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

Catalysts and Inhibitors of the Trade Collapse

Mattia Di Ubaldo

University of Sussex, PhD Conference5th of December 2014

Mattia Di Ubaldo, University of Sussex

Motivation & Context - 1

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The Slovenian ExperienceGrowth of GDP Growth of trade

Mattia Di Ubaldo, University of Sussex 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).29/10/2014


ContributionMy 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.

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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.

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Outline

•Data and sample.

•Hypotheses.

•Methodology.

•Results.

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Data and Sample

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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 (xickt); 2000-2011.

• Firm Balance Sheet data (AJPES): balance sheet and income statements of all Slovenian firms; 2000-2011.

• Ownership data (Bureau Van Dijk): ORBIS allows to track all the proprietary network, on a world scale, up to the 10th level of subsidiarity.

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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).29/10/2014


Timing and Sample

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Timing

October 2008 – May 2010; trough in November 2009.

Final sample

Exporters 9,238

NACE-4dig sectors

462

Products 7,350

median 58; mean 136

Destinations 199 median 10; mean 16


Hypotheses

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• Inventory adjustments were observed to have amplified the reaction of trade (Alessandria et al. 2010). GVC ideal locus!

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2nd Hypothesis : RP trade of intermediates is more resilient than AL trade .Why? For RP trade:• Lower uncertainty• Shorter delivery lags Lower buffer of inventories

Lower 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!


Hypotheses – 3 and 4.

3rd 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:

4th Hypothesis: intensive margin adjustments are more pronounced for RP trade than for AL trade; vice-versa for extensive margin adjustments.

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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.


Methodology

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Methodology

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ickti210ickt εγrecoveryΩ*αΩααg

ickt5iy4iktkicktikticktkickt

k3ikt2ickt1

ExYugβXβRP*CS*IntRP*IntCS*Int

CSβRPβIntβΩ

321 δδδ

)x0.5(x

xxg

12)ick(tickt

12)ick(ticktickt

2007

2000y

N

1i iy

12

1t icktk Y

im

NY1

CS

Dep. var.:

Hypothesis 1

Hypothesis 2

Hypothesis 3


Results

Estimations

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RP trade and Cost Share (Hyp. 1 and 2):(1) (2) (3) (4) (5) (6) (7)

Int. 0.0389*** 0.0389*** 0.0559*** 0.0588*** 0.0612***

(3.04) (3.79) (4.62) (4.78) (4.97)

RP -0.0448 -0.0465 -0.0482 -0.0480 -0.0616*

(-1.39) (-1.25) (-1.26) (-1.26) (-1.64)

CS -0.00391 -0.00156 -0.000922 -0.0104

(-0.70) (-0.29) (-0.17) (-0.27)

Int. * RP 0.00166 0.000918 -0.00934 -0.0104

(0.05) (0.02) (-0.24) (-0.27)

Int. * CS -0.178 -0.287* -0.306**

(-1.26) (-1.95) (-2.10)

Int. * CS * RP

0.380* 0.356

(1.62) (1.54)

Ex Yug. -0.106***

(-4.05)

Firm FE yes yes yes yes yes yes yes

Firm Controls

yes yes yes yes yes yes yes

N 1,636,936 1,636,936 1,636,936 1,636,936 1,636,936 1,636,936 1,636,936Note: t statistics arising from robust standard errors clustered at the firm level in parentheses; * p < 0.10, ** p < 0.05, *** p < 0.01.


Results: sector-product CS variable

• Sectoral disaggregation of the product level CS variable:

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(1) (2) (3)

Int. 0.0607*** 0.0633***

(5.31) (5.48)

RP -0.0468 -0.0612

(-1.16) (-1.55)

CS-SECT 0.000588 0.000871 0.000858

(0.74) (1.12) (1.09)

Int. * RP -0.00944 -0.0108

(-0.23) (-0.26)

Int. * CS-SECT -0.125** -0.143**

(-2.20) (-2.27)

Int. * CS-SECT * RP

0.000236

(0.00)

Firm FE yes yes yes

Firm Controls yes yes yes

N 1,554,771 1,554,771 1,554,771

2007

2000y

N

1i ijy

12

1t ijcktk Y

im

NY1

CSj

Note: t statistics arising from robust standard errors clustered at the firm level in parentheses; * p < 0.10, ** p < 0.05, *** p <

0.01.

Hypothesis 3: Bullwhip(1) (2) (3)

Int. 0.0113 0.0234

(0.72) (1.44)

CS -0.00855 -0.00636

(-1.20) (-0.90)

Int. * CS -0.294**

(-2.05)

Int. * Rec 0.0958*** 0.0864***

(3.59) (3.24)

CS * Rec. 0.0157 0.0167

(1.09) (1.16)

Int. * CS * Rec.

0.401**

(2.31)

Firm FE yes yes yes

Firm Controls yes yes yes

N 1,636,936 1,636,936 1,636,936Note: t statistics arising from robust standard errors clustered at the firm level in parentheses; * p < 0.10, ** p < 0.05, *** p <

0.01.

Downturn

Recovery


Results

Margin decomposition

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Margin decomposition -2

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Decomposition of growth of exports: net intensive and net extensive margin contributions

Mattia Di Ubaldo, University of Sussex 2229/10/2014

Intensive/Extensive margin decomposition (in %):RP vs AL trade


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.29/10/2014


THANK YOU!

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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.

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Exports over the crisis

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Growth of Exports, with “contributions” of RP and AL trade to overall variation.


Hypotheses – 5 and 6. Trade finance.

• Trade finance (bank intermediated) became more expensive in the

crisis:5th Hypothesis: greater reliance on firm intermediated trade finance

induced a better trade performance.

6th Hypothesis: greater reliance on firm intermediated trade finance induced a better trade performance for RP trade, relative to AL trade.

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Why? Firm intermediated trade credit should be easier between related parties.


Methodology

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ickti10ickt εγΩααg

ickt5iy4icktiyiy

ickt2ickt1

ExYugβXβRP*TCTC

RPβIntβΩ

6δδ5

)x0.5(x

xxg

12)ick(tickt

12)ick(ticktickt

Dep. var.:

Hypothesis 5

Hypothesis 6

1y

1yiy sales

sreceivableTC

ijy

ijyN

1n

2007

2000yj sales

sreceivable

NY1

TC


Results – hypothesis 4 and 5: trade finance

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(1) (2) (3) (4) (5)

TC-SECT 0 0 TC-FIRM 0.0461* 0.0347 0.0350

- - (1.62) (1.38) (1.36)

RP -0.0670** RP -0.0843* -0.0618

(-2.37) (-1.78) (-0.77)

TC-SECT * RP 0.00312*** 0.00318*** TC-FIRM * RP 0.162 0.0827

(7.41) (9.65) (1.40) (0.36)

Int. * TC-SECT * RP

-0.000752 Int. * TC-FIRM* RP

0.119

(-1.11) (0.56)

Firm FE yes yes Firm FE yes yes yes

Firm Controls yes yes Firm Controls yes yes yes

N 1,661,136 1,661,136 N 1,661,075 1,661,075 1,661,075

Note: t statistics arising from robust standard errors clustered at the firm level in parentheses; * p < 0.10, ** p < 0.05, *** p < 0.01.


Results – hypothesis 4 and 5: trade finance

• Impact of Receivables and RP trade on growth rate of exports.

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Larger reliance on trade

credit was associated to a

better trade

performance, with an

additional premium

detected to RP trade.

Results – all hypotheses together(1) (3) (4)

Int. 0.0575*** Int. 0.0620***

(4.62) (3.94)

RP -0.0786*** RP -0.0465

(-2.61) (-1.25)

CS -0.00106 CS -0.000265

(-0.20) (-0.05)

TC-SECT 0 TC-FIRM 0.0321

(.) (1.18)

Int. * CS -0.287** Int. * CS -0.287**

(-1.95) (-1.96)

Int. * CS * RP 0.381* Int. * CS * RP 0.386*

(1.63) (1.65)

TC-SECT * RP 0.00330*** TC-FIRM * RP 0.0145

(9.31) (0.06)

Int.*TC-SECT*RP

-0.000947 Int.*TC-FIRM*RP

0.192

(-1.38) (0.81)

Firm FE yes Firm FE yes

Firm Controls yes Firm 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.



• Methodology (Bricongne et al., 2012).I decompose mid-point growth rates:

Extensive margin: created (gickt =2) and destroyed flows (gickt =-2)Intensive margin: increased (0< gickt <2) and decreased flows (-2< gickt <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:

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)x0.5(x

xxg

12)ick(tickt

12)ick(ticktickt

i c i c k 12)ick(tk ickt

12)ick(ticktickt xx

xxs

c i k ickticktt s*gG



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Decomposition of growth of exports: detailed extensive margin contributions



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Documents

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