FINANCIAL CONTAGION ON THE INTERNATIONAL TRADE NETWORK

We combine data on international trade linkages with a network approach to map the global trading system as an interdependent complex network. This enables us to obtain indicators of how well connected a country is into the global trading system. We use these network‐based measures of connectedness to explain stock market returns during recent episodes of financial crisis. We find that a crisis is amplified if the epicenter country is better integrated into the trade network. However, target countries affected by such a shock are in turn better able to dissipate the impact if they are well integrated into the network. A network approach can help explain why the Mexican, Asian, and Russian financial crises were highly contagious, while the crises that originated in Venezuela and Argentina did not have such a virulent effect. We suggest that a network approach incorporating the cascading and diffusion of interdependent ripples when a shock hits a specific part of the global trade network provides us with an improved explanation of financial contagion. (JEL F10, F36, F40, G15)     

HIERARCHICAL TRADE

Commodity trading is typically organized hierarchically: Large‐scale trade takes place at the global price system while individuals trade at local price systems within their countries. Agencies or trading houses establish the link between these different market places. In this paper, we devise a framework to study this type of hierarchical trade. We identify the free trade and the autarky equilibrium as polar cases. We show that no other two‐stage market equilibria exist if the commodity space is two‐dimensional. An example demonstrates that other, so‐called intermediate equilibria exist for three‐dimensional commodity spaces. We then provide an explicit construction of special classes of intermediate equilibria. Moreover, we study the consequences when some countries control the agency that organizes trade at the global level and we analyze the role of international goods arbitrage. Finally, we show that profit‐maximizing agencies may not promote free trade outcomes. (JEL D43, D50, F10)     

North American free trade and the European situation compared

The author analyzes and compares the trade situation in the European Community (EC) with the North American Free Trade Agreement (NAFTA). He finds that "while both the EC and NAFTA are designed to provide trade preferences to the member countries, the two groupings differ markedly in other respects. The Treaty of Rome, establishing what is now the EC, consciously used economic means to foster political cohesion in Western Europe; whereas, the NAFTA negotiations seek free trade rather than more comprehensive economic integration precisely to minimize political content. The EC contains many social provisions absent from the NAFTA discussions, the most important of which is the right of migration from one EC country to another." The effects of NAFTA on the economy of Mexico and on Mexican migration to the United States are also assessed.     

THE HOME MARKET EFFECT IN INTERNATIONAL ARMS TRADE

I show that military spending contributes to international arms proliferation through a push effect: large demand encourages production growth in the domestic market if transport costs are non‐negligible. Under increasing returns to scale, the country can then supply weapons on the global market at low prices. This is a manifestation of the home market effect (HME), which states that countries with higher demand for a differentiated good will be net exporters of that good. I construct a monopolistic competition model of international trade that accounts for differences in demand across countries, and test its predictions using post‐Cold War data. (JEL F1, H5, R1)     

CAN TRADE REALLY HURT? AN EMPIRICAL FOLLOW‐UP ON SAMUELSON'S CONTROVERSIAL PAPER

This paper investigates Samuelson's [Samuelson, P. A. “Where Ricardo and Mill Rebut and Confirm Arguments of Mainstream Economists Supporting Globalization.” Journal of Economic Perspectives, 18(3), 2004, 135–46] argument that technical progress of the trade partner may hurt the home country. We illustrate this prospect in a simple Ricardian model for situations with outward knowledge spillovers. Within this framework Samuelson's Act II effects may occur. Based on industry level panel data for 17 OECD countries for the period 1973–2000 we show econometrically that the outflow of domestic knowledge via exports or foreign direct investment (FDI) to the rest of the world may have a negative impact on industry output in the home country. This is particularly so when exporting to technologically less advanced countries and, more specifically, China. (JEL F10, F11, F14, O30)     

THE DURATION OF FIRM‐DESTINATION EXPORT RELATIONSHIPS: EVIDENCE FROM SPAIN, 1997–2006

This article uses survival analysis to investigate the duration of Spanish firms' trade relationships by destination over 1997–2006. Whereas firm export status is highly persistent, firms' destination portfolio is very dynamic: a typical firm‐country exporting relationship has a median duration of 2 years. Yet, if a firm manages to export to a country beyond 2 years the risk of exiting that market sharply falls afterwards. The results indicate that not only firm heterogeneity but also destination heterogeneity are crucial to explain survival in export markets. In particular, country (political) risk heavily shapes the effect of firm, product, and other destination characteristics on the length of trade relationships. Whereas firm productivity, comparative advantage, partners' GDP, and proximity enhance duration of trade with low‐risk countries, they have no effect on trade survival with high‐risk countries. On the contrary, information spillovers are particularly relevant to enhance survival of trade relationships with high‐risk countries. (JEL C41, F10, F14)     

CORPORATE TAX POLICY AND INDUSTRY LOCATION WITH FULLY ENDOGENOUS PRODUCTIVITY GROWTH

This paper considers how national corporate tax policy affects productivity growth through adjustments in geographic patterns of industry in a two‐country model of trade. With trade costs and imperfect knowledge spillovers between countries, production concentrates partially and innovation concentrates fully in the country with the lowest tax rate. A rise in the international corporate tax differential accelerates productivity growth through an increase in the production share of the low‐tax country that improves knowledge spillovers from industry to innovation. The paper also investigates the relationship between the corporate tax differential and the level of market entry, and analytically characterizes the effects of changes in tax policy on national welfare. (JEL F43, O30, O40, R12)     

Is the web a promising tool for data collection in developing countries? An analysis of the sample bias of 10 web and face-to-face surveys from Africa,Asia, and South America

Whereas the sample composition biases of web surveys have been discussed extensively for developed countries, studies for developing countries are scarce. This article helps to fill that gap by comparing similar non-probability-based web surveys (WEB) and probability-based face-to-face (F2F) surveys both to each other and to the labor force. An analysis of WageIndicator data on work and wages derived from surveys held in 2009–2013 in 10 developing countries (WEB-sample N = 9135; F2F-sample N = 14,659), shows that F2F samples resemble the labor force to a larger extent than web samples do. In both cases, individuals in their 20s and early 30s are overrepresented, and younger and older respondents are underrepresented. This trend is more pronounced in WEB than in F2F samples. However, the differences converge in countries with higher Internet usage. A comparison of the WEB and F2F samples shows that compositions differ greatly, with web respondents being younger, more often male, more often living alone, and higher educated, although these differences are smaller in countries with higher Internet usage. Given the cost differences between the two survey modes, one should nevertheless consider the potential of web surveys as an instrument to gain explorative insights, specifically when searching for individuals with particular characteristics.     

DETERMINANTS OF TRADE AND SPECIALIZATION IN THE ORGANISATION FOR ECONOMIC CO‐OPERATION AND DEVELOPMENT COUNTRIES

This paper empirically investigates the relative importance of productivity, factor endowments, trade costs, and tastes in determining the current pattern of trade and specialization. The results show that productivity and taste differences are the first and second most significant determinants of trade and specialization. Factor endowments are the least influential for the average country in the data set, but their effects are much greater in the poorer than richer countries. The results also show the substantial role of trade costs, which is amplified through interactions with other determinants of trade. Trade costs affect the relative costs of intermediate inputs and final goods, link preferences with specialization, and reduce the geographical range of comparative advantages. (JEL F1, F10)     

Deliberate or Emancipate? Civil Society Participation in Trade Policy: The Case of the CARIFORUM–EU EPA

At both the multilateral and regional levels, there have been efforts to address the democratic deficit in trade negotiations. One such example is the Economic Partnership Agreement (EPA) between the European Union and African, Caribbean and Pacific group of countries where civil society participation was enshrined in the Cotonou Agreement. Yet, the CARIFORUM–EU EPA attracted much criticism from civil society. The paper argues that civil society failed to affect the outcome of the EPA because they participated in the process within a deliberative democratic framework which did not allow for emancipation or a challenge to global economic power and structural considerations in the negotiations; neither did it achieve citizen empowerment and ownership. We advocate the practice of participatory democracy in trade policy decision making—an ideal space for citizen participation—the former holding greater promise for influencing the trade policy agenda.     

SENSE AND SURPRISE IN COMPETITIVE TRADE THEORY2010 WEAI PRESIDENTIAL ADDRESS

Economic models are often judged by the reality of their assumptions or their success at predicting realistic outcomes. In this paper I suggest a different criterion for judging models in international trade theory in competitive settings: (i) Does the model conform to common sense in leading to results that even suggest the model is not necessary, and yet (ii) Can the same model be used as a tool to reveal in simple terms why certain outcomes that may appear surprising (often labeled a paradox in trade theory) nonetheless are correct. Many trade theory paradoxes appear as the result of income effects in simple general equilibrium models. Here attention centers instead on two of the familiar production models: the specific factors model and the Heckscher‐Ohlin model, either separately or when combined. It is shown that very basic properties of production underlie many of the surprising results in competitive trade theory. (JEL F11, D50)     

INTERNATIONAL TRANSMISSION MECHANISM AND WORLD BUSINESS CYCLE

Understanding international transmission mechanism that generates the world business cycle is of immense interest. In this paper, we compile a rich global dataset and utilize a trade‐linked structural vector autoregression (SVAR) model with a relatively realistic identification scheme to construct a worldwide dynamic interdependency system. Empirical results indicate that the trade‐linked SVAR system can largely capture the common dynamic properties of national business cycle fluctuations, providing a meaningful transmission foundation to the world business cycle derived from dynamic factor models. Based on the worldwide trade‐linked SVAR system, we further shed light on three crucial topics in international economics. The findings and methods in this paper help to evaluate the macroeconomic consequences of recent trade dispute between world major economies. (JEL F41, F44, O19)     

中国对海合会国家的经济外交——国际体系转型与地缘经济的视角

20世纪八十年代末以来,尤其是进入21世纪后,随着全球化的不断深入,国际体系转型加剧,各种全球性议题中,国家间或国家与区域组织的经济关系已成为各自需首先解决的问题。中国与海合会国家作为后发国家,在此期间的国内外环境经历着巨大的冲击,双方发展在地缘经济上呈极强互补趋势,自贸区建设谈判也一直在议题之中。中国在总体发展战略和外交布局下,着力提升经济外交,海合会国家则是中国加强对发展中国家经济外交实践的重要对象之一。本文试探讨双边地缘经济联系,梳理中国与其经济外交脉络,明晰在当前国际体系转型和金融危机背景下,各自的利益诉求,展望双方进一步合作以达共赢发展的前景。     

THE NATURE OF OUTSOURCING RELATIONSHIPS: EVIDENCE FROM OAP PRICES

This paper studies the extent and variation in production cost pass‐through for U.S. outsourcing imports. Data from 4,676 products imported through the U.S. overseas assembly program show that outsourcing imports were characterized by incomplete pass‐through of production and trade costs to import prices. Notably, pass‐through was higher for products assembled in high education countries while the response of outsourcing import prices to competing suppliers' prices was largest for products sold by firms in capital‐intense industries. The reasons for these cross‐country and cross‐industry differences, as they relate to theories of outsourcing and trade, are explored. (JEL F1, F2)     

DOES THE NUMBER OF COUNTRIES IN INTERNATIONAL BUSINESS CYCLE MODELS MATTER?

Until the 1980s, standard models with two large open economies (i.e., the United States and Europe) provided plausible representations of the world economy. However, with the emergence of many developing countries since the 1990s, this approach no longer seems reasonable. In line with this change to the global economic environment, cross-country output correlations between the United States and other countries have risen. This paper extends the standard two-country model to many countries to show that doing so produces closer cross-country correlations to the data. In particular, based on analytical investigation with a simple model and quantitative analysis with a more general model, I show that the cross-country output correlation rises and the cross-country consumption correlation falls as the number of countries in the two models increases. (JEL F40, F41, F44)     

CONSEQUENCES OF OFFSHORING TO DEVELOPING NATIONS: LABOR-MARKET OUTCOMES,WELFARE, AND CORRECTIVE INTERVENTIONS

Our parsimonious two-country (developed country and developing country) model of offshoring provides nuanced results. These include cases where wages monotonically improve, as well as where wages exhibit an inverted-U relationship with offshoring cost reductions. We identify conditions under which these relationships hold. Since global welfare always rises with improvements in offshoring technology, we find that there is a role for a minimum wage (alternatively, wage tax) in the developing country. We derive such a policy's optimal level. There is also the possibility of a developed country optimal offshoring tax for extracting terms-of-trade benefits. We, finally, analyze the two-country Nash equilibrium in policies. (JEL F11, F13, F16, F66, O19, O24)     

Open Borders: Absurd Chimera or Inevitable Future Policy?

In the current climate of security concerns, the movement of people across borders is becoming increasingly criminalised. Yet there is a parallel political and economic reality in which borders are opening and the movement of people is being liberalised: zones of free movement such as the European Union expand; other bilateral and multilateral agreements include provisions for more fluid cross‐border movement; international trade negotiations seek to facilitate the flow of those providing goods and services; developing countries’ push for greater access for their citizens to the labour markets of the industrialised world; and a new class of “gold collar” professionals moves with increasing ease around the globe. This paper explores the possibilities of universal open borders as a future policy option. The author accepts realpolitik and understands that the free flow of immigrants is currently impossible, but also maintains that open borders are an inevitable long‐term consequence of globalisation, as well as a policy option for addressing North‐South inequalities and a moral touchstone for the global extension of human rights. The paper does not advocate for more migration, but instead explores the paradox that the creation of the conditions that would allow for the opening of borders is likely to reduce the incentives for emigration. The paper explores the policy changes needed to achieve open borders.     

THE TERMS OF TRADE AND THE INTERNATIONAL COORDINATION OF FISCAL POLICY

This paper develops an example of a noncooperative game between fiscal authorities in two countries. The key strategic link between countries is the terms of trade. An equilibrium without cooperation is characterized by excessive tax rates and public spending levels in each country. The outcome is analogous to the Nash equilibrium of the static optimal tarif game in trade theory. But in this model there is also a dynamic distortion caused by noncooperative behaviour. This dynamic distortion depresses capital accumulation and reduces the equilibrium capital stock in each country. Numerical examples suggest a significant welfare benefit of cooperation.     

TECHNOLOGICAL ASYMMETRY AMONG FOREIGN INVESTORS AND MODE OF ENTRY

How does the preferred entry mode of foreign investors depend on their technological capability relative to that of their rivals? This article develops a simple model of entry mode choice and evaluates its main testable implication using data on foreign investors in Eastern European countries and the successor states of the Soviet Union. The model considers competition between two asymmetric foreign investors and captures the following trade‐off: while a joint venture (JV) helps a foreign investor secure a better position in the product market vis‐à‐vis its rival, it also requires that profits be shared with the local partner. The model predicts that the efficient foreign investor is less likely to choose a JV and more likely to enter directly relative to the inefficient investor. Our empirical analysis supports this prediction: foreign investors with more sophisticated technologies and marketing skills (relative to other firms in their industry) tend to prefer direct entry to JVs. This empirical finding is robust to controlling for host country–specific effects and other commonly cited determinants of entry mode. (JEL F13, F23, O32)     

中国自由贸易试验区建设成效和战略举措

当前,我国自贸试验区建设已进入深入推进的关键时期.从全球看,新一代国际投资贸易规则和产业链加速重构,迫切要求加强自贸试验区改革试验和压力测试;从全国看,供给侧结构性改革深入推进,迫切需要自贸试验区在更大程度上发挥引领带动效应.自贸试验区建设要按照国家要求,进一步解放思想,以更大的勇气和智慧推进制度创新,进一步发挥全国改革开放试验田作用.