Eddy Henricus Bekkers

Melting Ice Caps and the Economic Impact of Opening the Northern Sea Route

One consequence of melting Arctic ice caps is the commercial viability of the Northern Sea Route, connecting East Asia with Europe. This represents a sizeable reduction in shipping distances and average transportation days, compared to the conventional Southern Sea Route. We examine the economic impact of opening this route in a multi-sector Eaton-Kortum model with intermediate linkages. We find remarkable shifts in trade flows between Asia and Europe, diversion of trade within Europe, heavy shipping traffic in the Arctic and a substantial drop in Suez traffic. Projected shifts in trade also imply substantial pressure on an already threatened Arctic ecosystem.

Firm Heterogeneity, Endogenous Quality, and Traded Goods Prices

type=main xml:id=twec12244-abs-0001> A model with endogenous quality and firm heterogeneity is developed. Firms can invest in quality, and quality investment is relatively skill intensive. The model is used to account for two findings in the empirical literature on traded goods prices, lacking a formal explanation in the theoretical literature thus far. First, the model provides a theoretical explanation for Schotts (Quarterly Journal of Economics 2004, 119, 647) empirical finding that relatively skill-abundant countries export higher priced goods. Firms in these countries invest more in quality and therefore sell higher quality, higher priced goods. Second, the opposite effects of importer market size on traded goods prices at the firm level (positive) and at the aggregate level (negative) identified in the empirical literature can be explained with the model. In a larger market, the incentive to invest in quality is larger for each firm, leading to higher firm-level prices. Due to a selection effect, also less productive firms selling goods of lower quality can export to larger markets, implying lower aggregate prices.

Sectoral determinants of foreign affiliate sales employing European data

We test theories on sectoral determinants of foreign affiliate sales employing European foreign affiliate sales statistics (FATS). On the one hand, we test hypotheses that foreign affiliate sales are less likely in sectors with complex tasks and more likely in sectors where communication with customers is important. On the other hand, we test the hypothesis that the force of gravity is stronger in more complex sectors. Employing Poisson and negative binomial estimators, we find support for the first hypotheses and contradict the second hypothesis. We show that the interaction effect between distance and complexity changes sign from negative to positive when complexity is included as a separate regressor. We propose an explanation to reconcile our findings with the basic assertion in the second hypothesis that the force of gravity is stronger in more complex sectors, based on a composition effect between horizontal and vertical affiliate sales.

Trade costs, quality and the skill premium

We develop a monopolistic competition model with non-homothetic factor input bundles where increasing quality requires increasing use of skilled workers. As a result more skill abundant countries export higher quality, higher priced goods. Using a multi-country dataset, we test and confirm the findings in Schott ( ) of a positive effect of skill abundance on unit values identified with US data. We extend the core model with per unit trade costs leading to the Washington apples effect that goods shipped over larger distance are of higher quality. The combination of high-quality goods being relatively skill intensive with the Washington apples effect implies that countries at a larger distance from their trading partners display a higher skill premium. Simulating our model, we find that a doubling of distance of a country relative to all its trading partners raises the skill premium in a country by about 1.6%.