Dissertation/Thesis Abstract

Three Essays on Trade Specialization and Trade Costs
by Suh, Young Kyung, Ph.D., The George Washington University, 2011, 151; 3466837
Abstract (Summary)

This dissertation uses an empirical approach to explore whether the changes in international trade can be explained by the classical trade determinants. The three papers in this dissertation all use comparative advantage and trade cost as major explanatory variables. However, each of the papers changes the dependent variables for its own purposes and adds other explanatory variables to the model. In addition, the countries subject to empirical analysis differ for each paper.

The dissertation is organized as follows. The second chapter analyzes the determinants of trade using the model developed by Harrigan (1993), which combines the views of Ricardo and Heckscher-Ohlin. Using data from 19 OECD members, it investigates overall trade specialization, industrial specialization, and geographical specialization separately and assesses the relative contributions of explanatory variables to each pattern of specialization.

The third chapter investigates the pattern of Korea's vertical trade, which has grown rapidly. It attempts to measure the volume of vertical trade using both intermediate trade data as well as input-output tables based on Dean, Fung and Wang (2007), who measured vertical imports of China using input-output tables and processing trade data. It also estimates the determinants of vertical trade in Korea using comparative advantage, productivity, average distance to major markets, and FDI stock.

The fourth chapter investigates the recent issues of international trade in Asian developing countries by applying the gravity framework. Using the modified gravity equation, this study reveals the extent to which this region's export performance depends on own-country supply capacity, foreign demand, or the level of trade barriers. It quantitatively measures the effects of proposed FTAs using a method of trade potential and a division of export diversion and export creation.

Chapter V concludes this dissertation and cites possibilities for future research.

This dissertation is an endeavor to examine three high-priority issues in international trade: (1) trade specialization in the industrial and geographical dimensions; (2) specialization in vertical trade; and (3) the effects of an FTA. It examines these phenomena by using comparative advantage and trade cost emphasized in the classical theories and other important variables such as factor intensity, FDI, and multilateral resistance terms. For the countries subject to analysis, I selected OECD members, Korea, and emerging markets in Asia, respectively, for the purpose of corresponding papers.

The main results are as follows: the second chapter provides strong evidence that not only Ricardian and quasi Heckscher Ohlin forces, but also trade costs measured by transportation costs and trade barriers possess robust explanatory power for the overall trade specialization of OECD countries. Comparing the regression results between industrial specialization and geographical specialization, the industry-specific variables bring statistically plausible outcomes in estimating the industrial specialization while country pair variables are appropriate for the estimation of the geographical specialization. Such analysis results imply that the gaps in productivity and factor intensity among countries and industries are the main factors that facilitate specialization in global trade. Furthermore, they suggest that despite widespread technical progress and global integration, trade costs still play a significant role in determining trade flows.

The third chapter measures Korea's vertical trade using data on intermediates trade as well as input-output tables and finds that Korea's trade has become more vertically specialized since 1995. In particular, vertical trade with China and in three key industries (iron and steel, machinery, and electronics) has grown rapidly. Estimating Korea's vertical exports and imports with 20 trading partners, the results imply that Korea's vertical exports are likely to go to low-productivity countries and to labor abundant countries, while the vertical imports to Korea largely come from high-productivity countries and from capital abundant countries. Among other variables, it is readily apparent that rises in relative fixed costs measured by the DBI index served to reduce Korea's vertical trade through the decline in the stock of FDI.

The fourth chapter finds that a modified gravity model fits the bilateral exports of Asian developing countries well. When I compare the experience of the more advanced Asian countries with that of the less developed countries, the estimation results are generally similar except that the output capacity did not significantly determine the exports of the less developed group and the common border was not crucial in determining the exports of the more advanced group. In addition, investigating the economic impacts of the FTAs in this region, the estimation results support the hypothesis that the formation of an FTA serves to increase trade between member countries. It also turns out that most export expansion is a result of the export creation effect rather than the export diversion effect. However, the results of this study should be interpreted in light of the inherent limitation of a partial equilibrium analysis. (Abstract shortened by UMI.)

Indexing (document details)
Advisor: Moore, Michael O.
Commitee: Blit, Joel, Chen, Maggie X., Ferrantino, Michael, Suranovic, Steven M.
School: The George Washington University
Department: Economics
School Location: United States -- District of Columbia
Source: DAI-A 72/11, Dissertation Abstracts International
Subjects: Economics
Keywords: Comparative advantage, FTA, TFP, Trade cost, Trade specialization, Vertical trade
Publication Number: 3466837
ISBN: 9781124806563