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- 10 April 2013
- WORKING PAPER SERIES - No. 1530Details
- Abstract
- The failure of trade economists to anticipate the extreme drop in trade post Lehman Brothers bankruptcy suggests that the behavior of trade in exceptional circumstances may still be poorly understood. This paper explores whether uncertainty shocks have explanatory power for movements in trade. VAR estimations on United States data suggest that domestic uncertainty is a strong predictor of movements in imports, but has little effect on exports. Guided by these results, the paper estimates a bilateral model with focus on the impact of importer uncertainty on foreign suppliers. It finds that there is a strong negative relationship between uncertainty and trade and that this relationship is non-linear. Uncertainty matters most when its levels are exceptionally high. The paper does not find evidence of learning from past turmoils, suggesting that prior experience with major uncertainty shocks does not reduce the effect on trade. In line with the expectations, the negative effect of uncertainty shocks on trade is higher for trade relationships more intensive in durable goods. Surprisingly, however, the effect of durability is non-linear. Supply chain considerations or the possibility that the relationships with the highest durability lead to important compositional effects may have a bearing on the results. The results are robust to excluding the post Lehman shock, suggesting that the trade response during the 2008-2009 crisis has been similar to past uncertainty events.
- JEL Code
- F02 : International Economics→General→International Economic Order
F10 : International Economics→Trade→General
G01 : Financial Economics→General→Financial Crises
- 28 November 2011
- WORKING PAPER SERIES - No. 1401Details
- Abstract
- Trade is measured on a gross sales basis while GDP is measured on a net sales basis, i.e. value added. The rapid internationalisation of production in the last two decades has meant that gross trade flows are increasingly unrepresentative of value added flows. This fact has important implications for the estimation of the gravity equation. We present empirical evidence that the standard gravity equation performs poorly by some measures when it is applied to bilateral flows where parts and components trade is important. We also provide a simple theoretical foundation for a modified gravity equation that is suited to explaining trade where international supply chains are important.
- JEL Code
- F01 : International Economics→General→Global Outlook
F10 : International Economics→Trade→General
- 20 September 2010
- WORKING PAPER SERIES - No. 1245Details
- Abstract
- Global trade contracted quickly and severely during the global crisis. This paper, using a unique dataset of French firms, matching together export data with firm-level credit constraints, shows that most of the 2008-2009 trade collapse is accounted by the unprecedented demand shock and by product characteristics. While all firms have been evenly affected by the crisis, large firms did so mainly through the intensive margin and by reducing the portfolio of products offered in each destination served. Smaller exporters instead have been forced to reduce the range of destinations served or to stop exporting altogether. Credit constraints, on their part, emerged as an aggravating factor for firms active in sectors of high financial dependence. Nonetheless, as the share of credit constrained firms is small and their number did not increase much during the crisis, the overall impact of credit constraints on trade remains limited.
- JEL Code
- F02 : International Economics→General→International Economic Order
F10 : International Economics→Trade→General
G01 : Financial Economics→General→Financial Crises
- 21 July 2010
- WORKING PAPER SERIES - No. 1227Details
- Abstract
- The unprecedented drop in international trade during the last quarter of 2008 and the first quarter of 2009 has mainly been analysed at the macroeconomic or sectoral level. However, exporters who are heterogeneous in terms of productivity, size or external financial dependence should be heterogeneously affected by the crisis. This issue is examined in this paper by using data on monthly exports at the product and destination level for some 100,000 individual French exporters, up to 2009M4. We show that the drop in French exports is mainly due to the intensive margin of large exporters. Small and large exporters are evenly affected when sectoral and geographical specialisations are controlled for. Lastly, exporters (small and large) in sectors structurally more dependent on external finance are the most affected by the crisis.
- JEL Code
- F02 : International Economics→General→International Economic Order
F10 : International Economics→Trade→General
G01 : Financial Economics→General→Financial Crises
- 31 May 2010
- OCCASIONAL PAPER SERIES - No. 110Details
- Abstract
- In this paper we take a systematic look at recent trends in global protectionism and at the potential implications of a protectionist backlash for economic growth, using results from the recent economic literature and new model simulations. We find that there has so far been a moderate increase in actual protectionist measures to restrict trade through tariff and non-tariff barriers. At the same time, evidence from surveys shows that public pressure for more economic protection has been mounting since the mid-2000s, and has possibly intensified since the start of the financial crisis. However, no World Trade Organization (WTO) member has retreated into widespread trade restrictions or protectionism to date. Our model-based simulations suggest that the impairment of the global flow of trade would hamper the recovery from the crisis, as well as the long-term growth potential of the global economy. At the same time, it is unlikely that protectionism would help to correct existing current account imbalances. Moreover, the countries implementing protectionist measures should expect a deterioration of their international competitiveness, which would further affect the potential for longer-term real GDP growth.
- JEL Code
- F13 : International Economics→Trade→Trade Policy, International Trade Organizations
F15 : International Economics→Trade→Economic Integration
F21 : International Economics→International Factor Movements and International Business→International Investment, Long-Term Capital Movements
F53 : International Economics→International Relations, National Security, and International Political Economy→International Agreements and Observance, International Organizations - Network
- Eurosystem Monetary Transmission Network
- 28 December 2007
- WORKING PAPER SERIES - No. 847Details
- Abstract
- What determines a country's ability to compete in international markets? What fosters the global competitiveness of its firms? And in the European context, have key elements of the EU strategy such as EMU and enlargement helped or hindered domestic firms' competitiveness in local and global markets? We address these questions by calibrating and simulating a conceptual framework that, based on Melitz and Ottaviano (2005), predicts that tougher and more transparent international competition drives less productive firms out the market, thereby increasing average productivity as well as reducing average prices and mark-ups. The model also predicts a parallel reduction of price dispersion within sectors. Our conceptual framework allows us to disentangle the effects of technology and freeness of entry from those of accessibility (i.e. the ease for local firms to reach local and foreign consumers). On the one hand, by controlling for the impact of trade frictions, we are able to construct an index of 'revealed competitiveness', which would drive the relative performance of countries in an ideal world in which all faced the same barriers to international transactions. On the other hand, by focusing on the role of accessibility while keeping 'revealed competitiveness' as given, we are able to evaluate the impacts of EMU and enlargement on the competitiveness of European firms. We find that EMU positively affects the competitiveness of firms located in participating economies. Enlargement has, instead, two contrasting effects. It improves the accessibility of EU members but it also increases substantially the relative importance of unproductive competitors from Eastern Europe.
- JEL Code
- F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
R13 : Urban, Rural, Regional, Real Estate, and Transportation Economics→General Regional Economics→General Equilibrium and Welfare Economic Analysis of Regional Economies
- 28 February 2005
- WORKING PAPER SERIES - No. 446Details
- Abstract
- This paper contributes to the literature on the impact of EMU on trade, adding two new elements. First, we propose a theoretical model for explaining how the euro could have increased trade by the large amounts found in the empirical literature. Second, we propose a sectoral dataset to test the insights from the theory. Our theoretical model shows that in a monopolistic competition set-up, the effect of exchange rate uncertainty on trade has nonlinear features, suggesting that EMU and a standard measure for exchange rate uncertainty should be jointly significant. Our empirical results confirm this finding, with a trade creating effect between 108 and 140% in a pooled regression, and between 54 to 88% when sectors are estimated individually. Importantly, we find evidence for a trade creating effect also for trade with third countries.
- JEL Code
- F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
C33 : Mathematical and Quantitative Methods→Multiple or Simultaneous Equation Models, Multiple Variables→Panel Data Models, Spatio-temporal Models
E0 : Macroeconomics and Monetary Economics→General
- 1 June 2003
- WORKING PAPER SERIES - No. 238Details
- Abstract
- Two seemingly unconnected empirical results suggest an intriguing mechanism. First, economic integration helps harmonize prices internationally, with trade being the primary channel (Rogoff 1996, Goldberg and Knetter 1997). Second, monetary union may greatly increase the amount of trade among members (Rose 2001). Putting these together, we see that formation of a monetary union may induce changes that help harmonise inflation rates. The effect might be large if the elimination of exchange rate volatility simultaneously leads to a large increase in intra-union trade and a big increase in the speed at which price shocks are transmitted across members' goods markets. This paper investigates part of this mechanism and finds that monetary union may indeed result in faster cross-border transmission of price movements via the import and export price channel which, in turn, would tend to homogenise price movements across the member countries of a monetary union.
- JEL Code
- D40 : Microeconomics→Market Structure and Pricing→General
F15 : International Economics→Trade→Economic Integration
F31 : International Economics→International Finance→Foreign Exchange