Coordination cost and the distance puzzle

Since 1960, transport costs have been falling, but international exchange did not become less sensitive to distance. We propose the following explanation for this puzzle: in a Dixit-Stiglitz framework, a decrease in transport cost favors trade, which may increase the international specialization (i.e. the number of varieties of intermediate goods used in production). An increased international specialization increases the need for coordination, and makes relatively more important for downstream firms to be close to their suppliers. As a result, trade increases with all partners, but more quickly for neighbors than for distant countries.Transport cost ; coordination cost ; international trade ; distance puzzle

Trade-offs drive resource specialization and the gradual establishment of ecotypes

Speciation is driven by many different factors. Among those are trade-offs between different ways an organism utilizes resources, and these trade-offs can constrain the manner in which selection can optimize traits. Limited migration among allopatric populations and species interactions can also drive speciation, but here we ask if trade-offs alone are sufficient to drive speciation in the absence of other factors. We present a model to study the effects of trade-offs on specialization and adaptive radiation in asexual organisms based solely on competition for limiting resources, where trade-offs are stronger the greater an organism's ability to utilize resources. In this model resources are perfectly substitutable, and fitness is derived from the consumption of these resources. The model contains no spatial parameters, and is therefore strictly sympatric. We quantify the degree of specialization by the number of ecotypes formed and the niche breadth of the population, and observe that these are sensitive to resource influx and trade-offs. Resource influx has a strong effect on the degree of specialization, with a clear transition between minimal diversification at high influx and multiple species evolving at low resource influx. At low resource influx the degree of specialization further depends on the strength of the trade-offs, with more ecotypes evolving the stronger trade-offs are. The specialized organisms persist through negative frequency-dependent selection. In addition, by analyzing one of the evolutionary radiations in greater detail we demonstrate that a single mutation alone is not enough to establish a new ecotype, even though phylogenetic reconstruction identifies that mutation as the branching point. Instead, it takes a series of additional mutations to ensure the stable coexistence of the new ecotype in the background of the existing ones, reminiscent of a recent observaComment: 19 pages, 3 figure

On the home market effect: theory and empirical evidence

This paper addresses the question of how to discriminate between the H-O paradigm and the C-H-O paradigm of international trade. The test is based on the home-biased expenditure. The model predicts a positive relationshipp between a country''s share of world''s output (in any particular sector) and the country''s share of world''s home-biased expenditure if and only if the sector is characterize4d by IRS and monopolistic competition. The Empirical implementation showed an important but not overwhelming presence of the relationship. Specifically, 55% of the industrial activity could be attributed to the H-O paradigm while 45% could be attributed to the C-H-O paradigm

The role of trade costs in global production networks : evidence from China's processing trade regime

In a seminal contribution, Yi (2003) has shown that vertically specialized trade should be more sensitive to changes in trade costs than regular trade. Yet empirical evidenceof this remains remarkably scant. This paper uses data from China's processing trade regime to analyze the role of trade costs on trade within global production networks (GPNs). Under this regime, firms are granted duty exemptions on imported inputs as long as they are used solely for export purposes. As a result, the data provide information on trade between three sequential nodes of a global supply chain: the location of input production, the location of processing (in China) and the location of further consumption. This makes it possible to examine the role of both trade costs related to the import of inputs (upstream trade costs) and trade costs related to the export of final goods (downstream trade costs) on intra-GPN trade. The authors show that intra-GPN trade differs from regular trade in that it not only depends on downstream trade costs, but also on upstream trade costs and the interaction of both. Moreover, intra-GPN trade is more sensitive to oil price movements and business cycle movements than regular trade. Finally, the paper analyzes three channels through which intra-GPN trade have amplified the trade collapse during the recent Global Recession.Economic Theory&Research,Free Trade,Trade Policy,Emerging Markets,Currencies and Exchange Rates

Supply capacity, vertical specialisation and trade costs : the implications for aggreagate US trade flow equations

This paper re-examines aggregate and disaggregate import and export demand functions for the United States over the 1975q1-2010q1 period. This re-examination is warranted because (1) income elasticities are too high to be warranted by standard theories, and (2) remain high even when it is assumed that supply factors are important. These findings suggest that the standard models omit important factors. An empirical investigation indicates that the rising importance of vertical specialization combined with changing tariff rates and transportation costs explains some of results. Accounting for these factors yields more plausible estimates of income elasticities

Long-Run Structural and Productivity Change in U.S. Agriculture: Effects of Prices and Policies

Long-Run Structural and Productivity Change in U.S. Agriculture: Effects of Prices and Policies by Wallace E. Huffman and Robert E. Evenson The paper presents (1) a conceptual framework for structural change when farms may be multiproduct or specialized and (2) an econometrics examination of causes of structural and total factor productivity (TFP) change for U.S. agriculture. Farm size, farm specialization, and part-time farming are the structural dimension emphasized, and they become potential channels to TFP change. Using state aggregate data starting in 1950, we conclude that input prices, public and private research, public extension, and government commodity programs have directly and indirectly caused change in U.S. farm structure and TFP. Our results suggest that changes in farm size, however, have been dominated by input price changes rather than by technology or government programs.farm structure, productivity, farm size, farm specialization, part-time farming, research, technical change, agriculture

Nutrition-sensitive value chains from a smallholder perspective: A framework for project design

"The Alliance of Bioversity International and the International Center for Tropical Agriculture (CIAT) gratefully acknowledges permission from IFAD to re-publish that work as an Alliance Working Paper, with updated acknowledgements, author information and information on additional resources.

Evidence on the determinants of foreign direct investment: the case of EU regions

This study analyses the determinants of Foreign Direct Investment (FDI) at regional level. While the determinants of FDI in Europe have been extensively analysed at the country level, the literature on location patterns and on the determinants of FDI at the regional level is only at its beginning. This study follows this line of empirical research by using original data on the number of foreign investments over the 2005-07 period disaggregated by regions of the EU27 and by sectors. We perform a detailed analysis of the location determinants of foreign investments using different econometric specifications in order to consider a large set of variables potentially explaining FDI location. We attempt, on the one hand, to demonstrate whether variables usually employed to explain the determinants of FDI at the country level also influence the location of FDI at the regional level, and on the other hand to identify which locational advantages are able to attract FDI into EU regions. In so doing, we control for firm, sector and spatial heterogeneity in order to capture potential differences in the patterns of location of different kinds of foreign firms.foreign direct investment, region

The possible effects of the eastern EU-enlargement on Croatia - a trade analysis

Economic integration in Europe will have significant effects not only on participating countries, but also on countries remaining outside of the EU-structures. Starting from the theory of custom union and the trade creation and trade diversion effects, this paper tries to apply the theoretical inferences relating to the countries participating in economic integration to those countries which do not take part in it. The ex ante-analysis focuses mainly on long-term dynamic effects which follow from increasing export possibilities and advantages from economies of scale. Taking into account the foreseen dynamics of trade barriers elimination as well as the effects of trade liberalization so far, the paper estimates the expected effects of further trade liberalization and the adjustment costs arising from increased competition and changing pattern of specialization. In doing so, it makes use of the export similarity index and the methodology of intra-industry trade measurement. Key words: customs union, economies of scale, intra-industry trade, EU, Croatia