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Catalysts and Inhibitors of the Trade Collapse Mattia Di Ubaldo University of Sussex, PhD Conference 5 th of December 2014.

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Presentation on theme: "Catalysts and Inhibitors of the Trade Collapse Mattia Di Ubaldo University of Sussex, PhD Conference 5 th of December 2014."— Presentation transcript:

1 Catalysts and Inhibitors of the Trade Collapse Mattia Di Ubaldo University of Sussex, PhD Conference 5 th of December 2014

2 Motivation & Context /10/2014Mattia Di Ubaldo, University of Sussex2 The Slovenian Experience Growth of GDP Growth of trade

3 Motivation & Context - 2 Causes of trade collapse: Supply side Credit crunch – working capital ( Bricongne et al., JIE 2012; Chor & Manova, JIE 2012; Behrens et al., RES 2013 ). Trade finance – bank or firm intermediated ( Korinek et al., 2010; Malouche, 2011; Antràs & Foley, JPE 2014 ). Demand side Decrease in expenditure – composition ( Engel & Wang, JIE 2009; Eaton et al., 2011; Petropoulou & Soo, 2011 ). Vertical linkages ( Levchenko et al., IMF review 2010, Bems et al., AER 2011 ). Inventory adjustments ( Alessandria et al., AER 2010 ). 29/10/2014Mattia Di Ubaldo, University of Sussex3

4 Contribution My analysis: factors that amplified or dampened the reaction of trade. Most of the action was in GVCs! Intermediates: 2/3 of total trade (Bems et al., 2011). 11/15 most affected sectors (Bricongne et al. 2012). 1.Analyse the reaction of different inputs, depending on the cost-share in firms’ sales. 2.Explore the reaction of inputs along Intra-Firm vs Arm’s Length trade dimension: one WP so far (Altomonte et al. 2012), but I add: Cost-share of inputs. Intensive and Extensive margins. Firm fixed effects and additional firm controls. 3.Detailed intensive/extensive (firm, destination, product) margins decomposition. New across Intra-firm vs Arm’s Length trade. 29/10/2014Mattia Di Ubaldo, University of Sussex4

5 Preview of findings 1.Cost-share of imported inputs in sales: Higher cost share, larger reaction (but Intra-Firm dampens). 2.Firm affiliation – Intra-firm (RP) versus arm’s length (AL) trade. No different performance. 3.Intensive vs Extensive margin 70% Intensive margin; larger intensive margin share for RP. 29/10/2014Mattia Di Ubaldo, University of Sussex5

6 Outline Data and sample. Hypotheses. Methodology. Results. 29/10/2014Mattia Di Ubaldo, University of Sussex6

7 Data and Sample 29/10/2014Mattia Di Ubaldo, University of Sussex7

8 Data Slovenia: why? small, open economy. strongly integrated with both eastern and western European countries: intermediates 72% of imports. Transaction-level trade data (SURS): monthly exports/imports at the CN-8 digits product level (x ickt ); Firm Balance Sheet data (AJPES): balance sheet and income statements of all Slovenian firms; Ownership data (Bureau Van Dijk): ORBIS allows to track all the proprietary network, on a world scale, up to the 10 th level of subsidiarity. 29/10/2014Mattia Di Ubaldo, University of Sussex8

9 Intra-firm (RP) trade proxy I need to infer whether shipments are RP or AL: I assume that transactions are RP when there is an affiliate in the destination they are directed to. 88% of trade by affiliates to a certain destination is either pure RP or pure AL (Bas & Carluccio 2009), This inflates RP trade proxy when firms adopt a mixed strategy; but it’s a classification mistake working against me. 49% exports are RP in Slovenia in 2007: 47% in US (US Census Bureau data) 52.6% exports to US are RP – Slovenian data; 51.3% – Census Bureau data ( Lanz & Miroudot, 2011 ). 29/10/2014Mattia Di Ubaldo, University of Sussex9

10 Timing and Sample 29/10/2014Mattia Di Ubaldo, University of Sussex10 Timing October 2008 – May 2010; trough in November Final sample Exporters9,238 NACE-4dig sectors462 Products7,350 median 58; mean 136 Destinations199 median 10; mean 16

11 Hypotheses 29/10/2014Mattia Di Ubaldo, University of Sussex11

12 Inventory adjustments were observed to have amplified the reaction of trade (Alessandria et al. 2010). GVC ideal locus! 29/10/2014Mattia Di Ubaldo, University of Sussex12 Why? For RP trade: Lower uncertainty Shorter delivery lags Lower buffer of inventoriesLower adjustments! Better communication Hypotheses – 1 and 2 Why? Inventories of higher cost share inputs get adjusted more promptly, if inventories management costs are proportional to the cost share of inputs. Larger adjustments!

13 Hypotheses – 3 and 4. 3 rd Hypothesis: intermediates’ inventories adjustment generate a Bullwhip Effect: this is exacerbated by the cost share in sales. The reaction of RP and AL trade can differ across trade margins: In a crisis, different sunk costs, market rigidities and hold-up problem would cause: 4 th Hypothesis: intensive margin adjustments are more pronounced for RP trade than for AL trade; vice-versa for extensive margin adjustments. 29/10/2014Mattia Di Ubaldo, University of Sussex13 Why? Inventories accelerator mechanism! Why? Firms might more easily reduce the size of shipments to affiliates rather than to non-affiliates. Extensive margin changes could happen more at AL.

14 Methodology 29/10/2014Mattia Di Ubaldo, University of Sussex14

15 Methodology 29/10/2014Mattia Di Ubaldo, University of Sussex15 Dep. var.: Hypothesis 1Hypothesis 2 Hypothesis 3

16 Results Estimations 29/10/2014Mattia Di Ubaldo, University of Sussex16

17 RP trade and Cost Share (Hyp. 1 and 2): (1)(2)(3)(4)(5)(6)(7) Int *** *** *** *** (3.04)(3.79)(4.62)(4.78)(4.97) RP * (-1.39)(-1.25)(-1.26) (-1.64) CS (-0.70)(-0.29)(-0.17)(-0.27) Int. * RP (0.05) (0.02)(-0.24)(-0.27) Int. * CS * ** (-1.26)(-1.95)(-2.10) Int. * CS * RP * (1.62)(1.54) Ex Yug *** (-4.05) Firm FEyes Firm Controlsyes N 1,636,936 Note: t statistics arising from robust standard errors clustered at the firm level in parentheses; * p < 0.10, ** p < 0.05, *** p < 0.01.

18 Results: sector-product CS variable Sectoral disaggregation of the product level CS variable: 29/10/2014Mattia Di Ubaldo, University of Sussex18 (1)(2)(3) Int *** *** (5.31) (5.48) RP (-1.16) (-1.55) CS-SECT (0.74)(1.12) (1.09) Int. * RP (-0.23) (-0.26) Int. * CS-SECT ** ** (-2.20) (-2.27) Int. * CS-SECT * RP (0.00) Firm FEyes Firm Controlsyes N 1,554,771 Note: t statistics arising from robust standard errors clustered at the firm level in parentheses; * p < 0.10, ** p < 0.05, *** p < 0.01.

19 Hypothesis 3: Bullwhip (1)(2)(3) Int (0.72) (1.44) CS (-1.20) (-0.90) Int. * CS ** (-2.05) Int. * Rec *** *** (3.59) (3.24) CS * Rec (1.09) (1.16) Int. * CS * Rec ** (2.31) Firm FEyes Firm Controlsyes N1,636,936 Note: t statistics arising from robust standard errors clustered at the firm level in parentheses; * p < 0.10, ** p < 0.05, *** p < Downturn Recovery

20 Results Margin decomposition 29/10/2014Mattia Di Ubaldo, University of Sussex20

21 Margin decomposition -2 29/10/2014Mattia Di Ubaldo, University of Sussex21 Decomposition of growth of exports: net intensive and net extensive margin contributions

22 29/10/2014Mattia Di Ubaldo, University of Sussex22 Intensive/Extensive margin decomposition (in %): RP vs AL trade

23 Conclusion This work adds to the study of the trade collapse by finding: RP trade reacted more at the intensive margin, compared to AL trade; but no significant difference overall. A higher cost-share of inputs induced a larger reaction of trade. Especially larger fall in downturn. CS heterogeneity allows to discover: Dampening impact of RP trade, relative to AL trade. Bullwhip effect. 29/10/2014Mattia Di Ubaldo, University of Sussex23

24 THANK YOU! 29/10/2014Mattia Di Ubaldo, University of Sussex24

25 RP trade and Cost Share (Hyp. 1 and 2): Impact of Cost Share of inputs and RP trade on growth rate of export of intermediates. 29/10/2014Mattia Di Ubaldo, University of Sussex25

26 Exports over the crisis 29/10/2014Mattia Di Ubaldo, University of Sussex26 Growth of Exports, with “contributions” of RP and AL trade to overall variation.

27 Hypotheses – 5 and 6. Trade finance. Trade finance (bank intermediated) became more expensive in the crisis: 5 th Hypothesis: greater reliance on firm intermediated trade finance induced a better trade performance. 6 th Hypothesis: greater reliance on firm intermediated trade finance induced a better trade performance for RP trade, relative to AL trade. 29/10/2014Mattia Di Ubaldo, University of Sussex27 Why? Firm intermediated trade credit should be easier between related parties.

28 Methodology 29/10/2014Mattia Di Ubaldo, University of Sussex28 Dep. var.: Hypothesis 5 Hypothesis 6

29 Results – hypothesis 4 and 5: trade finance 29/10/2014Mattia Di Ubaldo, University of Sussex29 (1)(2)(3)(4)(5) TC-SECT 0 0 TC-FIRM * (1.62)(1.38)(1.36) RP ** RP * (-2.37) (-1.78)(-0.77) TC-SECT * RP *** *** TC-FIRM * RP (7.41)(9.65)(1.40)(0.36) Int. * TC-SECT * RP Int. * TC-FIRM* RP (-1.11)(0.56) Firm FEyes Firm FEyes Firm Controlsyes Firm Controlsyes N 1,661,136 N1,661,075 Note: t statistics arising from robust standard errors clustered at the firm level in parentheses; * p < 0.10, ** p < 0.05, *** p < 0.01.

30 Results – hypothesis 4 and 5: trade finance Impact of Receivables and RP trade on growth rate of exports. 29/10/2014Mattia Di Ubaldo, University of Sussex30 Larger reliance on trade credit was associated to a better trade performance, with an additional premium detected to RP trade.

31 Results – all hypotheses together (1)(3) (4) Int *** Int *** (4.62) (3.94) RP *** RP (-2.61) (-1.25) CS CS (-0.20) (-0.05) TC-SECT 0 TC-FIRM (.) (1.18) Int. * CS ** Int. * CS ** (-1.95) (-1.96) Int. * CS * RP * Int. * CS * RP * (1.63) (1.65) TC-SECT * RP *** TC-FIRM * RP (9.31) (0.06) Int.*TC-SECT*RP Int.*TC-FIRM*RP (-1.38) (0.81) Firm FE yes Firm FE yes Firm ControlsyesFirm Controls yes N 1,636,936 N 1,636,875 Note: t statistics arising from robust standard errors clustered at the firm level in parentheses; * p < 0.10, ** p < 0.05, *** p < 0.01.

32 Margin decomposition -1 Methodology (Bricongne et al., 2012 ). I decompose mid-point growth rates: Extensive margin: created (g ickt =2) and destroyed flows (g ickt =-2) Intensive margin: increased (0< g ickt <2) and decreased flows (-2< g ickt <0) Weight each flow by its share in total Slovenian exports: Aggregate subsets of the weighted mid-point growth rates to obtain the margins, since the aggregate year on year total growth rate can be correctly approximated by: 29/10/2014Mattia Di Ubaldo, University of Sussex32

33 Margin decomposition -3 29/10/2014Mattia Di Ubaldo, University of Sussex33 Decomposition of growth of exports: detailed extensive margin contributions

34 Margin decomposition -5 29/10/2014Mattia Di Ubaldo, University of Sussex34

35 Margin decomposition -4 29/10/2014Mattia Di Ubaldo, University of Sussex35


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