lecture 1: globalization in the data 1.pdf · exporters club is selective. it includes 9.2% of...

Lecture 1: Globalization in the Data

Gregory [email protected]

Isabelle [email protected]

International TradeUniversite Paris-Saclay Master in Economics, 2nd year.

7 October 2015

G. Corcos & I. Mejean (Ecole polytechnique) International Trade: Lecture 1 1 / 28

mailto:[email protected]

mailto:[email protected]

Overview of the Course

1 Introduction: Stylized Facts2 Neoclassical Trade Models

I Ricardo (2 goods, continuum)I Heckscher-Ohlin-Samuelson (2x2x2, more goods and factors)I Eaton-Kortum

3 Imperfect Competition Trade ModelsI KrugmanI Melitz and extensions

4 Gravity Equations and Gains from Trade

5 Fragmentation


Course material

Slides are downloadable fromhttp://www.isabellemejean.com/teaching/

ENSAEinternationaltrade.html

Main references:I Robert C. Feenstra (2003), Advanced International Trade: Theory and

Evidence, Princeton University Press, ISBN: 9780691114101especially Chapters 1-3, 11

I Gita Gopinath, Elhanan Helpman and Kenneth Rogoff (eds.) (2014),Handbook of International Economics, Volume 4 (2014),North-Holland, ISBN: 9780444543141

especially Chapters 1, 3, 4

Additional material online


http://www.isabellemejean.com/teaching/ENSAEinternationaltrade.html

http://www.isabellemejean.com/teaching/ENSAEinternationaltrade.html

Globalization: Historical perspective


Definition

What does globalization mean?I Increased exchange of goods, services, assets, labor, technology and

knowledge across national bordersI Globalization results in economic integration: market prices converge

I Microeconomic impact: Firms’ strategy in a globalized environment(export/domestic sales, international supply chain, etc.)

I Macroeconomic impact: Interdependence between countries,Transmission of shocks (eg. financial crisis)


World trade over time: Rising openness

World exports of goods and services, % of worldGDP

0

5

10

15

20

25

30

1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011

Source: IMF, World Development Indicators


World trade over time: Longer perspective

World merchandise exports as a % of GDP


World trade over time: Non-smooth process

Exports of goods (% GDP)

Source: Baldwin & Martin (1999), CEPII-CHELEM database.

Globalization is not entirely new: 1870-1914, 1960-?

Globalization is not irreversible: Aftermath of Great Depression


World trade over time: Heterogeneous across countries

Exports of goods (% GDP)

Source: Baldwin & Martin (1999), CEPII-CHELEM database.

Evolution more recent in emerging countries


Geography of Globalization

Large trade flows within North America, within Europe and within Asia

North-South trade between North and South America, West and EastEurope, West Europe and Africa

⇒ Geography matters...


Standard theories of international trade


A Refresher on the History of Trade Theory

Reference undergraduate textbook: Krugman, Obstfeld & Melitz,International Economics, Pearson, 2015

Neoclassical trade theories (under perfect competition):I Explains international trade flows by differences in

- Technology (Ricardo, comparative advantage)- Endowments (Heckscher-Ohlin, Specific factors)

I Predicts inter-industry trade between different countries

I Welfare gains from trade through an enhanced allocation of ressources.Unequally shared across factor holders

I Well-suited to explain the first wave of globalization (1870-1914), egtrade of US agricultural goods against European manufactured goods


Undergraduate course (2)

International trade under imperfect competition:I Explains international trade flows by

- Preference for diversity (Krugman)

I Predicts trade between similar countries (horizontal intra-industrytrade)

I Welfare gains from trade through increased diversity (and eventuallythe pro-competitive effect of trade)

I Gravity equation

I Well-suited to explain the second wave of globalization (post WW2),eg trade within the European Economic Community (reciprocal trade incars between France and Germany)

None of those theories really explains the “third wave ofglobalization” (emergence of China, India, Brazil, EasternEuropean countries)


Inter-Industry vs Intra-Industry Trade

Decomposition of trade (% total)

Source: Fontagne L., Freudenberg M., Gaulier G. (2006). Definitions:Intra-industry trade is identified as simultaneous exports and importswithin the same industry. Distinction of vertical and horizontal relieson price differences.

Around 40% of trade flows are intra-industry

This share is growing over time (especially vertical)


The gravity equation

Source: Head, Mayer & Ries (2008).

Bilateral trade flows are higher between larger, richer countries (Krugman)

Trade costs matter.

Excellent survey by Head and Mayer (Handbook, chap. 3)


Some empirical challenges


Heterogenous behaviors in international trade

In 2003, French Customs and Excise listed a few more than113,500 businesses that exported primary or manufacturedgoods, with an average exported value of 3.15 millionEuros, but a median value that did not exceed50,000 Euros3. More than 100,000 exporters is certainly alarge number in absolute terms but it only represents 4.4%of all French businesses. If we exclude the service companiesthat do not play a part in the export of goods, thisproportion remains low and shows to what extent theexporters’ club is selective. It includes 9.2% of businesses inthe agricultural, industrial, construction and commercialsectors and 19.1% of these businesses with the commercialsector excluded. Using even more detailed data for 1986,Eaton, Kortum and Kramarz put forward a comparableorder of magnitude, around 17% of exporting firms in themanufacturing4 sector.Many of the firms amongst these exporting businesses areonly very marginal players on the international markets,either because they only export to a very few countries orbecause the value exported is very low. Graph 1 illustratesthe first point: 57% of French exporters are only present onone or two markets and in reality 42% only export to asingle country, most often Belgium, Switzerland orGermany. For half of French exporters, presence oninternational markets comes down to selling part of theirproduction in the neighbouring country, so that in realityonly a few tens of thousands of French firms have exportactivities that cover a larger geographical area. Analysis ofthe value of export flows leads to the same type ofconclusion: most exporters declare very low flows, whichmeans that the main part of French international trade is

due to a small number of very large exporters. In 2003, 1%of exporting businesses were responsible for about 68% ofFrance’s exports and the 10% of largest exporters wereresponsible for 94% of exports. Obviously, the origin ofthis very high concentration of export flows can be foundin the inequalities that we can observe in the size ofbusinesses. However, graph 2 shows that the concentrationof export flows is clearly more pronounced than that ofjobs. Another explanation of the high inequality betweenexporters can be found in the dispersion of intensities ofexporting. In practice, only 9% of exporting firms withmore than 20 employees make more than half of theirturnover from exports; conversely, for about 60% ofexporting firms with more than 20 employees, the salesabroad only represent 5% of turnover.In short, the extreme concentration of individual exportflows, in terms of geographical coverage and value of flows,is a significant fact that merits particular attention. Not onlydo exporting firms form a quite restricted club of "stars", butthe group of “superstars” - those exporters capable ofreaching a large number of countries and doing a large partof their business abroad - form a terribly selective VIPcircle.This clearly illustrates to what extent the fact of studyinginternational trade at the level of businesses deeply affects thetraditional analyses. Whereas the questions ofcompetitiveness, comparative advantages or trade deficits aremost commonly dealt with from a purely macro-economic orsector based point of view, we should keep in mind the factthat more than two thirds of the exports of a country likeFrance (which is, let’s remember, the world’s fifth largestexporter) are due to only about a thousand businesses.

2

Number of export markets serves

Perc

enta

ge o

f em

ploy

men

t an

d to

tal ex

port

s

Graph1 – Proportion of exporting firms tradingwith at most 1 to 20 foreign countries

Interpretation: more than 42% of French exporters only trade with one foreign market;about 15% only export to two countries.Source: French Customs and Excise statistics, CEPII calculations.

Number of firms (percentiles)

Perc

enta

ge o

f em

ploy

men

t an

d to

tal ex

port

s

Exports of firms with more than 20 employees

Employment of firms with more than 20 employees

Graph 2 – Inequalities between the firms, in terms of jobs and exports

Interpretation: amongst the French firms with more than 20 employees, the 20% biggestexporters are responsible for 94% of total exports, but the 20% biggest employers onlyrepresent about 75% of total jobs.Source: French Customs and Excise statistics and Annual Business Survey (INSEE), CEPIIcalculations.

3. For reasons of the availability of statistics, our analysis mainly covers 2003. Note that the Customs and Excise statistics do not trace all of the exportflows. A large part of the intra-EU flows are not declared. 4. J. Eaton, S. Kortum & F. Kramarz (2004), “Dissecting Trade Firms, Industries and Export Destinations”, American Economic Review, Papers andProceedings, 93, 150-154. Even if it is difficult to compare databases accurately, the figures derived from American data are about the same: around 20% ofmanufacturing businesses export (see A. Bernard, B. Jensen, S. Redding & P. Schott (2007), “Firms in International Trade”, Journal of Economic Perspectives21(3) : 105-130).

In 2003, French Customs and Excise listed a few more than113,500 businesses that exported primary or manufacturedgoods, with an average exported value of 3.15 millionEuros, but a median value that did not exceed50,000 Euros3. More than 100,000 exporters is certainly alarge number in absolute terms but it only represents 4.4%of all French businesses. If we exclude the service companiesthat do not play a part in the export of goods, thisproportion remains low and shows to what extent theexporters’ club is selective. It includes 9.2% of businesses inthe agricultural, industrial, construction and commercialsectors and 19.1% of these businesses with the commercialsector excluded. Using even more detailed data for 1986,Eaton, Kortum and Kramarz put forward a comparableorder of magnitude, around 17% of exporting firms in themanufacturing4 sector.Many of the firms amongst these exporting businesses areonly very marginal players on the international markets,either because they only export to a very few countries orbecause the value exported is very low. Graph 1 illustratesthe first point: 57% of French exporters are only present onone or two markets and in reality 42% only export to asingle country, most often Belgium, Switzerland orGermany. For half of French exporters, presence oninternational markets comes down to selling part of theirproduction in the neighbouring country, so that in realityonly a few tens of thousands of French firms have exportactivities that cover a larger geographical area. Analysis ofthe value of export flows leads to the same type ofconclusion: most exporters declare very low flows, whichmeans that the main part of French international trade is

due to a small number of very large exporters. In 2003, 1%of exporting businesses were responsible for about 68% ofFrance’s exports and the 10% of largest exporters wereresponsible for 94% of exports. Obviously, the origin ofthis very high concentration of export flows can be foundin the inequalities that we can observe in the size ofbusinesses. However, graph 2 shows that the concentrationof export flows is clearly more pronounced than that ofjobs. Another explanation of the high inequality betweenexporters can be found in the dispersion of intensities ofexporting. In practice, only 9% of exporting firms withmore than 20 employees make more than half of theirturnover from exports; conversely, for about 60% ofexporting firms with more than 20 employees, the salesabroad only represent 5% of turnover.In short, the extreme concentration of individual exportflows, in terms of geographical coverage and value of flows,is a significant fact that merits particular attention. Not onlydo exporting firms form a quite restricted club of "stars", butthe group of “superstars” - those exporters capable ofreaching a large number of countries and doing a large partof their business abroad - form a terribly selective VIPcircle.This clearly illustrates to what extent the fact of studyinginternational trade at the level of businesses deeply affects thetraditional analyses. Whereas the questions ofcompetitiveness, comparative advantages or trade deficits aremost commonly dealt with from a purely macro-economic orsector based point of view, we should keep in mind the factthat more than two thirds of the exports of a country likeFrance (which is, let’s remember, the world’s fifth largestexporter) are due to only about a thousand businesses.

2

Number of export markets serves

Perc

enta

ge o

f em

ploy

men

t an

d to

tal ex

port

s

Graph1 – Proportion of exporting firms tradingwith at most 1 to 20 foreign countries

Interpretation: more than 42% of French exporters only trade with one foreign market;about 15% only export to two countries.Source: French Customs and Excise statistics, CEPII calculations.

Number of firms (percentiles)

Perc

enta

ge o

f em

ploy

men

t an

d to

tal ex

port

s

Exports of firms with more than 20 employees

Employment of firms with more than 20 employees

Graph 2 – Inequalities between the firms, in terms of jobs and exports

Interpretation: amongst the French firms with more than 20 employees, the 20% biggestexporters are responsible for 94% of total exports, but the 20% biggest employers onlyrepresent about 75% of total jobs.Source: French Customs and Excise statistics and Annual Business Survey (INSEE), CEPIIcalculations.

3. For reasons of the availability of statistics, our analysis mainly covers 2003. Note that the Customs and Excise statistics do not trace all of the exportflows. A large part of the intra-EU flows are not declared. 4. J. Eaton, S. Kortum & F. Kramarz (2004), “Dissecting Trade Firms, Industries and Export Destinations”, American Economic Review, Papers andProceedings, 93, 150-154. Even if it is difficult to compare databases accurately, the figures derived from American data are about the same: around 20% ofmanufacturing businesses export (see A. Bernard, B. Jensen, S. Redding & P. Schott (2007), “Firms in International Trade”, Journal of Economic Perspectives21(3) : 105-130).

Source: Mayer & Ottaviano (2008).

Less than 20% of French firms do export (similar in other developed countries)

57% of French exporters are present in one or two markets

1% of exporting businesses are responsible for 68% of exports

⇒ Heterogeneity in trade


Heterogenous behaviors in international trade

Table: Exporter premia, Bernard & Jensen (1999), 1992 US data

(a) (b) (c) (d) (e) (f)All plants Small plants All Firms All plants Small plants All Firms

(%) (%) (%) (%) (%) (%)

Total employment 88.1 66.3 92.5 . . .Shipments 112.6 88.4 115.0 18.8 18.3 17.3Value-added per L 18.9 16.4 16.7 18.0 17.3 16.9TFP 13.0 12.0 8.6 13.5 13.3 12.4Non-prod./total L 3.3 3.8 3.6 3.5 3.8 3.6Average wage 11.9 10.7 11.0 9.3 9.3 9.6Production wage 9.0 7.2 7.0 6.6 6.2 16.9Non-production wage 11.4 10.5 12.4 4.6 5.1 5.8Capital per worker 20.2 14.4 13.5 13.6 11.9 8.8# of Plants/Firms 224,009 211,555 175,400 224,009 211,555 175,400

Numbers in columns (a)-(c) (premia) are coefficients on an export dummy in a regression of the form:ln X (i) = a + b ∗ EXPORT (i) + c ∗ INDUSTRY + d ∗ STATE + e(i)

and the numbers in columns (d)-(f) are coefficients on an export dummy in a regression of the form:ln X (i) = a + b ∗ EXPORT (i) + c ∗ INDUSTRY + d ∗ STATE + f ∗ ln EMPLOYMENT + e(i)

where i indicates the plant/firm, EXPORT (i) = 1 if the plant/firm is an exporter, INDUSTRY is avector of industry dummies, STATE is a vector of U.S. state dummies, and EMPLOYMENT is thenumber of employees at the firm/ plant. All firm regressions exclude state and industry dummies.Small plants have fewer than 250 employees. All differences are significant at the 1% level.


Vertical vs horizontal differentiation

Share of All U.S. Import Products Share of All U.S. Import Value

0.2

.4.6

.8

1990 1995 2000 2005 2010year

High Only Both Low Only

*Low and high refer to less than or greater than 5 percent of U.S. level, respectively.

1989-2009U.S. Import Products by Source-Country PCGDP*

0.2

.4.6

.81

1990 1995 2000 2005 2010year

High Only Both Low Only

*Low and high refer to less than or greater than 5 percent of U.S. level, respectively.

1989-2009U.S. Import Value by Source-Country PCGDP*

Source: Schott (2004).

High- and low-wage countries increasingly export the same products


Vertical vs horizontal differentiation

CAN

MEXGTM SLVHNDNIC PANHTI DOM

TTO

COL

ECU

PERBRA

ARGSWE

FINGBR

IRL

NLD

BEL

DEUAUT

CZE

SVK

HUN

EST

LTU

POLBLR

UKR

MDA

ESPPRT

ITA

HRV

SVN

BIH

MKDALB

GRCROM

BGR

TUR

SYR

ISR

AREIND

PAKNPLBGD LKA THAVNMLAO

KHMMYS

SGPIDNPHL CHNMNG

KOR

JPN

NZL

TUN

EGYSEN

MLI

CIV

GHA

AGO

ETH

UGA

KEN MUSMDG

ZAF

SWZ

05

001

000

150

0U

nit V

alue

($

/Doz

en)

500 5,000 25,000 50,000Per Capita GDP (PPP)

HS 6205202066Men's Cotten Shirts

20

40

60

80

100

Pe

rcen

t

1989 1994 1999 2004 2009

Chemicals Machinery

China vs OECD U.S. Import Prices

Source: Schott (2004, 2008).

Within highly disaggregated product categories, unit values vary widely.

Chinese goods imported by the US are cheaper than OECD imports

⇒ Quality differentiation


Vertical fragmentation

FIGURE 1World Production and Export Volume

Merchandise

Source: WTO Secretariat

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995Year

Index 1950=1 (logarithmic scale)

export volume

productionvolume

Manufacturing

Source: WTO Secretariat

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995Year

Index 1950=1 (logarithmic scale)

export volume

productionvolume

1

2

3

7

5

10

4

25

16

40

1

2

3

7

5

10

4

25

16

40

Source: Yi (1999).

Over the last 50 years, trade has grown faster than output.


Vertical fragmentation

Table: VS exports as a percentage of total merchandise exports

84 D. Hummels et al. / Journal of International Economics 54 (2001) 75 –96

Fig. 2. VS exports as a share of total merchandise exports: OECD countries.

Source: Hummels, Ishii & Yi (1999) from OECD IO tables.

Increasing vertical specialization (imported input content in exported goods)


Trade and Inequality

But inequality of income within countries increased for richcountries by the late 1980s

Share of income by the 0.1% highest revenues

Source : Piketty and Saez, 2005Source: Piketty and Saez (2005)


Trade and Inequality

Regression of Gini coefficient on globalization andtechnology-related variables

Average annual % change of Gini coefficient

Source: IMF, World Economic Outlook

International trade may contribute to inequality


Trade in Services

10

12.5

15

17.5

20

1980 82 84 86 88 90 92 94 96 98

2000

2002

%

0

400

800

1200

1600

US

D b

illio

n

Share of commercial services in total

world trade (goods + services)

World tr

ade in commercial s

ervices

Commerce mondial de services, Exportations, 1980-2002(USD billion and percentage)

Source: UNSD/ International Trade Statistics Section


Conclusions

We have uncovered several stylized facts:

Second wave of globalization.

Geography matters.

Large firm heterogeneity.

Quality differences.

Fragmentation.

Growing services trade.


References

- Baldwin, R. & Martin, P., 1999. “Two Waves of Globalisation: Superficial Similarities, Fundamental Differences,”NBER Working Papers 6904.

- Bernard, A. & Jensen, B., 1999. “Exceptional exporter performance: cause, effect, or both?,” Journal of InternationalEconomics, 47(1):1-25.

- Fontagne, L., Freudenberg, M. & Gaulier, G., 2006. “A Systematic Decomposition of World Trade into Horizontal andVertical IIT,” Review of World Economics (Weltwirtschaftliches Archiv), 142(3):459-475.

- Head, K. & Mayer, T., 2013. “Gravity Equations: Workhorse,Toolkit, and Cookbook,” chapter to appear in theHandbook of International Economics Vol. 4, eds. Gopinath, Helpman, and Rogoff, Elsevier.

- Hummels, D., Ishii, J. & Yi, K.-M., 2001. “The nature and growth of vertical specialization in world trade,” Journal ofInternational Economics, 54(1):75-96.

- Mayer, T. & Ottaviano, G., 2008. “The Happy Few: The Internationalisation of European Firms,” Blueprints, Bruegel,number 12, 2.

- Piketty, T. & Saez, E., 2003. “Income inequality in the United States, 1913-1998,” Quarterly journal of economics,118(1):1-39.

- Schott, P., 2004. “Across-products versus within-product specialization in international trade,”The Quarterly Journal ofEconomics, 119(2):646-677

- Schott, P., 2008. “The Relative Sophistication of Chinese Exports,” Economic Policy 53:5-49.

- Yi, K.-M., 2003. “Can Vertical Specialization Explain the Growth of World Trade?,” Journal of Political Economy,111(1):52-102.


lecture 1: globalization in the data 1.pdf · exporters club is selective. it includes 9.2% of...

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