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No. 213   (Download full text)
Inmaculada Martínez-Zarzoso and Sami Bensassi
The price of modern maritime piracy
A growing body of literature has recently focused on the economic origins and consequences of modern maritime piracy and on the perception that the international community has failed to control it. This paper aims to investigate maritime transport costs as one of the channels through which modern maritime piracy could have a major impact on the global economy. A transportcost equation is estimated using a newly released dataset on maritime transport cost from the OECD together with data on maritime piracy from the IMB. Our results show that maritime piracy significantly increases trade cost between Europe and Asia.
JEL-Codes: F51
Keywords: maritime piracy, transport costs, maritime trade, panel data
No. 212   (Download full text)
Nicole Grunewald and Inmaculada Martínez-Zarzoso
How well did the Kyoto Protocol work? A dynamic-GMM approach with external instruments
This paper assesses the impact of the Kyoto Protocol on CO2 emissions. With this aim a dynamic panel data model is estimated for a cross-section of 213 countries over the period 1960 to 2009. The model, based on a STIRPAT approach, also integrates the EKC approach and specifically considers the endogeneity of the policy variable. To sort out causality the number of financed CDM projects is used as an external instrument. The main results indicate that obligations from the Kyoto Protocol have a measurable reducing effect on CO2 emissions and indicate that a treaty often seen as "failed" in fact may be producing some non-trivial effects.
JEL-Codes: Q54; Q56
Keywords: Environmental Kuznets Curve, Kyoto Protocol, panel data, Clean Development Mechanism
No. 211   (Download full text)
Konstantin M. Wacker
Do multinationals beat down developing countries' export prices? The impact of FDI on net barter terms of trade
This paper explores the economic relationship between foreign direct investment to developing countries and the export prices of the latter, measured by terms of trade. It is rst shown that economic theory suggests such a relationship for various reasons but is inconclusive about the direction of the e ect. To address this open issue empirically, I analyze data on more than 50 developing countries throughout the period 1980 - 2008 using dynamic panel data methods. The results show that multinational corporations, measured by data on foreign direct investment, had an economically relevant and statistically signi cant positive impact on developing countries' net barter terms of trade. A higher level of education in the developing country fosters this e ect.
JEL-Codes: C23, F23, O11
Keywords: Multinationals, FDI, Terms of Trade, Prebisch-Singer hypothesis
No. 210   (Download full text)
Philipp Kolo
Questioning Ethnic Fragmentation's Exogeneity - Drivers of Changing Ethnic Boundaries
Ethnic fragmentation is a variable increasingly used in the economic literature to explain differences in economic development level, growth or the incidence of conflicts. Nearly all articles have in common that they treat ethnic fragmentation as a static, exogenous fact. Only recently some contributions outlined first ideas, why different levels of ethnic fragmentation evolved based on biodiversity and evolutionary theories. This article has two main goals. In connecting with these recent findings, the article boldly confirms their results that a ‘base-level’ of fragmentation evolved due to geographical and evolutionary factors. Additionally, it draws the attention to the impact of colonization on fragmentation, especially on how a country was colonized. The main goal, however, is to show that ethnic fragmentation is not only evolving over centuries, but changes over a short period of time. As static factors, e.g. geographical ones, can’t be responsible for changes in the short run, the article offers a structured assessment of factors that may influence diversity levels in the short term. Although migration is the most obvious factor, urbanization and especially education play an even more important role in influencing a country’s ethnic boundaries.
JEL-Codes: C23, F54, I29, O10, Z10
Keywords: Colonization, Endogeneity, Ethnic fractionalization (ELF), Heterogeneity
No. 209   (Download full text)
Dierk Herzer
Cross-country heterogeneity and the trade-income relationship
This paper makes the following contributions to the literature on the impact of trade on income. First, we use heterogeneous panel cointegration techniques that are robust to omitted variables and endogenous regressors to estimate the effect of trade on income for 75 developed and developing countries, both for the sample, as a whole, and for each individual country. Second, we use a general-to-specific variable-selection approach to identify important determinants of the effect of trade on income. Our main findings are: (i) A one-percent increase in the trade share of GDP results, on average, in a statistically significant increase in income per worker of about 0.18 percent. This result is in contrast to previous studies, which tend to produce either unreasonably large or statistically insignificant estimates of the impact of trade on income. (ii) There are large cross-country differences in the income effect of trade, in particular, between developed and developing countries. For developed countries the income effect of trade is positive, whereas trade has, on average, a negative impact on income in developing countries. (iii) The cross-country heterogeneity in the impact of trade on income can be explained mainly by cross-country differences in primary export dependence, labor market regulation, and property rights protection. The level of property rights protection is positively related, while the levels of primary export dependence and labor market regulation are negatively related to the income effect of trade.
JEL-Codes: F43; F14; C23; C52
Keywords: Trade; Income; Cross-country heterogeneity; Panel cointegration; General-to-specific approach
No. 208   (Download full text)
Sami Bensassi and Inmaculada Martínez-Zarzoso
How Costly is Modern Maritime Piracy for the International Community?
This paper focuses on the impact of maritime piracy on international trade. Piracy increases the cost of international maritime transport through an increase in insecurity regarding goods deliveries. Bilateral trade flows between the main European and Asian countries over the 1999 to 2008 period are used to estimate an augmented gravity model that includes various measures of piracy acts. We found robust evidence indicating that maritime piracy reduces the volume of trade; the effect of ten additional vessels hijacked being associated to an 11% decrease in exports. Using these results, the international cost of piracy in terms of trade destruction is estimated to be 28 billion dollars. Finally, we compare the cost of low intensity conflict like Somalia, to the cost of a full scale conflict (Afghanistan) and to the cost of an autarkic state (North Korea) for the international community in the year 2008.The results indicate that the cost of war more than doubles the cost of low intensity conflict.
JEL-Codes: F10, F51
Keywords: Piracy, International trade, Gravity equation, cost of conflict, security
No. 207   (Download full text)
Dierk Herzer
How does foreign direct investment really affect developing countries` growth?
This paper contributes to the literature on foreign direct investment (FDI) and economic growth in two main ways. First, we examine the effect of FDI on economic growth for 44 developing countries over the period 1970 to 2005 using heterogeneous panel cointegration techniques that are robust to omitted variables and endogenous regressors. In contrast to previous studies, we find that FDI has, on average, a negative effect on growth in developing countries, but that there are large cross-country differences in the growth effects of FDI. Second, we use a general-tospecific model selection approach to systematically search for country-specific factors explaining the cross-country differences in the growth effects of FDI. Contrary to previous results, we find that the cross-country differences in per capita income, human capital, openness, and financial market development cannot explain the cross-country differences in the growth effects of FDI. Instead, the growth effects of FDI are positively related to freedom from government intervention and freedom from business regulation, and negatively related to FDI volatility and natural resource dependence.
JEL-Codes: F21; F43; C23; C21
Keywords: FDI; Growth; Developing countries; Panel cointegration; General-to-specific approach
No. 206   (Download full text)
Felicitas Nowak-Lehmann D., Inmaculada Martinez-Zarzoso, Adriana Cardozo, Dierk Herzer and Stephan Klasen
Foreign Aid and Recipient Countries` Exports: Does Aid Promote Bilateral Trade?
This paper uses the gravity model of trade to investigate the link between foreign aid and exports in recipient countries. Most of the theoretical work emphasizes the negative impact of aid on recipient countries’ exports primarily due to exchange rate appreciation, disregarding possible positive effects of aid in promoting bilateral trade relations. The empirical findings, in contrast, indicate that the net impact of aid on recipient countries’ exports is positive -even though the macroeconomic impact of aid is rather small- and that the average return for recipients’ exports is about 1.50 US$ for every aid dollar spent. We argue that “bilateral aid” seems to promote good bilateral trade relations, mutual trust and familiarity and that those factors reinforce bilateral trade, including recipient country exports. The paper also estimates the effect of different types of aid (bilateral aid versus multilateral aid flowing to a specific recipient) and studies aid’s contribution to an expansion of exports in different regions of the world. It is found that aid is strongly export-enhancing in Asia and Latin America, but not in Africa.
JEL-Codes: F10; F35
Keywords: International trade; foreign aid; recipient exports; bilateral trade relations
No. 205   (Download full text)
Josef L. Loening and Masato Higashi
Decomposing Terms of Trade Fluctuations in Ethiopia
This paper proposes a technique to decompose short-run fluctuations in the terms of trade. Using Ethiopia as an example, we decompose the commodity terms of trade into various components to measure the impact of price and volume shifts as well as export diversification. We use monthly data from the past decade, including periods during the global food and financial crises. Our findings suggest that diversification out of traditional coffee exports to other export commodities successfully mitigated a terms of trade shock. Continued export diversification will be beneficial.
JEL-Codes: F14, O11, O55
Keywords: Terms of Trade, Food Price Crisis, Financial Crisis, Ethiopia
No. 204   (Download full text)
Martin Clever and Inmaculada Martínez-Zarzoso
Deeper Integration: What Effects On Trade
The focus of this paper is to estimate the effect of the different types of regional trade agreements on the volume of trade between country pairs. The analysis will employ the “empirical workhorse” of international trade; the gravity model. We hypothesize that the deeper agreements have a stronger effect on trade, especially when considering the extensive margin of trade. When controlling for the extensive margin of trade, the multilateral trade resistance terms, and the endogeneity bias we are able to obtain satisfyingly accurate treatment effects of the different types of regional trade agreements. Using a panel of 50 countries over the period 1980-1999, we find that customs unions, “deep” free trade agreements, and common markets have stronger effects on bilateral trade than simple free trade agreements.
JEL-Codes: F1
Keywords: Regional trade agreements, Deep integration, International trade flows, Gravity equation, Panel data
 
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