Showing papers on "Bilateral trade published in 2007"
TL;DR: This paper showed that industrial countries participated more actively than developing countries in reciprocal trade negotiations, and bilateral trade was greater when both partners undertook liberalization than when only one partner did, and sectors that did not witness liberalization did not see an increase in trade.
551 citations
TL;DR: This article examined the influence of infrastructure, institutional quality, colonial and geographic context, and trade preferences on the pattern of bilateral trade and found that infrastructure and institutional quality are significant determinants not only of export levels, but also of the likelihood exports will take place at all.
Abstract: The authors examine the influence of infrastructure, institutional quality, colonial and geographic context, and trade preferences on the pattern of bilateral trade. They are interested in threshold effects, and so emphasize those cases where bilateral country pairs do not actually trade. The authors depart from the institutions and infrastructure literature in this respect, using selection-based gravity modeling of trade flows. They also depart from this literature by mixing principal components (to condense the institutional and infrastructure measures) with a focus on deviations in the resulting indexes from expected values for given income cohorts to control for multicollinearity. The authors work with a panel of 284,049 bilateral trade flows from 1988 to 2002. Matching bilateral trade and tariff data and controlling for tariff preferences, level of development, and standard distance measures, they find that infrastructure and institutional quality are significant determinants not only of export levels, but also of the likelihood exports will take place at all. Their results support the notion that export performance, and the propensity to take part in the trading system at all, depends on institutional quality and access to well-developed transport and communications infrastructure. Indeed, this dependence is far more important, empirically, than variations in tariffs in explaining sample variations in North-South trade.
394 citations
TL;DR: In this paper, the authors address two important issues at the nexus of the literatures on international trade, foreign direct investment (FDI), foreign affiliate sales (FAS), and multinational enterprises (MNEs).
391 citations
TL;DR: In this paper, the authors explored the complementarity between bilateral trade in goods and bilateral asset holdings in a simultaneous gravity equations framework and showed that a 10% increase in bilateral trade raises bilateral asset holders by 6% to 7%.
369 citations
TL;DR: This paper found that countries with higher bilateral trade exhibit higher business cycle synchronization, with an increase of one standard deviation in bilateral trade intensity raising the output correlation from 0.05 to 0.09 for all country pairs, while countries with more asymmetric structures of production exhibit a smaller business cycle correlation.
329 citations
TL;DR: The trade, production, and protection database as discussed by the authors provides researchers with a broad set of data on trade and production for 28 manufacturing sectors at the three-digit level of the international standard industrial classification.
Abstract: The database described in this article provides researchers with a broad set of data on trade, production, and protection for 28 manufacturing sectors at the three-digit level of the international standard industrial classification. The database covers up to 100 developing and developed countries over the period 1976-2004, but data availability varies by country and year. The trade, production, and protection database includes annual data on trade flows (exports and imports), domestic production (output, value added, employment), and trade protection (tariffs and nontariff barriers) for up to 100 countries over the period 1976-2004. The main contribution of this database is that it merges data from different sources in a common industry classification.
244 citations
TL;DR: The authors explored the influence of infrastructure, institutional quality, colonial and geographic context, and trade preferences on the pattern of bilateral trade and found that institutional quality and institutional quality are significant determinants not only of export levels, but also of the likelihood exports will take place at all.
211 citations
TL;DR: In this paper, the authors employ cointegration, generalized impulse response analysis, and stability tests to study the dynamics of Turkish bilateral trade between Turkey and its nine trading partners, in addition to aggregate trade balance data.
Abstract: Purpose – The purpose of this paper is to study empirically the dynamics of Turkish bilateral trade between Turkey and her nine trading partners, in addition to aggregate trade balance data.Design/methodology/approach – The paper employs cointegration, generalized impulse response analysis, and stability tests.Findings – The empirical results suggest non‐existence of the J‐curve effect at disaggregate and aggregate levels. However, Marshall‐Lerner condition holds for the aggregate data along with some of the trading partners. With regard to the stability of trade balance equations, the findings are mixed.Practical implications – Conclusions drawn from this study could be useful for the policy makers of governments and practitioners in international trade organizations.Originality/value – This paper extends the existing literature by providing initial evidence at disaggregate data in the case of Turkey. Moreover, for the first time disaggregate and aggregate data are utilized in the same analysis.
209 citations
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TL;DR: The authors examined the implicit methodology used by the US Treasury in determining whether China and its other trading partners manipulate their exchange rates, and the nature of the Chinese exchange rate regime since July 2005.
Abstract: This paper examines two related issues: (a) the implicit methodology used by the US Treasury in determining whether China and its other trading partners manipulate their exchange rates, and (b) the nature of the Chinese exchange rate regime since July 2005 On the first issue, we investigate the roles of both economic variables consistent with the IMF definition of manipulation - the partners' overall current account/GDP, its reserve changes, and the real overvaluation of its currency - and variables suggestive of American domestic political considerations -- the bilateral trade balance, US unemployment, and an election year dummy The econometric results suggest that the Treasury verdicts are driven heavily by the US bilateral deficit, though other variables also turn out to be quite important On the issue of China's de facto exchange rate regime, we apply the technique introduced by Frankel and Wei (1994) to estimate implicit basket weights and add several refinements Within 2005, the de facto regime remained a peg to the dollar However, there was a modest but steady increase in flexibility subsequently We test whether US pressure has promoted RMB flexibility We also test whether the recent appreciation against the dollar is due to a trend appreciation against the reference basket or a declining weight on the dollar in the reference basket, and argue that they have different policy implications
180 citations
TL;DR: In this article, the authors analyze the impact of regional economic integration on trade flows using the COMESA case study and conclude that the performance of regional blocs is mainly constrained by problems of variation in initial condition, compensation issues, real political commitment, overlapping membership, policy harmonization, lack of diversification and poor private sector participation.
Abstract: Major issues of regional economic integration in Africa could be grouped into two interrelated broad areas: issues of implementation and the limitation of insight form both the theoretical and empirical literature regarding the specific approaches that are appropriate for the continent. Implementation issues cover the economic, political and institutional constraints that surface at the implementation stage of economic integration treaties. The approach issue refers to the menu of options available to pursue economic integration. These options range from a step-wise bilateral cooperation to continent-wide integration. This paper critically reviews these issues and tests the determinants of trade flows using the experience of COMESA as a case study. The major conclusions that emerge from the study are, first, bilateral trade flows among the regional groupings could be explained by standard variables as demonstrated by the results of the conventional gravity model. The result shows that regional groupings had insignificant effect on the flow of bilateral trade. Second, the review of the issues indicates that the performance of regional blocs is mainly constrained by problems of variation in initial condition, compensation issues, real political commitment, overlapping membership, policy harmonisation, lack of diversification and poor private sector participation. These problems seem to have made building successful economic groupings in Africa a daunting task, despite its perceived importance in the increasingly globalised world.
173 citations
TL;DR: For example, this paper found that the US Treasury verdicts are driven heavily by the US bilateral deficit, though other economic variables also turn out to be quite important, such as the partners' overall current account/GDP, its reserve changes and the real overvaluation of its currency.
Abstract: The IMF Articles of Agreement forbid a country from manipulating its currency for unfair advantage. The US Treasury has been legally required since 1988 to report to Congress biannually regarding whether individual trading partners are guilty of manipulation. One part of this paper tests econometrically two competing sets of hypothesized determinants of the Treasury decisions: (1) legitimate economic variables consistent with the IMF definition of manipulation – the partners’ overall current account/GDP, its reserve changes and the real overvaluation of its currency, and (2) variables suggestive of domestic American political expediency – the bilateral trade balance, US unemployment and an election year dummy. The econometric results suggest that the Treasury verdicts are driven heavily by the US bilateral deficit, though other variables also turn out to be quite important.
In 2005 China announced a switch to a new exchange rate regime. The exchange rate would be set with reference to a basket of other currencies, with numerical weights unannounced, allowing a movement of up to ± 0.3% within any given day. Although this step was originally accepted at face value in public policy circles, scepticism is in order. The second econometric part of the paper evaluates what exchange rate regime China has actually been following. We use the technique introduced by[Frankel and Wei (1994)][1]): one regresses changes in the value of the local currency, in this case the RMB, against changes in the values of the dollar, euro, yen and other currencies that may be in the basket. We find that within 2005, the de facto regime remained a peg to a basket that put virtually all weight on the dollar. Subsequently there has been a modest but steady increase in flexibility with some weight shifted to a few non-dollar currencies – but not those one might expect. In any case, the weight on the dollar was still fairly heavy in 2006. The paper tests whether the decline in the implicit weight on the dollar is related to the pressure from US officials. It also considers whether the increase in flexibility that we have seen, small though it is, has been gradually accelerating, at a rate that would suggest the likelihood of some genuine flexibility in the not-so-distant future.
— Jeffrey A. Frankel and Shang-Jin Wei
[1]: #ref-18
TL;DR: In this article, the authors analyze the world network of bilateral trade imbalances and characterize its overall flux organization, unraveling local and global high-flux pathways that define the backbone of the trade system and develop a general procedure capable to progressively filter out in a consistent and quantitative way the dominant trade channels.
Abstract: The large-scale organization of the world economies is exhibiting increasing levels of local heterogeneity and global interdependency. Understanding the relation between local and global features calls for analytical tools able to uncover the global emerging organization of the international trade network. Here we analyze the world network of bilateral trade imbalances and characterize its overall flux organization, unraveling local and global high-flux pathways that define the backbone of the trade system. We develop a general procedure capable to progressively filter out in a consistent and quantitative way the dominant trade channels. This procedure is completely general and can be applied to any weighted network to detect the underlying structure of transport flows. The trade fluxes properties of the world trade web determine a ranking of trade partnerships that highlights global interdependencies, providing information not accessible by simple local analysis. The present work provides new quantitative tools for a dynamical approach to the propagation of economic crises.
TL;DR: In this article, the authors analyze the world network of bilateral trade imbalances and characterize its overall flux organization, unraveling local and global high-flux pathways that define the backbone of the trade system and develop a general procedure capable to progressively filter out in a consistent and quantitative way the dominant trade channels.
Abstract: The large-scale organization of the world economies is exhibiting increasingly levels of local heterogeneity and global interdependency. Understanding the relation between local and global features calls for analytical tools able to uncover the global emerging organization of the international trade network. Here we analyze the world network of bilateral trade imbalances and characterize its overall flux organization, unraveling local and global high-flux pathways that define the backbone of the trade system. We develop a general procedure capable to progressively filter out in a consistent and quantitative way the dominant trade channels. This procedure is completely general and can be applied to any weighted network to detect the underlying structure of transport flows. The trade fluxes properties of the world trade web determines a ranking of trade partnerships that highlights global interdependencies, providing information not accessible by simple local analysis. The present work provides new quantitative tools for a dynamical approach to the propagation of economic crises.
TL;DR: Deardorff and Frankel as discussed by the authors showed that geographic distance is a proxy for unfamiliarity and that exporters in high uncertainty-aversion countries are more sensitive to informational ambiguity.
TL;DR: In this article, the authors used product-level data on trade between Germany and 10 Eastern European countries during 1992-2003 to show that the trade gap, defined as the discrepancy between the value of exports reported by Germany and the import from Germany reported by the importing country, is positively related to the level of tariff in 8 out of 10 countries.
TL;DR: In this article, the authors investigated the impact of internal distance and remoteness on trade and found that internal distance has a far greater impact than remotness, by an order of 10.
TL;DR: In this paper, a 10% increase in the immigrant stock is found to generate respectively 4.7 and 1.5% increases in domestic imports from and exports to the typical low income home country.
Abstract: Macro-level data for the US and 73 trading partners spanning the years 1980 to 2001 is used with a gravity specification to investigate the influence of immigration on bilateral trade. Prior research has identified immigrant stocks as a significant determinant of trade; however, this study indicates that the US immigrant-trade link is driven by immigration from relatively low income countries. A 10% increase in the immigrant stock is found to generate respectively 4.7 and 1.5% increases in domestic imports from and exports to the typical low income home country. The observed link is decomposed into two hypothesized channels–network effects and transplanted home bias. Considerable variation in per-immigrant trade effects is found across home countries: imports from the typical low income home country are estimated to increase by up to $2057 due to transplanted home bias and by as much as $2967 as a result of network effects, while exports rise by up to $910 as a result of networks.
01 Jan 2007
TL;DR: In this article, the authors present and test a model where bilateral trade liberalization increases exporting revenues inducing more firms to enter the export market and to adopt skilled-biased new technologies.
Abstract: In the last 20 years, wage inequality has increased in many developing countries. Most research on this topic focuses on two alternative causes: trade or skill-biased technical change. Several empirical studies in both developed and developing countries document increases in skill intensity within all sectors, favoring the technological change explanation over trade. Instead, I present and test a model where bilateral trade liberalization increases exporting revenues inducing more firms to enter the export market and to adopt skilled-biased new technologies. I find that the increase in the relative demand of skilled labor does not come from labor reallocation across sectors or firms but from skill upgrading within firms. Firms that upgrade technology faster also upgrade skill faster. Finally, firms entering the export market after liberalization become more skill and technology-intensive than non exporters.
TL;DR: This paper found evidence of globalization reflected in the estimated coefficients on distance in both cross-section and panel data, showing that the estimated distance coefficient in the gravity model of bilateral trade has been broadly stable, a result that might be called the missing globalization puzzle.
Abstract: Globalization can be characterized as the rapid increase in international trade spurred by advances in technology that have decreased the cost of trade. As costs have declined, so too, it would seem, should the estimated distance coefficient in the gravity model of bilateral trade. But a standard empirical result is that these estimated coefficients have been broadly stable, a result that might be called the “missing globalization puzzle.” In contrast to results from the literature, we find evidence of globalization reflected in the estimated coefficients on distance in both cross-section and panel data. Our estimation procedures fully incorporate the information contained in observations where bilateral trade is zero and hence do not suffer from the potential estimation bias when observations where bilateral trade is zero are arbitrarily excluded from the sample.
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TL;DR: The gravity equation (GE) was used to explain bilateral trade flows without theoretical underpinnings in the early 1970s as discussed by the authors, and was validated by a series of theoretical articles that demonstrated that the basic GE form was consistent with various models of trade flows.
Abstract: This chapter offers a selective survey of the gravity equation (GE) in international trade. This equation started in the Sixties as a purely empirical proposition to explain bilateral trade flows, without little or no theoretical underpinnings. At the end of the Seventies, the GE was "legitimized" by a series of theoretical articles that demonstrated that the basic GE form was consistent with various models of trade flows. Empirical applications of GE expanded to cover a variety of issues, such as the impact of regional trade agreements, national borders and currency unions on trade, as well as the use of the equation to sort out the relative merit of alternative trade theories. A new wave of studies is now concentrating on the general equilibrium properties of the GE and finer econometrics points. The renewed interest of the academic profession in the development of the GE is undoubtedly driven by the equation's empirical success.
01 Jan 2007
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TL;DR: This paper explored the influence of infrastructure, institutional quality, colonial and geographic context, and trade preferences on the pattern of bilateral trade and found that institutional quality and institutional quality are significant determinants not only of export levels, but also of the likelihood exports will take place at all.
Abstract: We work with a panel of bilateral trade flows from 1988 to 2002, exploring the influence of infrastructure, institutional quality, colonial and geographic context, and trade preferences on the pattern of bilateral trade. We are interested in threshold effects, and so emphasize those cases where bilateral country pairs do not actually trade. We depart from the institutions and infrastructure literature in this respect, using selection-based gravity modeling of trade flows. We also depart from this literature by mixing principal components (to condense our institutional and infrastructure measures) with a focus on deviations from expected values for given income cohorts to control for multicollinearity. Infrastructure, and institutional quality, are significant determinants not only of export levels, but also of the likelihood exports will take place at all. Our results support the notion that export performance, and the propensity to take part in the trading system at all, depends on institutional quality and access to well developed transport and communications infrastructure. Indeed, this dependence is far more important, empirically, than variations in tariffs in explaining sample variations in North-South trade. This implies that policy emphasis on developing country market access, instead of support for trade facilitation, may be misplaced.
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TL;DR: In this article, the authors explore the complementarity between bilateral trade in goods and bilateral asset holdings and find that the strong correlation between trade and asset holdings is not simply due to distance, but also due to the legal similarities between countries and the international taxation of withheld capital.
Abstract: Gravity models have been widely used to describe bilateral trade in goods. Recently, Portes and Rey [1999] applied this framework to cross border equity flows and found that distance, which proxies information asymmetries in financial markets, is a surprisingly very large barrier to cross-border asset trade. We adopt here a different point of view and explore the complementarity between bilateral trade in goods and bilateral asset holdings. We jointly study trade in goods and banking assets in a simultaneous gravity equations framework using different instruments for both endogenous variables. To instrument trade in goods, we choose geographical variables (excluding distance) and data on bilateral transport costs. For asset holdings, we use legal similarities between countries and data on the international taxation of withheld capital. We find that the strong correlation between bilateral trade in goods and asset holdings is not simply due to distance: bilateral trade in goods generates bilateral asset holdings and vice versa. Those effects are of first order magnitude: a 10% increase in trade generates a 6 to 7% increase of asset holdings, and a 10% increase in banking claims induces a 2 to 3% increase in trade. Finally, we investigate the question of the remaining impact of distance. We find out that the impact of distance on trade in goods is only slightly reduced, while for asset holdings, a large part of the effect of distance is going through trade.
TL;DR: In this article, the authors investigated three channels of international R&D spillovers: trade, FDI, and information technology, and found that bilateral trade remains an important conduit for international research spillovers.
Abstract: With the rapid pace of economic integration, the productivity of a country depends not only on domestic R&D, but also on foreign R&D through technology diffusion across countries. The advancement of information technology (IT) has made the international transmission of knowledge faster and more efficient, providing an important channel for international R&D spillovers. This paper investigates three channels of international R&D spillovers: trade, FDI, and information technology. Applying panel cointegration and dynamic OLS analysis to the data for 21 OECD countries plus Israel during the period from 1981 to 1998, we find that bilateral trade remains an important conduit for international R&D spillovers. Although bilateral FDI is found to be positively related to international R&D spillovers, their impact on productivity growth is relatively small. We also find that the development of information technology has played a more important role in international R&D spillovers and productivity growth in recent years.
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TL;DR: This article presented a corner-solutions version of the gravity model of bilateral trade which explains zero trade and leaves room for WTO membership to promote trade at the extensive margin of trade, and found that WTO membership has promoted world trade to a larger extent than Rose's results seem to indicate.
Abstract: In his seminal paper, Rose (2004) concluded from a gravity-type study of bilateral trade that the GATT/WTO does not play a strong role in encouraging trade. Rose looks at countries where the amount of trade was positive to start with (intensive margin). In this paper, we present a corner-solutions version of the gravity model of bilateral trade which explains zero trade and leaves room for WTO membership to promote trade at the extensive margin of trade. Relying on a Tobit estimation approach, we find that WTO membership has promoted world trade to a larger extent than Rose's results seem to indicate.
TL;DR: In this article, the authors use BACI, the new CEPII data base of world trade covering the largest available set of countries over a decade at the most detailed level of the product classification.
Abstract: Recent works in trade theory and related empirical studies have drawn a revised picture of trade patterns: international specialisation has been proved to take place within products, across varieties, rather than across products or across industries. Systematising this repeated empirical evidence, we ask here what are the precise patterns regarding the specialisation of countries within products and across varieties and what are the determinants of such specialisation. Our value added is twofold. Firstly, we use BACI, the new CEPII data base of world trade covering the largest available set of countries over a decade at the most detailed level of the product classification. BACI reconciles the declarations of trading partners to the United Nations (COMTRADE), extracting trade costs from unit values of imports, and correcting for the quality of the declarations. We consider varieties of products inside each heading of the 6-digit level of the harmonised nomenclature, which comprises some 5,000 products. Secondly, we take advantage of this extensive coverage to systematically address the determinants of specialisation using a 10 year panel of 163 countries and 25 manufactured sectors.Our results point to four stylised facts. Firstly, the similarity of exports between North and South is much more limited when we consider differentiated varieties than when industries are considered. Secondly, the unit value of exported products to a certain market varies with the level of development of the exporter. Thirdly, the observed redistribution of market shares has been especially detrimental to advanced economies for low unit value varieties, while the EU has better resisted competition in high unit value varieties. Fourthly, we use a gravity equation to explain the bilateral trade in varieties among developing and developed economies.On the basis of such detailed and systematic empirical evidence regarding the specialisation of countries within - rather than between - products, we ask whether the fears raised by North-South competition are exaggerated.
TL;DR: In this article, the authors examined a standard gravity model of international commerce augmented to include political and institutional influences on bilateral trade and showed that the often-reported link between international conflict and bilateral trade is elusive and that inclusion of conflict in a trade model can sometimes lead to reduced out-of-sample predictive performance.
Abstract: The authors examine a standard gravity model of international commerce augmented to include political as well as institutional influences on bilateral trade. Using annual data from 1980-2001, they estimate regression coefficients and residual dependencies using a hierarchy of models in each year. Rather than gauge the generalizability of these patterns via traditional measures of statistical significance such as p-values, this article develops and employs a strategy to evaluate the out-of-sample predictive strength of various models. The analysis of recent international commerce shows that in addition to a typical gravity-model specification, political and institutional variables are important. The article also demonstrates that the often-reported link between international conflict and bilateral trade is elusive, and that inclusion of conflict in a trade model can sometimes lead to reduced out-of-sample predictive performance. Further, this article illustrates that there are substantial, persistent resid...
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TL;DR: In this article, the authors make an attempt to estimate the likely benefits in terms of gains or losses in imports of both India and China due to different preferential trading arrangements and free-trade arrangements using the gravity model.
Abstract: As revealed by the trade intensity indices, India and the People's Republic of China have significant bilateral trade potential, which has remained unexplored until now. These countries are presently negotiating for bilateral free-trade arrangements based on their complementarities. This paper makes an attempt to estimate the likely benefits in terms of gains or losses in imports of both India and China due to different preferential trading arrangements and free-trade arrangements using the gravity model. Empirical results show that in the short run India's potential gain is relatively lower compared to China's because of its high tariffs but in the long run, India's gains are higher than China's once its tariff levels are brought at par with them. Free-trade arrangement is a win-win situation for both countries and is consistent with their growing dominance in international trade.
TL;DR: In this paper, the impact of country-specific resistance to bilateral trade flows between two countries is the estimation of a stochastic frontier gravity type model, which is demonstrated using trade data from the recently formed Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC) countries.
Abstract: Drawing on the procedures developed for estimating stochastic frontier production functions, the methodology suggested in this paper to work out the impact of country-specific resistance to bilateral trade flows between two countries is the estimation of a stochastic frontier gravity type model. The workability of the suggested method is demonstrated using trade data from the recently formed Indian Ocean Rim—Association for Regional Cooperation (IOR-ARC) countries. The role of the regional cooperation towards reducing trade restrictiveness among its member countries is examined by considering Australia's exports to other member countries of IOR-ARC. The empirical analysis indicates that on average, Australia has been able to achieve more (about 15%) of its potential exports with IOR-ARC countries due to regional cooperation.
TL;DR: In this article, the Eurobarometer public opinion surveys published by the European Commission, which provide data on the share of the population in each EU15 member country in favour of each CEEC joining the EU, were used to study the relationship between bilateral trade patterns and opinions.