th National Congress proposed to “promote a new pattern of all‐round opening up.” In particular, the establishment of free trade ports is considered an important means to realize deeper integration with the world economy. This paper discusses the background, the motivation, the possible challenges as well as a feasible path for the successful implementation of free trade ports in China. Based on the international experience, the construction of free trade ports in China requires freer trade in goods, high mobility of talent and free capital flow.     

Intra-Industry Trade in Intermediate Goods and Final Goods in a General Equilibrium Setting

This article develops a dual general equilibrium model to analyze the effects of intra-industry trade in both intermediate goods and final goods on the productivity in the final good production. Intra-industry trade in intermediate goods determines an increase in the number of intermediate good varieties available in the final good production, and intra-industry trade in final goods determines a reduction in the number of adaptations of an intermediate good to the final good production. Thereby, the productivity in the final good production increases. Different shares of intra-industry trade in intermediate goods and final goods in a general equilibrium setting implies that Jones' magnification effect and both the Rybczynski theorem and the Stolper-Samuelson theorem are not valid.     

Vertical trade and China's export dynamics

This paper examines how China's exports are affected by exchange rate shocks from countries that supply intermediate inputs to China. We build a simple small open economy model with intermediate goods trade to show that due to the intra-regional trade in intermediate goods, a devaluation of other Asian currencies does not necessarily hurt China's exports, as imported intermediate goods could become cheaper. The effect of intermediate goods costs depends critically on the share of intermediate goods used in China's export goods production and the degree of exchange rate pass-through in imported intermediate goods prices. If prices for intermediate goods are not very sticky, the effect through this channel could be large, and China's exports could even benefit. We find that these findings do not depend on China's choice of currency invoicing between the RMB and the US dollar or the choice between fixed and flexible exchange rate regimes.     

An assessment of three measures of competitiveness

An Assessment of Three Measures of Competitiveness. -This paper discusses three indicators of competitiveness: real exchange rates based on consumer price indices, export unit values of manufacturing goods, and normalized unit labour costs in manufacturing. It discusses how each of these measures is associated with changes in a country's balance of trade in goods and nonfactor services and examines how each one of these indicators is related to each other. It then examines the empirical performance of each in terms of its ability to explain trade flows. The conclusion is that in examining an issue as complex as trade competitiveness, the use of one indicator is suboptimal.     

Immigrant Specificity and the Relationship between Trade and Immigration: Theory and Evidence

Studies routinely document that immigrant employment concentrates in non‐traded goods sectors and that many immigrants have low inter‐sectoral mobility. We consider these observed characteristics of immigrant employment with regard to the question of how immigration affects a nation's pattern of production and trade. We model an economy producing three goods; one is non‐traded. Domestic labor and capital are domestically mobile but internationally immobile. Allowing that some new immigrants will become specific to the non‐traded goods sector, the model indicates that the effects of immigration on output and trade depend importantly on the sectoral pattern of employment of both new and existing immigrants. Empirical investigation in a panel data set of OECD countries supports the model's prediction that immigration raises the output of non‐traded goods. Consistent with the model, we also find that immigration and trade are complements. Given its empirical support, the model's implications for immigration policy are then discussed.     

Real Effective Exchange Rate and Regional Economic Growth in China: Evidence from Provincial Data

Using data for the period 2000–2011, we construct province‐level real effective exchange rate (REER) indices for China and test the effect of REER depreciation on regional economic growth in a generalized method of moments regression framework. Our results show that REER depreciation, in general, promotes regional economic growth, through increasing net exports and lowering FDI costs. After dividing the full sample into coastal and inland subsamples, we find that REER depreciation influences economic growth in inland areas but not in coastal areas. This is due to the fact that the inland areas have more surplus labor or other resources to expand their production capacity when REER depreciation leads to increased world demand. Furthermore, compared to inland areas, processing‐and‐assembly trade comprises a larger share of trade in the coastal areas, where traders import more raw materials and intermediate goods to process and assemble goods. When the exchange rate depreciates, the costs of imported materials and immediate goods increase. In this case, the benefits from REER depreciation in coastal areas are offset to some extent and are thus lower than in inland areas.     

International Trade and R&D Investment: Evidence from Chinese Manufacturing Firms

A current concern for China's long‐term growth prospect is whether China can become an innovative economy and achieve industrial upgrading to compensate for the gradually declining competitiveness resulting from low‐cost labor. The present study examines this issue by exploring how trade participation impacts on the R&D investment of manufacturing firms through various channels. Merging China's Annual Manufacturing Survey Dataset and the Chinese Customs Dataset allows us to study such a relationship at the individual firm level. The empirical results suggest that channels such as geographical diversification of export markets, share of imports from high‐income countries, average unit value of imports, number of intermediate goods and capital goods imports, and the trade regime are significant factors that influence firm‐level R&D investment. The study discusses the policy implications of the empirical findings in relation to industrial and trade policies that may be potentially beneficial for China's transition towards an innovative economy.     

ASEAN Economic Community: A General Equilibrium Analysis*

The ASEAN Economic Community (AEC) is the largest integration effort attempted in the developing world; if realized, it will create a single market with the free movement of goods, services, foreign direct investment and skilled labor, and freer movement of capital encompassing nearly 600 million people. This study, a first attempt to evaluate the full benefits of the AEC, finds that the project could produce gains similar to those resulting from the European Single Market, amounting to 5.3 percent of the region's income. The benefits could be doubled if, as expected, regional integration also leads to new free trade agreements with key external partners. The whole region will share in these gains. There will be mild trade and investment diversion effects for some other countries, but the world will benefit too. Nevertheless, the AEC poses political challenges: the present study finds that the project will imply significant structural adjustments in several ASEAN economies.     

Impact of International Trade with Asian Newly Industrialized Countries on Wages in the European Union

This paper deals with the effect of international trade with newly industrialized countries (NICs) on wage inequality in the European Union (EU). We apply a two-stage mandated wage-estimation procedure to assess the respective impact of trade and technology on the relative wages of low-skilled workers. We find weak evidence of a positive impact on the wages of high-skilled workers with regards to trade with high-wage South-East Asian NICs but no evidence for other groups of NICs. We also find evidence of technological change, induced by trade with high-wage South-East Asian NICs. However, this indirect effect of international trade seems to have reduced wage inequality in the EU.     

EU Enlargement and the New Goods Margin in Austrian Trade

Using the methodology developed in Kehoe and Ruhl (J Polit Econ 121(2):358–392, 2013), I measure the change in the extensive, or new goods, margin of trade between Austria and the ten new entrants to the European Union in 2004. On average, the new goods account for 56 % of the bilateral trade flow after enlargement. A time series measure shows growth in the new goods margin coincides with the period surrounding the 2004 enlargement, which provides evidence on the importance of the role played by the new goods margin in the growth in trade during a trade liberalization.     

The Renminbi as a Trading Currency: Evidence from Selected Countries Participating in the Belt and Road Initiative

This paper investigates the effects of the renminbi (RMB) exchange rate on trade prices and volumes in selected Belt and Road Initiative (BRI) countries in comparison with the effects of the US dollar. The stylized facts show that the RMB is underused in bilateral trade with selected BRI countries where intermediate goods dominate. By estimating the level of exchange rate pass‐through and trade volume elasticity, we find that the RMB is significantly correlated with the volume of imports in the sample countries, predicted by the producer currency pricing (PCP) paradigm. We also regroup intermediate and final goods between China and the BRI countries. The evidence shows that dollar fluctuation affects export volumes, reflecting the role of the US as a final goods destination, whereas the RMB exerts a significant impact on the volume of intermediate goods imported from China to the sample countries due to China's important position in global value chains.     

Import competition from and offshoring to low-income countries: Implications for employment and wages at U.S. domestic manufacturers

Using confidential linked firm-level trade transactions and census data between 1997 and 2012, we provide new evidence on how American firms without foreign affiliates adjust employment and wages as they adapt to import competition from low-income countries. We provide stylized facts on the input sourcing strategies of these domestic firms, contrasting them with multinationals operating in the same industry. We then investigate how changes in firm input purchases from low-income countries as well as domestic market import penetration from these sources are correlated with changes in employment and wages at surviving domestic firms. Greater offshoring by domestic firms from low-income countries correlates with larger declines in manufacturing employment and in the average production workers’ wage. Given the negative association, however, the estimated magnitudes are small, even for a narrow measure of offshoring that includes only intermediate goods. Import penetration of U.S. markets from these sources is associated with relatively larger changes in employment for arm’s length importing firms, but has no significant correlation with employment changes at firms that do not trade. Given differences in the degree of both offshoring and import penetration, we find substantial variation across industries in the magnitude of changes associated with low-income country imports.     

Macroeconomic and Sectoral Effects of International Trade: A Vector Error-Correction Study

This study examines various claims that in the U.S., international trade has contributed to a loss of manufacturing base, an increased gap between unskilled and skilled wages, lower employment, and a loss of productivity. Cointegration tests indicate that in the long run and at the macro level, the ratio of trade to output and FDI to output are correlated with the manufacturing share of output, the ratio of unskilled to skilled wages, labor productivity, and the employment rate. However, Granger causality tests reveal that, with one exception, causation does not run from trade to the domestic variables, the only exception being that FDI Granger causes productivity. When the focus is shifted to the manufacturing sector, the results support the proposition that openness to trade has had adverse effects on this sector.A slightly different version of this paper was presented at the Fifty-sixth International Atlantic Economic Conference, October 16–19, 2003 in Quebec City, Canada. The research reported in this paper is partially funded by a grant from the Institute for Global Economic Affairs at Marquette University.