A Theory on the Role of Wholesalers in International Trade based on Economies of Scope

Intermediaries and wholesalers play an important role in international trade. This paper develops a model of international trade with heterogeneous firms that offers an explanation of the existence of wholesalers. All exporting firms have to pay a fixed cost of establishing a distribution network in the foreign market. However, wholesalers possess a technology different to normal manufacturing firms: they can buy manufacturing goods domestically and sell in foreign markets and handle more than one good. A wholesaler therefore faces an additional fixed cost which is convex and monotonically increasing in the number of goods it ships. The entry of wholesale firms leads to productivity sorting. The most productive firms export on their own, as in the standard model, by paying a fixed cost to do so, while the least productive firms do not export. However, a range of firms with intermediate productivity levels export through international wholesalers. The existence of wholesale firms increases total exports and the number of firms that export. Moreover, a higher fixed cost of exporting leads to (i) a higher share of exported goods that is distributed by wholesalers, and (ii) a higher share of total exports that is distributed by wholesalers. The higher the fixed cost of exporting, the more important is the role of wholesalers since these can spread the fixed cost across more than one good. The wholesale technology therefore exhibits economies of scope. Finally, a larger fixed cost of exporting increases the scope of each wholesaler firm.heterogeneous firms; international trade; intermediation; wholesalers

The consequences of gene flow for local adaptation and differentiation: A two-locus two-deme model

We consider a population subdivided into two demes connected by migration in which selection acts in opposite direction. We explore the effects of recombination and migration on the maintenance of multilocus polymorphism, on local adaptation, and on differentiation by employing a deterministic model with genic selection on two linked diallelic loci (i.e., no dominance or epistasis). For the following cases, we characterize explicitly the possible equilibrium configurations: weak, strong, highly asymmetric, and super-symmetric migration, no or weak recombination, and independent or strongly recombining loci. For independent loci (linkage equilibrium) and for completely linked loci, we derive the possible bifurcation patterns as functions of the total migration rate, assuming all other parameters are fixed but arbitrary. For these and other cases, we determine analytically the maximum migration rate below which a stable fully polymorphic equilibrium exists. In this case, differentiation and local adaptation are maintained. Their degree is quantified by a new multilocus version of \Fst and by the migration load, respectively. In addition, we investigate the invasion conditions of locally beneficial mutants and show that linkage to a locus that is already in migration-selection balance facilitates invasion. Hence, loci of much smaller effect can invade than predicted by one-locus theory if linkage is sufficiently tight. We study how this minimum amount of linkage admitting invasion depends on the migration pattern. This suggests the emergence of clusters of locally beneficial mutations, which may form `genomic islands of divergence'. Finally, the influence of linkage and two-way migration on the effective migration rate at a linked neutral locus is explored. Numerical work complements our analytical results

Determinants of aspirations [Wider Benefits of Learning Research Report No. 27]

Aspirations vary for different sections of the population both in terms of parents’ educational and occupational goals for their children and the ambitions of the young people themselves. In this report, we review the current research literature across a range of disciplines to set out these differences and consider how educational and career aspirations are formed and developed in response to different environments and circumstances. We also examine the extent to which aspirations are related to eventual outcomes and discuss the implications for current policies and practices. Research indicates that aspirations begin to be shaped early in a child’s life, but are modified by experience and the environment. Aspirations tend to decline as children mature, in response to their growing understanding of the world and what is possible, and to constraints imposed by previous choices and achievements. This decline is particularly marked for those facing multiple barriers. Girls, young people from minority ethnic groups and those from higher socio-economic backgrounds tend to hold higher aspirations than their counterparts. Parents from these groups also tend to have higher aspirations for their children. Conversely, socially disadvantaged groups such as teenage parents tend to have low aspirations for themselves and for their children. In general, those who have, or whose parents have, high aspirations have better outcomes, even when taking into account individual and family factors, but this is not a universal effect. For some groups, high aspirations do not lead to higher achievement. In particular, there is a gap between educational aspirations and achievement for young people from some minority ethnic groups and a gap between girls’ occupational aspirations and career attainment. Practical and attitudinal barriers to the formation of high aspirations are evident. Financial constraints may limit some groups’ access to opportunities and enabling resources such as computers and private tuition. Equally, some individuals are limited by earlier achievement and choices such as leaving school or becoming a parent at a young age. But attitudes are also important. Young people who believe they have the ability to achieve and who attribute their success to hard work, rather than luck or fate, tend to have higher aspirations than their peers. The early years of a child’s life are a key time in the formation and development of aspirations. During this time, parents may need support to overcome both attitudinal and practical barriers to high aspirations. Schools can play a part in maintaining and realising ambitions, and the support they provide becomes more important when family resources are limited. Later, young people need easy access to advice and guidance and the involvement of professionals or volunteers – for example in a mentoring role – when necessary. Involvement in positive activities may also provide important socialising experiences that encourage high aspirations

Firm Heterogeneity and Country Size Dependent Market Entry Costs

This paper introduces a market size dependent firm entry cost into the Helpman, Melitz and Yeaple (2004) (HMY) version of the Melitz (2003) model. This is a relatively small generalisation, which preserves the analytical solvability of the model. Nevertheless, our model yields several new results that are in line with data. First, the average productivity of firms located in a market increases in the size of the market. Second, the productivity of exporters is U-shaped with reference to export market size. Third, the productivity premium (the difference in average productivity) between exporters and non-exporters decreases in the home country size. Fourth, we derive a set of new results related to trade volume. It is shown that when the fixed entry cost of exporting declines, for instance as the result of economic integration, export shares converge. This prognosis is supported by the empirical section of the paper. Fifth, we use a multicountry version of our model to derive a gravity equation. Our specification yields a gravity equation a la Anderson and van Wincoop (2003), but where GDP per capita enters as an additional explanatory variable.heterogenous firms, market size, market entry costs

The Global Arms Trade Network 1950-2007

We study the evolution of the global arms trade network using a unique dataset on all international transfers of major conventional weapons over the period 1950-2007. First, we provide a careful description of the characteristics of global arms trade using tools from social network analysis. Second, we relate our …findings to political regimes by studying whether differences in polity scores affect the likelihood of arms trade by estimating an augmented gravity equation. Our findings from the network analysis are much in line with common views of the Cold War. We see a clear division between the Warsaw Pact and NATO, with the Soviet Union being more central to the former than the United States to the latter. We find that differences in polity has a significant, negative effect on the likelihood of arms trade between two countries. The relationship is remarkably robust throughout the sample period and does not hold for trade in any other good that we investigate. The result suggests that democracies are indeed more likely to trade arms with other democracies than with autocracies since the former are not perceived as potential adversaries. We view this finding as evidence in favour of the Democratic Peace Theory.Arms Trade; Networks; Democracy; Autocracy; NATO; The Warsaw Pact

Country Size, Trade, and Productivity: An Analysis of Heterogenous Firms and Differential Beachhead Costs

This paper modifies the heterogenous firms and trade model by Melitz (2003) by explicitly modelling the beachhead cost of a firm in a new market as a function of market size. This leads to several new predictions compared to the standard model. In particular, the productivity of non exporters and exporters depends on market size. Moreover, manufacturing export shares vary inversely with market size. However, export shares converge (upwards) as markets are integrated. The empirical part of the paper offers support for our model specification.Heterogenous Firms; Market Size; Beachhead Costs

Service Outsourcing and Specialization: A Theory on Endogeneous Task Scope

We develop a model of outsourcing and trade in service inputs where the scope of tasks produced by both manufacturing firms and service providers is endogeneous. Manufacturing firms have to perform a fixed set of tasks in order to produce their final good but can decide to outsource some of these tasks to service providers, which, contrary to manufacturers, have the possibility to sell tasks to different manufacturers and thereby benefit from economies of scale in their task production. The key assumption is that the marginal cost of a firm (manufacturer or service provider) increases in the scope of tasks performed inside the firm: a firm which specializes in a narrow scope of tasks is more productive. Working against this incentive to produce as few tasks as possible "inhouse" is a fixed cost paid by each firm. The model yields several new predictions about trade liberalization and welfare as measured by aggregate productivity. An increase in the size of an economy raises the scale of all firms, facilitates greater specialization and therefore raises each firm's productivity. The model therefore generates gains from trade or larger market size through a "specialization effect" as opposed to the classical "variety effect" usually generated by models building on Dixit Stiglitz utility structures. Welfare increases due to adjustments in task scope allowed by the emergence of specialized service firms. Detailed Swedish data on what tasks (or occupations) are performed by workers is used to test this prediction. Indeed,we find that manufacturing firms in larger cities (controlling for firm size) perform fewer tasks inhouse than firms in smaller cities.service outsourcing; division of labour; productivity; specialization

Firm Heterogeneity and Country Size Dependent Market Entry Costs

This paper introduces a market size dependent firm entry cost into the Helpman, Melitz and Yeaple (2004) (HMY) version of the Melitz (2003) model. This is a relatively small generalisation, which preserves the analytical solvability of the model. Nevertheless, our model yields several new results that are in line with data. First, the average productivity of firms located in a market increases in the size of the market. Second, the productivity of exporters is U-shaped with reference to export market size. Third, the productivity premium (the difference in average productivity) between exporters and non-exporters decreases in the home country size. Fourth, we derive a set of new results related to trade volume. It is shown that when the fixed entry cost of exporting declines, for instance as the result of economic integration, export shares converge. This prognosis is supported by the empirical section of the paper. Fifth, we use a multicountry version of our model to derive a gravity equation. Our specification yields a gravity equation à la Anderson and van Wincoop (2003), but where GDP per capita enters as an additional explanatory variable.heterogenous firms, market size, market entry costs