We introduce quality differentiation and an extensive margin of products into a standard quantitative, general equilibrium model of international trade. Both the quality and the quantity of a product play a role in its contribution both to consumption and to production. The framework allows bilateral trade to vary at the extensive and intensive margins and the intensive margin of trade to vary at the quantity and unit-value margins. We estimate the parameters of the model using bilateral data on trade flows and on unit values in trade. The model captures (i) the well-documented increasing relation between unit values and both importer and exporter per capita income and (ii) how the extensive margin rises with importer and exporter size. But, unlike other contributions to the literature confronting these margins in international trade, our framework delivers a standard gravity formulation for trade flows and standard measures of the gains from trade apply.
{"title":"The Margins of Trade","authors":"J. Eaton, Ana Cecília Fieler","doi":"10.3386/W26124","DOIUrl":"https://doi.org/10.3386/W26124","url":null,"abstract":"We introduce quality differentiation and an extensive margin of products into a standard quantitative, general equilibrium model of international trade. Both the quality and the quantity of a product play a role in its contribution both to consumption and to production. The framework allows bilateral trade to vary at the extensive and intensive margins and the intensive margin of trade to vary at the quantity and unit-value margins. We estimate the parameters of the model using bilateral data on trade flows and on unit values in trade. The model captures (i) the well-documented increasing relation between unit values and both importer and exporter per capita income and (ii) how the extensive margin rises with importer and exporter size. But, unlike other contributions to the literature confronting these margins in international trade, our framework delivers a standard gravity formulation for trade flows and standard measures of the gains from trade apply.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131137085","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
E. Rasoulinezhad, Farhad Taghizadeh‐Hesary, N. Yoshino, T. Sarker
East Asia has remained the biggest market for liquefied natural gas (LNG) in 2018. The Russian Federation has a clear vision to develop its East Asia LNG projects to provide a bigger share of Asian LNG imports. We model Russian Federation–East Asia LNG trade patterns via the gravity trade theory, which is shown to fit well with energy trade patterns. Our findings reveal that a 1% increase in population growth in the People’s Republic of China, Japan, and the Republic of Korea increases Russian Federation LNG exports by nearly 3.43%, and economic growth by 6.16%, while any increase in geographic distance decelerates LNG exports to the selected East Asian economies by nearly 7.3%. This means that the close proximity of the Russian Federation to East Asia is an advantage for its LNG exports. Furthermore, the West’s sanctions against the Russian Federation are a positive influencing factor on the latter’s LNG export volume to East Asia. We recommend some policies such as construction of a gas trading hub in Asia, increasing regional pricing power, and energy import diversification and shorter distances between the Russian Federation (exporter) and East Asia (importer) to improve energy security in this region.
{"title":"Russian Federation–East Asia Liquefied Natural Gas Trade Patterns and Regional Energy Security","authors":"E. Rasoulinezhad, Farhad Taghizadeh‐Hesary, N. Yoshino, T. Sarker","doi":"10.2139/ssrn.3541035","DOIUrl":"https://doi.org/10.2139/ssrn.3541035","url":null,"abstract":"East Asia has remained the biggest market for liquefied natural gas (LNG) in 2018. The Russian Federation has a clear vision to develop its East Asia LNG projects to provide a bigger share of Asian LNG imports. We model Russian Federation–East Asia LNG trade patterns via the gravity trade theory, which is shown to fit well with energy trade patterns. Our findings reveal that a 1% increase in population growth in the People’s Republic of China, Japan, and the Republic of Korea increases Russian Federation LNG exports by nearly 3.43%, and economic growth by 6.16%, while any increase in geographic distance decelerates LNG exports to the selected East Asian economies by nearly 7.3%. This means that the close proximity of the Russian Federation to East Asia is an advantage for its LNG exports. Furthermore, the West’s sanctions against the Russian Federation are a positive influencing factor on the latter’s LNG export volume to East Asia. We recommend some policies such as construction of a gas trading hub in Asia, increasing regional pricing power, and energy import diversification and shorter distances between the Russian Federation (exporter) and East Asia (importer) to improve energy security in this region.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132403608","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Opeyemi Akinyemi, U. Efobi, S. Asongu, E. Osabuohien
The paper investigates the dynamic relationship between renewable energy usage and trade performance in sub-Saharan Africa (SSA), while considering the conditioning role of corruption control, regulatory quality, and the private sector access to finance. Focusing on 42 SSA countries for the period 2004-2016, and engaging the System generalized method of moments (GMM) technique for its estimation, this study found a negative relationship between renewable energy usage and the indicators of trade performance. However, with corruption control, improved regulatory framework, and better finance for the private sector, there are potentials for a positive net impact of renewable energy usage on manufacturing export. For renewable energy and total trade nexus, we find that improved regulatory framework and better finance for the private sector are important conditioning structures. These findings are significant because they highlight the different important structures of SSA countries that improve the effect of renewable energy use on trade outcomes. For instance, the consideration of the financial, institutional and regulatory frameworks in SSA countries in conditioning the renewable energy-trade nexus stipulates a clear policy pathway for countries in this region as the debate for transition to the use of renewable energy progresses.
{"title":"Renewable Energy, Trade Performance and the Conditional Role of Finance and Institutional Capacity of Sub-Sahara African Countries","authors":"Opeyemi Akinyemi, U. Efobi, S. Asongu, E. Osabuohien","doi":"10.2139/ssrn.3400247","DOIUrl":"https://doi.org/10.2139/ssrn.3400247","url":null,"abstract":"The paper investigates the dynamic relationship between renewable energy usage and trade performance in sub-Saharan Africa (SSA), while considering the conditioning role of corruption control, regulatory quality, and the private sector access to finance. Focusing on 42 SSA countries for the period 2004-2016, and engaging the System generalized method of moments (GMM) technique for its estimation, this study found a negative relationship between renewable energy usage and the indicators of trade performance. However, with corruption control, improved regulatory framework, and better finance for the private sector, there are potentials for a positive net impact of renewable energy usage on manufacturing export. For renewable energy and total trade nexus, we find that improved regulatory framework and better finance for the private sector are important conditioning structures. These findings are significant because they highlight the different important structures of SSA countries that improve the effect of renewable energy use on trade outcomes. For instance, the consideration of the financial, institutional and regulatory frameworks in SSA countries in conditioning the renewable energy-trade nexus stipulates a clear policy pathway for countries in this region as the debate for transition to the use of renewable energy progresses.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"58 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123879029","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the effects on trade from the annual tariff uncertainty about China’s MFN status renewal prior to joining the WTO. We have three main findings. First, counter to the evidence elsewhere, trade increases strongly in anticipation of uncertain future increases in tariffs. Second, even though the trade response can be quite large, the probability of a tariff increase was perceived to be relatively small, with an average annual probability of non-renewal of about 5.5 percent. And third, what matters more is the expected future tariff rather than the uncertainty around it. We identify these effects using within-year variation in the risk of trade policy changes around the renewal vote and trade flows. We show that an (s,s) inventory model generates this behavior and that variation in the strength of the stockpiling in advance of the vote is increasing in the storability of goods. The model is also consistent with a sizeable fraction of the cross-industry variation in annual trade flows documented elsewhere. Our results explain why trade may hold up well in advance of a prospective policy change such as Brexit or the US escalating tariff war of 2018-19, but may fall off sharply even if expected tariff increases do not materialize.
{"title":"Taking Stock of Trade Policy Uncertainty: Evidence from China's Pre-Wto Accession","authors":"George Alessandria, S. Khan, A. Khederlarian","doi":"10.3386/W25965","DOIUrl":"https://doi.org/10.3386/W25965","url":null,"abstract":"We study the effects on trade from the annual tariff uncertainty about China’s MFN status renewal prior to joining the WTO. We have three main findings. First, counter to the evidence elsewhere, trade increases strongly in anticipation of uncertain future increases in tariffs. Second, even though the trade response can be quite large, the probability of a tariff increase was perceived to be relatively small, with an average annual probability of non-renewal of about 5.5 percent. And third, what matters more is the expected future tariff rather than the uncertainty around it. We identify these effects using within-year variation in the risk of trade policy changes around the renewal vote and trade flows. We show that an (s,s) inventory model generates this behavior and that variation in the strength of the stockpiling in advance of the vote is increasing in the storability of goods. The model is also consistent with a sizeable fraction of the cross-industry variation in annual trade flows documented elsewhere. Our results explain why trade may hold up well in advance of a prospective policy change such as Brexit or the US escalating tariff war of 2018-19, but may fall off sharply even if expected tariff increases do not materialize.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"189 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131494590","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The One Belt One Road (OBOR) project is perhaps China's most significant international relations initiative in recent times. It is based on openness, harmony, inclusivity, mutual benefit and market operations and aims to connect the economically vibrant East Asia and the developed Europe by land and by sea, and in the process, it brings growth and development to tens of countries along the modern Silk routes. In this paper, we compare the impact of the main initiatives of OBOR, namely enhancements in physical infrastructure and improvements in border administration, on the trade of countries that have signed on to this project, especially countries along the six economic corridors. We find overwhelming evidence that shows improvements in border administration has the greatest impact on exports of corridor countries. Although physical infrastructure is important for trade, the Chinese government should place equal attention to improvements in trade facilitation to ensure trade routes operate seamlessly across the various corridors.
{"title":"China's One Belt One Road Initiative: The Impact of Trade Facilitation Versus Physical Infrastructure on Exports","authors":"Bala Ramasamy, Matthew C. H. Yeung","doi":"10.1111/twec.12808","DOIUrl":"https://doi.org/10.1111/twec.12808","url":null,"abstract":"The One Belt One Road (OBOR) project is perhaps China's most significant international relations initiative in recent times. It is based on openness, harmony, inclusivity, mutual benefit and market operations and aims to connect the economically vibrant East Asia and the developed Europe by land and by sea, and in the process, it brings growth and development to tens of countries along the modern Silk routes. In this paper, we compare the impact of the main initiatives of OBOR, namely enhancements in physical infrastructure and improvements in border administration, on the trade of countries that have signed on to this project, especially countries along the six economic corridors. We find overwhelming evidence that shows improvements in border administration has the greatest impact on exports of corridor countries. Although physical infrastructure is important for trade, the Chinese government should place equal attention to improvements in trade facilitation to ensure trade routes operate seamlessly across the various corridors.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"176 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"117236522","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Mega‐regional trade agreements (RTAs) are likely to overlap with other RTAs. When such overlaps occur, firms must choose the tariff rates from multiple RTAs. By employing data on Japan’s imports by tariff schemes, we investigate how RTA tariff rates affect firms’ decisions on tariff schemes when multiple RTAs exist. Our finding is that RTA utilization rates are higher when tariff rates for that RTA are lower (own effect) and tariff rates for alternative RTAs are higher (cross effect). We also found that the absolute magnitudes of own and cross effects are larger in bilateral and multilateral RTAs, respectively.
{"title":"Choosing between Multiple Regional Trade Agreements: Evidence from Japan's Imports","authors":"Kazunobu Hayakawa, S. Urata, Taiyo Yoshimi","doi":"10.1111/roie.12389","DOIUrl":"https://doi.org/10.1111/roie.12389","url":null,"abstract":"Mega‐regional trade agreements (RTAs) are likely to overlap with other RTAs. When such overlaps occur, firms must choose the tariff rates from multiple RTAs. By employing data on Japan’s imports by tariff schemes, we investigate how RTA tariff rates affect firms’ decisions on tariff schemes when multiple RTAs exist. Our finding is that RTA utilization rates are higher when tariff rates for that RTA are lower (own effect) and tariff rates for alternative RTAs are higher (cross effect). We also found that the absolute magnitudes of own and cross effects are larger in bilateral and multilateral RTAs, respectively.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114870871","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Foreign economic activity is a major determinant of export developments. However, foreign GDP figures are published too late to be useful for short‐term forecasting. This paper presents a number of indicators based on the widely available PMI surveys that provide very early signals of foreign activity. Using MIDAS models we analyze the in‐ and out‐of‐sample performance of these and related indicators for two very trade‐exposed countries (Germany and Switzerland). We find that the monthly indicators based on foreign PMIs are strongly correlated with quarterly export growth. The forecast comparison shows that PMI‐based indicators perform very well relative to other benchmark models.
{"title":"Pmis: Reliable Indicators for Exports?","authors":"Sandra Hanslin Grossmann, Rolf Scheufele","doi":"10.1111/roie.12395","DOIUrl":"https://doi.org/10.1111/roie.12395","url":null,"abstract":"Foreign economic activity is a major determinant of export developments. However, foreign GDP figures are published too late to be useful for short‐term forecasting. This paper presents a number of indicators based on the widely available PMI surveys that provide very early signals of foreign activity. Using MIDAS models we analyze the in‐ and out‐of‐sample performance of these and related indicators for two very trade‐exposed countries (Germany and Switzerland). We find that the monthly indicators based on foreign PMIs are strongly correlated with quarterly export growth. The forecast comparison shows that PMI‐based indicators perform very well relative to other benchmark models.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"40 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128654404","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article studies the extent to which open economies conduct monetary policy differently from economies that are relatively closed to international trade. I first estimate country-specific Taylor rules for 26 economies, following the approach of Clarida, Gal, and Gertler (1998 and 2000). Then, I examine the extent to which open economies assign systematically different weights to changes in economic outcomes, such as inflation and the output gap, than their closed economy counterparts do. I find that open economies respond less strongly to changes in expected inflation than relatively closed economies do and that the response to changes in the output gap is independent of the degree of trade openness. Moreover, I find that this difference between closed and open economies may be accounted for by the higher weight open economies give to changes in the real exchange rate, whereby these economies are more likely to decrease the nominal interest rate when the real exchange rate is relatively appreciated.
{"title":"International Trade Openness and Monetary Policy: Evidence from Cross-Country Data","authors":"Fernando Leibovici","doi":"10.20955/r.101.93-113","DOIUrl":"https://doi.org/10.20955/r.101.93-113","url":null,"abstract":"This article studies the extent to which open economies conduct monetary policy differently from economies that are relatively closed to international trade. I first estimate country-specific Taylor rules for 26 economies, following the approach of Clarida, Gal, and Gertler (1998 and 2000). Then, I examine the extent to which open economies assign systematically different weights to changes in economic outcomes, such as inflation and the output gap, than their closed economy counterparts do. I find that open economies respond less strongly to changes in expected inflation than relatively closed economies do and that the response to changes in the output gap is independent of the degree of trade openness. Moreover, I find that this difference between closed and open economies may be accounted for by the higher weight open economies give to changes in the real exchange rate, whereby these economies are more likely to decrease the nominal interest rate when the real exchange rate is relatively appreciated.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"217 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-04-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134179820","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We develop a theory and an empirical strategy to estimate the welfare gains from trade in economies with frictional local labor markets. We obtain a welfare formula that nests previous results and features an additional adjustment margin, via the employment rate. To obtain causal estimates of two key parameters, the trade elasticity and the elasticity of substitution in consumption, we propose a theoretically-consistent identification strategy that exploits variation in industrial composition across local labor markets. We examine Germany's recent trade integration with China and Eastern Europe. Under monopolistic competition with free entry and firm heterogeneity, the welfare gains are 6% larger than in the frictionless setting. The relative welfare gains are more modest under alternative market structures.
{"title":"Estimating the Gains From Trade in Frictional Labor Markets","authors":"Germán Pupato, Benjamin M. Sand, J. Tschopp","doi":"10.2139/ssrn.3357662","DOIUrl":"https://doi.org/10.2139/ssrn.3357662","url":null,"abstract":"We develop a theory and an empirical strategy to estimate the welfare gains from trade in economies with frictional local labor markets. We obtain a welfare formula that nests previous results and features an additional adjustment margin, via the employment rate. To obtain causal estimates of two key parameters, the trade elasticity and the elasticity of substitution in consumption, we propose a theoretically-consistent identification strategy that exploits variation in industrial composition across local labor markets. We examine Germany's recent trade integration with China and Eastern Europe. Under monopolistic competition with free entry and firm heterogeneity, the welfare gains are 6% larger than in the frictionless setting. The relative welfare gains are more modest under alternative market structures.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"25 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125285749","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper aims to research whether there is link between FDI inflows and Economic growth in the Republic of Seychelles Island. The ordinary least square results obtained shows that in the impact of FDI inflows on economic growth is low. Small Island Developing States attracts less FDI inflow because they are limited to few resources that attracts overseas firms which results in retarded development. The research lighted that impact of foreign direct investment on host countries does not only depend on the quality and quantity of the FDI inflows but some other variables such as the internal policies and the management skills, market structures, economic trends among others.
{"title":"Impact of Foreign Direct Investment Inflows on Economic Growth; the Case of the Republic of Seychelles","authors":"Yusheng Kong, Sampson Agyapong Atuahene, Geoffrey Bentum-Mican, Abigail Konadu Aboagye","doi":"10.2139/ssrn.3530161","DOIUrl":"https://doi.org/10.2139/ssrn.3530161","url":null,"abstract":"This paper aims to research whether there is link between FDI inflows and Economic growth in the Republic of Seychelles Island. The ordinary least square results obtained shows that in the impact of FDI inflows on economic growth is low. Small Island Developing States attracts less FDI inflow because they are limited to few resources that attracts overseas firms which results in retarded development. The research lighted that impact of foreign direct investment on host countries does not only depend on the quality and quantity of the FDI inflows but some other variables such as the internal policies and the management skills, market structures, economic trends among others.","PeriodicalId":391101,"journal":{"name":"Econometric Modeling: International Economics eJournal","volume":"42 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-03-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128250406","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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