nep-int New Economics Papers
on International Trade
Issue of 2017‒08‒20
24 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Time-Varying Impacts of Financial Credits on Firm Exports: Evidence from Trade Deregulation in China By Cheng, Dong; Hu, Zhongzhong; Tan, Yong
  2. Brexit and The Impact of Gradual Economic Integration on Export By Rutger Teulings
  3. The trade effects of tariffs and non-tariff changes of preferential trade agreements By Juyoung Cheong; Do Won Kwak; Kam Ki Tang
  4. Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement By Lorenzo Caliendo; Luca David Opromolla; Fernando Parro; Alessandro Sforza
  5. Services Trade Policy and Sustainable Development By Fiorini, Matteo; Hoekman, Bernard
  6. Wage Premium of Exporting Plants in Japan: Analysis on matched employer-employee data (Japanese) By ITO Koji
  7. Openness Can Be Good for Growth New Evidence on Panama: 1980 - 2015 By Bakari, Sayef
  8. Reputation and Multilateral Punishment under Uncertainty By Aidin Hajikhameneh; Jared Rubin
  9. International Emigrant Selection on Occupational Skills By Miguel Flores; Alexander Patt; Jens Ruhose; Simon Wiederhold
  10. US Antidumping Petitions and Revealed Comparative Advantage of Shrimp Exporting Countries By Chang, C-L.; McAleer, M.J.; Nguyen, D.K.
  11. Foreign Investment and Domestic Productivity: Identifying Knowledge Spillovers and Competition Effects By Fons-Rosen, Christian; Kalemli-Ozcan, Sebnem; Sørensen, Bent E; Villegas-Sanchez, Carolina; Volosovych, Vadym
  12. [WTO Case Review Series No.22] Argentina&mdash:Measures Relating to Trade in Goods and Services (DS453): Discrimination against countries not cooperating for tax transparency purposes and legal disciplines of the GATS (Japanese) By KAWASHIMA Fujio
  13. Globalization and the Increasing Correlation between Capital Inflows and Outflows By J. Scott Davis; Eric van Wincoop
  14. Trade-related aspects in the current context of sustainable development By Florentina Viorica Gheorghe; Artur Emilian Simion
  15. International Migration and Institutional Quality in the Home Country: It Matters Where You Go and How Long You Stay By Ngoc Thi Minh Tran; Michael P. Cameron; Jacques Poot
  16. Return Migration and Entrepreneurial Success: An Empirical Analysis for Egypt By Bensassi, Sami; Jabbour, Liza
  17. International policy entrepreneurship and production of international public goods: the case of multilateral trade regime By Trofimov, Ivan D.
  18. Impact of Foreign Tourists on Productivity in the Accommodation Industry: A panel data analysis By MORIKAWA Masayuki
  19. Surging Populism around the Globe: Do we see a reversal? By K M, SIBY
  20. The impacts of intellectual property rights protection on cross-border M&As By Hasan, Iftekhar; Khalil, Fahad; Sun, Xian
  21. Electoral Systems, Taxation and Immigration Policies: Which System Builds a Wall first? By Morelli, Massimo; Negri, Margherita
  22. The effect of inward foreign direct investment on economic growth: The case of Chinese provinces By Taguchi, Hiroyuki; Wang, Yining
  23. How to Cope with Volatile Commodity Export Prices: Four Proposals By Jeffrey Frankel
  24. Exchange Rate Pass-Through to Domestic Prices By Reddan, Paul; Rice, Jonathan

  1. By: Cheng, Dong; Hu, Zhongzhong; Tan, Yong
    Abstract: This paper investigates the heterogeneous and time-varying effects of financial credits on firm-level export performance. Using a data set covering comprehensive Chinese manufacturing firms and employing a difference-in-differences approach, we find that financial credits improve firm-level exports and productivity more for firms switching from indirect to direct export than continuing indirect exporting firms. Further, we employ a difference-in-difference-in-differences approach and find that improvements in firm-level finance have larger positive impacts on firm export values in the post-WTO accession period, conditioning on the firm switching from indirect to direct exporting. The time-varying impact may suggest an export distortion in China before its WTO accession.
    Keywords: Financial Credits, WTO Accession, Indirect export, Direct Export, Difference-in-Differences
    JEL: F13 F14 G28
    Date: 2017–08–07
  2. By: Rutger Teulings (University of Amsterdam, The Netherlands)
    Abstract: I develop an index for economic integration accounting for its gradual and bilateral nature: the Gradual And Bilateral Integration (GABI) index. The graduality captures differences in the depth and path of five stages in economic integration and is an improvement over the use of binary dummy variables. Its bilateral nature allows for country-pair differences, which is not possible with the multilateral indexes in existing literature. I apply the GABI index to a gravity model for 18 OECD countries and estimate the impact of the five stages on export. The estimates for these five stages allow me to investigate four different Brexit scenarios in a general equilibrium analysis, ranging from soft to very hard Brexit. I find that in the latter scenario real export of the UK decreases by a significant 32% in the long run. Other EU countries also experience a decrease in real export, while non-EU countries experience an increase due to trade diversion effects. Similarly, I also investigate potential future free trade agreements like TTIP.
    Keywords: Balassa stages; economic integration; gravity model; Brexit; TTIP
    JEL: F13 F14 F15
    Date: 2017–08–03
  3. By: Juyoung Cheong; Do Won Kwak; Kam Ki Tang
    Abstract: The recent literature on preferential trade agreements (PTAs) emphasizes the distinction between the extensive and intensive margins. What has been missing is the distinction between tariff and non-tariff changes under PTAs. Tariff reduction is a quintessential feature of PTAs. But member countries of a PTA often pursue deeper integration through agreements on nontariff matters as well. Some member countries, however, may want to use non-tariff barriers to compensate for tariff cuts. The current study isolates the effects of tariff and non-tariff changes under PTAs. It involves the construction of a new dataset of bilateral tariff rates for 90 importing and 149 exporting countries over 1996-2010, covering the Harmonized System 2-digit level of product varieties. Given the complexity of non-tariff arrangements, we allow for heterogeneity across three different types of PTAs, namely custom unions (CUs), free trade agreements (FTAs), and partial scope agreements (PSAs). We further consider heterogeneity within each of these three PTAs regarding responding time, partner type, and product type. The key findings are: (i) nontariff changes under PTAs on average increase both the intensive and extensive margins of trade; (ii) PSAs do not have discernible trade impacts unlike FTAs and CUs (iii) CUs have a stronger trade impact than FTAs; (iv) the impact of CUs comes mostly from non-tariff changes, while that of FTAs comes from both tariff and non-tariff changes; (v) non-tariff changes associated with CUs have a stronger trade effect than those associated with FTAs, which in turn are stronger than those associated with PSAs (vi) non-tariff changes take a longer time than tariff changes to impact on the intensive margin; (vii) non-tariff changes under FTAs and CUs between industrial and developing countries increase the exports from the former to the latter more than the other way around; and (viii) there is substantial heterogeneity across sectors in their response to trade liberalization.
    Keywords: Preferential Trade Agreements, Tariff, Non-tariff Measure, Gravity Model
    JEL: F15
    Date: 2017–08
  4. By: Lorenzo Caliendo; Luca David Opromolla; Fernando Parro; Alessandro Sforza
    Abstract: The economic effects from labor market integration are crucially affected by the extent to which countries are open to trade. In this paper we build a multi-country dynamic general equilibrium model with trade in goods and labor mobility across countries to study and quantify the economic effects of trade and labor market integration. In our model trade is costly and features households of different skills and nationalities facing costly forward-looking relocation decisions. We use the EU Labour Force Survey to construct migration flows by skill and nationality across 17 countries for the period 2002-2007. We then exploit the timing variation of the 2004 EU enlargement to estimate the elasticity of migration flows to labor mobility costs, and to identify the change in labor mobility costs associated to the actual change in policy. We apply our model and use these estimates, as well as the observed changes in tariffs, to quantify the effects from the EU enlargement. We find that new member state countries are the largest winners from the EU enlargement, and in particular unskilled labor. We find smaller welfare gains for EU-15 countries. However, in the absence of changes to trade policy, the EU-15 would have been worse off after the enlargement. We study even further the interaction effects between trade and migration policies and the role of different mechanisms in shaping our results. Our results highlight the importance of trade for the quantification of the welfare and migration effects from labor market integration.
    Keywords: international trade, factor mobility, market integration, EU enlargement, welfare
    JEL: F16 F22 F13 J61 R13 E24
    Date: 2017–08
  5. By: Fiorini, Matteo; Hoekman, Bernard
    Abstract: The realization of many of the sustainable development goals (SDGs) depends on bolstering the performance of services sectors and improving access to specific services in developing countries. We show that prevailing services trade and investment policies impact on access to services that matter for the realization of a number of SDGs: lower trade restrictiveness is an instrument that can enhance the performance of domestic services sectors. An implication is that pursuit of the SDGs should include a focus on facilitating trade and investment in services.
    Keywords: services trade policy; sustainable development goals; Trade in Services
    JEL: F13 L8 O10 O24
    Date: 2017–08
  6. By: ITO Koji
    Abstract: Do the benefits that firms obtain by globalization finally go to their workers? For example, do workers of exporting firms receive higher compensation than those of non-exporting firms? To clarify this point, this paper constructs cross sectional employer-employee data by merging plants' and workers' data, estimates the Mincer-type wage function in Japan's manufacturing sector, and examines the existence of a part purely correlated with exports, which cannot be explained by other characteristics of workers and plants. The result of the estimation indicates the wages of exporting plants are higher than non-exporting plants even after controlling for the characteristics of workers and plants, and the estimation according to plant and firm size shows that the wage differential correlated with exports is remarkable among relatively smaller plants or firms. In addition, according to Blinder-Oaxaca decomposition, the portion of the wage differential correlated with exports constitutes less than 10% of the wage premium of exporters, but for plants with smaller scale, the export premium constitutes a certain share of around 30%. Based on the results, it is clear that in Japan's manufacturing sector, exports and wages are clearly correlated, especially in smaller-scale plants and firms.
    Date: 2017–08
  7. By: Bakari, Sayef
    Abstract: The nexus between trade and economic growth in Panama has been widely debated. This paper investigates the relationship between exports, imports, and economic growth in Panama. In order to achieve this purpose, annual data for the periods between 1980 and 2015 was tested by using Johansen co-integration analysis of Vector Auto Regression Model and the Granger-Causality tests. According to the result of the analysis, it was determined that there is no relationship between exports, imports and economic growth in Panama. On the other hand, we found that there is a strong evidence of bidirectional causality from imports to economic growth and from exports to economic growth. These results provide evidence that exports and imports, thus, are seen as the source of economic growth in Panama.
    Keywords: export, import, economic growth, Panama, cointegration and causality.
    JEL: F1 F14
    Date: 2016–11–08
  8. By: Aidin Hajikhameneh (Institute for the Study of Religion, Economics and Society, Chapman University); Jared Rubin (Institute for the Study of Religion, Economics and Society, Chapman University and Argyros School of Business and Economics, Chapman University)
    Abstract: Prinicpal-agent problems can reduce gains from exchange available in long distance trade. One solution to mitigate this problem is multilateral punishment, whereby groups of principals jointly punish cheating agents by giving them bad reputations. But how does such punishment work when there is uncertainty regarding whether an agent actually cheated or was just the victim of bad luck? And how might such uncertainty be mitigated—or exacerbated—by nonobservable, pro-social behavioral characteristics? We address these questions by designing a simple modified trust game with uncertainty and the capacity for principals to employ multilateral punishment. We find that a modest amount of uncertainty increases overall welfare because principals are more willing to trust agents with bad reputations.
    Keywords: Multilateral punishment, reputation, uncertainty, exchange, lab experiment, trust game
    JEL: C91 C92 D02 D83 F10 N70
    Date: 2017
  9. By: Miguel Flores; Alexander Patt; Jens Ruhose; Simon Wiederhold
    Abstract: We present the first evidence that international emigrant selection on education and earnings materializes through occupational skills. Combining novel data from a representative Mexican task survey with rich individual-level worker data, we find that Mexican migrants to the United States have higher manual skills and lower cognitive skills than non-migrants. Conditional on occupational skills, education and earnings no longer predict migration decisions. Differential labor-market returns to occupational skills explain the observed selection pattern and significantly outperform previously used returns-to-skills measures in predicting migration. Results are persistent over time and hold within narrowly defined regional, sectoral, and occupational labor markets.
    Keywords: occupational skills, emigrant selection
    JEL: F22 O15 J61 J24
    Date: 2017–06
  10. By: Chang, C-L.; McAleer, M.J.; Nguyen, D.K.
    Abstract: The paper explores the trade competitiveness of seven major shrimp exporting countries, namely Vietnam, China, Thailand, Ecuador, India, Indonesia and Mexico, to the USA. Specifically, we investigate whether the United States (US) antidumping petitions impact upon the bilateral revealed comparative advantage (RCA) indexes for each of the seven shrimp exporting countries with the USA. Monthly data from January 2003 to December 2014 and the panel data model are used to examine the determinants of the RCA for the shrimp exporting countries. The empirical results show the shrimp exporting countries have superior competitiveness against the shrimp market in the USA. Moreover, the RCA indexes are significantly negatively influenced by shrimp prices, and are positively affected by US income per capita. However, the EMS (Early Mortality Syndrome) shrimp disease, domestic US shrimp quantity, exchange rate, and US antidumping laws are found to have no significant impacts on the RCA indexes. In terms of policy implications, the USA should try to reduce production costs of shrimp in the US market instead of imposing antidumping petitions, and the shrimp exporting countries should maintain their comparative advantage and diversify into new markets.
    Keywords: Shrimp, antidumping, revealed comparative advantage, panel data model
    JEL: C23 F13 P45 Q17
    Date: 2016–10–01
  11. By: Fons-Rosen, Christian; Kalemli-Ozcan, Sebnem; Sørensen, Bent E; Villegas-Sanchez, Carolina; Volosovych, Vadym
    Abstract: We study the impact of foreign direct investment (FDI) on total factor productivity (TFP) of domestic firms using a new, representative firm-level data set spanning six countries. A novel finding is that firm-level spillovers from foreign firms to domestic companies can be significantly positive, non-existent, or even negative, depending on which sectors receive FDI. When foreign firms produce in the same narrow sector as domestic firms, the latter are negatively affected by increasing competition and positively affected by knowledge spillovers. We find that the positive spillovers dominate if foreign firms enter sectors where firms are "technologically close,'' controlling for the endogeneity of their entry decision into such sectors. Positive technology spillovers also affect firms in other sectors, if those sectors are technologically close to the sectors receiving FDI. Increasing FDI in sectors that are technologically close to other sectors boosts TFP of domestic firms by twice as much as increasing FDI by the same amount across all sectors.
    Keywords: competition; FDI; multinationals; selection; technology; TFP
    JEL: E32 F15 F36 O16
    Date: 2017–08
  12. By: KAWASHIMA Fujio
    Abstract: How to address countries not cooperating for tax transparency purposes such as tax havens has long been one of the international challenges, as they have significant damages to each country's tax collection system. In this dispute, Argentina argued that its discriminatory tax or other measures against countries not cooperating for tax transparency purposes were based on such international responses. This paper analyzes how such argument influenced the interpretation by the Panel and the Appellate Body of Article II:1 (most-favoured nation), Article XVII (national treatment), Article XIV (c) (general exception), etc. of the General Agreement on Trade in Services (GATS). In addition, after the world financial crisis in 2008, countries recognized again the necessity for governmental regulations on financial sectors and now tend to adopt prudential measures in broader and more stringent manners than ever, which are more likely to constitute trade restrictions. Against this backdrop, this dispute, in which the prudential exception of paragraph 2(a) of the GATS Annex on the Financial Services was resorted to for the first time since the establishment of the WTO, attracted considerable attention. This paper also examines what interpretation the Panel and the Appellate Body developed on the prudential exception and what practical implications can be learned for governmental regulations on financial services.
    Date: 2017–08
  13. By: J. Scott Davis; Eric van Wincoop
    Abstract: We document that the correlation between capital inflows and outflows has increased substantially over time in a sample of 128 advanced and developing countries. We provide evidence that this is a result of an increase in financial globalization (stock of external assets and liabilities). This dominates the effect of an increase in trade globalization (exports plus imports), which reduces the correlation between capital inflows and outflows. In the context of a two-country model with 14 shocks we show that the theoretical impact of financial and trade globalization on the correlation between capital inflows and outflows is consistent with the data.
    JEL: F3 F41
    Date: 2017–08
  14. By: Florentina Viorica Gheorghe (The Romanian Academy, National Institute of Statistics); Artur Emilian Simion (The Romanian Academy, National Institute of Statistics)
    Abstract: According to the 2030 Agenda and its Sustainable Development Goals (SDGs), countries should consider achieving all of the three dimensions of sustainable development, namely, economic, social and environmental. In this context, the external trade is acknowledged as a „mean of implementation” for the achievement of the SDGs, facilitating countries progress towards the achievement of sustainable development. However, evaluation of its contribution to sustainable development is a challenge. This paper intend to explore contribution of external trade of Romania to several key objectives of the 2030 Agenda, trying to capture, through specific or proxy statistical indicators, some trade-related aspects of the goals, as for example relationship tradeeconomic growth, evolution of trade exchanges by countries in different development stages, agro-food products trade, trade by technologies and trade with environment goods. When relevant, comparisons with other EU Member States and territorial decomposition by Romania’s counties or regions are presented to highlight aspects related to reducing inequalities.
    Keywords: trade, deficit, export, import, county, sustainable development goals, environment
    JEL: F14 F18 F31 Q56
    Date: 2017–04
  15. By: Ngoc Thi Minh Tran (University of Waikato); Michael P. Cameron (University of Waikato); Jacques Poot (University of Waikato)
    Abstract: International migrants are widely recognised as agents of institutional change in their home countries. However, the huge growth in temporary migration in recent years demands a fresh investigation of this phenomenon. Theoretically, a country’s diaspora constitutes one of the four principal channels through which international migration may alter development. A core factor enabling the transnational influence of diasporas is their retained connection to home countries, which is plausibly contingent on the duration-of-stay in the host countries. This paper exploits the Database on Immigrants in OECD Countries to investigate the influence of diasporas living in OECD countries on institutional quality in their home countries, and takes into account the heterogeneity of diasporas’ duration-of-stay composition. Instead of simply using immigrant numbers to measure the diaspora size, we calculate institutional-quality-adjusted immigrant stocks to allow for variations in institutional quality between host countries. Additionally, we utilize duration-of-stay in the host country as an indicator of the strength of interaction with the home country. Our cross-sectional and panel analyses find a significant positive impact of diasporas living in OECD countries on institutional quality in home countries. Remarkably, the diffusion of advanced institutions from developed host countries to home countries through the international migration channel is stronger with diasporas characterized by shorter duration-of-stay, that is, with those who may be expected to still have stronger links with the home country.
    Keywords: institutional quality; international migration; diaspora; duration-of-stay
    JEL: F22 O15
    Date: 2017–08–11
  16. By: Bensassi, Sami; Jabbour, Liza
    Abstract: This paper explores the effect of return migration on the performance of Egyptian household firms. A growing body of evidence suggests that return migrants are more likely to become and remain entrepreneurs (Marchetta, 2012; Wahba and Zenou, 2012). The length of the miration spell, the experience and the capital accumulated overseas may influence the ability of return migrants to establish and successfully manage their firms. We expand this literature by examining the impact of return migrants on the revenue of the business units they manage. We control for several layers of selection bias, from the migration decision to the pursuit of entrepreneurial activities. Our findings suggest that two determinants of firms' revenues favour return migrants: larger starting capital and the experience accumulated abroad. These results suggest that economic policies directed at attracting return migrants should consider expanding support schemes formerly limited to the most educated migrants or to some sectors of activity as the positive impact of return migration on entrepreneurial revenues is widespread.
    Keywords: Return Migration,Household firms
    JEL: F22
    Date: 2017
  17. By: Trofimov, Ivan D.
    Abstract: The paper considers public goods in the realm of international governance, provides a framework explaining their provision, and applies it in the analysis of the trade policymaking in the GATT/WTO. International governance regime is seen as a public good; it is conceptualized as an equilibrium state, one where the extent of ideational and material conflicts, incongruities in policy mechanisms and the lack of institutions are substantially minimised. Such state is brought by policy entrepreneurship on the part of multiple actors. Three generic entrepreneurial functions (policy leadership, innovation and facilitation/coordination) are identified. Successful equilibration is characterized by the complementarity of entrepreneurial functions, as well as by the persistence and ingenuity of entrepreneurs in selecting and using specific means and instruments of entrepreneurship. Policy entrepreneurship is considered crucial in several areas, including problem framing, advocacy and coalition building, policy experimentation, and creation of the analytical instruments. It is also salient in moderation of conflicting positions, exercise of influence and management of the policy process.
    Keywords: Entrepreneurship; public goods; trade; international governance
    JEL: F13 F50 H41 L26
    Date: 2017–08–15
  18. By: MORIKAWA Masayuki
    Abstract: Recently, the number of foreign tourists visiting Japan has been rapidly increasing, and the overseas travel balance has drastically changed. By using micro panel data, this study empirically analyzes the effects of this increase on productivity in the accommodation industry. The novelty of this study is represented by the use of a physical productivity measure to document an unexplored channel through which service trade contributes to increasing the productivity in the domestic service industry. The estimation results show that an increase in the number of foreign guests significantly improves the measured total factor productivity (TFP) of the accommodation facilities, although the effect of foreign presence is quite heterogeneous across facilities.
    Date: 2017–08
  19. By: K M, SIBY
    Abstract: Populism has been a buzzword around the world today. Various recent elections in industrialized parts of the world turned out to be a hot arena of debate on surging populism and demagogues made the best use of their populist agenda to reap rich dividend in electoral mandates. Once they come into power, they retract on their populist rhetoric and act on ways that endanger the underpinnings of the very democracy that begets them. The present article tries to analyse the causes of surging populism around the world and examines a reversal trend in populism in the year 2017.
    Keywords: Populism,neoliberalism,globalisation,absolute and relative inequalities
    Date: 2017–08–07
  20. By: Hasan, Iftekhar; Khalil, Fahad; Sun, Xian
    Abstract: We investigate the impacts of improved intellectual property rights (IPR) protection on cross-border M&A performance. Using multiple measures of IPR protection and based on generalized difference-in-differences estimates, we find that countries with better IPR protection attract significantly more hi-tech cross-border M&A activity, particularly in developing economies. Moreover, acquirers pay higher premiums for companies in countries with better IPR protection, and there is a significantly higher acquirer announcement effect associated with these hi-tech transactions.
    JEL: G32 G34 O31 O34 F43 C23
    Date: 2017–08–06
  21. By: Morelli, Massimo; Negri, Margherita
    Abstract: When exposed to similar migration flows, countries with different institutional systems may respond with different levels of openness. We study in particular the different responses determined by different electoral systems. We find that Winner Take All countries would tend to be more open than countries with PR when all other policies are kept constant, but, crucially, if we consider the endogenous differences in redistribution levels across systems, then the openness ranking may switch.
    Keywords: Median voter; migration; Occupational choice; Proportional representation; taxation; Walls
    JEL: D72 F22
    Date: 2017–08
  22. By: Taguchi, Hiroyuki; Wang, Yining
    Abstract: This article examines the effect of inward foreign direct investment (FDI) on economic growth with a focus on Chinese provinces by conducting the Granger causality and impulse response tests in a vector auto-regression (VAR) estimation. The study contributes to the reviewed literature by examining the FDI effect in such comprehensive ways as demand-side and supply-side models, and by clearing the endogeneity problem of targeted variables under a VAR framework. The main findings of this study were as follows. First, the positive effect of FDI on economic growth in Chinese provinces was confirmed by all the model estimations: statistical, demand-side and supply-side models. Second, from the regional perspectives, the positive effect of FDI on economic growth was found in the eastern region, but not in the non-eastern region. Third, no crowding-out effect of FDI on domestic capital formation was identified both in demand-side and supply side analyses.
    Keywords: Inward foreign direct investment (FDI), Economic growth, Chinese provinces, Vector auto-regression estimation, Granger causality and Impulse responses
    JEL: F21 O47 O53
    Date: 2017–08
  23. By: Jeffrey Frankel
    Abstract: Countries where exports are relatively concentrated in oil, gas, minerals and agricultural commodities experience terms of trade that are highly volatile. This volatility is one of the possible explanations for the famous Natural Resource Curse.1 The aim in this keynote address is to offer four policy proposals to help countries manage commodity volatility and thereby help make sure that commodity wealth is a blessing rather than a curse. Two of the ideas fall in the area of microeconomic policy: specific financial contracts structured so as to hedge risk. Two of the ideas fall in the area of macroeconomic policy institutions: ways to make fiscal and monetary policy counter-cyclical rather than pro-cyclical.2 It is always hard to make policy proposals that are convincing and at the same time are original. I will try to strike a balance between being convincing and being original. Of the four ideas, two are tried and tested. Two have not been tried much. The question then becomes: why not? Let us first pause to ask: Don’t commodity-exporters already use financial markets to smooth trade fluctuations? If international financial markets worked well, countries facing temporary adverse trade shocks could borrow to finance current account deficits, and vice versa. But they don’t work that well. Capital flows to developing countries tend, if anything, to be pro-cyclical. The appropriate theory usually builds on the assumption that borrowing requires collateral, in the form of commodity export proceeds. The important point for policy-makers is that some careful thought is required to design institutions that can protect against the volatility. Many other policies and institutions for dealing with commodity volatility have been proposed and tried in various countries, some successful, some much less so. Many of the ideas that tend to work poorly can be described as seeking to suppress price volatility rather than manage it. I see them as akin to King Canute commanding the tide not to come in. I am thinking, for example, of price controls, commodity marketing boards, and controls on exports. Better to accept fluctuations in demand and supply as a fact of life, and to devise policies and institutions to equip the economy to cope with them. 1 Brueckner and Carneiro (2016), Blattman, Hwang, and Williamson (2007), Hausmann and Rigobon (2003), Mendoza (1997) and Poelhekke and van der Ploeg (2007). Terms of trade volatility hurts growth in the presence of investment irreversibilities and credit constraints (Aghion, Angeletos, Banerjee & Manova, 2010). Frankel (2012a) surveys the Natural Resource Curse. 2 E.g., Kaminsky, Reinhart and Végh {2005).
    Keywords: agriculture, commodities, currency basket, fiscal, hedging, indexed bonds, minerals, monetary, oil
    JEL: E F O
    Date: 2017–07
  24. By: Reddan, Paul (Central Bank of Ireland); Rice, Jonathan (Central Bank of Ireland)
    Abstract: Even by euro area standards, Irish goods inflation remained very weak throughout 2016. This Letter provides empirical evidence that Irish consumer goods price inflation is particularly exposed to movements in the euro-sterling exchange rate - notwithstanding factors such as global prices, interest rates and domestic consumption. This exposure of Irish consumer prices to sterling currency movements is shown to closely explain price dynamics throughout 2016, in particular for the period following the British vote to leave the EU.
    Date: 2017–07

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