International Trade Theory and Policy I Introduction and Overview

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1 Introduction and Overview The Vienna Institute for International Economic Studies - wiiw March 5, 2015

2 Questions to be addressed 1 Positive questions 1 How important is trade? 2 What explains which goods are exported and which are imported? 3 Why countries export and import the same product simultaneously? 4 How and why does the quality of exports differ? 5 Why do not all firms exports? 2 Normative questions 3 Further issues

3 How important is trade? Value added trade Vertical trade 40 Share of trade in GDP (in %) China EU-27 Japan USA Note: At current prices Source: WIOD; author's calculations

4 How important is trade? Value added trade Vertical trade 80 Share of trade in GDP (in %) Austria Germany Slovak Republic Note: At current prices Source: WIOD; author's calculations

5 Structure of exports Share in total gross exports (in %) Food, etc. Textiles, etc. Leather, etc. Wood, etc. Paper, etc. Coke, etc. Chemicals, etc. Rubber and plastics Minerals, etc. Metals, etc. Machinery, etc. Electrical products, etc. Transport equipment, etc. Manufacturing n.e.c China Note: At current prices Source: WIOD; author's calculations 1995 Change Food, etc. Textiles, etc. Leather, etc. Wood, etc. Paper, etc. Coke, etc. Chemicals, etc. Rubber and plastics Minerals, etc. Metals, etc. Machinery, etc. Electrical products, etc. Transport equipment, etc. Manufacturing n.e.c Germany

6 Structure of exports Share in total gross exports (in %) Food, etc. Textiles, etc. Leather, etc. Wood, etc. Paper, etc. Coke, etc. Chemicals, etc. Rubber and plastics Minerals, etc. Metals, etc. Machinery, etc. Electrical products, etc. Transport equipment, etc. Manufacturing n.e.c Brazil Note: At current prices Source: WIOD; author's calculations 1995 Change Food, etc. Textiles, etc. Leather, etc. Wood, etc. Paper, etc. Coke, etc. Chemicals, etc. Rubber and plastics Minerals, etc. Metals, etc. Machinery, etc. Electrical products, etc. Transport equipment, etc. Manufacturing n.e.c Russia

7 Structure of exports Share in total gross exports (in %) Food, etc. Textiles, etc. Leather, etc. Wood, etc. Paper, etc. Coke, etc. Chemicals, etc. Rubber and plastics Minerals, etc. Metals, etc. Machinery, etc. Electrical products, etc. Transport equipment, etc. Manufacturing n.e.c Japan Note: At current prices Source: WIOD; author's calculations 1995 Change Food, etc. Textiles, etc. Leather, etc. Wood, etc. Paper, etc. Coke, etc. Chemicals, etc. Rubber and plastics Minerals, etc. Metals, etc. Machinery, etc. Electrical products, etc. Transport equipment, etc. Manufacturing n.e.c USA

8 Intra-industry trade Grubel-Lloyd index Wood, etc. Textiles, etc. Rubber and plastics Leather, etc. Machinery, etc. Manufacturing n.e.c Electrical products, etc. Paper, etc. Chemicals, etc. Food, etc. Transport equipment, etc. Metals, etc. Minerals, etc. Note: At current prices Source: BACI; author's calculations Austria

9 Trading firms are different 1 Share of exports for top exporters in 2003 (total manufacturing) Country of origin Top 1 % Top 5 % Top 10 % Germany France 44(68) 73(88) 84(94) United Kingdom Italy Hungary Belgium Norway Source: Mayer and Ottaviano, Stylized facts: Exporters tend to be bigger 2... more productive 3... more capital and skill-intensive 4 etc.

10 Questions to be addressed 1 Positive questions 2 Normative questions 1 Is trade beneficial in general for countries? 2 Does trade policy help or harm - and whom? 3 Are there losers from trade? Can these been compensated? 4 Adjustment costs of restructuring? 3 Further issues

11 Income shares in manufacturing GVC income Source: Timmer et al., 2014

12 Modelling the effects of the Transatlantic trade and investment partnership (TTIP) agreement (in % of GDP) Source Method EU USA Austria Year Ecorys/EU (2009) CGE ECIPE (2010) CGE CEPR/EU (2013) CGE CEPII (2013) CGE FIW (2013) a CGE FIW (2013) b CGE ifo/bs (2013) Gravity Makro Source: Breuss (2014)

13 Questions to be addressed 1 Positive questions 2 Normative questions 3 Further issues 1 Trade in intermediates 2 Production fragmentation and Made in world 3 What is the role of other forms of international integration? 1 Foreign direct investment 2 Migration 3 Balance-of-payment and financial flows 4 Services trade

14 ipod Global Value Chain Source: Dendrick and Kraemer, 2010

15 Who is producing the Volvo? Source: Baldwin, 2009

16 Roadmap 1 Classics: Countries trade because they are different 1 Productivity differences (Ricardo) 2 Endowments differences (Heckscher-Ohlin and Specific Factors model) 3 Extensions 2 New Trade Theory: 1 Intra-industry trade (Krugman) 3 New New Trade Theory: 1 Firm heterogeneity 4 Trade policy issues 1 Tariffs, quotas and subsidies

17 Literature 1 Textbooks 1 Krugman, P.R., M. Obstfeld and M.J. Melitz (2012), International Economics. Theory and Policy, Pearson. 2 Borkakoti, J. (1998), International Trade. Causes and Consequences, London: MacMillan. 2 Advanced readings 1 Dixit, A.K. and V. Norman (1980), Theory of International Trade, Cambridge/UK: CUP. 2 Feenstra, R. (2004), Advanced International Trade. Theory and Evidence, Princeton University Press. 3 Wong, K. (1995), International Trade in Goods and Factor Mobility, Cambridge/M.: MIT Press. 3 Policy focus 1 Rivera-Batiz, L. and M.-A. Oliva (2004), International Trade: Theory, Strategies and Evidence, Oxford: OUP.

18 Data 1 Trade data 1 UN COMTRADE (HS 6-digit): around 6000 products Men s or boys overcoats, car-coats, capes, cloaks, anoraks (including ski-jackets), wind-cheaters, wind-jackets and similar articles, knitted or crocheted, other than those of heading No Of wool or fine animal hair Of cotton Of man-made fibres Of other textile materials 2 Eurostat COMEXT (CN 8-digit): around products 3 BACI and CHELEM 4 Services trade data: IMF, Eurostat, OECD 5 Other... 6 Download possibility: 2 World input-output tables 1 World input-output database (WIOD): 2 EORA 3 WTO-OECD TiVA

19 Modelling strategies 1 General equilibrium modelling 1 Well-behaved utility and production functions 2 First and second welfare theorem 3 Computable General Equilibrium Modelling (GAMS) 2 Partial equilibrium modelling 1 Demand-supply schedules