Bilateral tariff rates in international trade : finished goods versus intermediate goods

In this paper, we examined back-and-forth international transactions through tariff reduction by estimating modified gravity equations for finished goods and intermediate goods separately. Our main findings are as follows. Exports of finished machinery products are negatively associated with not only the importer's tariff rates on finished machinery products but also the exporter's tariff rates on machinery parts. Similarly, exports of machinery parts are negatively associated with not only the importer's tariff rates on machinery parts but also the exporter's tariff rates on finished machinery products. These results imply that tariff reduction in only one production process in an industry has the potential to drastically change the magnitude of trade in the whole industry.

Market Access and Intermediate Goods Trade

The role of importer access to the finished goods market in intermediate goods trade is examined by estimating the gravity-like equation derived from the NEG model. Importer access to demand for finished goods is calculated by using the estimates in the gravity equation for finished goods trade, and then intermediate goods trade is regressed on the importer access. Results indicate that imports of intermediate goods are sensitive not only to the magnitude of importer demand for finished goods but also to the demand of neighboring countries. Using results of the regression, the impact of US finished goods market expansion on intermediate goods trade in each country is simulated.

Chapter 1 Market Access and Intermediate Goods Trade

This paper examines a distinctive feature of intermediate goods trade which the traditional gravity equation fails to capture, i.e., intermediate goods trade is positively related not only to the importing country's demand for finished goods but also to its neighbors' demand for finished goods. We regress a gravity equation for finished goods trade in the first step. Then, introducing the importing country's access to the total demand for finished goods which is calculated by using the estimates in the first step, we regress our gravity equation for trade in intermediate goods. Our regression results confirm such a feature of intermediate goods trade. Using the results of the regression, we simulate how the rise of US consumers' demand for finished goods affects the total imports and exports of intermediate goods in each country.

Pitfalls of location choice analysis : the finished goods producer versus the intermediate goods producer

In literature related to firm location choice, estimation equations are derived from the model of finished goods producers, but producer types are generally not considered. Research presented in this paper shows that the use of equations derived from such models against intermediate goods producers results in several problems.

The Effect of Exchange Rate Volatility on International Trade: The Implication for Production Networks in East Asia

This paper is an empirical investigation of the relationship between exchange rate volatility and international trade, focusing on East Asia. It finds that intra-East Asian trade is discouraged by exchange rate volatility more seriously than trade in other regions because intermediate goods trade in production networks, which is quite sensitive to exchange rate volatility compared with other types of trade, occupies a significant fraction of trade. In addition, this negative effect of volatility is mainly induced by the unanticipated volatility and has an even greater impact than that of tariffs.

Theory and empirics of Markusen type multinationals

Research on multinational firms’ activity has been conducted widely since late 1980s. The literature is differentiated into three types: horizontal FDI, vertical FDI, and three-country FDI, represented by export platform FDI. There are other methods of differentiation of the literature by approach, for example, the pure theory approach represented by Krugman and Melitz and the numerical simulation approach represented by Markusen. This paper surveys Markusen type literature by firm type. There is little literature focused on intermediate goods trade, although intermediate goods trade is considered to be strongly related to the production patterns of MNEs. In this paper, we introduce a model to explicitly treat intermediate goods trade and present simulation analysis for empirical estimation.

Development of Border Economic Zones in Thailand: Expansion of Border Trade and Formation of Border Economic Zones

In the wake of economic globalization and development in Thailand, movement of people and commodities at the Thai borders is also becoming pronounced. Economic interdependence between Thailand and neighboring countries is growing through border customhouses. As a policy, Thailand is trying to stimulate trade and investment with neighboring countries following the ACMECS (Ayeyawady-Chao Phraya-Mekong Economic Cooperation Strategy) scheme. In this report, first, movement of people and goods at the borders will be examined. Second, clarification of where and how development is proceeding will be presented. Last, this study will attempt to review the perspectives of policies on neighboring countries after Thaksin.

Intra-regional trade between China, Japan, and Korea : before and after the financial crisis

East Asian economies have been heavily dependent on the U.S. and EU markets, especially for the export of final goods. Therefore, once the financial crisis hit Western economies hard, the East Asian economies lost their major markets.Their production networks then worked to the region's disadvantage and stifled industrial development.This reflects the vulnerability of the East Asian economies which have adopted an export-led growth strategy. Such vulnerability needs to be addressed to prevent future economic crises, as well as to sustain economic growth. This paper examines the trade structure of the three countries-China, Japan, and Korea-before and after the Lehman Shock, and discusses how the three countries should cooperate in addressing imbalances in the trade structure.

Trade of Heilongjiang Province (China) with Russia

Local trade between the Far East region of the USSR and the Northeast region of the People’s Republic of China started in 1957, arranged by the public trade organizations in the respective borderlands. Heilongjiang Province of China has been the main actor in trade with the Far East region of the USSR, and more recently, Russia. After 1957, Heilongjiang Province’s trade with the Russian Far East developed rapidly until 1993, except a period of interruption (1967-1982). Thereafter, the Heilongjiang Province’s trade with the Russian Far East underwent a stagnation period (1994-1998), a recovery period (1999-2001), a rapid development period (2002-2007) and a period of change of tendencies and radical decrease (2008-2009). Heilongjiang Province’s trade with the Russian Far East consists of three main forms: general trade, Chinese-style border trade (Bianjing Trade which includes Bianjing Small Trade and trade between private persons (Hushi Trade)) and Travel Trade. The rapid increase of Heilongjiang Province’s trade with the Russian Far East from 2002 to 2007 is mainly attributable to the increase in the export of ordinary consumer goods, especially textile clothing and footwear, and to Bianjing Small Trade.

The role of Preferential Trade Agreements (PTAs) in facilitating global production networks

This paper examines the effects of preferential trade agreements (PTAs) in facilitating international trade flows connecting production networks. We consider over 250 PTAs with trade flows distinguished into parts and components and final goods for the period 1979-2008. The gravity equation estimates suggest that the concurrent year effects of PTA formation on trade in parts and components are unseen, whereas PTAs have positive and pervasive effects on both types of trade flows 6 and 9 years after the PTA formation.

Ex ante bargaining and ex post enforcement in trade credit supply: theory and evidence from China

If payment of goods is easily default, economic transaction may deeply suffer from the risk. This risky environment formed a mechanism that governs how economic transaction is realized, subsequently how trade credit is given. This paper distinguished ex ante bargaining and ex post enforcement, then modeled that bargaining power reduces trade credit ex ante, and ex post enforcement power and cash in hand of buyer can enhances both trade amount and trade credit in a presence of default risk. We modeled this relationship in order to organize findings from previous literature and from our original micro data on detailed transaction in China to consistently understand the mechanism governing trade credit. Then empirically tested a structure from the theoretical prediction with data. Results show that ex post enforcement power of seller mainly determines size of trade credit and trade amount, cash in hand of buyer can substitute with enforcement power; Bargaining power of seller is exercised to reduces trade credit and trade amount for avoiding default risk, but it simultaneously improves enforcement power as well. We found that ex post enforcement power consists of (ex ante) bargaining power on between two parties and intervention from the third party. However, its magnitude is far smaller than the direct impact to reduce trade credit and trade amount.

Spatial price equilibrium and the transport sector : a trade-consistent SCGE model

This paper presents a framework for an SCGE model that is compatible with the Armington assumption and explicitly considers transport activities. In the model, the trade coefficient takes the form of a potential function,and the equilibrium market price becomes similar to the price index of varietal goods in the context of new economic geography (NEG). The features of the model are investigated by using the minimal setting, which comprises two non-transport sectors and three regions. Because transport costs are given exogenously to facilitate study of their impacts, commodity prices are also determined relative to them. The model can be described as a system of homogeneous equations, where an output in one region can arbitrarily be determined similarly as a price in the Walrasian equilibrium. The model closure is sensitive to formulation consistency so that homogeneity of the system would be lost by use of an alternative form of trade coefficients.

The middle-income trap from the viewpoint of trade structures

In this study, we try to elucidate the middle-income trap from the viewpoint of international trade. We conduct regression analyses on the relationship between income level and net export ratios for different types of goods for trapped and non-trapped samples separately. Our findings indicate that industrial upgrading appears to occur exactly as depicted by the flying-geese model for non-trapped countries while trapped countries tend to depend on the export of primary commodities, and industrialization appears to be driven by forward linkages to processed goods and a narrow base. The results of our analyses suggest that the middle-income trap is a form of Dutch disease or a 'resource curse' in the middle-income stage.

Product quality and intra-industry trade

In this study, we argue that the conventional intra-industry trade (IIT) index does not address the quality issue directly and propose a methodology to make full use of unit-price gap information to deduce quality differences between simultaneously exported and imported products. By applying this measure to German trade data at the eight-digit level, we study the quality improvement of Chinese export goods in its IIT with Germany. We compare the case of China with those of Eastern European countries, which are also major trading partners of Germany. Our results show that the unit-value difference in IIT between Germany and Eastern European countries is clearly narrowing. However, China's export prices to Germany are much lower than Germany's export prices to China, and this gap has not narrowed over the last 23 years. This is at odds with the common perception that China's product quality has improved, as documented by Rodrik (2006) and Schott (2008). Our results support Xu (2010), which argued that incorporating the quality aspect of the exported goods weakens or even eliminates the evidence of the sophistication of Chinese export goods in Rodrik (2006).

On the variety of Mexico's export goods

This paper examines the evolution of the variety of Mexico’s export goods using disaggregated trade data. Both the econometric estimation analyses using the raw data and the one using an improved version of Feenstra and Kee's (2004, 2007) methodology proposed in this paper show that NAFTA membership does not enhance the variety of Mexico's export goods. This finding contrasts with NAFTA's positive association with the increase in export variety found in the literature.