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1. How Does Globalisation Affect Social Cohesion?

Author:
Kasper Vrolijk
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
German Institute of Development and Sustainability (IDOS)
Abstract:
This paper explores the effects of globalisation on social cohesion outcomes and the underlying mechanisms. A framework for reviewing the literature is offered, in which labour earnings, household expenditures and firm productivity are identified as the main channels through which economic globalisation affects cohesion, trust and pro-social behaviour. Evidence points towards substantial losses in cohesion following negative globalisation changes, altering cohesion through absolute and relative changes in employment and expenditure (and people’s perception thereof). However, evidence is thin and inconsistent; studies are limited to effects of trade (and not foreign direct investment), cover some dimensions of cohesion but not others, and often evaluate the effect of negative trade events on cohesion (while trade and foreign direct investment may offer gains to workers, households and firms, which boosts cohesion). From the available evidence, it is determined that when setting policy, it is important to address relative losses from globalisation (between groups), incorporate economic costs of social repercussions, and take on market distortions and underlying cyclical or secular trends that may amplify the effects of globalisation on cohesion.
Topic:
Globalization, Economy, Trade, and Social Cohesion
Political Geography:
Global Focus

2. Structural transformation and international trade: Evidence from the China shock

Author:
Clément Nedoncelle and Julien Wolfersberger
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
How does international trade affect structural transformation in developing countries? We use data on sectoral allocation of labour and value-added in 46 developing economies over the period 1995–2017 and exploit for identification plausibly exogenous variation in manufacturing imports from China. We find that the so-called ‘China shock’ largely slows down the transformation of low- and middle-income economies out of agriculture. In our main specification industrialization decreases by 0.49 per cent on average for each additional per cent of manufacturing imports from China. It highlights a competition effect where exposure to Chinese imports is largely detrimental to structural transformation. These results hold across geographical regions, with a difference in Sub-Saharan Africa, where international trade causes an increase in the size of the services sector.
Topic:
Development, Economies, Trade, Industrialization, and Structural Transformation
Political Geography:
Global Focus

3. Divergence in Non-Tariff Measures and the Quality of Traded Products

Author:
Doan Thi Thanh Ha, Kunhyui Kim, and Mahdi Ghodsi
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Non-tariff measures (NTMs) constitute a grey area where trade policy meets public policy goals. NTMs comprise a diverse set of regulatory policy measures, including testing and certification, rather than traditional international trade policy measures such as tariffs or tariff-rate quotas. Regulatory NTMs protect plants, animals, humans, and consumers from imported harmful products containing diseases; regulate the use of hazardous substances in production; ensure conformity with common standards; and protect the environment. Trade literature has focused on the impact of NTMs on trade flows, whereas few studies address the potential welfare-improving effects of these measures. This paper fills this gap by examining the relationship between NTM applications and the quality of traded products. Two questions are addressed. First, do more or additional burdens of NTMs in the foreign market incur a higher quality of exported products? Second, is the quality impact of NTMs in different sectors different between food and other manufacturing goods? We adopt a recently developed indicator to capture the additional requirements for exporters stemming from importers’ imposition of NTMs, and a quality estimator that controls for price. Our empirical results indicate that, overall, divergence in sanitary and phytosanitary (SPS) measures between the two trading partners reduces the quality of traded goods. Furthermore, while the divergence in SPS measures reduces the quality of traded goods in the manufacturing sector, the divergence in technical barriers to trade shows no statistically significant impact on the quality of traded goods between the two trading partners. The results imply that additional costs from technical barriers to trade are negligible compared with those from SPS measures in the manufacturing sector.
Topic:
Regulation, Tariffs, Public Policy, and Trade
Political Geography:
Global Focus

4. Global Value Chain Disruptions and Firm Survival During COVID-19: An Empirical Investigation

Author:
Sasidaran Gopalan and Ketan Reddy
Publication Date:
08-2023
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Despite the rapid acceleration of countries participating in global value chains (GVCs) over the last three decades, global GVC participation rates have plateaued since the global financial crisis (GFC) and worsened with the onset of the coronavirus disease (COVID-19) pandemic. The massive supply chain disruptions induced by the pandemic not only appeared to expose the vulnerabilities of GVCs, largely because of concentration risks, but also contributed to a dramatic decline in trade flows globally. As countries around the world emerge from the shadows of the pandemic, there is growing academic and policy interest in deciphering how countries should build effective strategies that facilitate firm survival, especially viewed from the lens of resilience and robustness. Considering this background, in this paper, we propose to make a twofold contribution to this literature. First, we undertake a comprehensive firm-level investigation (in a cross-country setting) to ascertain whether firms engaged in GVCs relative to non-GVC firms exhibited better survival instincts during the COVID-19 pandemic. Second, we uncover the heterogeneity of the shock across sectors and industries, considering the varied sectoral/industrial exposure to the COVID-19 pandemic. We document that GVC firms showcased greater robustness and resilience during the pandemic phase compared with other firms. Our results also show that the degree of resilience and robustness varies significantly by industry.
Topic:
Financial Crisis, Trade, Global Value Chains, and COVID-19
Political Geography:
Global Focus

5. WTO 2025: Restoring binding dispute settlement

Author:
Alan Wm. Wolff
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Binding dispute settlement—the ability to obtain a final judgment of whether a member of the World Trade Organization (WTO) has acted inconsistently with its obligations—was the defining attribute of the WTO as created in 1995. Global commerce thrived on having the certainty provided by its taking place within this system. For well over a decade, the United States had complained that the dispute settlement system was undermining the trade remedies—antidumping, countervailing duties against subsidies, and safeguard actions against injurious imports—that were allowed under the WTO’s rules. When a populist US administration assumed office in 2017, it blocked appointments to the WTO’s Appellate Body. Today, the WTO dispute settlement system has become balkanized. The European Union and a number of other countries have banded together to put into place an alternative mechanism. Outside this system are the other two-thirds of the WTO members, including the United States. For most WTO members, no definitive result can be reached as to whether WTO obligations have been violated, as there is no assurance that WTO dispute settlement will be binding for them. This paper addresses how to reconstruct a system that the United States could join that would be broadly acceptable to others. It sets out a wide range of elements for negotiators to consider to rebuild the WTO dispute settlement system and make WTO agreements enforceable again.
Topic:
Economics, Trade, WTO, and Disputes
Political Geography:
Global Focus

6. WTO 2025: Enhancing global trade intelligence

Author:
Alan Wm. Wolff
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
International trade flows based on information. Is the foreign market open? What are the conditions for entry? Are there customs duties to be paid and other regulations that need to be satisfied? Businesses thrive on getting as much certainty as they can find, and this requires reliable information. Is the competition subsidized? Are the competitors favored state-owned companies? During the pandemic, governments needed to know if food and medical supplies were going to be available from foreign sources and, most importantly, how available vaccines would be as most of the world’s countries could not produce any. Effective public policy cannot be made in the dark. The World Trade Organization, and the General Agreement on Tariffs and Trade before it, were founded with the idea of providing transparency. But more is needed to understand why trade is taking place, and even more important, when it is not, why not?
Topic:
Economics, Markets, Trade, and WTO
Political Geography:
Global Focus

7. Leaning-against-the-wind intervention and the “carry-trade” view of the cost of reserves

Author:
Eduardo Levy-Yeyati and Juan Francisco Gómez
Publication Date:
10-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
For a sample of emerging economies, we estimate the quasi-fiscal costs of sterilized foreign exchange interventions as the P&L of an inverse carry trade. We show that these costs can be substantial when intervention has a neo-mercantilist motive (preserving an undervalued currency) or a stabilization motive (appreciating the exchange rate as a nominal anchor) but are rather small when interventions follow a countercyclical, leaning-against-the-wind (LAW) pattern to contain exchange rate volatility. We document that under LAW, central banks outperform a constant size carry trade, as they additionally benefit from buying against cyclical deviations, and that the cost of reserves under the carry-trade view is generally lower than the one obtained from the credit-risk view (which equals the marginal cost to the country´s sovereign spread).
Topic:
Foreign Exchange, Economy, International Reserves, Trade, and Exchange Rates
Political Geography:
Global Focus

8. The World Bank, the IMF, and the GATT/WTO: Which institution most supported trade reform in developing economies?

Author:
Douglas A. Irwin
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The 1980s and 1990s saw a policy revolution in developing countries in which many highly protected (if not closed) economies were opened to world trade. These reforms were largely undertaken unilaterally, but international economic institutions such as the World Bank, the International Monetary Fund, and the General Agreement on Tariffs and Trade/World Trade Organization supported these efforts. This paper examines the ways in which these institutions promoted, or failed to promote, trade policy reform during this pivotal period.
Topic:
Development, World Bank, Reform, Trade, IMF, and WTO
Political Geography:
Global Focus

9. The state and the ‘legalization’ of illicit financial flows: Trading gold in Bolivia

Author:
Fritz Brugger, Joschka Proksik, and Felitas Fischer
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Most research on illicit financial flows (IFFs) has focused on illicit outflows from developing countries and the role of non-state actors in generating IFFs. Less attention has been paid to processes and interfaces through which IFFs enter formal value chains—in effect being ‘legalized’ before leaving the country—or the crucial role of state institutions as gatekeepers. We develop a novel explanatory approach to account for the enabling role of state institutions in the ‘legalization’ of IFFs. Building on political settlement theory, we explain the performance of institutions in the regulation of IFFs as a function of political settlements. Taking the case of the Bolivian gold-trading sector, we examine how the process of ‘legalizing’ illicit value flows works in practice and analyse the motives and underlying conditions that lead state institutions to permit the formal export of gold shipments that have been illicitly sourced or transferred. Evidence from Bolivia indicates that the ‘legalization’ of illicit flows cannot be sufficiently explained by reference to corruption, illicit rent-seeking, or a general lack of administrative capacity. Rather, the process accommodates the interests of the cooperatives dominating the gold-mining sector, which are critical to maintaining the political settlement on which the incumbent government’s power is based. By maintaining a status quo of non-enforcement, legal ambiguity, and pervasive informality, gold-mining cooperatives are permitted to reap higher benefits from resource extraction at the expense of domestic revenue mobilization.
Topic:
Institutions, Mining, Trade, Value Chains, Illicit Financial Flows, and Gold
Political Geography:
Global Focus

10. Deglobalisation and Protectionism

Author:
Uri Dadush
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
Trade in goods has slowed markedly since the global financial crisis (GFC), but there is no deglobalisation: most countries have seen increased international integration across nearly all goods, services and factor markets. China has become more self-reliant and is a notable exception in goods trade. Despite some dramatic instances, protectionism has largely been kept at bay and trade in goods remains quite free, perhaps freer than it was before the GFC. The proliferation and deepening of free trade agreements have contributed to this outcome. There has been deglobalisation of capital markets, but not because of protectionism. Despite efforts to erect barriers in some sensitive sectors, technology flows quite freely across borders because of the internet. However, trade policy uncertainty increased after the election of President Trump, a trend that persists under President Biden, and the biggest challenge is to avoid backsliding. There are many missed opportunities in the globalisation of services and of capital flows – especially those to developing countries. Increased migration remains potentially the largest source of gain from globalisation, but it is also the most fraught politically.
Topic:
Economy, Trade, Trade Policy, and Competition
Political Geography:
Global Focus

11. Bilateral trade and conflict heterogeneity

Author:
Katrin Kamin
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Although the number of interstate disputes has fallen in the past 30 years, rising geopolitical competition is challenging the foundation of the absence of great power war. Additionally, the number of internal conflicts is surging. At the same time, globalisation has spun a net of global trade connections and has thus created dependencies, making everyone more vulnerable to the repercussions of conflict. In this context, this paper analyses the relationship between trade and conflict from a trade perspective: Using data from UCDP and COMTRADE this paper studies the effects of five different conflict types on international trade flows in the period 1992 - 2011, including interstate and internal conflicts as well as other types of violence.Applying the gravity equation of international trade and the ppml high-dimensional fixed effects estimator, this paper finds that the heterogeneity of conflict types and their distinct characteristics matter for the magnitude and direction of their influence on trade.
Topic:
Globalization, International Trade and Finance, Conflict, and Trade
Political Geography:
Global Focus

12. The impact of trade and trade policy on the environment and the climate: A review

Author:
Gabriel Felbermayr and Sonja Peterson
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
While international trade can offer gains from specialization and access to a wider range of products, it is also closely interlinked with global environmental problems, above all, anthropogenic climate change. This survey provides a structured overview of the economic literature on the interaction between environmental outcomes, trade, environmental policy and trade policy. In this endeavor, it covers approaches reaching from descriptive data analysis based on Input‐Output tables, over quantitative trade models and econometric studies to game‐theoretic analyses. Addressed issues are in particular the emission content of trade and emissions along value chains, the relocation of dirty firms and environmental impacts abroad, impacts of specific trade polices (such as trade agreements or tariffs) or environmental policy (such as Border Carbon Adjustment), transportation emissions, as well as the role of firms. Across the different topics covered, the paper also tries to identify avenues for future research, with a particular focus on extending quantitative trade and environment models.
Topic:
Climate Change, Environment, International Trade and Finance, Trade, and Carbon Emissions
Political Geography:
Global Focus

13. Economic Costs of Friend-shoring

Author:
Beata Javorcik, Lucas Kitzmueller, Helena Schweiger, and Muhammad A. Yıldırım
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Geo-political tensions and disruptions to global value chains have led policymakers to reevaluate their approach to globalisation. Many countries are considering regionalisation and friend-shoring – trading primarily with countries sharing similar values – as a way of minimising exposure to weaponisation of trade and securing access to critical inputs. If followed through, this process has the potential to reverse global economic integration of recent decades. This paper estimates the economic costs of friend-shoring using a quantitative model incorporating inter-country inter-industry linkages. The results suggest that friend-shoring may lead to real GDP losses of up to 4.6% of global GDP. Thus, although friend-shoring may provide insurance against extreme disruptions and increase the security of supply of vital inputs, it would come at a significant cost.
Topic:
Trade, Production, Regionalization, and Friend-shoring
Political Geography:
Global Focus

14. Thinking Outside the Container: A Machine Learning Approach to Forecasting Trade Flows

Author:
Vincent Stamer
Publication Date:
01-2021
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Global container ship movements may reliably predict global trade flows. Aggregating both movements at sea and port call events produces a wealth of explanatory variables. The machine learning algorithm partial least squares can map these explanatory time series to unilateral imports and exports, as well as bilateral trade flows. Applying out-of-sample and time series methods on monthly trade data of 75 countries, this paper shows that the new shipping indicator outperforms benchmark models for the vast majority of countries. This holds true for predictions for the current and subsequent month even if one limits the analysis to data during the first half of the month. This makes the indicator available at least as early as other leading indicators.
Topic:
Economics, Science and Technology, Trade, Shipping, and Machine Learning
Political Geography:
Global Focus

15. The Nature of Money and the Theory of International Trade: Thornton and Ricardo

Author:
Isabella Weber
Publication Date:
10-2021
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
A rich recent literature reinvestigates the nature of money, but little attention has been paid to the ramifications of the ways in which we theorize money for the theory of international trade. This paper examines the logical relationship between the neutrality of money and self-balancing trade based on Henry Thornton and David Ricardo as two foundational contributions to credit and commodity money theories respectively. I show that both authors theorize trade as self-balancing whenever money is conceptualized as neutral. I distinguish two notions of the neutrality of money: ex ante and ex post neutrality. In Thornton’s Paper Credit money is not neutral ex ante: there can be temporary trade imbalances. But in the long-run money is neutral ex post and international trade boils down to self-balancing barter. In Ricardo money is neutral both ex ante and ex post and international trade is always balanced unless central bank policy undermines monetary neutrality.
Topic:
International Trade and Finance, Economy, Money, and Trade
Political Geography:
Global Focus

16. The Impact of Environmental Regulations on Manufacturing Outsourcing: Re-examining the Pollution Haven Effect in Global Value Chain

Author:
An Li
Publication Date:
11-2021
Content Type:
Working Paper
Institution:
Political Economy Research Institute (PERI), University of Massachusetts Amherst
Abstract:
As countries worldwide attempt to address a series of global and domestic environmental challenges, the pollution haven effect remains an ongoing concern among trade and environment researchers and policymakers. This paper examines the pollution haven effect in the context of global value chains using inter-country input-output data at the manufacturing industry level from 1995-2009. This paper pays special attention to the issue of “doublecounting” caused by intermediate trade. The analysis utilizes two outsourcing measures and two revealed comparative advantage measures appropriate for analyzing global value chains. I propose women’s political power as a novel instrumental variable to address the endogeneity of environmental regulation. Regression results show that more stringent environmental policies are not a significant determinant of manufacturing outsourcing and competitiveness in global value chains. At the same time, women’s political power is associated with more stringent environmental policies.
Topic:
Environment, Women, Economy, Trade, Pollution, and Global Value Chains
Political Geography:
Global Focus

17. Information in the First Globalization: News Agencies and Trade

Author:
Pierre Cotterlaz and Etienne Fize
Publication Date:
02-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper documents the effect of information frictions on trade using a historical large-scale improvement in the transmission of news: the emergence of global news agencies. The information available to potential traders became more abundant, was delivered faster and at a cheaper price between countries covered by a news agency. Exploiting differences in the timing of telegraph openings and news agency coverage across pairs of countries, we are able to disentangle the pure effect of information from the effect of a reduction in communication costs. Panel gravity estimates reveal that bilateral trade increased by 30\% more for pairs of countries covered by a news agency and connected by a telegraph than for pairs of countries simply connected by a telegraph.
Topic:
Economics, International Political Economy, Partnerships, Media, News Analysis, and Trade
Political Geography:
Global Focus

18. Quantifying Trade Secret Theft: Policy Implications

Author:
Dan Ciuriak and Maria Ptashkina
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Trade secret theft is estimated to cost hundreds of billions of dollars annually. As a result, governments worldwide are developing legislation to mitigate these losses. This paper looks at the growing importance of trade secrets globally, corporations’ responsibilities to protect their trade secrets and how trade secret theft occurs (for example, through cybertheft or personnel movement between companies). The authors argue that protecting intellectual property rights must not come at the expense of the innovation-intensive economy.
Topic:
Security, Intellectual Property/Copyright, Trade, and Trade Policy
Political Geography:
Global Focus

19. Assessing national laws for the implementation of CITES

Author:
Pascal Blickle, Angela Min Yi Hou, and Laura Störi
Publication Date:
03-2021
Content Type:
Working Paper
Institution:
Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
Abstract:
This TradeLab project analyses the domestic legislation of 14 developing countries in implementing the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES). The present memo summarises the main findings across the 14 Parties. This memo finds that most assessed Parties have implemented the CITES' core requirements, and recommendations provided in the resolutions of the Conference of the Parties (CoP). The project identifies a minority of three African countries for which the CITES Secretariat may wish to review their Category 1 status. These Parties fall short of all or several of the following elements: they failed to appropriately designate Management and Scientific Authorities by law, circumscribe the Authorities' tasks and responsibilities, or – by exclusively regulating native species – appear not to comprehensively cover species listed in the Convention's three Appendices.
Topic:
Environment, International Trade and Finance, Science and Technology, Trade, Ecology, and Biology
Political Geography:
Africa and Global Focus

20. Social clauses in trade agreements: implications and action points for the private sector in developing countries

Author:
Anna Liz Thomas, Jarrod Suda, and Gaia Grasselli
Publication Date:
02-2021
Content Type:
Working Paper
Institution:
Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
Abstract:
Since the 1990s, more free trade agreements have come to include social clauses, which make reference to domestic and international labour standards. As this international legal web continues to grow, so too will the questions and concerns from employers and businesses. This Tradelab report, for the International Organisation of Employers, provides practical guidance for those employers and businesses. It does so by taking the diverse array of actors, the tensions within, and the opportunities set forth by free trade agreements and elaborating upon them using three case studies.
Topic:
International Political Economy, International Trade and Finance, Treaties and Agreements, Labor Issues, Free Trade, Trade, International Business, and Labor Market
Political Geography:
Global Focus

21. How to rein in fossil fuel subsidies ? Towards a New WTO Regime

Author:
Simon Happersberger, Eleanor Mateo, and Selcukhan Ünekbas
Publication Date:
08-2021
Content Type:
Working Paper
Institution:
Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
Abstract:
Fossil fuel subsidies have negative consequences on the climate change, public budgets and and the transition to an environmentally friendly economy. Nevertheless, governments do not keep up with their commitments to phase out fossil fuel subsidies but misallocate again COVID-19 recovery funds in fossil fuel subsidies. This article provides an analysis of the current obstacles for phasing out fossil fuel subsidies and the potential of the WTO to advance a reform on fossil fuel subsidies. It argues that the WTO can contribute to a fossil fuel subsidies reform by its technical expertise in regulating subsidies, by its broad membership and by its institutional setting. Under the current framework of the ASCM, WTO member can use existing mechanisms, such as the TPRM, to increase transparency in the short term and facilitate discussions on the scope of subsidies while mitigating impacts on vulnerable groups or sectors. This would provide the ground for governments to work towards a new and ambitious agreement to stop producer fossil fuels subsidies and phase out consumer fossil fuels subsidies in the mid-to-long-term. However, the phase out of consumer subsidies needs to be carefully designed and embedded, to avoid unintended consequences on energy access and vulnerable households.
Topic:
Climate Change, Environment, International Trade and Finance, Natural Resources, Trade, Fossil Fuels, COVID-19, WTO, and Ecology
Political Geography:
Global Focus

22. Trade and the Spatial Distribution of Transport Infrastructure

Author:
Gabriel Felbermayr and Alexander Tarasov
Publication Date:
04-2021
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
The distribution of transport infrastructure across space is the outcome of deliberate government planning that reflects a desire to unlock the welfare gains from regional economic integration. Yet, despite being one of the oldest government activities, the economic forces shaping the endogenous emergence of infrastructure have not been rigorously studied. This paper provides a stylized analytical framework of open economies in which planners decide non-cooperatively on transport infrastructure investments across continuous space. Allowing for intra- and international trade, the resulting equilibrium investment schedule features underinvestment that turns out particularly severe in border regions and that is amplified by the presence of discrete border costs. In European data, the mechanism explains about 16% of the border effect identified in a conventionally specified gravity regression.
Topic:
Economics, Infrastructure, Governance, Borders, and Trade
Political Geography:
Global Focus

23. How Do Immigrants Promote Exports?

Author:
Gianluca Orefice, Hillel Rapoport, and Gianluca Santoni
Publication Date:
06-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
How does immigration affect export performance? To answer this question, we propose a unified empirical framework allowing to disentangle various mechanisms put forth in previous literature. These include the role of networks in reducing bilateral transaction costs as well as productivity shifts arising from migration-induced knowledge diffusion and increased workforce diversity. While we find evidence supporting all three channels (at both the intensive and the extensive margins of trade), our framework allows to gauge their relative importance. We then focus on diversity and find stronger results in sectors characterized by more complex production processes and more intense teamwork cooperation. This is consistent with theories linking the distribution of skills to the comparative advantage of nations. The results are robust to using a theoretically grounded IV approach combining three variations on the shift share methodology.
Topic:
Labor Issues, Immigration, Immigrants, Diversity, and Trade
Political Geography:
Global Focus

24. Poor Substitutes? Counterfactual methods in IO and Trade compared

Author:
Keith Head and Thierry Mayer
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
Constant elasticity of substitution (CES) demand for monopolistically competitive firm-varieties is a standard tool for models in international trade and macroeconomics. Inter-variety substitution in this model follows a simple share proportionality rule. In contrast, the standard toolkit in industrial organization (IO) estimates a demand system in which cross-elasticities depend on similarity in observable attributes. The gain in realism from the IO approach comes at the expense of requiring richer data and greater computational challenges. This paper uses the dataset of Berry et al. 1995, who established the modern IO method, to simulate counterfactual trade policy experiments. We use the CES model as an approximation of the more complex underlying demand system and market structure. Although the CES model omits key elements of the data generating process, the errors are offsetting, leading to reasonably accurate counterfactual predictions. For aggregate outcomes, it turns out that incorporating non-unitary pass-through matters more than fixing over-simplified substitution patterns. We do so by extending the commonly used methods of Exact Hat Algebra and tariff elasticity estimation to take into account oligopoly.
Topic:
Economics, Business, Monopoly, Trade, and Models
Political Geography:
Global Focus

25. Sorting, Matching and Economic Complexity

Author:
Muhammad A. Yildirim
Publication Date:
03-2021
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Assignment models in trade predict that countries with higher productivity levels are assortatively matched to industries that make better use of these higher levels. Here, we assume that the driver of productivity differences is the differential distribution of factors among countries. Utilizing such a structure, we define and estimate the average factor level (AFL) for countries and products using only the information about the production patterns. Interestingly, our estimates coincide with the complexity variables of (Hidalgo and Hausmann, 2009), providing an underlying economic rationale. We show that AFL is highly correlated with country-level characteristics and predictive of future economic growth.
Topic:
Economics, Economic Growth, Trade, Industry, and Productivity
Political Geography:
Global Focus

26. Listening to Users and Other Ideas for Building Trust in Digital Trade

Author:
Susan Ariel Aaronson
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
This paper argues that if trade policy makers truly want to achieve data free flow with trust, they must address user concerns beyond privacy. Survey data reveals that users are also anxious about online harassment, malware, censorship and disinformation. The paper focuses on three such problems, specifically, internet shutdowns, censorship and ransomware (a form of malware), each of which can distort trade and make users feel less secure online. Finally, the author concludes that trade policy makers will need to rethink how they involve the broad public in digital trade policy making if they want digital trade agreements to facilitate trust.
Topic:
Science and Technology, Digital Economy, Innovation, and Trade
Political Geography:
Global Focus

27. How COVID-19 medical supply shortages led to extraordinary trade and industrial policy

Author:
Chad P. Bown
Publication Date:
07-2021
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Early in the COVID-19 pandemic, a global shortage of hospital gowns, gloves, surgical masks, and respirators caused policymakers around the world to panic. This paper examines international trade in this personal protective equipment (PPE) during the crisis, with a focus on China, the European Union, and the United States. As the pandemic first hit, China increased imports and decreased exports of PPE, removing considerable quantities of supplies from global markets. For the European Union and United States, the decrease in their imports from China was not immediately replaced by increased trade from other foreign suppliers. Early shortages led to EU and US export controls on their own, domestically produced PPE and other extraordinary policy actions, including a US effort to reserve for itself supplies manufactured in China by a US-headquartered multinational. By April 2020 China’s exports had mostly resumed, and over the rest of the year its export volumes of some products surged, more than doubling compared to pre-pandemic levels. But China’s export prices also skyrocketed and remained elevated through 2020, reflecting severe and continued shortages. This paper documents these facts. It also explores these and other government actions, such as US trade war tariffs and the emergence of US industrial policy in the form of over $1 billion of subsidies to build out its domestic PPE supply chain, as well as potential lessons for future pandemic preparedness and international policy cooperation.
Topic:
Industrial Policy, Economy, Trade, COVID-19, Health Crisis, and Supply
Political Geography:
Global Focus

28. Dollar not so dominant: Dollar invoicing has only a small effect on trade prices

Author:
Joseph E. Gagnon and Madi Sarsenbayev
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper estimates and tests four models of the effects of exchange rate changes on export prices. It supports the Goldberg and Knetter (1997) canonical result that exporters adjust their prices by about half of any movement in exchange rates. A new twist is that exchange rate movements against importing countries account for only three-fifths of this price adjustment, while exchange rate movements against a dominant currency account for the other two-fifths. The dominant currency is the euro in Europe and Africa and the US dollar in Asia and the Western Hemisphere. The recent claim that the dollar is the most important driver of export prices (Gopinath et al. 2020) is shown to be valid only for the smallest exporting economies. For the bulk of international trade, the extra effects of the dollar (or the euro) beyond their effects as exporter or importer currencies are relatively modest.
Topic:
Foreign Exchange, Exports, Currency, Trade, and Dollar
Political Geography:
Global Focus

29. Services Trade Needs to be Taken as Seriously as Goods Trade

Author:
Anna Guildea and David Henig
Publication Date:
07-2021
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
Services constitute at least a quarter of total trade. Between 2009 and 2019 global services trade increased by nearly 50%, compared to 18% for goods trade. Yet it is rarely taken as seriously as goods in global trade policy discourse. This is a problem when making the case for trade.
Topic:
Globalization, Services, Trade, and WTO
Political Geography:
Global Focus

30. Determinants of Wage (Dis-)Satisfaction: Trade Exposure, Export-Led Growth, and the Irrelevance of Bargaining Structure

Author:
Lucio Baccaro and Erik Neimanns
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
Although the determinants of wage militancy and moderation have been studied extensively by comparative political economists, so far the literature has focused on the macro level of analysis. As a result, there has been no attempt to analyze the determinants of individual-level attitudes towards wages. Based on two waves of the International Social Survey Programme, in this paper we fill this gap. We examine to what extent workers internalize the imperatives of competitiveness, and whether wage bargaining institutions facilitate this internalization, as suggested by a large literature on neocorporatism. Surprisingly, we find that the structure of wage bargaining (more or less coordinated or centralized) has no relationship with wage satisfaction or dissatisfaction at the individual level. Instead, wage dissatisfaction decreases strongly when workers are individually exposed to trade and countries rely heavily on export-led growth. Our results point to the need to rethink the determinants of wage moderation.
Topic:
Exports, Trade, Collective Bargaining, and Wages
Political Geography:
Global Focus

31. Global value chains and the removal of trade protection

Author:
Chad P. Bown, Aksel Erbahar, and Maurizio Zanardi
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines how trade protection is affected by changes in the value-added content of production arising through global value chains (GVCs). Exploiting a new set of World Trade Organization (WTO) rules adopted in 1995 that impose an exogenously timed requirement for countries to reevaluate their previously imposed trade protection, the authors adopt an instrumental variables strategy and identify the causal effect of GVC integration on the likelihood that a trade barrier is removed. Using a newly constructed dataset of protection removal decisions involving 10 countries, 41 trading partners, and 18 industries over 1995–2013, they find that bilateral industry-specific domestic value-added growth in foreign production significantly raises the probability of removing a duty. The results are not limited to imports from China but are only found for the protection decisions of high-income countries. Back-of-the-envelope calculations indicate that rapid GVC growth in the 2000s freed almost a third of the trade flows subject to the most common temporary restrictions (i.e., antidumping) applied by high-income countries in 2006.
Topic:
Economics, International Trade and Finance, Global Markets, Finance, and Trade
Political Geography:
Global Focus

32. New Productivity Drivers: Revisiting the Role of Digital Capital, FDI and Integration at Aggregate and Sectoral Levels

Author:
Amat Adarov and Robert Stehrer
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
The paper studies the drivers of productivity at country and sectoral levels over the period 2000-2017 with the focus on the impact of capital accumulation and structure. The analysis confirms an especially important role of ICT and intangible digital capital for productivity growth, particularly in the manufacturing sectors. While backward global value chain participation and EU integration are also found to be instrumental for accelerating productivity growth, the impact of inward foreign direct investment is not robustly detected when the data is purged from the effects of special purpose entities and outlier countries.
Topic:
Economics, Foreign Direct Investment, European Union, Digital Economy, Capital Flows, and Trade
Political Geography:
Europe and Global Focus

33. Emerging Technologies and Trade Controls: A Sectoral Composition Approach

Author:
Lindsay Rand and Tucker Boyce
Publication Date:
10-2020
Content Type:
Working Paper
Institution:
Center for International and Security Studies at Maryland (CISSM)
Abstract:
The rapid development of dual-use emerging technologies has magnified the importance of reconciling technological leadership, economic competitiveness, and national security objectives. While trade controls on dual-use technology transfer can promote peace and mitigate security threats, overly cumbersome policies may impose economic burdens on the private sector that threaten competitiveness and innovation. Striking a balance between these opposing agendas has become especially challenging in the context of emerging technologies that have elicited significant interest in both the military and civilian markets. The dilemma has also been complicated by the merging of economic security discourse and policy with national security. Policymaking mechanisms should be calibrated at the level of individual technologies to avoid security and/or economic consequences of under or over-regulation. This report offers policymakers data, findings, and recommendations to strengthen the effectiveness of individual policies and to work towards a comprehensive technology strategy. In order to develop trade policies that can achieve the intended security benefits without unwarranted damage to economic competitiveness and technology innovation, policymakers must recognize technology-specific development characteristics and the associated global sectoral composition – companies, universities, research institutes, and public-private collaborations - worldwide. This report applies a mapping methodology to three emerging technologies whose level of emergence and security relevance qualifies them as “chokepoint” technologies: position, navigation, and timing (PNT), quantum computing, and computer vision. Entities in each technology category were selected and analyzed using open source information in order to identify trends with respect to global dispersion, foreign involvement (including partnerships, commerce, and investment), and specific technology focus area. A second level of analysis was conducted to compare and contrast the key trends for each of the three sectors to determine how technology-specific factors impact innovation and market establishment and to illustrate the importance of technology-specific trade policies. Analysis of the data shows clear differences among the three technologies that have important implications for the desirability and feasibility of strategic trade controls:
Topic:
Security, Science and Technology, Innovation, Trade, and Emerging Technology
Political Geography:
Global Focus

34. MULTIPRIL: a new database on multilateral price levels and currency misalignments

Author:
Cécile Couharde, Carl Grekou, and Valérie Mignon
Publication Date:
10-2020
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper describes the new CEPII-MULTIPRIL database on Multilateral Price Levels (MPL) introduced in 2020. The MULTIPRIL database covers a wide sample of 178 countries over the 1990-2018 period, and includes relative price level series computed vis-à-vis two sets of trading partners (177 and the top 30) according to three different trade-weighting schemes. It also contains MPL-based currency misalignments series for 156 countries over the 1991-2018 period. MULTIPRIL offers the potential to improve the coverage and quality of worldwide price-competitiveness comparisons. By focusing on price level data, it usefully complements the EQCHANGE database on equilibrium exchange rates and currency misalignments derived from series in indices. Its multilateral setting provides a more comprehensive picture of relative price levels and currency misalignments compared to existing bilateral measures.
Topic:
Economics, International Political Economy, Exchange Rate Policy, Trade, Database, and Price
Political Geography:
Global Focus

35. Trade and Transport Margins in Pharmaceuticals and other R&D-Intensive Industries

Author:
Tom Martin
Publication Date:
07-2020
Content Type:
Working Paper
Institution:
Oxford Economics
Abstract:
Spending for prescription and over-the-counter pharmaceutical products totaled $413 billion in 2012 according to the Bureau of Economic Analysis’ (BEA) trade and transports margin data. Just over half of this spending (52%) accrued to the pharmaceutical companies that produced the medicines, while the remainder was divided between transport and wholesale margins (21%) and retail margins (26%). Compared to other research and development (R&D)-intensive manufacturing industries with significant consumer sales, the pharmaceutical and medicines manufacturing industry ranks second in terms of R&D intensity behind communications equipment, and receives the second lowest producers’ share of total spending after other miscellaneous manufacturing. Thus, the pharmaceutical industry is unique among manufacturing industries in that it devotes a large share of its revenue to R&D, despite receiving a considerably smaller share of total spending.
Topic:
Science and Technology, Trade, Transportation, Medicine, and Pharmaceuticals
Political Geography:
Global Focus

36. Tracking COVID-19 in the Age of AI and Tech Wars

Author:
June Park
Publication Date:
07-2020
Content Type:
Working Paper
Institution:
East-West Center
Abstract:
June Park, political economist at the National Research Foundation of Korea, explains that “even the like-minded countries of GPAI have revealed their differences and institutional variance in deploying digital technology to fight COVID-19 at a time of grave national emergency and public health crisis.”
Topic:
Science and Technology, Crisis Management, Trade, Artificial Intelligence, Pandemic, COVID-19, and Health Crisis
Political Geography:
Asia and Global Focus

37. On the Heterogeneous Trade and Welfare Effects of GATT/WTO Membership

Author:
Gabriel Felbermayr, Mario Larch, Erdal Yalcin, and Yoto V. Yotov
Publication Date:
09-2020
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
We build on the latest developments in the structural gravity literature to quantify the partial and general equilibrium effects of GATT/WTO membership on trade and welfare. Using an extensive database covering manufacturing trade for 186 countries over the period 1980-2016, we find that the average impact of GATT/WTO membership on trade among member counties is large, positive, and significant. We contribute to the literature by estimating country-specific estimates and find them to vary widely across the countries in our sample with poorer members benefitting more. Using these estimates, we simulate the general equilibrium effects of GATT/WTO on welfare, which are sizable and heterogeneous across members, and relatively small for non-member countries. We show that countries not experiencing positive trade effects from joining GATT/WTO can still gain in terms of welfare, due to beneficial terms-of-trade effects.
Topic:
International Political Economy, Trade, WTO, and GATT
Political Geography:
Global Focus

38. Covid-19 Shocking Global Value Chains

Author:
Peter Eppinger, Gabriel Felbermayr, Oliver Krebs, and Bohdan Kukharsky
Publication Date:
09-2020
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In early 2020, the disease Covid-19 caused a drastic lockdown of the Chinese economy. We use a quantitative trade model with input-output linkages to gauge the effects of this adverse supply shock in China on the global economy through international trade and global value chains (GVCs). We find moderate welfare losses in most countries outside of China, while a few countries even gain from the shock due to trade diversion. As a key methodological contribution, we quantify the role of GVCs (in contrast to final goods trade) in transmitting the shock. In a hypothetical world without GVCs, the welfare loss due to the Covid-19 shock in China is reduced by 40% in the median country. In several other countries, the effects are magnified or reversed for several countries. Had the U.S. unilaterally repatriated GVCs, the country would have incurred a substantial welfare loss while its exposure to the shock would have barely changed.
Topic:
International Political Economy, Trade, Pandemic, Global Value Chains, COVID-19, and Supply Chains
Political Geography:
China and Global Focus

39. Coping with Disasters: Two Centuries of International Official Lending

Author:
Sebastian Horn, Carmen M. Reinhart, and Christoph Trebesch
Publication Date:
06-2020
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Official (government-to-government) lending is much larger than commonly known, often surpassing total private cross-border capital flows, especially during disasters such as wars, financial crises and natural catastrophes. We assemble the first comprehensive long-run dataset of official international lending, covering 230,000 loans, grants and guarantees extended by governments, central banks, and multilateral institutions in the period 1790-2015. Historically, wars have been the main catalyst of government-to-government transfers. The scale of official credits granted in and around WW1 and WW2 was particularly large, easily surpassing the scale of total international bailout lending after the 2008 crash. During peacetime, development finance and financial crises are the main drivers of official cross-border finance, with official flows often stepping in when private flows retrench. In line with the predictions of recent theoretical contributions, we find that official lending increases with the degree of economic integration. In crises and disasters, governments help those countries to which they have greater trade and banking exposure, hoping to reduce the collateral damage to their own economies. Since the 2000s, official finance has made a sharp comeback, largely due to the rise of China as an international creditor and the return of central bank cross-border lending in times of stress, this time in the form of swap lines.
Topic:
Debt, International Political Economy, War, History, Financial Crisis, Trade, and Banking
Political Geography:
Global Focus

40. Assessing Asia: Sub-Saharan Africa Global Value Chain Linkages

Author:
Heiwai Tang, Douglas Zhihua Zeng, and Albert Zeufack
Publication Date:
06-2020
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper studies the relationship between Asia’s economic engagements in Africa and individual African nations’ participation in global value chains (GVC) over the past two decades. We find that while overall exports from Africa to Asia are still highly concentrated in resource-intensive sectors, a few African countries have exploited the emerging opportunities to diversify export portfolios through exporting to Asia. Each African nation has a distinct main trade partner in Asia, in contrast to the common view that China has become the dominant trade partner of most African nations. Using a panel data set for 46 African countries over 16 years from 2000 and 2015, we find that exports to Asia are positively correlated with exports to the rest of the world, suggesting that in contrast to trade diversion, trade with Asia complements exports to other countries. Asian economic engagement in the continent is associated with countries’ exports “moving up the value chain”, as measured by the upstreamness index proposed by Antras et al. (2012). However, such process was accompanied by a reduction in the length of their production chains, implying that fewer stages and countries are now involved in the production of exported goods.
Topic:
Development, International Political Economy, Natural Resources, Partnerships, Exports, Trade, Global Value Chains, and Data
Political Geography:
Africa, Asia, and Global Focus

41. Comparative Advantage in (Non-)Routine Production

Author:
Liza Archanskaia, Johannes Van Biesebroeck, and Gerald Willmann
Publication Date:
04-2020
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
We illustrate a new source of comparative advantage that is generated by countries’ different ability to adjust to technological change. Our model introduces substitution of workers in codifiable (routine) tasks with more efficient machines, a process extensively documented in the labor literature, into a canonical 2 × 2 × 2 Heckscher-Ohlin model. Our key hypothesis is that labor reallocation across tasks is subject to frictions, the importance of which varies by country. The arrival of capital-augmenting innovations triggers the movement of workers out of routine tasks, and countries with low labor market frictions become relatively abundant in non-routine labor. In the new equilibrium, more flexible countries specialize in producing goods that use non-routine labor more intensively. We document empirically that the ranking of countries with respect to the routine intensity of their exports is strongly related to labor market institutions and to cultural norms that influence adjustment to technological change, such as risk aversion or long-term orientation. The explanatory power of this mechanism for trade flows is especially strong for intra-EU trade.
Topic:
International Political Economy, Science and Technology, Innovation, Trade, and Trade Policy
Political Geography:
Global Focus and European Union

42. Does the Belt and Road Initiative stimulate Chinese Exports? The Role of State-Owned Enterprises

Author:
Holger Görg and Haiou Mao
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper evaluates firms’ exporting responses to BRI and considers their heterogeneity in ownership types, product types, regional origin and trade mode. This is done by analyzing firm-product-destination level customs data from 2011 to 2015 in a gravity model framework. Our empirical results show that aggregate export behavior did not change significantly after BRI. However, ownership matters when evaluating firms’ reactions. SOEs increase their total exporting and average export value (the intensive margin) to BRI countries, while private domestic firms show no reaction to BRI at any margin. Further, our results on regional heterogeneity suggests that “open through the west”, i.e., boosting the development of western regions in China, did not appear to work in the short term. Our findings show clearly the implications of BRI’s impact from a firm level perspective.
Topic:
International Political Economy, Belt and Road Initiative (BRI), Exports, Trade, and Economic Development
Political Geography:
China and Global Focus

43. Institutional Quality, Trade Costs and Comparative Advantage

Author:
Sangkyom Kim and Soon Chan Park
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Earlier works derive empirical implications that institutional quality is very influential as a source of comparative advantage in industries requiring relationship-specific investment from the supplier. However, as earlier studies focus on investigating the impact of institution on the efficiency of the producer, only the exporter’s institution is considered. In contrast, we attempt to identify the impacts of the quality of institution, of both exporters and importers, on trade costs, that are different across country-pairs. To check the problem of measuring trade costs, we use two alternative measures of trade costs, i.e. CIF/FOB ratio and the relative measure of trade costs proposed by Novy (2013). Using the Eora global supply chain database covering 187 countries for 11 primary and manufacturing industries and four years, 2000, 2005, 2010 and 2015, we calculate a CIF/FOB ratio and the relative trade costs suggested by Novy (2013) which are used as a proxy variable for trade costs. At the country level, we find that the institutional quality of exporter and importer is negatively associated with trade costs and trade costs increase as disparity between two countries’ institutional quality increases. At the country-industry level, we find that a country-pair with better legal institution has lower trade costs in industries for which a hold-up problem is important. This result is robust to the alternative measure of trade costs suggested by Novy (2013). However, an analysis on the impact of institutional differences on trade costs yields mixed results. Therefore we do not conclude that the similarity of institutional quality between two countries is associated with lower bilateral trade costs.
Topic:
Economic Policy, Trade, and Industry
Political Geography:
Global Focus

44. Global Waste Trade Chaos: Rising Environmentalism or Cost-Benefit Analysis?

Author:
Margareth Sembiring
Publication Date:
07-2019
Content Type:
Working Paper
Institution:
Centre for Non-Traditional Security Studies, S. Rajaratnam School of International Studies
Abstract:
International garbage disputes are rare. Lately, however, the world witnesses waves of newsworthy trash saga. From the Philippines shipping containers of rubbish back to Canada, to Malaysia planning to return tons of garbage back to countries of origin, to China’s near-total ban of plastic waste import, it is hard not to wonder whether this is a real sign of rising environmentalism. Have countries begun to think that the environment is worthy of a similar priority as the economy? This Insight argues that behind the seemingly growing pro-environment attitudes, it still remains to be seen whether this trend is sustainable in the long run. Considering that the global waste trade is a multi-billion dollar industry, the balance may tip to favour the economic activities again once the dust has settled back. The paper first looks at a brief description of the global waste trade industry. It then discusses some of the contemporary development in the global waste industry particularly on the issues of waste smuggling and China’s plastic waste import ban. It describes related experiences in Indonesia, Malaysia, Vietnam, the Philippines and Thailand.
Topic:
Security, Environment, Economy, Trade, and Waste
Political Geography:
China, Malaysia, Canada, Philippines, Southeast Asia, and Global Focus

45. Does Trade Reform Promote Economic Growth? A Review of Recent Evidence

Author:
Douglas A. Irwin
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Do trade reforms that significantly reduce import barriers lead to faster economic growth? In the two decades since the critical survey of empirical work on this question by Francesco Rodriguez and Dani Rodrik in 2000, new research has tried to overcome the various methodological problems that have plagued previous attempts to provide a convincing answer. This paper examines three strands of recent work on this issue: cross-country regressions focusing on within-country growth, synthetic control methods on specific reform episodes, and empirical country studies looking at the channels through which lower trade barriers may increase productivity. A consistent finding is that trade reforms that significantly reduce import barriers have a positive impact on economic growth, on average, although the effect differs across countries. Overall, these research findings should temper some of the previous agnosticism about the empirical link between trade reform and economic performance.
Topic:
Economics, Reform, Economic Growth, and Trade
Political Geography:
Global Focus

46. Does Trade Reform Promote Economic Growth? A Review of Recent Evidence

Author:
Douglas A. Irwin
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Do trade reforms that significantly reduce import barriers lead to faster economic growth? In the two decades since the critical survey of empirical work on this question by Francesco Rodriguez and Dani Rodrik in 2000, new research has tried to overcome the various methodological problems that have plagued previous attempts to provide a convincing answer. This paper examines three strands of recent work on this issue: cross-country regressions focusing on within-country growth, synthetic control methods on specific reform episodes, and empirical country studies looking at the channels through which lower trade barriers may increase productivity. A consistent finding is that trade reforms that significantly reduce import barriers have a positive impact on economic growth, on average, although the effect differs across countries. Overall, these research findings should temper some of the previous agnosticism about the empirical link between trade reform and economic performance.
Topic:
Reform, Economic Growth, and Trade
Political Geography:
Global Focus

47. Product-Level Trade Elasticities

Author:
Lionel Fontagné, Houssein Guimbard, and Gianluca Orefice
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
Trade elasticity is a crucial parameter in evaluating the welfare impacts of trade liberalization. We estimate trade elasticities at the product level (6-digit of the Harmonized System comprising more than 5,000 product categories) by exploiting the variation in bilateral applied tariffs for each product category for the universe of available country pairs. This is done by constructing a panel of bilateral applied tariffs and bilateral trade covering the period 2001 to 2016. We address potential endogeneity issues as well as heteroskedasticity and selection bias due to zero flows. The obtained trade elasticities are centered around -5. We finally highlight the differences in the gains from trade arising from considering heterogeneous rather than average trade elasticities. All product level elasticities are made publicly available for sake of scrutiny and use by other researchers.
Topic:
Economics, International Political Economy, Bilateral Relations, Tariffs, Trade Liberalization, and Trade
Political Geography:
Global Focus

48. Are Your Labor Shares Set in Beijing? The View through the Lens of Global Value Chains

Author:
Ariell Reshef and Gianluca Santoni
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
We study the evolution of labor shares in 1995-2014 while taking into account international trade based on value added concepts. On average, the decline in labor shares (starting around 1980) accelerates in 2001-2007, after which labor shares recover somewhat. In contrast, skilled labor shares consistently increase. The acceleration in the decline in labor shares is associated with increased intensity of intermediate input exporting; this manifests in a sharp increase in the foreign component in upstreamness of industries and countries in global value chains (GVCs). China's global integration accounts for much of this. Declines in the price of investment together with capital-skill complementarity can explain both the consistent increase in skilled labor shares and the reversal of trend in overall labor shares. Compared to shares in GDP, labor shares in gross national product (GNP) are higher in countries with positive net FDI positions; the uneven spread of multinational activity contributes to greater inequality through this channel.
Topic:
Economics, International Political Economy, International Trade and Finance, Labor Issues, Trade, Global Value Chains, and Skilled Labor
Political Geography:
China and Global Focus

49. How Does Protectionist Trade Policy Interact with FDI?

Author:
Jongduk Kim and Moonhee Cho
Publication Date:
12-2019
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
In this study, we investigate the question whether importing countries’ implementation of protective trade measures, such as antidumping duties, leads to changes in foreign direct investment from trading partners. That is, we examine the prevalence of “ADP-jumping FDI” across countries. We use more recent and organized non-tariff measure data provided by the WTO I-TIP and Ghodsi et al. (2017), which can be matched with other trade-related variables. Using econometrically sensible identification strategies, the Tobit and the Heckman two-stage selection models, we find out that ADP-jumping FDI to importing countries prevails rather consistently around the world. These results are also consistent with those using Poisson and linear fixed effects models.
Topic:
Foreign Direct Investment, Trade, and Protectionism
Political Geography:
Asia, Korea, and Global Focus

50. Does Economic Globalisation Affect Income Inequality? A Meta-analysis

Author:
Philipp Heimberger
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
A large volume of econometric literature has studied the impact of economic globalisation on income inequality around the world. However, reported econometric estimates vary substantially which makes it difficult to draw valid conclusions. This paper presents a quantitative summary and analysis of existing estimates regarding the globalisation-inequality relationship. We used a new data set consisting of 1254 observations from 123 peer-reviewed papers. By applying meta-analysis and meta-regression methods, we obtained several main findings. First, globalisation has a (small-to-moderate) positive impact on income inequality considering the total population of estimates. The average effect is robustly different from zero suggesting that globalisation increases income inequality. Second, while the effect of trade globalisation is small, financial globalisation shows a more sizable and significantly stronger inequality-increasing impact. Third, the cumulative evidence rejects theoretical accounts according to which economic globalisation reduces within-country income inequality in developing countries as the meta-analysis establishes an average inequality-increasing impact in both advanced and developing countries. Fourth, education and technology moderate the impact of globalisation on income inequality. Fifth, we tested for various other factors that could cause heterogeneity in the reported estimates including differences in the econometric specifications, the income inequality measures and data set used and publication characteristics.
Topic:
Globalization, Finance, Income Inequality, Macroeconomics, Trade, and Meta-analysis
Political Geography:
Global Focus

51. The Spillover Effects of Regional Trade Agreements on Trade

Author:
Dakshina G. De Silva, Soon-Cheul Lee, Robert P. McComb, and Maurizio Zanardi
Publication Date:
12-2018
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
The purpose of this paper is to examine whether or not there is a spillover effect of third countries’ regional trade agreements (RTAs) on their bilateral trade relationships. To identify the RTA spillover effects, we expand a gravity model into a third-country framework using a dataset of bilateral trade and RTAs for 62 country-pairs over the period 2002-2013. We construct a weighted third-countries’ RTA contiguity matrix as well as a spatially-weighted matrix to identify both the spillover and spatial effects of RTA on trade flows. The results show that the spillover effects of RTAs on trade are positive while the spatial effects of RTA are negative and imply that third parties’ RTAs have complementary effects on bilateral trade while the existence of neighbors in the RTA between the two trade partners reduces their bilateral trade. As a result, the proliferation of RTAs expand international trade through spillover effects as well as trade creation and trade diversion.
Topic:
Bilateral Relations, Regional Integration, Economic Policy, and Trade
Political Geography:
Global Focus

52. Sources of Comparative Advantage in Services: Institution vs. Social Capital

Author:
Nakgyoon Choi and Soonchan Park
Publication Date:
12-2018
Content Type:
Working Paper
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
Previous studies that have identified the impacts of institutions or cultural traits on comparative advantage focused on goods trade, but not services trade. In contrast to the rapid increase in trade in services, empirical examina-tion on sources of comparative advantage in services trade remains limited. This paper attempts to fill this gap by investigating empirically the impacts of institution as well as social capital on comparative advantage in services trade. Services are exposed to relatively more pre-choice risks than goods, because it is difficult to obtain information on the quality of services before the con-sumer decides to purchase. In addition, trade in services involved in global value chains possibly takes on the risks of contract breach by other firms along the same value chains. As a result, the transaction risks for trade in ser-vices are higher than for trade in goods. Using the World Input Output Da-tabase, we estimate the importance of social capital for comparative ad-vantage in services. We find that countries with more social capital tend to specialize in the production of contract-intensive services. We also find that social capital rather than institution matters for comparative advantage in ser-vices.
Topic:
Economic Policy, Institutions, Services, Trade, and Social Capital
Political Geography:
Global Focus

53. Financialization, Trade, and Investment Agreements: Through the Looking Glass or Through the Realities of Income Distribution and Government Policy?

Author:
Alex Izurieta, Pierre Kohler, and Juan Pizarro
Publication Date:
09-2018
Content Type:
Working Paper
Institution:
Global Development and Environment Institute at Tufts University
Abstract:
This paper assesses the effects of trade and investment agreements on income distribution and government policy. The critical process underpinning these effects is the rise of ‘financialization’. Global patterns of greater financialization and of worsening functional income distribution as well as tighter fiscal stances are identified in the data. Tests are conducted by combining financial statistics with databases of bilateral investment agreements and free trade agreements, as well as data generated by the UN Global Policy Model that encompasses several fiscal policy instruments. The empirical validation of these relationships brings to the fore the policy-oriented debate about the purported benefits of modern-era ‘comprehensive’ trade and investment agreements such as TTIP, TTP and CETA. The authors corroborate the findings of their respective earlier studies of these agreements and reiterate their call for caution. To preserve policy space and to avert increases of inequality, policy-makers should resist pressures to get their economies locked in such agreements and should look instead for sustainable forms of international policy coordination.
Topic:
International Cooperation, United Nations, Investment, and Trade
Political Geography:
Global Focus

54. Do Trade and Investment (Agreements) Foster Development or Inequality?

Author:
Pierre Kohler and Francis Cripps
Publication Date:
10-2018
Content Type:
Working Paper
Institution:
Global Development and Environment Institute at Tufts University
Abstract:
This paper proposes to revisit the debate on trade and investment agreements (TIAs), development and inequality, looking at the role of Global Value Chains (GVCs) and trans- national corporations (TNCs). It first presents stylized facts about trade and investment (agreements), declining global economic growth and rising inequality under the latest round of globalization. It then provides a long-run perspective on the mixed blessings of external opening, summarizing some key contributions of the mainstream literature, which are converging with long-standing research findings of more heterodox economists, and the eroding consensus today. Based on this stock-taking, it takes a fresh critical look at the TIAs-GVCs-TNCs nexus and their impact. Using data on value-added in trade and new firm-level data from the consolidated financial statements of the top 2000 TNCs going back to 1995, it examines whether the fragmentation of production along GVCs led to positive structural change or rather stimulated unsustainable trends in extractive and FIRE sectors. It then turns to the role of TNC-driven GVCs as a vehicle for economic concentration. Finally, it presents evidence linking TIAs and their correlates to rising inequality. Key findings include the fact that the ratio of top 2000 TNCs profits over revenues increased by 58 percent between 1995 and 2015. Moreover, the rise in top 2000 TNCs profits accounts for 69 percent of the 2.5 percentage points decline in the global labour income share between 1995 and 2015, with the correlation coefficient between annual changes in both variables as high as 0.82. The paper concludes by calling for a less ideological policy debate on TIAs, which acknowledges the mixed blessings of external financial and trade opening, especially their negative distributional impact and destabilizing macro-financial feedback effects, which both call for policy intervention. As an alternative to short-sighted protectionism, it further discusses possible options for anticipating undesirable effects arising from TIAs (e.g. rising carbon emissions, economic instability, inequality, etc.) and addressing those in TIAs themselves.
Topic:
Inequality, Investment, Trade, and transnationalism
Political Geography:
Global Focus

55. Too Much of a Good Thing? Speculative Effects on Commodity Futures Curves

Author:
Sophie van Huellen
Publication Date:
07-2018
Content Type:
Working Paper
Institution:
School of Oriental and African Studies - University of London
Abstract:
The increasing inflow of institutional investors replicating broad based indices into commodity futures markets has been linked to excessive calendar spreads and anomalies in futures curves. At the same time, these investors have been welcomed as liquidity providers. This paper hypothesises that this apparent dissent can be reconciled by considering the relative size of index positions to hedging positions, rather than the presence of index traders alone. The hypothesis is tested empirically for three soft commodity markets: cocoa, coffee, and cotton. By use of factor decomposition, the paper shows empirically that (a) index and hedging positions have inverse and offsetting effects on futures curves, and (b) index positions, net of hedging positions, are associated with upward sloping and peaked futures curves and occasionally wave-like shapes linked to roll-effects. The paper concludes that index traders are welcomed liquidity providers but can become ‘too much of a good thing’ if exceeding hedgers’ demand for counterparty.
Topic:
Investment, Commodities, Fiscal Policy, and Trade
Political Geography:
Global Focus

56. The Future Development of EU Exports in a Global Context

Author:
Robert Stehrer, Roman Stöllinger, and Sandra Leitner
Publication Date:
11-2017
Content Type:
Working Paper
Institution:
Center for Social and Economic Research - CASE
Abstract:
Global trade patterns are changing rapidly. Emerging economies are increasing their share of exports overall and intensifying competition in nearly all sectors. Using a gravity-based approach, this report examines the future profile of European Union (EU) world market shares at the aggregate and sectoral level. It further points towards the changing patterns of trade within the EU. Based on the results, some conclusions on EU industrial policy are drawn.
Topic:
Industrial Policy, International Trade and Finance, Global Markets, Economic Growth, and Trade
Political Geography:
Europe, Global Focus, and European Union

57. Trade Winds: Shaping the Future of International Business

Author:
Scott Livermore
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Oxford Economics
Abstract:
This report explores how international business has changed since HSBC first opened its doors in Hong Kong over 150 years—and what may come next. The objective of this study was to examine trade patterns in order to understand the historic drivers of globalisation and to help us to discover how those drivers could shape future patterns of trade. It aims to provide practical insight and considerations for the business leaders around the world.
Topic:
Globalization, Business, Trade, and International Business
Political Geography:
Global Focus

58. Wage Differentials: Trade Openness and Wage Bargaining

Author:
Gustavo Gonzaga, Beatriz Muriel, and Cristina Terra
Publication Date:
04-2014
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
We build a theoretical model that incorporates unionization in the labor market into a Heckscher-Ohlin-Samuelson (HOS) framework to investigate the impact of unionization on the Stolper-Samuelson Theorem. To capture the American economy case, we assume that unskilled labor in the manufactured goods sector is unionized, and that sector is intensive in skilled labor, and that trade liberalization increases the relative price of manufactured goods. In the HOS model, trade liberalization induces a reallocation of production towards the sector that uses intensively the country’s most abundant factor. The resulting change in relative labor demand impacts wage bargaining in the unionized sector, which, in turn, has a dampening effect on the Stolper-Samuelson effect. Moreover, wages of unionized workers are even less responsive to trade liberalization. Through traditional mandated-wages regressions, we show that skilled-wage differentials changes were less pronounced among more unionized sectors in the U.S. economy for the 1979-1990 period.
Topic:
Labor Issues, Economy, Manufacturing, Trade, and Wages
Political Geography:
Global Focus

59. Financial Frictions, Trade Credit, and the 2008-09 Global Financial Crisis

Author:
Brahima Coulibaly, Horacio Sapriza, and Andrei Zlate
Publication Date:
06-2011
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper studies the role of the credit crunch in the severe contraction of economic activity during the 2008-09 global financial crisis, using firm-level data from six emerging Asian economies. After controlling for the effect of falling demand, we find that sales declined by less for firms with better pre-crisis financial conditions. Amid the decline in external financing opportunities, some firms relied more on trade credit from suppliers during the crisis, which allowed them to post relatively better sales. Export-intensive firms resorted less to trade credit as an alternative source of finance, which contributed to their larger declines in sales.
Topic:
Finance, Global Financial Crisis, Trade, and Credit
Political Geography:
Global Focus

60. Adjustment Options and Strategies in the Context of Agricultural Policy Reform and Trade Liberalisation

Author:
Osamu Kubota
Publication Date:
08-2007
Content Type:
Working Paper
Institution:
The Organisation for Economic Co-operation and Development
Abstract:
Reforming agricultural policies by reducing distorting support improves economic efficiency as a whole through a better allocation of resources. This implies that adjustment may have adverse effects on some agricultural households and other people engaged in the sector, in particular in the short term. There may also be negative impacts on upstream and downstream sectors and on regional economies that rely on commodities whose prices and production levels fall with reductions in support and protection. Despite pressures to reform to meet multilateral and bilateral trade commitments and to respond to budgetary constraints, these adverse impacts are a major reason why governments find it difficult to make progress in policy reform.
Topic:
Agriculture, Reform, Trade Liberalization, and Trade
Political Geography:
Global Focus

61. Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development

Author:
Dani Rodrik, Arvind Subramanian, and Francesco Trebbi
Publication Date:
10-2002
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
We estimate the respective contributions of institutions, geography, and trade in determining income levels around the world, using recently developed instruments for institutions and trade. Our results indicate that the quality of institutions "trumps" everything else. Once institutions are controlled for, measures of geography have at best weak direct effects on incomes, although they have a strong indirect effect by influencing the quality of institutions. Similarly, once institutions are controlled for, trade is almost always insignificant, and often enters the income equation with the "wrong" (i.e., negative) sign, although trade too has a positive effect on institutional quality. We relate our results to recent literature, and where differences exist, trace their origins to choices on samples, specification, and instrumentation.
Topic:
Institutions, Trade, Economic Development, Integration, and Geography
Political Geography:
Global Focus