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Global Trade Models and Economic Policy Analyses: Relevance, Risks and Repercussions for Africa

Global Trade Models and Economic Policy Analyses: Relevance, Risks and Repercussions for Africa

In recent years, there has been a proliferation of models for global trade policy analysis. These models differ in terms of structure and often give different answers to the same questions. This is a source of confusion for policymakers especially in developing countries where there is lack of adequate analytical capacity to evaluate the results of these studies. In such an environment there is the need for a rigorous method for assessing the validity of these models and their predictions. One of the most serious criticisms of CGE trade models is the lack of validation of the models predictions. In other words there is no way to tell whether or not the predictions of CGE models match actual events based on historical data. CGE researchers typically respond to this criticism by stating that ex-post validation of their model is difficult because the income gains reported are measures of social welfare which are unobservable. They also argue that events outside the domain of the models affect or influence the actual behaviour of the global economy and so it would be inappropriate to expect the model’s predictions to match historical data (see for example, Whalley 2000). While these are valid arguments, they also apply to modelling methods used by the Real Business Cycle (RBC) researchers but have not prevented the validation of RBC models.

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Trade Models with Heterogeneous Firms: What About Importing?

Trade Models with Heterogeneous Firms: What About Importing?

There are few other general equilibrium models that incorporate the importing decisions of firms. Ramanarayanan (2007) builds a dynamic model in which entering firms make irreversible decisions about their import status in the presence of aggregate and idiosyncratic uncertainty. He uses the model to contrast the effects of business-cycle shocks and trade liberalizations on the Armington elasticity. Kasahara and Lapham (2008) consider both the decision to export and the decision to import. They develop a dynamic model in which firms face stochastic fixed costs of importing in addition to a fixed cost of exporting. Gopinath and Neiman (2011) build a model of heterogeneous firms to analyze changes in use of imported intermediate goods during large crises. They show how changes in inputs at the firm level can affect measured productivity. By contrast to these papers, we isolate the decision to import and develop a simple, static, non-stochastic, competitive model that has an exact analytic solution. This allows for a high degree of transparency in our analysis of trade liberalization and provides a

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Income Distribution and Terms of Trade under Generalized Returns to Scale and Capital Accumulation: Implications Using Classical Equilibrium Condition

Income Distribution and Terms of Trade under Generalized Returns to Scale and Capital Accumulation: Implications Using Classical Equilibrium Condition

Since capital stock is endogenous, the current paper does not seek to contri- bute to the factor-endowment driven trade models. Instead, in the open econo- my setting the North is characterized as a full-employment economy that only produces capital goods using domestic labor and capital as also in [7], although we abandon the assumption of constant returns to scale and the associated out- come of price of capital equaling the value of its marginal product. The South is a [8] type surplus labor economy that produces food using domestic labor and capital from North as inputs. While the model is similar to that of [9], the relax- ation of the assumption of constant returns to scale leads to several interesting results through the use of the Classical long period equilibrium condition in a North-South setting with generalized returns to scale and the presence of pure profits 2 .

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Trade, Resource Reallocation and Industry Heterogeneity

Trade, Resource Reallocation and Industry Heterogeneity

Recent trade models with heterogeneous firms (Bernard et al., 2003 and Melitz, 2003) show how lower trade costs can spur aggregate productivity by forcing lower productivity firms out of the market, cutting off the lower tail of the productivity distribution. In this paper we find significant heterogeneity regarding this impact across different industries. In particular, we find that the exit of inefficient plants due to stronger import competition is very prominent in light industries, that is, in industries in which only a limited amount of capital is needed and where most plants are of small- scale. In contrast, we find no significant effects of import competition on the exit of plants in heavy industries. The result has important policy implications regarding the role of trade reform in boosting aggregate productivity, particularly in industries with high levels of distortions.

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Trade and synchronization in a multi country economy

Trade and synchronization in a multi country economy

Substantial evidence suggests that countries with stronger trade linkages have more synchro- nized business cycles. The standard international business cycle framework cannot replicate this finding, uncovering the trade-comovement puzzle. We show that under certain macro-level con- ditions but irrespective of the micro-level assumptions concerning trade the puzzle arises because trade fails to substantially increase the correlation between each country’s import penetration ratio and the trade partner’s technology shock. Within a large class of trade models, there are three channels through which bilateral trade may increase business cycle synchronization. Specifically, increased bilateral trade may (i) raise the correlation between each country’s tech- nology shocks, (ii) raise the correlation between each country’s share of expenditure on domestic goods, and (iii) raise the response of the domestic import penetration ratio to foreign technology shocks. Empirical evidence strongly supports the first and second channels. We show that the trade-comovement puzzle can be resolved if productivity shocks are more correlated between country-pairs that trade more.

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Tariffs, trade and productivity: a quantitative evaluation of heterogeneous firm models

Tariffs, trade and productivity: a quantitative evaluation of heterogeneous firm models

Our research contributes to several related strands in the literature. The …rst are papers concerned with the design and testing of a new generation of computable gen- eral equilibrium (CGE) models (e.g., Balistreri et al., 2011; Corcos et al. 2012). This new generation of CGE models tries to improve the predictive performance of earlier CGE models by explicitly modelling …rm-level heterogeneity. 6 Our paper highlights a fundamental problem many of these models face when trying to predict the e¤ects of a reduction of trade barriers –the inability to match both trade and productivity increases, the two variables which have been the focus of most existing theoretical and empirical analyses of trade liberalization episodes. We also contribute to this literature by per- forming a comparative evaluation of a wide range of popular trade models, rather than focusing on the performance of one particular version. Finally, we look at both within- and out-of-sample predictions and employ formal statistical tests to evaluate model per- formance, rather than only comparing the model predictions and data in a relatively ad hoc fashion.

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New Approach to Estimating Gravity Models with Heteroscedasticity and Zero Trade Values

New Approach to Estimating Gravity Models with Heteroscedasticity and Zero Trade Values

Santos Silva & Tenreyro (2006) (SST (2006), hereafter) criticized conventional estimation practices of the log-linearized gravity trade models and proposed solutions to deal with the heteroscedasticity issue and the zero trade values. Broadly speaking, they argue that the gravity equation should be estimated in its multiplicative form using a Poisson Pseudo-Maximum- Likelihood (PPML, hereafter) estimation technique. The PPML is a special case of the Generalized Nonlinear Linear Model (GNLM) framework in which the variance is assumed proportional to the mean. SST (2006) show that this method is robust to different patterns of heteroscedasticity, deals with the Jensn’s inequality and resolves the inefficiency problem . The work of SST (2006) is particularly striking given that their results raised important questions about the findings of many seminal studies in the trade literature (e.g., Anderson and van Wincoop, 2003) who predicted the coefficient on GDP close to one. The improvements that the PPML method has brought to the estimation of gravity models made it tractable in the international trade literature. In fact, it is has been used extensively in estimation of gravity equations (Bosquet and Boulhol, 2015; Egger and Tarlea, 2015; Dai et al., 2014; Lin, 2013; Yotov, 2012; de Sousa, 2012; Egger & Larch, 2011; Head et al., 2010; Shepherd, 2010; Fitzgerald, 2008; Tenreyro, 2007; among others). 4

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A Difference-In-Differences (DID) Analysis Of Financial Integration And International Trade In ASEAN+5

A Difference-In-Differences (DID) Analysis Of Financial Integration And International Trade In ASEAN+5

In the process of financial integration, various currency unions, such as Euro in the EU and dollarization in Latin America, have been implemented by the members of a specific block. Rose and Engle (2002) examine the behavior of countries that are or have been members of international currency unions, and ask whether existing currency unions replicate the desirable features of optimal currency areas as set out by Mundell (1961), which deepen dramatically trade and financial relations between integrating countries. However, a number of studies have shown that national borders restrain economic integration. Internal trade is disproportionately large compared to international trade; relative prices are more stable inside countries than across national boundaries; domestic assets tend to be held disproportionately, and so forth. Perhaps the large size of this “border effect” is mostly the result of exchange rate volatility or, more generally, the consequence of having different national moneys. Ultimately, Rose and Engle (2002) show that members of currency unions systematically engage in more international trade.

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Determinants of Intra-Industry Trade in Intermediate Goods between the US and OECD Countries

Determinants of Intra-Industry Trade in Intermediate Goods between the US and OECD Countries

in a developing country depends on the profitability of FDI. FDI leads to a technology transfer from an advanced home country to an underdeveloped foreign country. Due to the availability of managerial skills in the foreign country, there will be some efficiency loss for home firms when the new technology is adopted into the foreign country. The model’s solution reveals that the minimum price level for positive supply of intermediate goods is negatively related to the efficiency loss variable, and is positively related to tariffs, transportation costs, and wages. Hence, the efficiency variable has negative effects on the foreign country’s comparative advantage in intermediate goods production. If the efficiency loss is small or moderate, then home firms make FDI in foreign country, the intermediate goods supply in this country increases and its price declines. If the efficiency loss is large, no FDI is made and there will be no fragmentation in intermediate goods. Cheng et al. (2001) applies the model implications to the relationship between Hong Kong and Guangdong, a province of China that is close to Hong Kong. They found that as the share of Hong Kong FDI in Guangdong increases from 61 percent in 1988 to 68 percent in 1996, the share of processing trade in Guangdong’s total exports rose from 5.4 percent to 27.2 percent. Moreover, the share of Guangdong’s exports by foreign- funded enterprises jumped from 16 to 51 percent. These figures clearly suggest that production fragmentation induced by FDI has generated a large volume of trade between Hong Kong and China. However, as Hong Kong moves its manufacturing activities into mainland China, the share of employment in Hong Kong’s manufacturing sector,

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Possibilities of trade expansion among the SAARC countries: evidence from the macro-economic and regional trade link models

Possibilities of trade expansion among the SAARC countries: evidence from the macro-economic and regional trade link models

Guru-Gharana [2000] also analysed the possibilities of trade expansion in the SAARC region with the help of macroeconomic modelling for south Asian economies. The estimation is based on time series data of 22 years from 1975-1996. Using Three Stages Least Squares (3SLS) estimation technique he found that all SAARC countries would be dramatically benefited from regional trade expansion. Though this study is much improved in terms of content and coverage compared to the study of Naqvi et al [1988], it is also not free from limitations. For example, the author mentioned that he had to collect data from different sources for the same variable and time period; these data are widely different and the time series are not comparable.

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Multilateral trade rules on regional trade: A case study of the East African community

Multilateral trade rules on regional trade: A case study of the East African community

Paragraph (a) and (b) of Article XXIV (5) both provide that such an agreement should have more advantages and/or less restrictions than pre-existing arrangements to the members and/or parties in such agreements. The provisions of Article XXIV (4) and (5) state that the effect on trade with third countries needs to be monitored during the formation of RTAs. Paragraph (c) of Article XXIV (4) provides the timeframe for transitional arrangements, stating that any interim agreement referred to in subparagraph (a) and (b) shall include a plan and schedule for the formation of such a Customs Union or of such a free-trade area within a reasonable period of time. Paragraph 3 of the Understanding on the interpretation of Article XXIV of GATT 1994 indicates that a reasonable length of time shall be 10 years and parties requiring more time shall seek extension from the Council for Trade in Goods under exceptional circumstances. 14 The problematic issues that arise under these provisions are on the meaning of the term Other Regulations of Commerce, the assessment of the effects of duties and ORCs and the length of time for the transition period of RTAs. The meaning of ORCs has been generally defined as measures that control the inflow and outflow of trade. 15 The relevant measures identified as ORCs by some WTO members are border measures, anti- dumping duties, preferential rules of origin, technical standards subsidies and countervailing measures whose scope is quite broad. However, there is no agreement on this. 16 The second systemic issue concerns the assessment of the effects of duties and ORCs: whether there should be one single requirement for duties and ORCs or whether they have to comply separately. The 1994 Understanding refers to two overall assessments for tariffs and ORCs. Other members argue that the word “on the whole” indicates that there is only one assessment for duties and ORCs. 17 The third systemic issue arises on the length of time for transitional arrangements: it has been defined in the Understanding as 10 years and time extension is allowed only in exceptional cases. 18 With the

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INTERNATIONAL JOURNAL OF ENGINEERING SCIENCES & MANAGEMENT APPLICATION OF GRAVITY MODEL FOR IDENTIFICATION OF DETERMINES FOR EXCHANGE BETWEEN SERBIA AND PARTNERS Ivana Nikolic*

INTERNATIONAL JOURNAL OF ENGINEERING SCIENCES & MANAGEMENT APPLICATION OF GRAVITY MODEL FOR IDENTIFICATION OF DETERMINES FOR EXCHANGE BETWEEN SERBIA AND PARTNERS Ivana Nikolic*

International trade in the industry and is the exchange of capital, goods and services across international borders and territories. In most countries, a significant part is the gross domestic product (GDP). Based on the principles and ways of working, international trade is not significantly different from domestic trade. The main difference is that international trade is much more costly than domestic trade. The reason for this is the additional costs, such as tariffs (at the borders). Based on the differences between individual countries, such as language, the legal system of the country and the culture, are the costs that influence economy. According to some authors, there are other kinds of differences between domestic and international trade, such as a factor of production, which includes labor and capital. Sometimes goods and services can be a substitute for trade in factors of production. Some countries are working on the following principle: instead of imported factors of production, those how imported a goods which already contains the factors of production (Lansbury et al, 1996 ; Uzagalieva et al . 2012). The aim of the research is to identify the determinants that affect the import and export of Serbian products , goods and services between partners .

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An Empirical Research on Evaluation of Low Carbon Economy in Guangdong  Province, China: Based on “Production, Life and Environment”

An Empirical Research on Evaluation of Low Carbon Economy in Guangdong Province, China: Based on “Production, Life and Environment”

In order to promote the development of Low-carbon economy (LCE), it is important to establish a scientific LCE quantitative evaluation system. Based on the concept of “life, production and envi- ronment”, this paper builds the decomposition models of carbon emission influencing factors from these three aspects and inductively analyzes the factors influencing LCE development. Ac- cording to these factors, this paper correspondingly builds a quantitative evaluation index system of LCE, which makes up the deficiency in selection index in theory. The evaluation of LCE in Guangdong Province is carried out by applying the analytic hierarchy process, entropy method and composite index method. Results showed that the development of LCE in Guangdong was on the decline during the period of 2000-2012 and the rapid economic growth in Guangdong was achieved at the expense of the environment. Therefore, this paper puts forward some suggestions that Guangdong should improve the utilization of clean energy, pay attention to the optimization of energy mix from household and productive sector, and attach equal importance to the structure optimization when enlarging its foreign trade scale. In addition, with limited land resources, Guangdong should take into account the common development of production, life and environ- ment in land planning.

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Towards an explicit modeling of trade facilitation in CGE models: evidence from Egypt

Towards an explicit modeling of trade facilitation in CGE models: evidence from Egypt

First, the national accounts coming from Central Agency for Public Mobilization and Statistics (CAPMAS) reports (2001) have been used to determine the implemented investment by destination. In the Egyptian matrix, we have only the sum of indirect taxes and import duties imposed on composite commodities without disaggregating them. That is why, in the calibration, I have used the applied tari ff s coming from the World Trade Organization and “Trade and Production” database in order to calculate the import duties for each sector 8 . Then, tari ff s revenues are deduced from the total revenues to obtain the indirect taxes receipts which have been used to calibrate the sales tax rate. Some other parameters have been taken from previous studies. First, the nominal interest rate (11.5%) has been taken from the Central Bank of Egypt database. In addition, the population growth rate (1.8%) has been acquired from the CAPMAS data. Growth rates for total factor productivity, transfers, public wages and employment have been taken from the World Bank and the CAPMAS datasets. Last but not least, according to Miketa (2005), I adopt the depreciation rate that is equal to 4%. I follow Rutherford et al. (1993) in selecting the benchmark elasticities. Labor-capital substitution varies across sectors, ranging from 0.43 to 1.99. Trade elasticities are taken from Konan and Maskus (1997). The substitution elasticity between domestic and imported goods (both intermediates and consumption) is set at 2.0. The transformation elasticity between domestic and exported output is set to 5.0.

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TRADE LIBERALIZATION AND ITS IMPACT ON AGRICULTURE TRADE IN INDIA

TRADE LIBERALIZATION AND ITS IMPACT ON AGRICULTURE TRADE IN INDIA

Trade in Agriculture should not be seen in isolation agrarian trade is related to many social aspect and welfare of the majority of population dependent on agriculture .The tariff rates should be raised whenever need plus a rise in exports should not be at the cost of the environment like the use of Bt cotton in India or at the cost of employment for example the SEZ or natural resources. There is a need to raise the domestic support to the farmers or product specific support which remains at a low or is even negative for certain commodities.

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Estimating the impact of currency unions on trade using a dynamic gravity framework

Estimating the impact of currency unions on trade using a dynamic gravity framework

from the same degree of endogeneity and omitted variables bias as are direct pegs, which in turn are likely to suffer less from endogeneity bias as currency unions, since a peg is easier to change. In a clever working paper, Baranga (2011) argues that the adoption of the Euro affords a similar natural experiment, since countries that previously endogenously pegged to a Euro member then found themselves randomly pegged to the other Euro members, and finds no effect of this random peg. While it may be argued that currency unions and direct pegs are seen as more permanent than indirect pegs, the difference in the point estimates is large—Klein and Shambaugh find an impact of 21% for direct pegs versus -1.4% for indirect pegs. That this difference could be reconciled based on expectations of the permanence of the type of peg is not credible given Klein and Shambaugh’s other finding—that exchange rate volatility itself is hardly correlated with trade, as going from normal exchange rate volatility to no volatility at all implies an increase in trade of just one or two percent.

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Macro-economic and trade link models of South Asian countries: an investigation for regional trade expansion

Macro-economic and trade link models of South Asian countries: an investigation for regional trade expansion

The models for India’s imports from Pakistan shows unsatisfactory fit indicating non- economic (political) considerations are dominating factors for bilateral trade. Data deficiency may also attribute to this poor performance of the models. Exports of India to Bangladesh and Nepal are found significant factor for India’s imports from these two countries. India’s income has significant positive effects on its imports from Bangladesh and Sri Lanka. As expected, no variable is found significant for imports from Pakistan. However, in case of Sri Lanka, the exchange rate ratio has highly significant positive effect.

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Survey of gravity models of trade and labour, and a proposed trade employment gravity model for the Philippines

Survey of gravity models of trade and labour, and a proposed trade employment gravity model for the Philippines

A similar argument is also posed in Taningco and Hernandez (2010), wherein some other variables apart from inputs and prices may affect trade behaviour between countries. Going beyond the distance variable in a gravity model, the exercise estimated effects of economic and non-economic variables affecting trade facilitation in East Asia. This economic exercise tried to investigate the trends on trade in East Asia as it enters the era of globalization, i.e., increased trade globally and within East Asia while lifting the traditional barriers of trade such as quotas and tariffs. However, the paper noted that not only these are the limits to trade. There are also “technical barriers” to trade such as time to deliver the output from one destination to another, cost of delays, availability of physical infrastructure (such as airports and ports), among other things. Note that in classical models of trade, these things are assumed not to affect trade between two countries. However, in the real world conduct of trade, these factors affect significantly the quantity and perhaps the quality of trade between two countries (and not only the distance as what Timbergen [1962] had initially suggested).

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THE SAFETY AND SECURITY OF INTERNATIONAL TRADE AS A DETERMINANT OF THE BUSINESS STRATEGY OF THE POLISH CUSTOMS SERVICE

THE SAFETY AND SECURITY OF INTERNATIONAL TRADE AS A DETERMINANT OF THE BUSINESS STRATEGY OF THE POLISH CUSTOMS SERVICE

in terms of minimizing the costs of their activity and reducing time of customs services, increasing participation of developing countries in global trade, a growing number of customs and tax crimes such as: undervaluation of goods customs value and falsification of invoices value, increase of unfair competition in trade, unpredictable specificity of criminal activity, terrorist attacks and piracy attacks cause the more and more increasing diversity of security threats. As a consequence of a diversity of threats in contemporary world, in literature and in discussions about that problem, there is a new security notions: “human” security and “non-traditional” security, which concepts are fo- cusing more on the security of the individual, both on people and on entrepreneur, and not, as in the case of the traditional concept, on the state sovereignty (Aggarval & Govella, 2013). Both “tradition- al” security, “non-traditional” as well “human” security and safety are directly linked to world trade. However, contemporary as the most dangerous, both for the state and for the individuals. activity of organized criminal groups is regarded. For this reason, many initiatives are taken, both nationally and globally, in order to develop the principles and conditions for secure safe international trade. Particularly involved in these initiatives is the World Customs Organization (WCO) and customs administrations of the Member states. Customs administrations are in a unique position to provide increased security and safety to the global supply chain and to contribute to socio-economic de- velopment through revenue collection and trade facilitation. Nowadays the role of customs admin- istration has changed significantly. From typical fiscal administration, it has evolved and focuses mainly on protecting the market and ensuring the safety and security of international trade. This paper addresses the problem of threats in today’s international trade and the role of cus- toms administrations in ensuring the security and safety both, of the international goods flow and of the international market. The aim of the paper is to analyze the influence of safety and security standards in the international trade of goods on the activity of the customs administrations, on the example of the Polish Customs Service.

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Trade Liberalization and Welfare Inequality: a Demand Based Approach

Trade Liberalization and Welfare Inequality: a Demand Based Approach

valuations serve only the rich. In this case, a rise in trade costs leads to that some exporting …rms exit from both foreign submarkets. 5 This reduces the intensity of competition in the submarkets and, therefore, drives up the prices. However, since exporting …rms that exit from the submarket for the necessities do not stop exporting, but enter the submarket for the luxury goods (increasing the intensity of competition in this submarket), the prices of the luxuries rise by less than those of the necessities. This in turn implies that the rich lose relatively less from a rise in trade costs than the poor do. I …nd that, depending on the parameters of the model, the rich can even gain from higher trade costs. In contrast, if trade costs are high enough, then exporting …rms …nd it pro…table to serve only the rich. Then, a rise in trade costs does not have a direct impact on the poor and, as a result, the rich lose relatively more.

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