Bilateral Trade Performance in West Africa: A Gravity Model Estimation

This study provides empirical insights on the functioning of regional trade agreements within the Economic Community of West African States (ECOWAS) by identifying bilateral trade barriers that affect the extent of trade flows among member countries. Also, it highlights some trade barrier indicators that are rarely covered in extant studies, such as the multilateral resistance term, the extent of trade complementarity, and the presence of economic integration agreements among ECOWAS member countries. We then provide augmented gravity model estimation on the determinants of bilateral trade in the region. We find, among other things, that trade complementarity had a positive and significant effect on bilateral trade within the sub‐region region. Other important determinants of intra‐regional trade include multilateral trade resistance and economic integration agreements — meaning that countries with some kind of agreement like the West African Economic and Monetary Union (WAEMU) tend to trade more among themselves than other member countries.     

The Rise of China: Prospects of Regional Trade Policy

China now engages in multilateral trade liberalization as a new member of the WTO. Concurrently, the number of regional trade agreements is increasing worldwide. China and its trading partners would benefit from increased regional liberalization. Using a gravity equation for 23 Asia-Pacific countries between 1992 and 2000, we show that ASEAN and APEC currently have small effects on Asia-Pacific exports, which are mainly influenced by growth, trade barriers, and common language. However, we find that China’s participation in regional agreements has large export potentials, not only with respect to ASEAN, but also in a broad agreement including South and East Asian countries. JEL no. F15, F17     

Financial constraints and foreign direct investment: firm-level evidence

Low productivity is an important barrier to the cross-border expansion of firms. But firms may also need external finance to shoulder the costs of entering foreign markets. We develop a model of multinational firms facing real and financial barriers to foreign direct investment (FDI), and we analyze their impact on the FDI decision. Theoretically, we show that financial constraints can affect highly productive firms more than firms with low productivity because the former are more likely to expand abroad. We provide empirical evidence based on a detailed dataset of German domestic and multinational firms which contains information on parent-level financial constraints as well as on the location the foreign affiliates. We find that financial factors constrain firms’ foreign investment decisions, an effect felt in particular by firms most likely to consider investing abroad. The locational information in our dataset allows exploiting cross-country differences in contract enforcement. Consistent with theory, we find that poor contract enforcement in the host country has a negative impact on FDI decisions.     

Economic integration, wage policies, and social policies

This paper sets up a two country monopolistic competition modelwith intra-industry trade to study the effects of an exogenousdifferential in wage and social policies on the location ofindustry. Two model scenarios are considered. In the traditionalone with physical capital, such a differential induces a relocationeffect which increases with the level of trade integration.The ‘new economic geography’ world assumes mobileentrepreneurs which can relocate thus bringing agglomerationforces into play. The most significant difference between thisworld and the traditional one is that, at high levels of tradeintegration, where one country has emerged as the core and theother as the periphery, the core may have more generous socialpolicies and higher wages than the periphery without inducinga relocation of firms. The scope to have higher wage is constrained,however, and related to the level of trade integration in abell-shaped way.     

International trade and economic growth: evidence from a panel ARDL-PMG approach

The purpose of this work is to study the impact of trade openness on the economic growth of the countries bordering the Mediterranean using a panel of eight countries from 1975 to 2016. We apply ARDL panel which is a technique recently developed. We study the effects of openness to international trade on economic growth while incorporating economic policy variables. The results show that the variables of commercial and financial openness favor economic growth. The free trade agreements that the European Union has signed with certain countries in the Mediterranean basin are designed above all to encourage greater regional economic integration and an increase in their potential growth. Therefore, our findings show that the financial sector is slow to affect economic growth in these countries. This study reveals that human capital and the investment rate support the economic growth of our sample. In addition, we conclude that a process of economic convergence has begun in these countries. A causal analysis was carried out we found an unidirectional causality ranging from economic growth to trade openness.

     

Foreign Investment in East Asia: A Survey

This article updates the May 1989 literature survey on foreign direct investment (FDI) in the East Asian region published in this journal. Following an overview of trends of FDI in the 1990s, it focuses on three key issues: the impact of the recent Asian economic crisis on FDI inflow relative to other forms of capital inflows; the link between FDI and trade; and technology transfer and adaptation. It is too early to discern the implications of the crisis for host-country policies and investment decisions of multinational corporations, but the indications are that FDI will continue to play a pivotal role in economic transformation, and in regional and global economic integration.     

Trade in Parts and Components and the Industrial Geography of Central and Eastern European Countries

Growing inflows of FDI and the increasing integration of domestic firms into International Production Networks (IPNs) set up by EU-15 partners have yielded a rise in trade in parts and components for Central and Eastern European Countries (CEECs). As a consequence, new patterns of localization of industrial activities have been observed in the region since the mid-1990s. In this paper, I propose a comprehensive model of trade and production which tries to explain cross-country variations of sectoral output by comparative advantages (Ricardo, Heckscher–Ohlin) and agglomeration forces (home market effect, market potential), with a focus on the role played by trade in middle products. The empirical implementation reveals that the higher is the involvement in IPNs the larger is the domestic share of regional output. Comparative advantages are a crucial determinant of localization as opposed to agglomeration forces. I argue that these results can be interpreted as an assessment of the predictive power of two alternative trade theories. JEL no.  F10, F12, F14, F15     

日本依托区域经济一体化主导国际经贸规则制定权的战略分析

以安倍第二次出任日本首相为分水岭,起步晚、发展迅速的日本区域经济一体化战略发生了巨大的变化:由昔日高度重视通过参与、组建区域经济一体化组织来确保日本经济稳定发展的资源供给、不断开拓的海外市场转向了依托参与、组建区域经济一体化组织来主导国际经贸规则制定权。为此,安倍政府实施了以TPP/CPTPP、RCEP、中日韩FTA等区域多边贸易协定为龙头,以日欧EPA、日美贸易协定、日美数字贸易协定、日英EPA等双边自由贸易协定为两翼的区域经济一体化战略,使日本"成为在区域层面以及双边层面创造规则的国家"。     

A time series approach to study the dynamic effects of bilateral trade agreements

International Economics and Economic Policy - In this work, the effects of 103 bilateral regional trade agreements (RTAs: partial scope agreements — PSAs — and free trade agreements...     

Multinational firms, market integration, and trade structure: What remains of the standard-goods hypothesis?

Multinational Firms, Market Integration, and Trade Structure: What Remains of the Standard-Goods Hypothesis? — In extending traditional empirical trade models to multinational firms, this paper shows the effect of the transfer of firm-specific technology and intangible assets by these firms on the structure of host countries. For Belgium, a small open economy with a large presence of foreign multinationals, this effect is of crucial importance and previous studies appeared to have produced biased results by neglecting it. The econometric results show how the large multinational presence induced by the European integration has shifted Belgium’s trade structure towards differentiated products, thereby challenging the standard-goods hypothesis which states that small countries tend to specialize in nondifferentiated products. Spain and Ireland have witnessed an increase in foreign direct investment and a shift in trade structure similar to Belgium after joining the EC.     

Dissipation of Knowledge and the Boundaries of the Multinational Enterprise

This paper provides a theoretical formalization of the joint-venture contract, as an alternative to foreign direct investment (FDI), within a Dissipation of Intangible Assets (DIA) framework. In a two-period model, we discuss how the threat of knowledge spillover shapes the boundaries of a multinational enterprise (MNE). Similarly to the theoretical findings on the FDI-licensing trade-off, we show that the integrated solution is more likely to emerge when know-how easily spills over—i.e., when firms are endowed with more intangible assets or they belong to high-tech industries. Probit estimates, from a new firm-level data set, show that Japanese manufacturing operations in Europe are in line with these predictions. JEL no. F23, C25, O5     

Real Versus Tariff Liberalization: A Welfare Comparison Under Monopolistic Competition

A distinction between real trade costs (e.g., administration, border formalities, transport costs) and tariff costs is introduced into a standard monopolistic competition trade model. Driven by the number of firms, welfare under real trade barriers turns out to be lower than under an equivalent tariff barrier. Based on this finding, the paper shows that integration or rather liberalization measures (generating a certain increase in world trade) that reduce real trade barriers generate a larger welfare gain than integration consisting of a reduction in tariffs.     

How integrated is the world economy?

This paper develops a methodology to measure the degree of economic integration between nations that are members of an integrated area. We show that a fully integrated economic area (IEA) is characterized by three properties regarding the distribution of member shares of total IEA output and total IEA stocks of physical and human capital. We then show that the expected distribution of member shares within a fully IEA is a harmonic series, with the share distribution depending only on the number of IEA members. This property is then used to develop a composite indicator of the degree of economic integration within an IEA that indicates the distance between the theoretical and actual distribution of shares: the closer is the actual distribution to the expected distribution, the greater the degree of integration. We empirically compute our degree of integration for US states, and alternative regional trading agreements (e.g., EU countries, MERCOSUR, Bangkok Agreement, etc.) and a “world” comprising 64 countries.     

Foreign direct investment, agglomerations, and demonstration effects: An empirical investigation

Previous studies have shown that the localisation of firms can be an important factor in attracting new foreign direct investment into a host country. The authors distinguish between “efficiency agglomerations” which arise as firms increase their efficiency by locating close to each other, and “demonstration effects” whereby existing firms send signals to new investors as to the reliability and attractiveness of the host country. They try to disentangle these two effects by examining the location of US firms in Ireland. They find that both sources of agglomerations have been important determinants of US firm entry into Ireland. JEL no. F23     

Effects of regional integration on FDI: An empirical approach

This study uses an augmented gravity model to capture the effect of regional economic integration on Foreign Direct Investment (FDI) flows in the cases of the EU, NAFTA, MERCOSUR, and ASEAN. Three important conclusions emerge: (i) regional integration has had a positive and significant effect on FDI, which is a combination of investment creation and diversion; (ii) investment diversion does occur in a significant number of cases, and hence it is a legitimate cause for concern, especially among developing countries that are not part of a regional grouping with at least one developed country; and (iii) FDI acts as a substitute for trade in a significant number of cases, although in some cases, it complements trade.     

Economic integration in northeast Asia: Preconditions and possible trajectories

When in November 2001, the leaders of the Southeast Asian and Northeast Asian states met for the “ASEAN (Association of South East Asian Nations) plus three (China, Japan and Korea),” President Kim Dae‐Jung of South Korea proposed the exploration for an East Asian Free Trade Area (EAFTA) and thereby opened a new chapter of East Asian integration. The special Northeast Asian perspective on regional co‐operation became clear by the simultaneous decision to hold annual meetings of finance and trade ministers of China, Japan and Korea. At the same time, bilateral agreements, like a free trade area between Japan and Singapore, the tentative large free trade area between ASEAN and China and the work‐in‐progress on a Korean‐Japanese Free Trade Area, show the devotion and sometimes even obsession of current policy‐making with reaching regional trade agreements. Regional integration, it seems, is finally on the Northeast Asian agenda. In this paper, the preconditions and perspectives of economic integration in Northeast Asia will be explored. Since economic integration is in various ways linked to political factors, the second section discusses the geo‐political situation of Northeast Asia today. The third section deals with the economic perspectives of different forms of trade integration, followed by an analysis of various attempts for greater macro‐economic and financial co‐operation and a short conclusion.     

Enhancing productive capabilities through intra-regional trade and cross-border investments in Southern Africa

Regional integration is an important factor for enabling knowledge flows between economies and enhancing the capacity of firms within the integrated block to benefit from local knowledge spillovers. This study analyses data on economic interactions between Botswana and its technologically more advanced southern neighbour, South Africa, to examine the extent to which knowledge flows facilitated by geographical proximity translate into fostering technological learning and productivity of manufacturing firms. Industry- and firm-level data on bilateral capital goods trade and investments over the period 1991–2013 are used to assess the technological learning of the manufacturing sector in Botswana. This study also applies the Hunt, J, &; Tybout, J (1999. Does Promoting High-Tech Products Spur Development? FEEM Working Paper REG 42. Milan: Fondazione Eni EnricoMattei) technological sophistication framework to analyse the role played by regional trade and investment flows between the economies of South Africa and Botswana in the skills intensification of manufacturing firms. Skills intensity decomposition reveals that Botswana’s manufacturing technical intensity has been positively influenced by the extent of capital goods trade and investment linkages with South African economy.     

Has International Trade Affected Workers’ Bargaining Power?

In this paper, we investigate whether globalization has affected workers’ bargaining power in the Belgian manufacturing industry over the period 1987–1995 using a sample of more than 20,000 firms. We find little evidence of international trade and inward foreign direct investment having an impact on the workers’ bargaining power. We find some evidence that technological change has a positive impact on the workers’ bargaining power. JEL no. C23, D21, F16, F23, J50, L13     

Understanding the role of trade agreements in Indonesia’s FDI

In this paper, we develop the hypothesis that trade agreements influence foreign direct investment (FDI). We extend the conventional model of FDI determinants to accommodate the role of trade agreements. Fitting Indonesian data to this model, we discover strong evidence that, while both bilateral and multilateral trade agreements positively influence Indonesia’s FDI, multilateral agreements have a larger effect. We further distinguish FDI by sector and find sector-specific trade agreements play an active role: these agreements positively influence FDI in the primary and service sectors, but not in the manufacturing sector. We also find that trade agreements positively influence FDI through the export and total factor productivity channels, and less so through the economic growth channel.     

Heterogeneous multinational firms and productivity gains from falling FDI barriers

This paper quantitatively assesses the impact of falling foreign direct investment (FDI) barriers on individual firms and its implications for intra-industry reallocation and aggregate productivity. We calibrate the firm-heterogeneity model of Eaton et al. (Econometrica 79(5):1453–1498, 2011) to match micro-level data on Japanese multinational firms facing fixed and variable costs of foreign production. We demonstrate that the calibrated model can be used to replicate the entry and sales patterns of Japanese multinationals. Counterfactual simulations show that declining FDI barriers lead to a disproportionate expansion of foreign production by more efficient firms relative to less efficient firms. A hypothetical 20 % reduction in FDI barriers is found to generate up to a 26.8 % improvement in industry-level productivity through global market-share reallocations within the industry. Compared with fixed entry barriers, reallocation effects and productivity gains are larger for a reduction of variable costs of foreign production.