International Workshop

Frontiers in Research on Trade Costs (Summary)


    • Time and Date: 10:00-17:50, Tuesday, August 4, 2016
    • Venue: RIETI's seminar room #1121 (METI Annex 11th floor)
    • Host(s): Research Institute of Economy, Trade and Industry (RIETI) / Hitotsubashi Institute for Advanced Study and JSPS KAKENHI (Grant Number 26220503)


On August 4, 2016, the "Frontiers in Research on Trade Costs" workshop was held as a part of the Analyses of Trade Costs project led by Jota Ishikawa (RIETI Faculty Fellow). In the workshop, four distinguished scholars in the field of international trade—Alan Deardorff (U. of Michigan), Andreas Moxnes (U. of Oslo), Dennis Novy (U. of Warwick), and Yi Lu (Hitotsubashi U. & National U. of Singapore)—and two project members introduced and discussed their papers.

Alan Deardorff presented the paper entitled "Rue the ROOs: Rules of Origin and the Gains (or Losses) from Trade Agreement." The paper proposes several theoretical examples in which a world with positive tariffs and no FTAs can attain higher economic welfare than one with FTAs with rules of origin.

Andreas Moxnes presented the paper entitled "Multinational Firms and Export Dynamics." Using detailed firm-level data on export and FDI, the paper first shows a new fact that the exit rate is lower under FDI than under exports. To explain this fact, the paper develops a new model introducing sunk costs for FDI entry into a standard model of FDI. Using the new model, the paper estimates FDI sunk costs 60 times as high as export fixed costs. The paper presents a new way to estimate FDI costs that can be widely used to analyze FDI policies.

Dennis Novy presented the paper entitled "Currency Unions, Trade and Heterogeneity." Many previous studies have estimated the impacts of currency unions in the standard gravity equation. By contrast, the paper uses the translog gravity model and finds heterogeneous impacts of currency unions on trade flows across country-pairs. This indicates that the heterogeneous effects across countries are involved in currency unions as well as many international trade agreements such as the TPP.

Jota Ishikawa and Kazunobu Hayakawa presented the paper entitled "What Goes Around Comes Around: Export-enhancing effects of import-tariff reductions." The paper empirically investigates the result obtained in a discussion paper by Ishikawa and Tarui (RIETI DP 16-E-006). It is found that as the theoretical model predicts, a tariff reduction decreases the freight rates of exports and increases exports as well as imports. This provides another rationale for trade liberalization.

Yi Lu presented the paper entitled "Does Trade Liberalization with China Influence U.S. Elections?" The paper focuses on the Permanent Normal Trade Relations (PNTR) granted to China by the U.S. government in December 2000. With PNTR, the U.S. tariffs cannot be reverted to the non-MFN tariffs. The paper employs county-level data and empirically shows that the granting PNTR to China increases the share of votes cast for Democrats in counties that are more exposed to Chinese competition. The paper also shows that Democrats are more likely to support bills that limit import competition and provide economic assistance. These results imply that trade policies have a significant impact on U.S. politics, and provide interesting implications in forecasting the upcoming U.S. presidential election.

Kazutaka Takechi presented the paper entitled "The Quality of Distance: Quality sorting, Alchian-Allen effect, and geography." He examines what kinds of mechanism drive the positive relationship between trade costs and the quality of goods supplied. One of the important factors is the presence of specific trade costs. A large welfare gain from the reduction of specific trade costs is shown. This implies the validity of policies improving the overall transport infrastructure.