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

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

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