Quality Product differentiation in Cee-Eu Intra-Industry Trade

In this paper we compute price/quality gap indicators to measure vertical intra-iundustry trade (VIIT) in EU markets at 3-digit NACE industry level. These indicators are then used to test some hypotheses relative to the determinants of the quality of trade of Central and Eastern European countries (CEECs). Two underlying models of VIIT are tested: a neo-H-O model (Falvey, 1981; Falvey- Kierzkowski, 1987), based on factor endowment, and an “economic geography” model, based on market size and economic integration (Greenaway-Torstensson, 1997). The explanatory variables (proxies for human capital, physical capital, market size and market integration) affect the dependent variable (unit-value differences) with relevant and significant coefficients. The negative sign for the variable human capital, interacted with the dummy for CEECs, suggests the existence of comparative disadvantages in the high-skill sectors for these countries. Moreover, the lower market size of CEECs could strengthen their disadvantage in high quality segments of production. However, the geographic proximity to the core of Europe and the integration process, which are strongly correlated with high quality trade, could make faster the process of catching up.neo H-O Models of Trade; Quality differentiation; Economic geography; Intra-industry trade; Economic integration;

Toward a theory of optimal financial structure

Each institutional arrangement in a financial system has both advantages and disadvantages in mobilizing savings, allocating capital, diversifying risks, and processing information when facilitating financial transactions. Meanwhile, the factor endowment in an economy at each stage of its development determines the optimal industrial structure in the real sector, which in turn constitutes the main determinant of the size distribution and risk features of viable enterprises with implications for the appropriate institutional arrangement of financial services at that stage. Therefore, there is an endogenously determined optimal financial structure for the economy at each stage of development.Banks&Banking Reform,Debt Markets,Access to Finance,,Financial Intermediation

Transition and foreign trade: the case of the Ukrainian agri-food sector

The purpose of this paper is to assess the progress of the transformation process and to analyse which policy measures are necessary for further economic integration into world markets. In this study we concentrate on the Ukrainian agri-food sector. The development of foreign trade may serve as indicator of success of market reforms. Thus we analyse the changes in the trade structure of agri-food sector and compute indicators of inter- (RTA Index) and intra-industrial (Grubel-Lloyd Index, Brülhart A-Index, characterising the marginal intra-industry trade) trade for the period 1996-2005. We discuss also which policy measures are necessary for further economic integration of Ukraine into world markets.agri-food sector, intra-industry trade, marginal intra-industry trade, Ukraine, International Relations/Trade,

Multinational firms, market integration and trade structure: what remains of the standard goods hypothesis?.

In extending traditional empirical trade models with multinational firms, this paper shows the effect of transferring firm specific technology on the trade structure of host countries. For Belgium, a small open economy with a large presence of multinational firms, this effect is of crucial importance and by neglecting it previous studies appeared to have produced biased results. The results show how the large multinational presence induced by the European integration has shifted Belgium's trade structure towards differentiated products, making the standard goods hypothesis less appropriate to describe the trade composition of small open economies characterized by a large presence of multinational firms.Integration; Structure; Trade;

Financial Markets, the Pattern of Specialization and Comparative Advantage. Evidence from OECD countries.

Due to underlying technological differences, industries differ in their need for external finance. Since the services provided by the financial sector are largely immobile across countries, the pattern of specialization should be influenced by the degree of financial development. We find that this effect is strong: The financial sector has an even greater impact on the pattern of specialization among OECD countries than do differences in human- and physical capital. Further, it gives rise to comparative advantage in a way consistent with the Hecksher-Ohlin-Vanek model. Results on which aspects of financial systems that matter for specialization are also presented.Financial intermediation; Financial systems; Specialization patterns; Comparative advantage

Determinants of International Fragmentation of Production in the European Union

The last decades were characterized by large increases in world trade, not only in absolute terms, but also in relation to world GDP. This was in large parts caused by increasing exchanges of parts and components between countries as a consequence of international fragmentation of production. Apparently, greater competition especially from the Newly Industrializing and Post-Communist Economies prompted firms in ‘high-wage’ countries to exploit international factor price differences in order to increase their international competitiveness. However, theory predicts that, beside factor price differences, vertical disintegration of production should be driven by a multitude of additional factors. Against this background, the present paper reveals empirical evidence on parts and components trade as an indicator for international fragmentation of production in the European Union. On the basis of a panel data approach, the main explanatory factors for international fragmentation of production are determined. The results show that, although their influence can not be neglected, factor price differences are only one out of many causes for shifting production to or sourcing components from foreign countries.economic integration, international fragmentation of production

Endowments vs market potential: what explains the relocation of industry after the Polish reunification 1918?

How did the location of industry across interwar Poland react to the Polish reunification? After more than 120 years of political and economic separation, Poland was reunified at the end of 1918. In consequence, the removal of internal tariff barriers and improved infrastructure strengthened the domestic market, while foreign market relations were cut off. Similarly, the geographical distribution of factor endowments was changed, for example through internal migration. How did these forces interact to determine the location of industry? We survey the dynamics of industrial location between 1902 and 1925-1937 and estimate a specification that nests market potential and comparative advantage to quantify their respective impact during the interwar years. The results point to a role for both, comparative advantage and access to markets. We show that both statistically and economically the most important factors were the endowment with skilled labour and interindustry-linkages. --

Making sense of the manufacturing belt : determinants of U.S. industrial location, 1880-1920

This paper investigates the ability of the new economic geography to explain the persistence of the manufacturing belt in the United States around the turn of the 20th century using a model which subsumes both market-potential and factor-endowment arguments. The results show that market potential was central to the existence of the manufacturing belt, that it mattered more than factor endowments, and that its impact came through interactions both with scale economies and with linkage effects. Natural advantage played a role in industrial location but only through agricultural inputs which were important for a small subset of manufacturing

Have Countries with Lax Environmental Regulations a Comparative Advantage in Polluting Industries?

We aim to study whether lax environmental regulations induce comparative advantages, causing the least-regulated countries to specialize in polluting industries. The study is based on Trefler and Zhu’s (2005) definition of the factor content of trade. For the econometrical analysis, we use a cross-section of 71 countries in 2000 to examine the net exports in the most polluting industries. We try to overcome three weaknesses in the empirical literature: the measurement of environmental endowments or environmental stringency, the possible endogeneity of the explanatory variables, and the influence of the industrial level of aggregation. As a result, we do find some evidence in favor of the pollution-haven effect. The exogeneity of the environmental endowments was rejected in several industries, and we also find that industrial aggregation matters.comparative advantage, environmental regulation, trade, pollution haven, Porter hypothesis