Overall trade specialization and economic development: countries diversify

This paper provides evidence for an aspect of trade often disregarded in international trade research: countries’ sectoral export diversification. The results of our semiparametric empirical analysis show that, on average, countries do not specialize; on the contrary, they diversify. Our results are robust for different statistical indices used to measure trade specialization, for the level of sectoral aggregation, and for the level of smoothing in the nonparametric term associated with per capita income. Using a generalized additive model (GAM) with country-specific fixed effects it can be shown that, controlling for countries’ heterogeneity, sectoral export diversification increases with income.

Preference erosion and market access liberalization: the African dilemma in multilateral negotiations on agriculture

African countries, especially sub-Saharan ones, have conflicting interests in multilateral negotiations on agriculture. On the one hand, their economies may be boosted by the price effect induced by agricultural liberalization. On the other hand, multilateral tariff cuts will result in the erosion of preferential margins. Based on an original methodology, using CGE modeling, detailed tariff calculations and predictive analysis, this paper investigates the potential impact of current multilateral negotiations on the value of preferences for African agriculture. It estimates the preferential value to USD 0.7 billion of welfare and USD 1 billion of exports to the Triad markets. Furthermore, it highlights the “cruel dilemma” African countries face in current negotiations, as they gain from ambitious trade liberalization, despite the large preferential erosion, while they suffer from noticeable trade and welfare losses under conservative scenarios.

Impacts of trade reform: sensitivity of model results to key assumptions

The WTO’s Doha Development Agenda has generated demand for estimates of the potential economic consequences of global trade reform. Recent improvements in the GTAP dataset have provided a much better representation of tariff restrictions as of 2001. However, despite its use by most global trade modelers, substantial differences in results emerge from different computable general equilibrium exercises. To help understand these differences, this paper examines the sensitivity of full global and regional trade liberalization results from the GTAP model, using the GTAP version 6.1 database, to different assumptions about factor mobility, fiscal neutrality, macro-economic closure, and trade (Armington) elasticities.

The Barcelona initiative and the importance of NTBs: a dynamic CGE-analysis for Syria

The Barcelona Initiative is the central element of the EU’s Mediterranean policy. We study the implementation of this policy with respect to Syria using a dynamic general equilibrium model with credit constraints and capital market imperfections. Dismantling formal tariffs has only limited effects on the Syrian economy, while reducing non-tariff barriers produces by far larger results. EU association promises broadly positive effects for factor incomes and sectoral outputs, with some temporarily negative effects in agricultural sectors. Nevertheless, we find evidence of severe trade distorting effects making preferential trade policy clearly welfare inferior to multilateral trade liberalization within the WTO framework.

Exchange Rate Risk and Commodity Trade Between the U.S. and India

Floating exchange rates are said to introduce volatility into the foreign exchange market that could deter trade flows. Previous research employed aggregate import and export trade data and provided mixed results. In this paper we disaggregate the trade data between the U.S. and the emerging economy of India and use the bounds testing approach to cointegration and error-correction modeling to show that in 40 industries that trade between the two countries, exchange rate volatility has negative and positive effects in 40% of industries, in the short run. These short-run effects, however, do not last into the long run in many cases.

International R&D Rivalry with Spillovers and Tariff Policies

This paper investigates the effects of R&D spillovers on the R&D choices of foreign exporters when the importing country adopts either uniform or discriminatory alternative tariff regimes. We show that the importing country should optimally choose a uniform tariff regime. A uniform tariff regime is also advantageous for foreign exporters if the R&D spillovers are sufficiently large. A comparison of free trade with the two tariff regimes reveals that there are some situations in which both the importing country and foreign exporters are better off under free trade, which supports trade liberalization.

Foreign Direct Investment Liberalization Between Canada and the USA: A CGE Investigation

In this paper, we develop a computable general equilibrium (CGE) model to shed quantitative light on the implications of a scenario of deeper economic integration between Canada and the United States, where the barriers for foreign direct investment are preferentially eliminated. Our model distinguishes between the activities of domestic and foreign-owned firms at the microeconomic level, both in terms of demand and production characteristics. Overall our findings suggest that further investment liberalization between the two countries will accelerate the shaping of Canada’s industrial structure, as manifested by recent trends.

Labour Market Adjustments to Exchange Rate Fluctuations: Evidence from Canadian Manufacturing Industries

This paper provides some of the first empirical evidence on labour market adjustments to exchange rate movements in Canadian manufacturing industries. Controlling for endogeneity using generalized method of moments estimation, it is found that during the 1981–1997 period, exchange movements have a substantial impact on labour input and that this impact has grown over time as the manufacturing industries have become more exposed to trade. In contrast, the exchange rate effect on real wages is estimated to be virtually zero for all manufacturing industries.

On trade creation and regional trade agreements: does depth matter?

Regional trade agreements (RTAs) are usually classified according to their form into four broad categories: preferential arrangements, free trade agreements, customs unions and common markets. This paper investigates whether the form/depth of RTAs matters concerning their effect on trade. I use a proper specification of the gravity model with panel data on the 1960–2000 period, which specifically control for self-selection into agreements. Results show that creating any kind of RTAs providing trade preferences to their member countries significantly increases bilateral trade. Nevertheless, their average treatment effect on bilateral trade does not significantly differ according to the depth of agreements.

Global current account adjustment: trade implications for the euro area countries

Although the euro area is not one of the major players in current global imbalances, the rebalancing of the current global imbalances is coupled with a significant appreciation of the euro against. In this paper, I present estimations of trade equations for individual euro area countries using a vector error correction model. Each euro area member has got a different trade elasticity, in the short as well as in the short run. Results show that exchange rate innovations affect individual euro area countries at different rates, complicating the response of the euro area’s one-size-fits-all monetary policy.

Die another day: duration in German import trade

International trade patterns at the product level are surprisingly dynamic. The majority of trade relationships exist for just a few, often only one to three, years. In this paper, I examine empirically the duration in German import trade at the 8-digit product level from 1995 to 2005. I find that survival probabilities are affected by exporter characteristics, product type and market structure. Specifically, I show that the duration of exporting a product to Germany is longer for products obtained from countries that are economically large and geographically close to Germany; for products with large trade value and a low elasticity of substitution; and for trade pairs that command a large share of the German import market and are characterized by two-way trade.

Evaluating China’s Integration in World Trade with a Gravity Model Based Benchmark

This paper assesses China’s “natural” place in the world economy with a new set of trade integration indicators, which are used as a benchmark in order to examine whether China’s share in international trade is consistent with fundamentals such as economic size, location and other relevant factors. They constitute a better measure of trade integration that incorporates many more factors than traditional openness ratios. The model tracks international trade well and confirms that China is already well integrated in world markets, particularly with North America, several Latin American and East Asian emerging markets and most euro area countries.

The effect of globalization on union bargaining and price-cost margins of firms

In recent years, Europe has witnessed an accelerated process of economic integration. This paper analyzes how increased economic integration has affected labor and product markets. We use a panel of Belgian manufacturing firms to estimate price-cost margins and union bargaining power and show how various measures of globalization affect them. Import competition puts pressure on both markups and union bargaining power, especially when there is increased competition from low wage countries. This suggests that increased globalization is associated with a moderation of wage claims in unionized countries, which should be associated with positive effects on employment.

Forecasting World Trade: Direct Versus “Bottom-Up” Approaches

In a globalised world economy, global factors have become increasingly important to explain trade flows at the expense of country-specific determinants. This paper shows empirically the superiority of direct forecasting methods, in which world trade is directly forecasted at the aggregate levels, relative to “bottom-up” approaches, where world trade results from an aggregation of country-specific forecasts. Factor models in particular prove rather accurate, where the factors summarise large-scale datasets relevant in the determination of trade flows.

Fiscal policy in central and Eastern Europe: what happened in the run-up to EU accession?

This paper analyses the evolution of fiscal policy in central and eastern European countries during the EU accession process, testing for country and time specific effects. This is done by constructing Taylor-type policy rules and by calculating three measures of fiscal stance. A key finding is that the differences across countries are more significant than those across time. Baltic countries tended to have had tighter fiscal policy which responded to the output gap, larger central European countries had more lax (and increasingly lax) fiscal policies which were unresponsive to the output gap. These differences correlate closely with cross-country differences in exchange rate regimes and no link is found to either spending composition or political variables. Taken together the results suggest that the exchange rate regime is by far the most significant determinant of fiscal performance. These results suggest that the “soft power” of the prospect of EU entry did not act as a spur to greater fiscal discipline and that higher budget deficits in recent years cannot be blamed on costs of accession.

Non-traded Goods,Technical Progress and Wages

We use a general equilibrium model of trade to show that technical improvement may indeed cause a fall in the wages of unskilled workers. Under some modest conditions, the wages of skilled workers may go down too.

On the bilateral trade effects of free trade agreements between the EU-15 and the CEEC-4 countries

The expansion of regionalism has spawned an extensive theoretical literature analysing the effects of free trade agreements (FTAs) on trade flows. In this paper we focus on FTAs (also called European agreements) between the European Union (EU-15) and the Central and Eastern European countries (CEEC-4, i.e. Bulgaria, Hungary, Poland and Romania) and model their effects on trade flows by treating the agreement variable as endogenous. Our theoretical framework is the gravity model, and the econometric method used to isolate and eliminate the potential endogeneity bias of the agreement variable is the fixed effect vector decomposition (FEVD) technique. Our estimation results indicate a positive and significant impact of FTAs on trade flows. This finding is robust to the inclusion in the sample of a group of control countries (specifically Belarus, the Russian Federation and the Ukraine) that did not sign an FTA. Besides, we show that trade growth after the FTA agreement with the EU was signed exceeded trade growth of the control group of countries, which did not become members.

Understanding Agreements on TRIPS and Subsidies in Tandem

We provide a theoretical framework to explain why governments seek stronger protection of IPRs and allow R&D subsidies through multilateral trade agreements such as the TRIPS Agreement and the Agreement on Subsidies. Our analysis indicates that it is globally optimal to disseminate knowledge without IPR protection and to subsidize inventive firms when issues of IPR protection and R&D subsidies are considered in tandem. R&D subsidies are a means of amending for damages to investors’ incentives by weak IPR protection. In addition, the TRIPS Agreement is understood as a victory of the interests of exporting countries over those of importing countries.

Minorities’ Fields of Expertise in Economics and Employment Demand in These Fields

Efforts by public and private institutions to increase the number of minorities participating in graduate economics programs has contributed to a growing supply of Ph. D. trained minority economists. However, minorities are still under-represented as faculty members in economics departments. This presidential address explores whether the concentration of minorities in a few fields of specialization creates a demand-supply mismatch for these individuals.

Country size and the trade effects of the euro

This paper investigates whether small countries gain relatively more than large countries from an ‘expansion’ of their market through the creation of a single currency. The introduction of the euro offers a particularly valuable source to test this hypothesis, which we motivate using the theoretical model by Casella of the year 1996. Our results from a panel data analysis, using both aggregate and disaggregated trade data, point to a statistically significant but quantitatively moderate small country bonus. On average, the euro has led to an improvement of the small euro area’s relative export performance by 3–9%.