Fixed export cost heterogeneity, trade and welfare

Recent literature on the workhorse model of intra-industry trade has explored heterogeneous cost structures at the firm level. These approaches have proven to add realism and predictive power. This paper presents a new and simple heterogeneous-firms specification. We develop a symmetric two-country intra-industry trade model where firms are of two different marginal cost types and where fixed export costs are heterogeneous across firms. This model traces many of the stylized facts of international trade. However, we find that with heterogeneous fixed export costs there exists a positive bilateral tariff that maximizes national and world welfare.     

Foreign direct investment,international trade,and firm heterogeneity

We present an asymmetric model with firm heterogeneity and foreign direct investment (FDI) from a developed country to a developing country. We found that the successful entry firms could be sorted from highest to lowest according to productivity as reimport firms, FDI firms, export firms, and domestic firms. We also found that FDI decreases (increases) the gross national income of the developed (developing) country, but it can either increase or decrease the world income according to the level of the relative propensity to spend. In addition, we demonstrated that FDI influences welfare through variations in average price, national income, and the number of types of goods.     

China's foreign trade policy and world trade organization membership

This paper provides an overview of China's major economic reforms and how they impacted certain key domestic economic indicators such as income, production, employment, and prices. More importantly, the paper concentrates on China's foreign trade focusing on such issues as import and export policies, exchange rate controls, foreign investments, balance of payments, traded commodities, and major trading partners. China's chance of becoming a member of the World Trade Organization is also addressed.     

企业异质性、贸易理论与经验研究:综述

贸易的企业异质性理论正逐渐兴起,本文围绕该理论的拓展思维和微观基础进行系统述评;不同于传统贸易理论的行业间资源配置分析,异质性理论强调要素在企业间的配置从而通过效率改善实现福利优化。而基于微观生产率差异的理论模型强调企业出口的自我淘汰机制,这一核心基础改变了传统贸易理论的基础动因、模式和福利收益。最后,异质性理论发展和国际经验考察对我国当前具有重要启示。     

Product quality and firm heterogeneity in international trade

This paper quantifies the separate contributions of product quality and technical efficiency in explaining variation in export outcomes across US manufacturing plants. Unlike previous studies that rely on unit values, I estimate idiosyncratic demand from price and quantity information. I find substantial across‐plant heterogeneity in demand, and consistent with the quality interpretation, demand is positively correlated with advertising expenditures, wage rates and material costs. I use this variation to explain across‐plant heterogeneity in export outcomes. The results show that, in addition to productivity, idiosyncratic demand is an important determinant of selection into exporting and the levels of foreign sales.     

Trade,conflict, and political integration: Explaining the heterogeneity of regional trade agreements

Many historians argue that the main goal of European trade integration was the preservation of peace. This paper investigates whether this reasoning is relevant for the EU and other regional trade agreements (RTAs). I provide empirical evidence that customs unions and common markets (deep RTAs) do reduce the probability of war between members. Partial scope and free trade agreements (shallow RTAs) however have no effect on war probabilities. Accordingly, international insecurity has a differential impact on incentives to create RTAs. Deep RTAs are signed between countries that are involved in many interstate disputes and that have low trade costs with the rest of the world, whereas the opposite is true for shallow RTAs.     

The labor market effects of trade union heterogeneity

Empirical evidence suggests that the bargaining power of trade unions differs across firms and sectors. Standard models of unionization ignore this pattern by assuming a uniform bargaining strength. In this paper, we incorporate union heterogeneity into a Melitz (2003) type model. Union bargaining power is assumed to be firm-specific and varies with firm productivity. This framework allows us to re-analyze the labor market effects of (i) a symmetric increase in the bargaining power of all unions and (ii) trade liberalization. We show that union heterogeneity unambiguously reduces the negative employment effects of stronger unions. Firm-specific bargaining power creates a link between unionization and the entry and exit of firms, implying a reduction of the unions' expected bargaining power. Moreover, union heterogeneity constitutes an (un)employment effect of trade liberalization. If unions are most powerful in the high-productivity (low-productivity) firms, trade liberalization will increase (decrease) unemployment.     

Country terms of trade: trends,unit roots,over-differencing,endogeneity, time dummies,and heterogeneity

The debate about the Prebisch-Singer thesis has focused on primary commodities with some extensions to manufactures. We analyse trends in country terms-of-trade for goods and services rather than those for commodities according to the World Bank income classification. We find that the natural logarithm of the terms of trade for all groups except for the poorest has common unit roots, but none has individual unit roots. As low-income countries have no unit roots over-differencing is inefficient and biases significance levels in first differences against the fall in the terms of trade. For the low-income countries the terms of trade of goods and services are falling at a rate that is significantly negative without and with endogeneity treatment by system GMM. A comprehensive analysis of the effects of time dummies supports the result of falling terms of trade for low-income countries. When all coefficients are country-specific 50% of all low-income countries have falling terms of trade in a simultaneous equation estimation using the SUR method. Food and financial crisis have no effect on the number of countries with falling terms of trade, but (dis-)improve the terms of trade or the significance of the results for a very small number of countries.     

The effects of market organization on conspiracies in restraint of trade

Mindful of the market structure-conduct-performance paradigm fundamental to industrial organization research, this paper uses laboratory experimental techniques to study the impact of conspiratorial opportunities on market performance. We compare ‘posted-offer’ markets where sellers (but not buyers) are all conspiratorial opportunities with observations from three control groups: (1) posted-offer markets without conspiratorial opportunities, (2) ‘double-auction’ markets with conspiratorial opportunities and (3) posted-offer markets with true single-seller monopolists. The basic conclusions generated by our experimental design are: (1) seller conspiracies in posted-offer markets tend to raise prices (but not profits) relative to similarly organized markets without conspiracies, (2) posted-offer conspiracies tend to generate higher prices (but not profits) than double-auction conspiracies, and (3) posted-offer monopolies tend to generate higher profits (but not prices) then posted-offer conspiracies.     

A model of firm heterogeneity in factor intensities and international trade

Empirical evidence suggests that exporters are, in addition to being more productive, significantly more skilled‐labour intensive than non‐exporters. In a setting that captures both these features, we show that the firm selection induced by trade liberalization works along two dimensions. First, export growth increases competition for skilled labour. This leads to the exit of some of the skilled‐labour intensive firms, while benefitting unskilled‐labour intensive ones. Second, within the group of firms with the same factor intensities, the reallocation of factors is towards the exporters. We show that the increased competition for skilled labour dampens the positive effect of trade liberalization on sector‐wide TFP and real income.     

Tariff rate quotas and the economic impact of agricultural trade liberalization in the world trade organization

Since their implementation at the Uruguay Round, tariff rate quotas (TRQs) have become a widely used instrument of trade policy in agricultural trade. With almost 1,300 TRQs scheduled at the World Trade Organization, this paper will examine their economic effects more closely. First, the theoretical background of TRQs is examined. Then, a short overview of the Uruguay Round and their institutional background is given. We demonstrate that official statistics, which do not count TRQs as nontariff barriers, are at least highly misleading. Very often, their effects are the same as those of regular quotas, including redistributive effects. The prominent example of the European banana regime is used to illustrate all of these points.A first draft of this paper was presented at the International Atlantic Economic Conference, March 14–21, 2000, Munich, Germany. The results are part of the research project "The Influence of the Institutional Design on the Actual Impacts of Agricultural Trade Liberalization after GATT." Financial support by Volkswagen Stiftung is gratefully acknowledged.     

Asymmetric spiders: Supplier heterogeneity and the organization of firms

We consider a property rights model of a firm with two heterogeneous suppliers and analyze which sourcing mode (outsourcing or vertical integration) is chosen for which of the asymmetric inputs. If components are close substitutes, the firm tends to outsource the technologically more important input while keeping the less important one inside its boundaries. This pattern can be reversed, however, if the two inputs are strongly complementary. The firm also tends to outsource low‐cost inputs and components with low sophistication. These theoretical predictions are consistent with numerous case studies and recent empirical evidence on the internal organization of firms.     

Product differentiation, firm heterogeneity and international trade: Exploring the Alchian–Allen effect

In a model of international trade with horizontally differentiated goods, increasing returns and monopolistically competitive markets, this paper proposes that the degree of differentiation in a product mix–defined as the ratio of the number of varieties to the total value of imports–can be regarded as another aspect of quality. Furthermore, this paper draws a parallel to the Alchian–Allen effect and shows that, when firms are heterogeneous in either fixed or variable costs, the degree of differentiation is increasing in per unit transportation costs.     

Industrial organization implications of QR trade regimes: Evidence and welfare costs

Evidence of the relationship between trade regimes, concentration and profitability in semi-industrial countries' manufacturing sectors is reviewed. This evidence is used to justify the formulation and simulation of a three sector general equilibrium model in which the manufacturing sectors's behavior is linked to the degree of restrictiveness of the QR regime. Simulations are conducted with several variants of the model to ascertain separately the effects of introducing economies of scale, firm entry/exit, departures from competitive pricing, and interactions between entry and pricing rules. Numerical results suggest that a 20 percent rationing rate of intermediates and consumption goods can have welfare costs of about 2.0 percent of national income in the absence of economies of scale and industrial organization interactions with the trade regime. When industrial organization features are included, the costs of the same 20 percent rationing quadruples.     

Political preference functions,trade wars,and trade negotiations

The integration of elementary political considerations into computable general equilibrium models is considered, and an extended illustration to agricultural trade negotiations provided. The application involves an evaluation of the payoffs of alternative support levels to agricultural and non-agricultural interests in the EC and the US. A government political preference function for each region is calibrated as a CES aggregation of the payoffs to the two interest groups, with weights corresponding to their benchmark political influence. The political preference function is presumed to be employed by each government to determine the level of agricultural support. The analysis illustrates how sensitive such computable general equilibrium models can be to elementary political considerations, mainly due to the flatness of the implied Pareto frontier. It also illustrates how one can modify the traditional political preference function approach to accommodate possible convexities of the Pareto frontier in empirical models.     

Informed trade,uninformed trade and stock price delay

The probability of informed trading (PIN), a measure of information-based trading risk, has been broadly applied to empirical studies on asset pricing. However, it is still controversial whether PIN measures exclusively the risk of firm-specific private information or it also captures the private interpretation of market wide public information. This article examines the relevance of PIN to the delayed response of stock prices to market-wide information. We find that PIN significantly explains individual stock price delay even controlling for size, liquidity and risk, and low-PIN stock prices adjust to market information more rapidly not only because of a notably high level of informed trading but also an even much higher level of uninformed trading. Our findings support the notion that PIN also captures the private skilled interpretation of public common factor information by sophisticated investors, and provide new empirical evidence on how information-based trading affects the speed at which stock prices adjust to information.     

Law, trade, and development

This paper uses a Ricardian model to generate predictions about the influence of institutions on trade in differentiated (complex) and commoditized (simple) products and then uses a rich international trade data set for empirical tests. The model draws the distinction between the role of international transaction costs and domestic production costs in the trade of complex and simple products. The effects of institutions predicted by the model are identified with a three-step estimation procedure. We find that when countries have low quality institutions, institutional reform primarily influences production costs and has little influence on the volume of trade. Institutional reform, however, increases the diversity of exports in complex goods markets. Conversely, in countries with more developed institutions, institutional reform primarily influences transaction costs and is associated with gains in the volume and the diversity of complex exports.     

Entrepreneurs,jobs, and trade

We propose a simple theory of endogenous firm productivity, unemployment, and top income inequality. High-talented individuals choose to become self-employed entrepreneurs and acquire more managerial (human) capital; whereas low-talented individuals become workers and face the prospect of equilibrium unemployment. In a two-country global economy, trade openness raises firm productivity, increases top income inequality, and may reduce welfare in the country exporting the good with lower relative labor-market frictions. Trade openness reduces firm productivity, lowers top income inequality, and necessarily raises welfare in the other country. The effect of trade on unemployment is ambiguous. Unilateral job-creating policies increase welfare in both countries. However, they reduce unemployment and raise top income inequality in the policy-active country; and reduce top income inequality while increasing unemployment in the policy-passive country.     

Effort, trade, and unemployment

Abstract.  This paper incorporates equilibrium unemployment caused by efficiency wages into a monopolistic competition model of trade. Worker effort is treated as an endogenous variable that depends on the optimizing behaviour of firms and workers. Opening up trade induces firms to demand greater worker effort and to cut the size of their workforce. This counteracts the positive employment effect due to entry of firms. Circumstances are indicated in which the two effects just balance, leaving aggregate employment unchanged. Trade unambiguously increases worker effort, thereby enhancing within-firm productivity.