Helena Marques

A Gravity Model Forecast of the Potential Trade Effects of EU Enlargement: Lessons from 2004 and Path-dependency in Integration

This paper uses a gravity model to forecast the potential impact on trade balances and trade patterns of the 2004 EU enlargement. The results suggest that gross trade creation for the accession economies is about 25 per cent of their 2003 trade. Although membership of the EU creates trade it also results in trade diversion; that is, a declining share of accession country exports and imports with non-EU15 countries. Overall, the trade balances of the accession countries suffer larger trade deficits after accession due to import growth surpassing export growth. The extent of increase in the trade deficit due to accession is inversely related to the level of integration and income of the new members. Hence integration is path-dependent and the EU should take this into account when preparing for further enlargements to the Balkans and Southeast Europe.

Passthrough of Exchange Rate and Tariffs into Import Prices of India: Currency Depreciation Versus Import Liberalization

This paper examines the extent of pass-through of exchange rate and tariff changes into import prices using sectoral panel data (at the 2-digit SITC level) for the post-reform period in India (1990-2001). After having controlled for unobserved effects that might have an impact on the import prices by using sector dummies, we find that on average exchange rate pass-through (ERPT) is a dominant effect compared to tariff rate pass-through (TRPT) in explaining changes in India’s import prices. The sectoral panel results suggest that the pass-through of exchange rates and tariff rates varies across products. ERPT into import prices is significant in 12 industries, whereas TRPT is significant only in 6 industries, with full pass-through. However, ERPT is incomplete only in 4 industries, but TRPT is incomplete in 36 industries, which means that firms exporting to India more frequently adopt strategies to maintain their market share against tariffs than against exchange rate changes. The sectoral differences in pass-through seem to be related to the sector’s share in total imports and the sector’s effective protection rate. Hence India’s relatively high levels of protection have an impact on the behaviour of foreign exporters.

Globalization and its impact on operational decisions: The role of industrial districts in the textile industry

Purpose – This paper aims to analyse the impact of globalization on the manufacturing operations of industries and industrial districts and how it influences the specialization and diversification of manufacturing decisions.Design/methodology/approach – The sample includes 9,684 Spanish manufacturing textile firms and the analysis is both cross‐sectional and longitudinal.Findings – The results show that globalization tends to diminish the district and subsector effects over time, but they also show the positive impact of specialization on productivity and of diversification on business growth.Originality/value – The paper indicates to managers that the production function in textile firms has viability in Europe through achieving specialization and efficient operations management.

Trade Effects of the Europe Agreements

The eastern enlargement of the European Union (EU) brought and will bring full membership to countries whose trade barriers with the EU had to a large extent already been removed under Free Trade Agreements (FTAs) during the 1990s. We employ a theory-based new version of a gravity equation, whose specification allows for an assessment of the impact of the arrangements on extra- and intra-group imports. We find robust evidence that the agreements have substantially increased intra-group trade, in the case of the Czech and Slovak Republic at the expense of the Rest of the World (ROW).

SECTORAL EXCHANGE RATE PASS-THROUGH: TESTING THE IMPACT OF POLICY REFORMS IN INDIA

This paper analyses the impact of India`s policy reforms on exchange rate pass-through into import and export prices, using panel data (at one-digit SITC level) for pre- (1980-90) and post-reform (1991-2001) periods. While the pass-through into import prices has declined, the pass-through into export prices (in USD terms) has increased during the 1990s. The results suggest that, relative to rupee depreciation, Indian exporters increased their USD prices around 20% in the 1980s, but decreased them by around 70% in the 1990s. Moreover, the number of sectors exhibiting some degree of pass-through increased in the 1990s (six), relative to the 1980s (three). These changes may be attributable to the elimination of currency and trade controls, which increased competition among firms and fostered a concern with market share gains in the 1990s over an attempt to use depreciations to increase profits in the 1980s.

Trade effects of the Europe agreements: A theory-based gravity approach

In this paper, we develop a new version of a theory-based gravity equation to properly account for the relative price indices initially proposed by Anderson and van Wincoop (2003). The partially time-varying character of our multilateral resistance variables overcomes the bias present in earlier studies that solely rely on country or country pair fixed effects. Applying the augmented gravity equation to the process of European Union (EU) integration during the 1990s, we find robust evidence that the Free Trade Agreements (FTAs) with the Central and Eastern European Countries (CEECs) have substantially increased intra-group trade, in the case of the Czech and Slovak Republic and Slovenia at the expense of the Rest of the World (ROW). Since decreasing multilateral trade resistance negatively influences a countrys bilateral imports but may be positively correlated with a bilateral FTA, earlier East–West studies, which ignored the relative price terms time-varying character, tend to be downward biased. Indeed, our results indicate that once we correct for the omitted variable bias, the FTAs with the CEECs created 7 to 20% more new trade compared with the scenario where only time-invariant country pair effects were included.

Migration Creation and Diversion in the European Union: Is Central and Eastern Europe a ‘Natural’ Member of the Single Market for Labour?

This article applies the concepts of trade creation and trade diversion to immigration into the EU-15 in order to investigate whether during 1986–2006 there were any significant preference effects in favour of the CEECs (central and eastern European countries) that make them ‘natural’ members of the EU single market for labour. If this hypothesis is true, there should have been strong migration creation but little migration diversion in the last 20 years. The results broadly support migration creation for the CEECs prior to their EU membership. At the same time, the evidence of diversion away from other world regions is mixed. The combined impact of a common language and established communities, compared to distance and a common border, may contribute to the preservation of migration channels from outside Europe. Within Europe, to be an EU outsider can have a negative impact on migration channels. Moreover, whilst liberal immigration policies increase immigration contemporaneously, restrictive immigration policies only show an impact with a two-year lag.

Regional inflation dynamics using space-time models

This paper provides empirical evidence of the role of spatial factors on the determination of inflation dynamics for a representative set of tradable commodities in Chile. We present a simple model that explains inflation divergence across regions in a monetary union with similar preferences as a consequence of the geographical allocation of producers in the different regions. Our results indicate that spatial allocation together with transport costs are important determinants of regional inflation while macroeconomic common factors do not play an important role in this process. Existing literature had obtained the opposite result for Europe and the reasons for that difference warrant further investigation. Moreover, we find that geographical distance seems to be a more appropriate measure of neighbourhood than the adjacency of regions.

Trade and Factor Flows in a Diverse EU: What Lessons for the Eastern Enlargement(s)?

This paper reviews the neoclassical and new economic geography (NEG) theoretical frameworks used to analyse the effects of integration on trade and factor flows, and the empirical work carried out within those theoretical frameworks for the European case. The European Union (EU) is of particular interest because it is illustrative of the tensions between deepening of the integration process and widening membership: whereas deepening requires homogeneity, widening has made the EU increasingly diverse. The orthodox framework saw trade and factor flows as substitutes, thus separating their analysis, and was mainly concerned with efficiency issues of trade integration. The NEG framework saw trade and factor flows as complements, and analysed them jointly, looking mainly at distribution issues such as disparities in industry location and wages arising from a single market for goods and factors. The main lesson for the Eastern enlargement(s) is that integration in its various forms leads to an uneven distribution of gains across member countries when these have very diverse economic structures. Copyright 2008 The Author. Journal compilation

The Dynamic Evolution of the Proximity Effect in the Textile Industry

This paper tests the evolution of the relationship between localization and proximity and their effect on firm performance for a sample of 10,490 Spanish textile firms in the period 2001–2006. Using coefficients of specialization two levels of geographical disaggregation are distinguished: (i) the provincial cluster and (ii) the industrial district. The results obtained show a positive and significant impact of the specialization level on productivity, both for industrial districts and provincial clusters (in this case only when the levels of specialization are high enough). In general, the effect is higher for industrial districts than for provincial clusters, although in both cases it decreases with time. Given that in most EU countries the textile industry has a tendency to be geographically concentrated in industrial districts, these results carry important implications for the textile industry.