nep-int New Economics Papers
on International Trade
Issue of 2005‒10‒22
fifty-two papers chosen by
Martin Berka
Massey University

  1. Outsourcing Tariff Evasion: A New Explanation for Entrepot Trade By Raymond Fisman; Peter Moustakerski; Shang-Jin Wei
  2. Exchange Rate Regimes and Trade By Christopher Adam; David Cobham
  3. Trade Finance and Trade Flows: Panel Data Evidence from 10 Crises By Márcio Valério Ronci
  4. Trade and Industrial Location with Heterogeneous Labor By Mary Amiti; Christopher A. Pissarides
  5. Economic Integration, Business Cycle, and Productivity in North America By M. Ayhan Kose; Roberto Cardarelli
  6. Trade Liberalization, Exchange Rate Changes, and Tax Revenue in Sub-Saharan Africa By Terence D. Agbeyegbe; Janet Gale Stotsky; Asegedech WoldeMariam
  7. Trade Costs and Real Exchange Rate Volatility: The Role of Ricardian Comparative Advantage By Claudio Bravo-Ortega; Julian di Giovanni
  8. Once Again, is Openness Good for Growth? By Ha Y. Lee; Roberto Rigobón; Luca Antonio Ricci
  9. Regional Trade Arrangements in Africa: Past Performance and the Way Forward By Yongzheng Yang; Sanjeev Gupta
  10. The Impact of Preference Erosion on Middle-Income Developing Countries By Hans P. Lankes; Katerina Alexandraki
  11. Trade Liberalization and Wage Inequality: Evidence from India By Prachi Mishra; Utsav Kumar
  12. China: International Trade and WTO Accession By Nicolas R. Blancher; Thomas Rumbaugh
  13. COMESA and SADC: Prospects and Challenges for Regional Trade Integration By Padamja Khandelwal
  14. Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia By Mary Amiti; Jozef Konings
  15. Trade Liberalization in Agriculture in Developed Nations and Incidence of Child Labour in a Developing Economy By Sarbajit Chaudhuri; Jayanta Kumar Dwibedi
  16. Crouching Tiger, Hidden Dragon: What are the Consequences of China's WTO Entry for India's Trade By Sandra A. Rivera; Valerie Cerra; Sweta Chaman Saxena
  17. Performance of Western Hemisphere Trading Blocs: A Cost-Corrected Gravity Approach By Feng Zhu; Enzo Croce; V. Hugo Juan-Ramon
  18. Measuring the Trade Effects of EMU By Hamid Faruqee
  19. Trade Liberalization and Firm Productivity: The Case of India By Petia Topalova
  20. Assessing Protectionism and Subsidies in Agriculture: A Gravity Approach By Claudio Paiva
  22. International Investment Patterns By Gian Maria Milesi-Ferretti; Philip R. Lane
  23. Trade and Strategic Regulatory Bias in Monopolistic Industries. By T. Huw Edwards
  24. The WTO and the Poorest Countries: The Stark Reality By Aaditya Mattoo; Arvind Subramanian
  25. Will you Buy My Peg? The Credibility of a Fixed Exchange Rate Regime as a Determinant of Bilateral Trade By Emilia Magdalena Jurzyk; Bernhard Fritz-Krockow
  26. Trade Integration in the East African Community: An Assessment for Kenya By Meredith A. McIntyre
  27. What Do We Know About Tariff Incidence? By Stephen Tokarick
  28. Regional Trade Integration and WTO Accession: Which is the Right Sequencing? An Application to the CIS By Patrizia Tumbarello
  29. Preferential Trade Agreements in the Asia-Pacific Region By Tubagus Feridhanusetyawan
  30. Trade Costs and Location of Foreign Firms in China By Mary Amiti; Beata K. Smarzynska Javorcik
  31. Russia and the WTO: The "Gravity" of Outsider Status By Yaroslav Lissovolik; Bogdan Lissovolik
  32. Special Agricultural Safeguards: Virtual Benefits and Real Costs-Lessons for the Doha Round By Jean-Jacques Hallaert
  33. Are Uniform Tariffs Optimal? By Mary Amiti
  34. Institutional Quality and International Trade By Andrei A. Levchenko
  35. Implicit Trade Costs and European Single Market Enlargement. By T. Huw Edwards
  36. Tax Revenue and (or?) Trade Liberalization By Thomas Baunsgaard; Michael Keen
  37. Trade and Growth in the Presence of Distortions By James H Cassing; Stephen Tokarick
  38. Remoteness and Real Exchange Rate Volatility By Claudio Bravo-Ortega; Julian di Giovanni
  39. The Effects of Exchange Rate Change on the Trade Balance in Croatia By Tihomir Stucka
  40. How Do Trade and Financial Integration Affect the Relationship Between Growth and Volatility? By M. Ayhan Kose; Eswar Prasad; Marco Terrones
  41. Evaluating the Malaysian Export Processing Zones With special focus on the electronic industry By Mats Furby
  42. The End of Textiles Quotas: A Case Study of the Impact on Bangladesh By Yongzheng Yang; Montfort Mlachila
  43. Is the Middle East and North Africa Region Achieving Its Trade Potential? By Ludvig Söderling
  44. How Has NAFTA Affected the Mexican Economy? Review and Evidence By M. Ayhan Kose; Guy Meredith; Christopher M. Towe
  45. Endowment versus Finance: A Wooden Barrel Theory of International Trade By Jiandong Ju; Shang-Jin Wei
  46. How Much Do Trading Partners Matter for Economic Growth? By Vivek B. Arora; Athanasios Vamvakidis
  47. A Re-examination of Korea's Trade Flows: What Has Changed and What Explains These Changes? By Kevin C. Cheng
  48. The Rise of U.S. Antidumping Activity in Historical Perspective By Douglas A. Irwin
  49. Ten Years After the CFA Franc Devaluation: Progress Toward Regional Integration in the WAEMU By Charalambos G. Tsangarides; Pierre van den Boogaerde
  50. Foreign Direct Investment and Regional Trade Agreements: The Market Size Effect Revisited By Florence Jaumotte
  51. Domestic Competition Spurs Exports: The Indian Example By Tushar Poddar
  52. The Implications of South African Economic Growth for the Rest of Africa By Vivek B. Arora; Athanasios Vamvakidis

  1. By: Raymond Fisman; Peter Moustakerski; Shang-Jin Wei
    Abstract: Traditional explanations for indirect trade carried out through an entrepôt have focused on savings in transport costs and on the role of specialized agents in processing and distribution. We provide an alternative perspective based on the possibility that entrepôts may facilitate tariff evasion. Using data on direct exports to mainland China and indirect exports to it via Hong Kong SAR, we find that the indirect export rate rises with the Chinese tariff rate, even though there is no legal tax advantage to sending goods via Hong Kong SAR. We undertake a number of extensions to rule out plausible alternative hypotheses.
    Keywords: Tax Evasion , Tariffs , Trade , Corruption ,
    Date: 2005–06–06
  2. By: Christopher Adam; David Cobham
    Abstract: A 'new version' gravity model is used to estimate the effect of de facto exchange rate regimes, as classified by Reinhart and Rogoff (2004), on bilateral trade. The results indicate that, while participation in a common currency union is typically strongly 'protrade' - as first suggested by Rose (2000) - other exchange rate regimes which lower the exchange rate uncertainty and transactions costs associated with international trade between countries are significantly more pro-trade than the default regime of a 'double float'. They suggest that the direct and indirect effects of exchange rate regimes on uncertainty and transactions costs tend to outweigh the trade-diverting substitution effects. In addition, there is evidence that membership of different currency unions by two countries has pro-trade effects, which can be understood in terms of a large indirect effect on transactions costs. Tariff-equivalent monetary barriers associated with each of the exchange rate regimes are also calculated.
    Keywords: Gravity models, geography, trade, exchange rate regime, currency union, transactions costs, tariff-equivalent barriers
    JEL: F10 F33 F49
    Date: 2005
  3. By: Márcio Valério Ronci
    Abstract: This paper assesses the effect of constrained trade finance on trade flows in countries undergoing financial and balance of payments crises. Most of the countries that had a major crisis had a significant trade contraction, while trade-related finance declined sharply. However, trade may also be affected by other variables such as world demand, domestic demand, banking crises, changes in export and import prices, and real exchange rate depreciation. To estimate the effect of constrained trade finance on trade flows, we estimate import and export volume equations including explicitly trade financing as an explanatory variable in addition to the usual variables such as relative prices and income. We conclude that constrained trade finance is a factor in explaining both export and import volumes in the short-run. A fall in external trade finance explains a relatively small part of the trade loss during crises, while a fall in trade financing in connection with domestic banking crisis can lead to a substantial loss of trade.
    Keywords: Trade , Public finance , Financial crisis ,
    Date: 2004–12–13
  4. By: Mary Amiti; Christopher A. Pissarides
    Abstract: We show in the context of a new economic geography model that when labor is heterogenous trade liberalization may lead to industrial agglomeration and interregional trade. Labor heterogeneity gives local monopoly power to firms but also introduces variations in the quality of the job match. Matches are likely to be better when there are more firms and workers in the local market, giving rise to an agglomeration force that can offset the forces against trade costs and the erosion of monopoly power. We derive analytically a robust agglomeration equilibrium and illustrate its properties with numerical simulations.
    Keywords: Trade liberalization , Labor mobility , Economic models ,
    Date: 2004–07–02
  5. By: M. Ayhan Kose; Roberto Cardarelli
    Abstract: This paper examines the effect of the major Canada-U.S. trade agreements on the dynamics of business cycles and productivity in Canada. The North American Free Trade Agreement (NAFTA) and its predecessor, the Canada-U.S. Free Trade Agreement (CUSFTA), have led to a substantial expansion of trade flows. Although common factors have played a larger role in explaining business cycles in Canada and the United States since the early 1980s, country-specific and idiosyncratic factors remain important for Canada. At the same time, while increased trade integration seems to have positively contributed to total factor productivity of Canadian industries, the persistence of structural differences between the two countries has prevented convergence of aggregate labor productivity. While these findings seem to weigh against moving toward a monetary union, they also suggest that substantial benefits could be reaped from further reducing remaining barriers to trade.
    Keywords: Business cycles , Canada , United States , Productivity , Trade , International trade agreements ,
    Date: 2004–08–11
  6. By: Terence D. Agbeyegbe; Janet Gale Stotsky; Asegedech WoldeMariam
    Abstract: Empirical evidence on the relationship between trade liberalization, exchange rates, and tax revenue is mixed. This paper examines these linkages anew. Using a panel of 22 countries in Sub-Saharan Africa, over 1980-1996, we perform Generalized Method of Moment regressions to test this relationship. We find evidence that the relationship between trade liberalization and tax revenue is sensitive to the measure used to proxy trade liberalization, but that, in general, trade liberalization is not strongly linked to aggregate tax revenue or its components-though with one measure, it is linked to higher income tax revenue. Currency appreciation and higher inflation show some linkage to lower tax revenues or its components. These results show some partial consistency with previous findings, and support the notion that trade liberalization accompanied by appropriate macroeconomic policies can be undertaken in a way that preserves overall revenue yield.
    Keywords: Trade liberalization , Sub-Saharan Africa , Exchange rates , Tax revenues ,
    Date: 2004–10–04
  7. By: Claudio Bravo-Ortega; Julian di Giovanni
    Abstract: This paper examines the impact of trade costs on real exchange rate volatility. We incorporate a multi-country Ricardian model of trade, based on the work of Eaton and Kortum (2002), into a macroeconomic model to show how bilateral real exchange rate volatility depends on relative technological differences and trade costs. These differences highlight a new channel, in which the similarity of a pair of countries' set of suppliers of traded goods affects bilateral exchange rate volatility. We then test the importance of this channel using a large panel of cross-country data over 1970-97, and find strong evidence supporting the channel.
    Date: 2005–01–25
  8. By: Ha Y. Lee; Roberto Rigobón; Luca Antonio Ricci
    Abstract: Rodriguez and Rodrik (2000) argue that the relation between openness and growth is still an open question. One of the main problems in the assessment of the effect is the endogeneity of the relation. In order to address this issue, this paper applies the identification through heteroskedasticity methodology to estimate the effect of openness on growth while properly controlling for the effect of growth on openness. The results suggest that openness would have a positive effect on growth, although small. This result stands, despite the equally robust effect from growth to openness.
    Keywords: Trade policy , Economic growth , Economic models ,
    Date: 2004–08–11
  9. By: Yongzheng Yang; Sanjeev Gupta
    Abstract: Regional trade arrangements (RTAs) in Africa have been ineffective in promoting trade and foreign direct investment. Relatively high external trade barriers and low resource complementarity between member countries limit both intra- and extraregional trade. Small market size, poor transport facilities and high trading costs make it difficult for African countries to reap the potential benefits of RTAs. To increase regional trade and investment, African countries need to undertake more broad-based liberalization and streamline existing RTAs, supported by improvements in infrastructure and trade facilitation. Early action to strengthen the domestic revenue base would help address concerns over revenue losses from trade liberalization.
    Keywords: International trade agreements , Africa , Trade policy ,
    Date: 2005–03–04
  10. By: Hans P. Lankes; Katerina Alexandraki
    Abstract: Preference erosion has become an obstacle to multilateral trade liberalization, as beneficiaries of trade preferences have an incentive to resist reductions in mostfavored- nation (MFN) tariffs. This study identifies middle-income developing countries that are vulnerable to export revenue loss from preference erosion. It concludes that the problem is heavily concentrated in a sub-set of preference beneficiaries-primarily small island economies dependent on sugar, banana, and-to a lesser extent-textile exports. Accordingly, measures to help mitigate the impact of preference erosion can be closely targeted at the countries at risk.
    Keywords: Multilateral trade negotiations , Trade liberalization ,
    Date: 2004–09–21
  11. By: Prachi Mishra; Utsav Kumar
    Abstract: We evaluate empirically the impact of the dramatic 1991 trade liberalization in India on the industry wage structure. The empirical strategy uses variation in industry wage premiums and trade policy across industries and over time. In contrast to earlier studies on developing countries, we find a strong, negative, and robust relationship between changes in trade policy and changes in industry wage premiums over time. The results are consistent with liberalization-induced productivity increases at the firm level, which get passed on to industry wages. Since tariff reductions were proportionately larger in sectors that employ a larger share of unskilled workers, the increase in wage premiums in these sectors implies that unskilled workers experienced an increase in their relative incomes. Thus, our findings suggest that trade liberalization has led to decreased wage inequality in India.
    Keywords: Trade liberalization , India , Wages , Economic models ,
    Date: 2005–02–04
  12. By: Nicolas R. Blancher; Thomas Rumbaugh
    Abstract: China's increasing integration with the global economy has contributed to sustained growth in international trade. Its exports have become more diversified, and greater penetration of industrial country markets has been accompanied by a surge in China's imports from all regions-especially Asia, where China plays an increasingly central role in regional specialization. Tariff reforms have been implemented in China since the 1980s; and, with its recent WTO accession, China has committed itself to additional reforms that are farreaching and challenging. Sustained implementation of these commitments would further deepen China's international integration and generate benefits for most partner countries.
    Keywords: International trade , China , World Trade Organization ,
    Date: 2004–03–10
  13. By: Padamja Khandelwal
    Abstract: Regional integration has been seen in Africa as a means of encouraging trade and securing economies of scale. This paper examines in detail the prospects and challenges for trade expansion in the two most prominent arrangements in eastern and southern Africa: the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC). It finds that possibilities of growth in intraregional trade may be limited, but that the two arrangements offer opportunities for member countries to gain policy credibility for trade reforms and tariff liberalization and to address structural weaknesses. In this regard, the negotiation of the Economic Partnership Agreements with the European Union can also have a significant impact.
    Keywords: Trade Relations , Africa , Common Market for Eastern and Southern Africa , Southern African Development Community , Trade liberalization , Economic cooperation ,
    Date: 2004–12–17
  14. By: Mary Amiti; Jozef Konings
    Abstract: This paper estimates the effects of trade liberalization on plant productivity. In contrast to previous studies, we distinguish between productivity gains arising from lower tariffs on final goods relative to lower tariffs on intermediate inputs. Lower output tariffs can produce productivity gains by inducing tougher import competition whereas cheaper imported inputs can raise productivity via learning, variety, or quality effects. We use Indonesian manufacturing census data from 1991 to 2001, which includes plant-level information on imported inputs. The results show that the largest gains arise from reducing input tariffs. A 10 percentage point fall in output tariffs increases productivity by about 1 percent, whereas an equivalent fall in input tariffs leads to a 3 percent productivity gain for all firms and an 11 percent productivity gain for importing firms.
    Keywords: Tariffs , Indonesia , Trade liberalization , Productivity , Economic models ,
    Date: 2005–08–08
  15. By: Sarbajit Chaudhuri (Department of Economics, Calcutta University, India); Jayanta Kumar Dwibedi (Dept. of Economics, Brahmananda Keshab Chandra College, India)
    Abstract: This paper is an attempt to analyze the consequence of trade liberalization in agriculture in the developed countries on the incidence of child labour in a developing economy in terms of a three- sector general equilibrium model with informal sectors. Adult labour and child labour are substitutes to each other in the two informal sectors of the economy and are used together apart from capital in producing two exportable commodities. The interesting result that appears from the analysis is that agricultural trade liberalization in the developed countries may be effective in bringing down the incidence of child labour in the system. The paper substantiates the desirability of trade liberalization in agriculture in the developed nations from the perspective of the developing economies for reason other than welfare improvement.
    Keywords: Child labour, trade liberalization in agriculture, informal sector, general equilibrium model
    JEL: F10 J10 J13 I28
    Date: 2005–10–20
  16. By: Sandra A. Rivera; Valerie Cerra; Sweta Chaman Saxena
    Abstract: One of the most significant recent developments in world trade has been the entry of China into the World Trade Organization (WTO). This paper examines the implications of China's WTO accession for India's trade, using both econometrics and computable general equilibrium (CGE) models. The paper analyzes how India stands to lose or gain from China's WTO entry in terms of both the direct and competitive channels.
    Keywords: World Trade Organization , China , India , Trade , Economic models ,
    Date: 2005–06–03
  17. By: Feng Zhu; Enzo Croce; V. Hugo Juan-Ramon
    Abstract: We study the performance of the four Western Hemisphere trading blocs during the period 1978-2001. For the North American Free Trade Agreement (NAFTA), trade integration outweighed trade diversion; for MERCOSUR, increased integration and trade diversion went hand in hand; for the Central American Common Market (CACM) and the Andean Community, the evidence points to trade diversion only. We also find that trade among neighboring countries has increased since the early 1990s. The estimations are based on a nonlinear gravity equation that incorporates the hypothesis that exports create externalities that affect trade costs. This hypothesis might help reconcile the theoretical unitary income elasticity with most empirical findings of a non-unitary income elasticity in studies using the gravity equation.
    Keywords: Trade , Western Hemisphere , Economic models ,
    Date: 2004–07–19
  18. By: Hamid Faruqee
    Abstract: This paper examines the impact of European Economic and Monetary Union (EMU) on trade within the euro area. Using panel data for 22 industrial countries, the analysis estimates the effect of the euro's arrival on area-wide trade compared to bilateral trade flows between other industrial countries. Controlling for other influences according to the "gravity" model of trade, the panel analysis employs cointegration techniques to obtain reliable point estimates of EMU trade effects. Cross-country differences with respect to EMU trade gains and underlying factors accounting for these differences are also further explored.
    Keywords: Trade , European Economic and Monetary Union , Bilateral trade , Euro area ,
    Date: 2004–08–27
  19. By: Petia Topalova
    Abstract: Using a panel of firm-level data, this paper examines the effects of India's trade reforms in the early 1990s on firm productivity in the manufacturing sector, focusing on the interaction between this policy shock and firm and environment characteristics. The rapid and comprehensive tariff reductions-part of an IMF-supported adjustment program with India in 1991-allow us to establish a causal link between variations in inter-industry and intertemporal tariffs and consistently estimated firm productivity. Specifically, reductions in trade protectionism lead to higher levels and growth of firm productivity, with this effect strongest for private companies. Interestingly, state-level characteristics, such as labor regulations, investment climate, and financial development, do not appear to influence the effect of trade liberalization on firm productivity.
    Keywords: Trade liberalization , India , Productivity ,
    Date: 2004–03–02
  20. By: Claudio Paiva
    Abstract: This paper provides the first comprehensive empirical analysis of agricultural trade using a gravity model. The data set covers bilateral trade in agricultural goods for 152 countries over the periods 1990-93 and 1999-2002. The estimations support claims that protectionism and distortive subsidies to agriculture remain widespread in more developed nations, which are shown to import less and export more agricultural products than expected given other economic, political, and geographic determinants of trade. However, some developing regions that are often thought to be the main victims of industrial-country protectionism are also found to be relatively closed to agricultural trade.
    Keywords: Protectionism , Trade , Agricultural subsidies , Economic models ,
    Date: 2005–02–08
  21. By: Sarbajit Chaudhuri (Dept. of Economics, University of Calcutta, India); Shigemi Yabuuchi (Dept. of Economics, Nagoya City University, Japan)
    Abstract: Removal of tariff restrictions from the relatively low-skill sectors; growth in foreign direct investment; and, decline of trade union strength of the unskilled workers are cited in the empirical literature as the prime factors responsible for the growing incidence of wage inequality in many of the developing countries in the liberalized trade and investment regime. This paper has made an attempt to provide a theoretical foundation of those empirical findings in terms of a three sector general equilibrium model reasonable for at least a few developing economies. The analysis of the paper has found that the wage inequality rises unambiguously due to policies like an increase in the relative price of the high-skill commodity and a reduction of import tariff from the low-skill manufacturing sector. However, an inflow of foreign capital produces a favourable effect on the wage inequality under a reasonable factor intensity condition. Interestingly, contrary to the common wisdom, a policy of labour market reform may raise the competitive unskilled wage and improve wage inequality under reasonable condition.
    Keywords: Skilled labour, unskilled labour, wage inequality, Latin American countries, trade liberalization, labour market imperfection
    JEL: F13 J31
    Date: 2005–10–20
  22. By: Gian Maria Milesi-Ferretti; Philip R. Lane
    Abstract: The paper provides a systematic analysis of bilateral, source and host factors driving portfolio equity investment across countries, using newly-released data on international equity holdings at the end of 2001. It develops a model that links bilateral equity holdings to bilateral trade in goods and services and finds that the data strongly support such a correlation. Larger bilateral positions are also associated with proxies for informational proximity. It further documents that the scale of aggregate foreign equity asset and liability holdings is larger for richer countries and countries with more developed stock markets.
    Keywords: International trade , Foreign investment , Bilateral trade ,
    Date: 2004–08–11
  23. By: T. Huw Edwards (Loughborough University)
    Abstract: Regulatory standards, such as on health and safety, may be subject to strategic bias when a country engages in trade. Where regulation is to correct an undersupply of quality by a monopolistic industry, if regulators do not cooperate and …rms can vary standards, there will be a tendency to strategic overregulation, which leads to excessive, rather than inadequate trade. When there is a mixture of horizontal and vertical quality regulations, the profit-shifting motive for protection is less than the previous literature suggests. In this case, contrary to previous findings, mutual recognition agreements lead to underregulation.
    Keywords: Trade, oligopoly, regulation, standards, harmonisation.
    JEL: F13 L13 L51
    Date: 2004–09
  24. By: Aaditya Mattoo; Arvind Subramanian
    Abstract: Small and poor countries pose a challenge for the World Trade Organization (WTO). These countries have acquired a significant say in WTO decision-making. However, they have limited ability to engage in the reciprocity game that is at the heart of the WTO, and have limited interests in the broader liberalization agenda because of their preferential access to industrial country markets. Accommodating the interests of the small and poor countries is desirable in itself, but would also facilitate expeditious progress in the Doha Round. The stark reality facing the system is that the desirable ways of addressing their concerns- providing them additional financial assistance and nonpreferential market access-is proving infeasible. As a result, the system is gravitating toward the less desirable option of relieving these countries of obligations, including those that might be welfare-enhancing for them.
    Keywords: Trade , World Trade Organization , Developing countries ,
    Date: 2004–05–27
  25. By: Emilia Magdalena Jurzyk; Bernhard Fritz-Krockow
    Abstract: This paper examines the relationship between fixed exchange rate arrangements and trade using a gravity model of international trade together with bilateral trade data from 24 countries from the Caribbean and Latin America for the period 1960-2001. The analysis indicates that a credible fixed peg has a positive impact on the value of bilateral trade. Moreover, the positive impact on trade is more pronounced with a stricter definition of the fixed peg or a longer duration of the peg. This supports the argument that the credibility of an exchange rate peg is an important element to determine bilateral trade. There is, however, no evidence to suggest that a currency union provides additional benefits.
    Keywords: Exchange rate regimes , Latin America , Bilateral trade , Currency pegs , Economic models ,
    Date: 2004–09–14
  26. By: Meredith A. McIntyre
    Abstract: The paper analyses the potential trade impact of the forthcoming East African Community (EAC) customs union. It examines the trade linkages among the member countries of the EAC and the extent to which the introduction of the EAC common external tariff will liberalize their trade regimes. To gauge the potential trade impact of the formation of the customs union, simulations are conducted for Kenya. The empirical results indicate that the customs union will have a beneficial effect on Kenya's trade. The paper does not draw any conclusions on the potential welfare impact of the customs union. Finally, factors other than enhanced trade might influence Kenyan policymakers to pursue regional integration, and these include regional cooperation in "behind the border" reforms and the provision of public goods.
    Keywords: Customs duties , Kenya , Africa , Trade , Economic models ,
    Date: 2005–08–01
  27. By: Stephen Tokarick
    Abstract: This paper examines the question: Who bears the larger portion of the excess burden of a tariff-the country that imposes it, or a country that it trades with? For a country that can influence its terms of trade, there are two ways of approaching this question. This paper shows that under certain assumptions, the extra burden from a marginal change in the homecountry tariff is shared equally between the home and foreign country at a tariff rate equal to twice the optimal tariff for the home country. Also, the cumulative welfare effect of a tariff in the home country, relative to free trade, turns out to be equalized across countries when the home tariff equals four times its optimal tariff. The paper provides an application of these results and points policymakers to the types of data that are relevant if they want to negotiate over "burden sharing."
    Keywords: Tariffs , Burden sharing ,
    Date: 2004–10–12
  28. By: Patrizia Tumbarello
    Abstract: This paper analyzes the appropriate sequencing between accession to the World Trade Organization (WTO) and the implementation of the Eurasian Economic Community (EAEC) customs union and whether the latter facilitates or delays WTO accession for some member countries of the Commonwealth of Independent States (CIS). If EAEC members pursue a coordinated approach toward WTO accession, this may cause delays that benefit some countries at the expense of others. The paper simulates the welfare effects resulting from the two sequencing alternatives (customs union and WTO or the reverse). The results show that, from a consumer surplus standpoint, it would be preferable to join the WTO ahead of the EAEC customs union. This paper does not attempt to assess the welfare implications of joining the EAEC as a political and economic entity, but only the welfare implications resulting from the implementation of the EAEC customs union.
    Keywords: Trade Relations , Armenia , Azerbaijan , Georgia , Kyrgyz Republic , Moldova , Tajikistan , Uzbekistan , World Trade Organization , Trade liberalization ,
    Date: 2005–05–23
  29. By: Tubagus Feridhanusetyawan
    Abstract: Preferential trade agreements (PTAs) in the Asia-Pacific region have proliferated rapidly over the past five years and are creating a complex web of intersecting bilateral and regional trade agreements. This paper describes the proliferation of these PTAs, discusses their characteristics and implementation, and assesses their potential effects. Realizing the potential gains from Asia-Pacific PTAs requires a commitment to liberalize sensitive sectors, to maintain consistent provisions, and to enforce agreements. Other factors, including administrative complications, also could undermine any potential gains.
    Keywords: International trade agreements , Asia and Pacific , Trade ,
    Date: 2005–08–11
  30. By: Mary Amiti; Beata K. Smarzynska Javorcik
    Abstract: This study examines the determinants of entry into by foreign firms, using information on 515 Chinese industries at the provincial level during 1998-2001. The analysis, rooted in the new economic geography, focuses on market and supplier access within and outside the province of entry, as well as production and trade costs. The results indicate that market and supplier access are the most important factors affecting foreign entry. Access to markets and suppliers in the province of entry matters more than access to the rest of China, which is consistent with market fragmentation due to underdeveloped transport infrastructure and informal trade barriers.
    Keywords: Trade , China , Foreign investment , Emerging Markets , Supply , Economic models ,
    Date: 2005–03–22
  31. By: Yaroslav Lissovolik; Bogdan Lissovolik
    Abstract: With China's accession to the WTO in 2001, Russia is by far that organization's most prominent nonmember. This paper applies the gravity model to gauge whether this "outsider" status has been affecting Russia's export structure. On the basis of cross-section and panel regressions for 1995-2002, we find that Russian exports to WTO members have fallen short of the model's predictions. The paper discusses possible explanations of this result, including Russia's exclusion from various WTO procedures, although own-export restrictions could have a similar effect. The model points to Russia's further trade reorientation toward WTO members after a putative accession. Our results also prompt some ideas that may resolve the recent empirical controversy over the WTO's overall role in promoting trade.
    Keywords: World Trade Organization , Russian Federation , Trade , Economic models ,
    Date: 2004–09–07
  32. By: Jean-Jacques Hallaert
    Abstract: In the Doha Round, negotiators are discussing the elimination or continuation of the special agricultural safeguards introduced by the Uruguay Round as well as the creation of special safeguard mechanism for use by developing countries. This paper argues that, in violation of the spirit of the WTO Agreement in Agriculture, the special agricultural safeguards have often been used as a prolonged protectionist device. It then draws lessons for the design of the special safeguard mechanism.
    Keywords: Agricultural trade , Safeguards , Trade policy ,
    Date: 2005–07–14
  33. By: Mary Amiti
    Abstract: This paper analyzes whether uniform tariffs give rise to the highest welfare compared with tariffs that either escalate or de-escalate along the value chain of production. We show that countries may be better off with de-escalating tariffs where tariff rates are higher on intermediate inputs and lower on final goods. The key point is that higher tariffs can encourage agglomeration of intermediate input suppliers and final goods producers in one country. With high tariffs on intermediate inputs, the benefits of close proximity to final goods producers may outweigh the benefits of locating according to comparative advantage, which is more likely when the share of intermediate inputs in producing final goods is high. De-escalating tariffs yield the highest welfare when the benefits of agglomeration are very high. These benefits of agglomeration accrue to both countries in the form of lower prices.
    Keywords: Tariffs , Tariff structures , Trade liberalization , Economic models ,
    Date: 2004–05–12
  34. By: Andrei A. Levchenko
    Abstract: The quality of institutions-meaning the quality of contract enforcement, property rights, shareholder protection, and the like-has received a great deal of attention in recent years. The purposes of this paper are twofold. First, it studies the consequences of trade when institutional differences are the source of comparative advantage among countries. Institutional differences are modeled within the Grossman-Hart-Moore framework of contract incompleteness. It is shown, among other things, that the less developed country may not gain from trade, and that factor prices may actually diverge as a result of trade. Second, the paper provides empirical evidence of "institutional content of trade:" institutional differences are shown to be important determinant of trade flows.
    Keywords: International trade , Trade models ,
    Date: 2004–12–27
  35. By: T. Huw Edwards (Loughborough University)
    Abstract: A major current issue in the economics of trade blocs is where the bloc is not just a customs union, but also incorporates substantial regulatory harmonisation or mutual recognition elements. The derivation of the costs of non-membership of such a bloc is not straightforward. In this paper I build on the assumption that observed trade pat- terns can be taken to reveal trading costs, and develop a model-consistent Dixit-Stiglitz general equilibrium-based calibration technique as an alternative to gravity methods previously used. I use the model to investigate numerically the likely trade e¤ects of the recent widening of the European Single Market to incorporate several Central and Eastern European Countries.
    Keywords: Protection, General Equilibrium, European Union.
    JEL: F12 F15 F17
    Date: 2005–05
  36. By: Thomas Baunsgaard; Michael Keen
    Abstract: With the public finances of many developing and emerging market countries still heavily dependent on trade tax revenues, further trade liberalization may be hindered unless they are able to develop alternative sources of revenue. While there is now a well-established body of theory and policy advice on how this might be done in principle, this paper uses panel data for 111 countries over 25 years- cleaned for a variety of problems in standard data sources-to ask what has happened in practice: Have countries in fact recovered from other sources the revenues they have lost from past episodes of trade liberalization? High-income countries clearly have. For middle-income countries, recovery has been in the order of 45-60 cents for each dollar of lost trade tax revenue, with signs of close to full recovery when separately identifying episodes in which trade tax revenues fell. Troublingly, however, revenue recovery has been extremely weak in low-income countries (which are those most dependent on trade tax revenues): they have recovered, at best, no more than about 30 cents of each lost dollar. Nor is there much evidence that the presence of a value-added tax has in itself made it easier to cope with the revenue effects of trade liberalization.
    Date: 2005–06–15
  37. By: James H Cassing; Stephen Tokarick
    Abstract: Tariffs and other policy distortions typically lower real national income relative to what it otherwise would have been for any given rate of factor accumulation. Even while lowering real income, however, policy distortions may raise an economy's real measured growth rate and so, somewhat deceivingly, give the impression that national welfare has benefited from things like tariff protection. This would be an incorrect conclusion. This paper discusses the issue of how protection can affect the rate of growth for a small, open economy. As shown by Johnson (1970), in the presence of exogenously given factor accumulation, tariffs either raise or lower an economy's growth rate (measured by the change in the value of output at world prices), relative to the no-distortion growth rate. We also discuss the relevance of this result for tariff uniformity, "tariff jumping" foreign direct investment, and the empirical literature on trade and growth. Finally we use a numerical simulation model of Egypt to assess whether the costs of its tax distortions have increased or declined over time.
    Keywords: Tariffs , Egypt , Trade , Economic growth , Capital accumulation , National income accounts , Economic models ,
    Date: 2005–02–03
  38. By: Claudio Bravo-Ortega; Julian di Giovanni
    Abstract: This paper examines the impact of trade costs on real exchange rate volatility. The channel is examined by constructing a two-country Ricardian model of trade, based on the work of Dornbusch, Fischer, and Samuelson (1977), which shows that higher trade costs result in a larger nontradable sector. This, in turn, leads to higher real exchange rate volatility. We provide empirical evidence supporting the channel.
    Keywords: Real effective exchange rates , Exchange rate variability , Trade models ,
    Date: 2005–01–13
  39. By: Tihomir Stucka
    Abstract: A reduced-form model approach was used to estimate the trade balance response to permanent domestic currency depreciation. For this purpose, long-run and short-run effects were estimated, using three modeling methods along with two real effective exchange rate measures. On average, a 1 percent permanent depreciation improves the equilibrium trade balance by between 0.94 percent and 1.3 percent. The new equilibrium is established after approximately 2.5 years. Evidence of the J-curve is also found. Overall, in the light of the results obtained, it is questionable whether permanent depreciation is desirable to improve the trade balance, taking into account potential adverse effects on the rest of the economy.
    Keywords: Balance of trade , Croatia , Exchange rate depreciation , Exchange rate adjustments , Transition economies , Trade models , Economic models ,
    Date: 2004–05–10
  40. By: M. Ayhan Kose; Eswar Prasad; Marco Terrones
    Abstract: The influential work of Ramey and Ramey (1995) highlighted an empirical relationship that has now come to be regarded as conventional wisdom-that output volatility and growth are negatively correlated. We reexamine this relationship in the context of globalization-a term typically used to describe the phenomenon of growing international trade and financial integration that has intensified since the mid-1980s. Using a comprehensive new data set, we document that, while the basic negative association between growth and volatility has been preserved during the 1990s, both trade and financial integration significantly weaken this negative relationship. Specifically, we find that, in a regression of growth on volatility and other controls, the estimated coefficient on the interaction between volatility and trade integration is significantly positive. We find a similar, although less significant, result for the interaction of financial integration with volatility.
    Keywords: Globalization , International trade , International financial system , International capital markets , Economic growth ,
    Date: 2005–02–04
  41. By: Mats Furby (Scholl of Economics, Lund)
    Abstract: Export Processing Zones are geographical enclaves that have legally been excepted from the country´s normal customs barriers and other constraining legislations. Malaysia has used them to foster its manufacturing industries, particularly the electronic sector. They are intended to attract foreign exchange, create employment and increase exports. In a longer perspective they are also supposed to have indirect effects through the creation of backward linkages, transfer of knowledge and positive catalytic effects on the host country. The aim of this essay is to evaluate the EPZs’ impact on Malaysia and see if their objectives have been reached and what other effects they might have had. This essay is specifically focused on recent developments and what effect the increasing product fragmentation, the Asian crisis and the new regional free trade area (AFTA) have had on Malaysia and on the electronic industry in particular. This study shows that the EPZ has been a success when it comes to direct effects, but that the indirect effects are still relatively limited and concentrated to certain areas (Penang). It also concludes that the Malaysian EPZ will probably diminish in importance if the mentioned trend continues.
    Keywords: Export Processing Zones, Malaysia, backward linkage, product fragmentation, export, catalytic effects, Asian crisis, electronic
    JEL: F1 F2
    Date: 2005–10–15
  42. By: Yongzheng Yang; Montfort Mlachila
    Abstract: This paper evaluates the effects on the Bangladeshi economy of phasing out textile and clothing (T&C) quotas currently maintained by industrial countries. The planned abolition of the quotas under the Agreement on Textiles and Clothing in 2005 will alter the competitiveness of various exporting countries. Bangladesh relies heavily on textile and clothing exports and is potentially very vulnerable to this change in competitiveness. Based on assessments of quota restrictiveness and export similarity, and an analysis of its supply constraints, the paper concludes that Bangladesh could face significant pressure on its balance of payments, output, and employment when the quotas are eliminated.
    Keywords: Import quotas , Bangladesh , Multifiber Arrangements , World Trade Organization , Access limits , Export competitiveness ,
    Date: 2004–07–14
  43. By: Ludvig Söderling
    Abstract: This paper analyzes export performance in the Middle East and North Africa (MENA) using a gravity model applied to panel data. It addresses two questions: (i) are there significant unexploited export markets for the MENA region?; and (ii) have integration efforts with the EU since the mid-1990s yielded positive results? The results suggest that several MENA countries are substantially underexploiting the United States as an export market. Moreover, the impact of integration efforts with the European Union has been moderate overall but significant in individual cases.
    Keywords: Trade , Middle East , Africa , Algeria , Egypt , Jordan , Morocco , Syrian Arab Republic , Tunisia , Oil , Economic models ,
    Date: 2005–05–19
  44. By: M. Ayhan Kose; Guy Meredith; Christopher M. Towe
    Abstract: This paper provides a comprehensive assessment of the impact of NAFTA on growth and business cycles in Mexico. The effect of the agreement in spurring a dramatic increase in trade and financial flows between Mexico and its NAFTA partners, and its impact on Mexican economic growth and business cycle dynamics, are documented with reference both to stylized facts and recent empirical research. The paper concludes by drawing lessons from Mexico's NAFTA experience for policymakers in developing countries. The foremost of these is that in an increasingly globalized trading system, bilateral and regional free trade arrangements should be used to accelerate, rather than postpone, needed structural reform.
    Keywords: International trade agreements , Mexico , Economic growth , Business cycles ,
    Date: 2004–04–22
  45. By: Jiandong Ju; Shang-Jin Wei
    Abstract: This paper develops a theory of international trade in which financial development and factor endowments jointly determine comparative advantage. We apply the financial contract model of Holmstrom and Tirole (1998) to the Heckscher-Ohlin-Samuelson (HOS) model in which firms' dependence on external finance is endogenous, and the demand for external finance is constrained by financial development. The theory nests HOS model as a special case. A key result that emerges is what we call the law of a wooden barrel: if the external finance constraint is binding, then further financial development will increase the output of the industry more dependent on external finance, and decrease the output of the other industry. It is shown that financial development makes both labor and unemployed capital better off, but incumbent capital worse off. Therefore, financial development depends on the relative strength of political forces among labor, unemployed capital owners, and incumbent capital owners. If only the capital constraint is binding, on the other hand, the standard HOS predictions will apply.
    Date: 2005–07–05
  46. By: Vivek B. Arora; Athanasios Vamvakidis
    Abstract: This paper empirically examines the extent to which a country's economic growth is influenced by its trading partner economies. Panel estimation results based on four decades of data for over 100 countries show that trading partners' growth and relative income levels have a strong effect on domestic growth, even after controlling for the influence of common global and regional trends. One interpretation is that conditional convergence is stronger, the richer are a country's trading partners. A general implication of the results is that industrial countries benefit from trading with developing countries, which grow rapidly, while developing countries benefit from trading with industrial countries, which have relatively high incomes.
    Keywords: International trade , Economic growth ,
    Date: 2004–03–02
  47. By: Kevin C. Cheng
    Abstract: This paper reexamines Korea's trade flows. Using the standard demand-based models, the paper finds that owing to the increasing share of electrical and electronic products (EEPs) in total exports, the income elasticity of the Korean export demand has fallen sharply while its price elasticity has risen dramatically. This is a curious result, which begs the question of why. Accordingly, an alternative supply-based model shows that the sharp increase in exports of EEPs is mainly due to Korea's remarkable ability to make technological improvements in their production. After reestimating the standard import equation, the paper finds estimates similar to those from previous studies. Since most of these imports are industrial inputs, they are jointly determined by consumption, fixed investment, and exports.
    Keywords: Trade policy , Korea, Republic of , Exports , Imports , Economic models ,
    Date: 2004–08–18
  48. By: Douglas A. Irwin
    Abstract: Empirical studies of antidumping activity focus almost exclusively on the period since 1980. This paper puts recent U.S. antidumping experience in historical context by studying the determinants of annual case filings over the past half century. The conventional view that few antidumping cases existed prior to 1980 is not correct, although most did not result in the imposition of duties. The increased number of cases in recent decades largely reflects petitions that target multiple source countries; the number of imported products involved has actually fallen since the mid 1980s. The annual number of antidumping cases is influenced by the unemployment rate, the exchange rate, import penetration (closely related to the decline in average tariffs), and changes in the antidumping law and enforcement in the early 1980s.
    Keywords: Trade liberalization , United States , Antidumping , Imports ,
    Date: 2005–02–25
  49. By: Charalambos G. Tsangarides; Pierre van den Boogaerde
    Abstract: This paper takes stock of the achievements toward integration in the West African Economic and Monetary Union (WAEMU) 10 years after the 1994 devaluation of the CFA franc. It investigates the lessons learned and evaluates progress toward economic convergence, examines the evolution of trade and competitiveness, and points to ways to remove impediments to greater integration. The paper concludes that a continued political commitment will be needed to overcome the important dissimilarities between WAEMU member countries that have limited the degree of convergence achieved to date, and to advance toward a full-fledged economic union.
    Keywords: CFA franc , West African Economic and Monetary Union , Trade Integration Mechanism ,
    Date: 2005–08–04
  50. By: Florence Jaumotte
    Abstract: The paper investigates whether the market size of a regional trade agreement (RTA) is a determinant of foreign direct investment (FDI) received by countries participating in the RTA. This hypothesis is tested on a sample of 71 developing countries during the period 1980-99. Evidence is found that the RTA market size had a positive impact on the FDI received by member countries, even more so in the 1990s when such agreements were revived and became more widespread. The size of domestic population also seemed to matter, possibly because of its effect on the availability of the labor supply. It appears, however, that not all countries in the RTA benefited to the same extent from the RTA: countries with a relatively more educated labor force and/or a relatively more stable financial situation tended to attract a larger share of FDI at the expense of their RTA partners. This evidence suggests it is essential for all RTA countries to improve their business environment to the best available in the region. Finally, a partial negative correlation between the FDI received by RTA countries and that received by non-RTA countries possibly reflects a diversion of FDI from non-RTA to RTA countries. As an illustration, FDI benefits are simulated from the creation of a regional trade agreement between Algeria, Morocco, and Tunisia.
    Keywords: Foreign investment , Algeria , Morocco , Tunisia , Trade models ,
    Date: 2004–11–11
  51. By: Tushar Poddar
    Abstract: India's exports nearly tripled in the 1990s. Decomposing export growth shows that it has been driven by incumbent firms rather than the entry of new firms. By using a new panel on Indian firms and estimating a dynamic discrete-choice model of the firm's decision to export, we find evidence that economic liberalization has led to greater domestic competition, spurring firm efficiency and increasing Indian firms' competitiveness and ability to export. We show that export growth has been an outcome of local firm innovation which has come about due to increased competitive pressure from FDI entry.
    Keywords: Competition , Exports , India , Trade , Economic models ,
    Date: 2004–09–27
  52. By: Vivek B. Arora; Athanasios Vamvakidis
    Abstract: This paper measures the extent to which South African economic growth is an engine of growth in sub-Saharan Africa. Results based on panel data estimation for 47 African countries over four decades suggest that South African growth has a substantial positive impact on growth in the rest of Africa, even after controlling for other growth determinants. The estimates are robust to the effects of global and regional shocks, changes in model specification, and sample period.
    Keywords: Economic growth , Sub-Saharan Africa , Stabilization programs , Trade , Economic models ,
    Date: 2005–03–28

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