Showing papers on "Bilateral trade published in 1998"

Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?

Abstract: This paper derives equations for the value of bilateral trade from two extreme cases of the Heckscher-Ohlin Model, both of which could also represent a variety of other models as well. The first case is frictionless trade, in which the absence of all impediments to trade in homogeneous products causes producers and consumers to be indifferent among trading partners. Resolving this indifference randomly, expected trade flows correspond exactly to the simple frictionless gravity equation if preferences are identical and homothetic or if demands are uncorrelated with supplies, and they depart from that equation systematically when there are such correlations. The second case is of countries that each produce distinct goods, as in the H-O Model with complete specialization or a variety of other models. Expressions are derived for bilateral trade, first with Cobb-Douglas preferences and then with CES preferences. The standard gravity equation with trade declining in distance continues to be a central tendency for these trade flows, with departures from it that are easily understood in terms of relative transport costs. The main lessons from the paper are two. First, it is not all that difficult to justify even simple forms of the gravity equation from standard trade theories. Second, because the gravity equation appears to characterize a large class of models, its use for empirical tests of any of them is suspect.

Exchange Rate Fluctuations and Trade Flows: Evidence from the European Union

Abstract: This paper analyzes the effects of exchange rate volatility on bilateral trade flows. Through use of a gravity model and panel data from western Europe, exchange rate uncertainty is found to have a negative effect on international trade. The results seem to be robust with respect to the particular measures representing exchange rate uncertainty. Particular attention is reserved for problems of simultaneous causality. The negative correlation between trade and bilateral volatility remains significant after controlling for the simultaneity bias. However, a Hausman test rejects the hypothesis of the absence of simultaneous causality.

Regionalization of World Trade and Currencies: Economics and Politics

Abstract: Using the gravity model of bilateral trade and an updated data set covering 1970-1992, we map out the current pattern of regionalization in trade. We also present some estimates of the role that currency links within some major groupings may have played in promoting intragroup trade. Next, we consider the political economy of regionalism. Does it help build political momentum for multilateral liberalization or undermine more general liberalization? We present a simple model that is in the first category: it illustrates one possible beneficial effect of trade blocs as a political building block to further trade liberalization. The result could as easily go the other way, however. Is regionalism a building bloc to global free trade or not? The gravity model estimates provide a tentative assessment. A majority of FTAs, such as ASEAN and Andean group, have increased trade with non-members, even while they have concentrated trade disproportionately with each other. The pattern is mixed, however. Other FTAs, such as EFTA, show evidence of trade diversion. The authors would like to thank Jungshik Kim and Greg Dorchak for excellent research and editorial assistance.

On Theories Explaining the Success of the Gravity Equation

Abstract: We analyze two main theories of international trade, the Heckscher-Ohlin theory and the Increasing Returns trade theory, by examining whether they can account for the empirical success of the so-called Gravity Equation. Since versions of both models can generate this prediction, we tackle the model identification problem by conditioning bilateral trade relations on factor endowment differences and the share of intra-industry trade, because only for large factor endowment differences does the Heckscher-Ohlin model generate specialization of production and the Gravity Equation, and it predicts inter-, not intra-industry trade. There are three major findings: First, little production is perfectly specialized due to factor endowment differences, making the perfect specialization version of the Heckscher-Ohlin model an unlikely candidate to explain the empirical success of the Gravity Equation. Second, increasing returns are important causes for perfect product specialization and the Gravity Equation, especially among industrialized countries. Third, to the extent that production is not perfectly specialized across countries, we find support for both Heckscher-Ohlin and Increasing Returns models. Based on these findings, we argue that both models explain different components of the international variation of production patterns and trade volumes, with important implications for productivity growth, labor and macroeconomics.

Exchange Rate Fluctuations and Trade Flows : Evidence From the European Union

Abstract: This paper analyzes the effects of exchange rate volatility on bilateral trade flows. Through use of a gravity model and panel data from western Europe, exchange rate uncertainty is found to have a negative effect on international trade. The results seem to be robust with respect to the particular measures representing exchange rate uncertainty. Particular attention is reserved for problems of simultaneous causality. The negative correlation between trade and bilateral volatility remains significant after controlling for the simultaneity bias. However, a Hausman test rejects the hypothesis of the absence of simultaneous causality.

North-South Trade: Is Africa Unusual?

Abstract: We estimate a gravity model to address the question of whether Africa`s bilateral trade with industrial countries is "unusual" compared with other developing country regions. Our main finding is that the unusually low level of African trade is explained by economic size, geographical distance, and population. This result holds after controlling for a country`s access to the sea, composition of exports, linguistic ties with industrial countries, and trade policies. If anything, the average African country tends to "overtrade" compared with developing countries in other regions, although the degree to which Africa overtrades has steadily declined over the past two-and-one-half decades.

The role of innovation in bilateral OECD trade performance

Abstract: This paper tests an empirical model of the determinants of bilateral OECD trade, with particular emphasis on the role of innovation. Variation in the relationship across countries and sectors is analysed; two innovation proxies and actual data on innovations are used. A positive relationship is found between relative innovation and bilateral trade performance at an aggregate level, and for a number of manufacturing sectors. Sectors are also categorized as either net users or producers of innovations; differences in innovation appear to have more of an impact on trade performance for the net producers of innovations than the net users of innovations.

Intra-Industry Trade and the Single Market: Quality Matters

Abstract: Analysing data on values and unit values of bilateral trade flows at a very detailed level (some 10,000 product items), we examine the nature of intra-EC trade over the period 1980-94, identify its general determinants and then estimate the specific impact of the Single European Market programme. Trade patterns are identified by breaking up total trade into three trade types: one-way (i.e. inter-'industry') trade, two-way (i.e. intra-'industry') trade in horizontally differentiated products, and two-way trade in vertically differentiated products. One of the main findings is that the observed increase in intra-'industry' trade in Europe is almost entirely due to two-way trade in vertical differentiation: thus, the 1980-94 period is characterized by a increasing specialization of countries along ranges of qualities within products, suggesting a 'qualitatively' division of labour in Europe. General determinants as well as direct and indirect effects of the single market in this evolution are assessed with an econometric model integrating country, industry and integration variables. We conclude that the first years of the Single market have neither validated the optimistic scenario entailed in ex-ante studies, nor led to a more pronounced inter-industry specialization of European members potentially associated with cohesion costs. Adjustments have taken place within industries, on the quality spectrum.

Bilateral Trade and Political Conflict/Cooperation: Do Goods Matter?

Abstract: This article investigates Granger causality between political conflict/cooperation and bilateral trade. The measures of conflict/cooperation are constructed by accumulating daily events and splicing the two datasets of the Conflict and Peace Data Bank and the World Events Interaction Survey. Trade data from the United Nations include ten commodity groups as well as total trade. Quarterly data are analyzed from the very early 1970s to the early 1990s for four dyads of USA-USSR, USA-China, Turkey-Greece, and Egypt-Israel. Yearly data are investigated from the early 1960s to the early 1990s for 16 dyads. Granger causality between bilateral trade and conflict/cooperation is generally reciprocal in most goods and dyad dependent, but independent of whether or not two countries are political rivals. For USA-USSR and USA-China, however, there is a tendency for bilateral trade to increase in some goods when political relations improve. For USA-USSR, in particular, causality from conflict to trade is pronounced in more goods than causality from trade to conflict. While the effect of cooperation in these dyads is mostly positive, the effect of an increase of trade on conflict is generally ambiguous. For 20 dyads collectively, conflict/cooperation tends to Granger-cause bilateral trade in minerals, iron and steel, fuels, basic manufactures and control and scientific equipment; whereas bilateral trade somewhat more frequently Granger-causes conflict/cooperation in food and live animals, beverages and tobacco, and machines and transport equipment. The concept of strategic goods, much debated in the literature, is further discussed in light of these results. The general result of reciprocal Granger causality calls for a model in which both bilateral trade and conflict/cooperation are simultaneously determined. Such a simultaneous equations model is briefly sketched.

The US-China Bilateral Trade Balance: Its Size and Determinants

Abstract: This paper has two aims. The first is to reduce the range within which the true U.S.-China bilateral trade deficit lies. The second is to identify the determinants of the bilateral trade deficit and offer an assessment of their relative importance. We calculate a smaller range of values for the bilateral trade deficit than in previous studies, due to a new estimation method that takes advantage of our access to detailed Chinese Customs data at the commodity level. For example, the revised US-China bilateral trade deficit is $15 billion to $20 billion in 1994, and $16 billion to $22 billion in 1995, compared to the official range of $8 billion to $30 billion, and $9 billion to $34 billion, respectively. The widening of the US-CHINA bilateral trade deficit in recent years reflected many factors. In our opinion, the two chief factors are (i) macroeconomic forces in the US and China moving in opposite direction, causing their respective overall trade balance to move in opposite directions; and (ii) the accelerated relocation of production of US imports from East Asia to China.

The China-United States bilateral trade balance : how big is it really?

Abstract: There are huge discrepancies between the official Chinese and US estimates of the bilateral trade balance The discrepancies are caused by different treatments accorded to re-exports through Hong Kong, re-export markups, and trade in services Deficit-shifting between China, on the one hand, and Hong Kong and Taiwan, on the other, owing to direct investment in China from Taiwan and Hong Kong, is partly responsible for the growth in the China–US bilateral trade deficit The 1995 China–US bilateral balance of trade in goods and services, adjusted by both re-exports and re-export markups, may be estimated as US$233 billion, a large deficit but considerably smaller than the often-cited official US figure of US$338 billion

North-South Trade; Is Africa Unusual?

Abstract: We estimate a gravity model to address the question of whether Africa’s bilateral trade with industrial countries is “unusual” compared with other developing country regions. Our main finding is that the unusually low level of African trade is explained by economic size, geographical distance, and population. This result holds after controlling for a country’s access to the sea, composition of exports, linguistic ties with industrial countries, and trade policies. If anything, the average African country tends to “overtrade” compared with developing countries in other regions, although the degree to which Africa overtrades has steadily declined over the past two-and-one-half decades.

The DART general equilibrium model: A technical description

Abstract: This paper provides a technical description of the Dynamic Applied Regional Trade (DART) General Equilibrium Model. The DART model is a recursive dynamic, multi-region, multi-sector computable general equilibrium model. All regions are fully specified and linked by bilateral trade flows. The DART model can be used to project economic activities, energy use and trade flows for each of the specified regions to simulate various trade policy as well as environmental policy scenarios, and to analyze the allocational and distributional impacts of these policies.

Economic development and cooperation in the Pacific Basin : trade, investment, and environmental issues

Abstract: Part I. Introduction and Overview: 1. Prelude to the Pacific century: overview of the region, leading issues, and methodology Hiro Lee and David Roland-Holst Part II. US-Japan and Asian Trade Patterns: 2. Cooperative approaches to shifting comparative advantage: the case of bilateral trade between the United States and Japan Hiro Lee and David Roland-Holst Comment Peter A. Petri 3. Is there an Asian export model? Marcus Noland Comment Albert Fishlow Part III. Regional Trading: Arrangements in the Pacific Basin: 4. Should East Asia go regional? Arvind Panagariya Comment Barry Eichengreen 5. Political feasibility and empirical assessments of a Pacific free trade area Hiro Lee and David Roland-Holst Comment Alain de Janvry 6. Regionalism in the Pacific basin: strategic interest of ASEAN in APEC Tan Kong Yam Comment Pearl Imada Iboshi Part IV. Foreign Direct Investment: Determinants and Consequences: 7. The determinants of foreign direct investment: a survey with application to the United States Peter A. Petri and Michael G. Plummer Comment Jeffrey H. Bergstrand 8. Are trade and direct investment substitutes or complements? An analysis of the Japanese manufacturing industry Masahiro Kawai and Shujiro Urata Comments Julia Lowell 9. Korea's outward foreign direct investment and the division of labor in the Asia-Pacific Jai-Won Ryou Comment Chung H. Lee 10. China's absorption of foreign direct investment Shang-Jin Wei Comment K. C. Fung 11. The impact of foreign investment in Indonesia: historical trends and simulation analysis Iwan Azis Comment William E. James Part V. Trade Resources and the Environment: 12. Economic development and the environment in China Wang Huijiong and Li Shantong Comment Mark Poffenberger 13. Outward orientation and the environment in the Pacific Basin: coordinated trade and environmental policy reform in Mexico John Beghin, David Roland-Holst, and Dominique van der Mensbrugghe Comment David Zilberman and Linda Fernandez.

The U.S.-China Bilateral Trade Balance: It's Size and Determinants

Abstract: This paper aims to reduce the range within which the true U.S.-China bilateral trade deficit lies, and identify the determinants of the bilateral trade deficit. We take advantage of detailed Chinese Customs data at the commodity level. Our calculated U.S.-China bilateral trade deficit is $15 billion to $20 billion in 1994, and $16 billion to $22 billion in 1995, compared to the official range of $8 billion to $30 billion, and $9 billion to $34 billion, respectively. The widening of the U.S.-China bilateral trade deficit in recent years reflected various factors, including: (i) macroeconomic forces in the U.S. and China moving in opposite directions, causing their respective overall trade balance to move in opposite directions; and (ii) the accelerated relocation of production of U.S. imports from East Asia to China.

The US-China Bilateral Trade Balance: Its Size and Determinants

Abstract: This paper has two aims. The first is to reduce the range within which the true U.S.-China bilateral trade deficit lies. The second is to identify the determinants of the bilateral trade deficit and offer an assessment of their relative importance. We calculate a smaller range of values for the bilateral trade deficit than in previous studies, due to a new estimation method that takes advantage of our access to detailed Chinese Customs data at the commodity level. For example, the revised US-China bilateral trade deficit is $15 billion to $20 billion in 1994, and $16 billion to $22 billion in 1995, compared to the official range of $8 billion to $30 billion, and $9 billion to $34 billion, respectively. The widening of the US-CHINA bilateral trade deficit in recent years reflected many factors. In our opinion, the two chief factors are (i) macroeconomic forces in the US and China moving in opposite direction, causing their respective overall trade balance to move in opposite directions; and (ii) the accelerated relocation of production of US imports from East Asia to China.

Trade and the Number of OCAs in the World

Abstract: This paper employs worldwide data on output and bilateral trade in order to identify optimum currency areas (OCAs) on a global basis. By retaining only two of the many criteria in the literature on OCAs, computer programming could serve to do the identification. The two chosen criteria relate to trade and the symmetry of shocks to output. Based on the first criterion, trade, some large continental OCAs emerge. Adding the second, symmetry, whittles down the size of these OCAs considerably. Nevertheless, some significant examples remain in the Americas, Europe and Asia, of which the European and the Asiatic are the most noteworthy.

THE U.S.-CHINA BILATERAL TRADE BALANCE: Its Size and Determinants

Abstract: This paper has two aims. The first is to reduce the range within which the true U.S.-China bilateral trade deficit lies. The second is to identify the determinants of the bilateral trade deficit, and offer an assessment of their relative importance. We calculate a smaller range of values for the bilateral trade deficit than in previous studies, due to a new estimation method that takes advantage of our access to detailed Chinese Customs data at the commodity level. For example, the revised U.S.-China bilateral trade deficit is $15 billion to $20 billion in 1994, and $16 billion to $22 billion in 1995, compared to the official range of $8 billion to $30 billion, and $9 billion to $34 billion, respectively. The widening of the U.S.-China bilateral trade deficit in recent years reflected many factors. In our opinion, the two chief factors are (i) macroeconomic forces in the U.S. and China moving in opposite directions, causing their respective overall trade balance to move in opposite directions; and (ii) the accelerated relocation of production of U.S. imports from East Asia to China.

Fluctuations, Bilateral Trade and the Exchange Rate Regime ¤

Abstract: In a recent paper, Frankel and Rose (1998) documented endoge- nous eects of a monetary union, whereby costs and bene…ts of the union evolve after its implementation. This paper questions their …nd- ings on three grounds. First, their main result that trading partners display relatively more synchronized cycles is not robust to the pres- ence of …xed eects, or variables omitted from their estimation liable to generate both intense trade and synchronized cycles. Second, the cost of giving up independent monetary policy is usually evaluated on the basis of the extent of co-‡uctuations between business cycles. We bring into focus which measure of the cycle ought to be used for that purpose. In particular, such measure should in our opinion re‡ect how synchronized cycles would be in the absence of independent monetary policy. Third, documenting the assumption that …xed exchange rate regimes translate into more bilateral trade has proved elusive. We show that using a bilateral rather than cross-country approach brings little improvement on that front.

La distance abolie ? Critères et mesure de la mondialisation du commerce extérieur

Abstract: We oppose two concepts of trade globalization : (1) the increase of the countries trade to GDP ratio ("globalization-integration"), (2) the alleviation of related to distance obstacles to trade ("geographical globalization"). We choose as a criterion of a possible geographical globalization the decrease of the absolute value of the (negative) distance elasticity of bilateral trade. The trend of this elasticity is estimated through a panel gravitation model of world trade covering the years 1962 to 1995 and a large sample of countries at very different levels of development. Contrary to the globalization-integration, a geographical globalization does not appear. We find a significative position trend of the absolute value of the distance elasticity of trade. Moreover trade between neighbour countries is increasing. So impact of distance has not been decreasing, but is reinforcing. An augmented gravitation model also allows to test significantly the assumptions of scale economies and of decreasing marginal costs of distance. This augmented model evidences again the increasing trend of the impact of distance on trade.

Trade with China: do the figures add up?

Abstract: There are wide discrepancies in bilateral trade data compiled by China and by its trading partners, particularly the United States. This paper investigates the main reasons, notably the role of Hong Kong as an entrepot, and develops a methodology to provide more accurate estimates for these trade flows. It extends the Sung—Lardy method in recent literature and achieves a reconciliation of the two data sets by China and by its major partners. The method recognizes that both the Chinese and the partners' data are likely to be distorted and demonstrates that a complete picture can he constructed by using data recorded from Hong Kong. A new estimate of the re-export margins in Hong Kong on Chinese exports is presented and used in the data reconciliation exercises, and problems of valuation and transit lag when comparing an export series with its counterpart import series are taken into account by the new method. The effects of using proved data are demonstrated in an application to examine fair market access ...

Spain and the Reconstruction of Western Europe, 1945-57: Challenge and Response

Abstract: List of Tables and Figures Acknowledgements List of Abbreviations and Acronyms Key to Archival References Introduction PART ONE: TRADE VERSUS POLITICAL DISCRIMINATION, 1945-47 Spain's Contribution to West European Economic Relief and [Early Phase of] Reconstruction The Exigencies of French and British Economic Reconstruction Trade Versus Politics: An Instructive Debate PART TWO: RARA AVIS: SPAIN AND THE MARSHALL PLAN, 1947-48 Import Requirements for National Reconstruction and Modernization Spain's Limited Financial Resources Was there an Alternative Course of Action? PART THREE: BILATERALISM WITHIN A MULTILATERAL CONTEXT, 1949 TO MID-1950S Avoiding the Collapse of Spain's Bilateral Trade Channels Financial Diplomacy: Spain and the European Payments Union Concluding Remarks Bibliography Index

A re the U.S. Exports to and Import s f rom Japan Cointegrated

Abstract: The size and duration of the U.S. bilateral trade deficit with Japan has raised concern from both politicians and the general public. This paper seeks to investigate the behavior of this deficit by conducting stationarity tests on the deficit and tests for long-run relationships between U.S. exports to and imports f r om Japan. We show that, if an endogenously searched break is pro p e r l y accounted for, exports and imports are cointegrated with a coefficient of one, and the deficit appears to be stationar y. Thus, in contrast to the public’s percep tion, we conclude that the U.S.-Japan trade deficit may not be “too large.” (JEL Classifications: F14, C22)

Fluctuations, Bilateral Trade and the Exchange Rate Regime

Abstract: In a recent paper, Frankel and Rose (1998) documented endogenous effects of a monetary union, whereby costs and benefits of the union evolve after its implementation. This paper questions their findings on three grounds. First, their main result that trading partners display relatively more synchronized cycles is not robust to the presence of fixed effects, or variables omitted from their estimation liable to generate both intense trade and synchronized cycles. Second, the cost of giving up independent monetary policy is usually evaluated on the basis of the extent of co-fluctuations between business cycles. We bring into focus which measure of the cycle ought to be used for that purpose. In particular, such measure should in our opinion reflect how synchronized cycles would be in the absence of independent monetary policy. Third, documenting the assumption that fixed exchange rate regimes translate into more bilateral trade has proved elusive. We show that using a bilateral rather than cross-country approach brings little improvement on that front.

An ocean apart : explaining three decades of U.S.-Japanese trade frictions

Abstract: Introduction Acronyms What Happened Defining the Nature and Causes of Structural Problems in U.S.-Japanese Trade Relations A History of Contemporary Bilateral Trade Relations An Uncompromising Japanese Interpretation of Trade Frictions An Uncompromising U.S. Interpretation of Trade Frictions How Not to Explain Bilateral Trade Problems: Myths, Distortions, and Half-Truths Why It Happened The Domestic Foundations of Japan's Foreign Trade Performance The Domestic Foundations of the U.S. Foreign Trade Performance Divergent International Economic Policy Strategies The Asymmetrical Bilateral Negotiating Process Conclusions Synthesizing the Arguments Minimizing U.S.-Japanese Trade Frictions in the Future Selected Bibliography Index