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Regionalization, Changes in Home Bias, and the Growth of World Trade

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  • John Whalley
  • Xian Xin

Abstract

In this paper we use numerical modeling methods to quantitatively assess the impacts of changes in home bias within regions on the growth of world trade among major blocs over the last three decades. Existing work focuses on the impacts of trade barrier, transport cost and income changes on trade growth, rather than preferences. Removing changes in home bias over the last three decades from our global general equilibrium model reduces world trade by 27% compared to actual world trade in 2004 in our central case scenario. These results support the view that world trade among major blocs has became more regionalized rather than internationalized which we suggest may be due to a proliferation of free trade agreements. We calibrate a simple global trade model of inter bloc trade to both 1975 and 2004 data and substitute different calibrated parameters from the two data sets between model parameterizations. Our results suggest that if changes over time in home bias involving different regionally sourced goods in a multi-region multi product model are removed, substantial effects follow for the growth of world trade in the last three decades. Home bias changes in developed and developing economies reduce world trade by 8% and 19% respectively, suggesting that regionalization is more pronounced in developing country trade. Our results also indicate that income growth, income convergence, and falling trade costs explain 76%, 4%, and 7% respectively of the growth of world trade over the last three decades.

Suggested Citation

  • John Whalley & Xian Xin, 2007. "Regionalization, Changes in Home Bias, and the Growth of World Trade," NBER Working Papers 13023, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13023
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    1. Carolyn L. Evans & James Harrigan, 2003. "Distance, time, and specialization," International Finance Discussion Papers 766, Board of Governors of the Federal Reserve System (U.S.).
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    3. Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
    4. Anne-Célia Disdier & Keith Head, 2008. "The Puzzling Persistence of the Distance Effect on Bilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 37-48, February.
    5. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
    6. Whalley, John & Xin, Xian, 2009. "Home and regional biases and border effects in Armington type models," Economic Modelling, Elsevier, vol. 26(2), pages 309-319, March.
    7. Harrigan, James & Venables, Tony, 2004. "Timeliness, trade and agglomeration," LSE Research Online Documents on Economics 2300, London School of Economics and Political Science, LSE Library.
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    Cited by:

    1. Jacks, David S. & Meissner, Christopher M. & Novy, Dennis, 2011. "Trade booms, trade busts, and trade costs," Journal of International Economics, Elsevier, vol. 83(2), pages 185-201, March.
    2. Jacks, David S. & Meissner, Christopher M. & Novy, Dennis, 2010. "Trade costs in the first wave of globalization," Explorations in Economic History, Elsevier, vol. 47(2), pages 127-141, April.
    3. Dennis Novy, 2013. "Gravity Redux: Measuring International Trade Costs With Panel Data," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 101-121, January.
    4. William F. Lincoln & Andrew H. McCallum, 2011. "Entry Costs and Increasing Trade," Working Papers 11-38r, Center for Economic Studies, U.S. Census Bureau.
    5. William F. Lincoln & Andrew H. McCallum, 2011. "Entry Costs & Increasing Trade," William Davidson Institute Working Papers Series wp1024, William Davidson Institute at the University of Michigan.
    6. Massimo Del Gatto & Filippo di Mauro & Joseph W. Gruber & Benjamin R. Mandel, 2011. "The revealed competitiveness of U.S. exports," International Finance Discussion Papers 1026, Board of Governors of the Federal Reserve System (U.S.).

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    JEL classification:

    • F1 - International Economics - - Trade

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