The growth of China and India: implications and policy reform options for Malaysia

This study explores the trade‐related impacts of rapid growth of China and India on the Malaysian economy and evaluates policy options to better position Malaysia to take advantage of these changes. Higher growth in China and India is likely to raise Malaysia's national income and to expand Malaysia's natural resource and agricultural exports, while putting downward pressure on exports from some manufacturing and service sectors. Increases in the quality and variety of exports from China and India are likely to increase substantially the overall gains to Malaysia. The expansion of the natural resource sectors and the contraction of manufacturing and services reflect a Dutch‐disease effect that will raise the importance of policies to facilitate adaptation to the changing world economy and improve competitiveness. Most‐favoured‐nation (MFN) liberalisation would increase welfare, and, by increasing competitiveness, raise output and exports of key industries. Preferential liberalisation with India and completely free trade with China would provide greater market access gains than MFN reform, but neither would be as effective in increasing income as MFN liberalisation, and free trade agreements would lead to greater competitive pressure on many of Malaysia's industries than MFN liberalisation. Increased investments in education and infrastructure could boost manufacturing and services sectors in Malaysia, while improving trade logistics would benefit sectors with high transport costs, including the agricultural and resource‐based industries.     

The effects of input tariffs on productivity: panel data evidence for OECD countries

Based on a panel of 16 OECD countries and 10 manufacturing industries over 1996–2007, this paper investigates the impact of tariffs on foreign intermediate goods on productivity growth in downstream manufacturing industries. The results show that imposing tariffs on imported intermediate goods is particularly harmful for industries that operate close to the global technological frontier. We also consider the possibility that input-tariff liberalisation may have different effects depending on the technological content of imported intermediate goods. Our findings suggest that protecting imports of high-technological goods is more harmful for productivity improvements in industries that operate close to global best practice.     

Unilateral liberalisation and WTO GATS commitments: the telecommunications sector in selected countries

This paper examines how unilateral liberalisation of the telecommunications sector affected WTO Member countries' commitments in the GATS of the WTO. It is argued from observations and interviews that unilateral liberalisation provides a basis for making WTO commitments. The differing objectives of WTO Members, their attitudes towards reform (strong reformer or lukewarm supporter of reforms), and country-specific sensitivities appear to be factors responsible for the observed differences between unilateral reforms and GATS commitments in the telecommunications sector.     

Impacts of trade liberalisation on aggregate import in Bangladesh: An ARDL Bounds test approach

Bangladesh has been liberalising its trade regime extensively since 1992 in order to achieve higher trade performance and GDP growth. However, despite the long period of liberalisation, imports are still growing faster than exports, increasing the trade deficit. Trade liberalisation is considered a crucial contributory factor. The paper examines the impact of trade liberalisation on the aggregate import in Bangladesh, using the ARDL Bounds Test approach with annual time series data from 1972–1973 to 2004–2005. Empirical results suggest that trade liberalisation through reduction of the import duty rate increases the aggregate import substantially in the short run, but insignificantly in the long run. Trade liberalisation using simplification of non-tariff measures shows a significant but low positive impact on the aggregate import in the long run. Liberalisation interaction with price decreases imports slightly hence improves the trade balance, while interaction with income increases imports slightly hence worsens the trade balance. An increase in imports is mainly stimulated by an increase in income. Moreover, higher income elasticity compared to price elasticity indicates that an effort to maintain imports at the desired level by increasing import duty could be counter balanced and ineffective. Therefore, a consistent policy to promote not only consumption of domestically produced products, but investment, production, and backward linkage industries is essential in order to improve the trade balance and GDP growth in Bangladesh.     

A Dual-Price Demand Theory for Economies under Transition

China adopted a dual-price system shortly after the economic reform started in 1978 to liberalise its price control. This led to the coexistence of both plan and market prices for an identical good in the economy. The conventional demand theory developed based on the pure market economies is not useful in explaining consumers' behaviour in the transitional economies such as China in which both plan and market prices are prevalent. This study develops an alternative demand theory for a dual-price (or dual-track) economy and derives the dual-price Slusky equation that identifies a replacement effect of price liberalisation. This demand theory distinguishes itself from the conventional demand theory and explains the ways in which consumers respond to the price liberalisation during the reform period. The new demand theory shows that the gradual approach to reform is superior to the ‘Big Bang’ approach in terms of reducing the ‘corrected inflation’ during the transition period. The new theory also suggests that the price elasticity of demand is higher in the dual-track system than that in a full market economy, implying that the price elasticity diminishes over the process of price liberalisation. This theory is tested using the Chinese aggregate consumption data.     

Productivity gains,technology spillovers and trade: Indonesian manufacturing, 1980-96

The importance of R&D spillovers for productivity growth has been well documented in the literature. While studies in the developed country context have focused extensively on sectoral linkages, research on North-South spillovers has largely been confined to the aggregate level. This paper assesses the contribution of international R&D spillovers to manufacturing performance in Indonesia at the sectoral level. Drawing on OECD and Indonesian data sources, we consider two distinct phases: a phase characterised by intense policy regulation (1980-87), followed by a phase of liberalisation and reform (1988-96). Our results indicate that international technology spillovers made a significant contribution to the performance of Indonesian manufacturing, especially after liberalisation. The contribution of technology spillovers to productivity change is influenced by sectoral characteristics and industrial market structure.     

The Effects of Outward Foreign Direct Investment on Fixed-Capital Formation at Home: The Roles of Host Location and Industry Characteristics

Abstract

This paper pursues the idea that the relationship between foreign and domestic investments may be not as uniform as many studies suggest. By examining the case of Taiwanese outward foreign direct investment (OFDI), this paper is marked out from existing studies in the following three respects. First, it examines the extent to which the relationship between OFDI and domestic investment varies with the location of investment. Second, this research allows the results to vary between Heckscher–Ohlin (H–O) industries and Schumpeter industries. Finally, its breakdown of data will reveal sub-relationships in the data that up to now have remained hidden within the aggregate relationships reported in most studies. This study suggests that OFDI in China has a positive impact on domestic investment in H–O industries, while OFDI in other countries (OFDIO) has a negative impact on domestic investment in the same industries. These findings are in marked contrast to Schumpeter industries where a positive effect is observed only for OFDIO. Our findings also suggest that the Taiwanese government should design policies to adjust the level of liberalisation for overseas investment through legislation on an industry-by-industry basis in order that OFDI stimulates domestic investment in relevant industries more effectively.     

INDONESIAN TRADE LIBERALISATION: ESTIMATING THE GAINS

Indonesia has undergone comprehensive trade liberalisation by participating in multilateral and regional trade arrangements and by conducting unilateral liberalisation. This paper evaluates the different paths of liberalisation the country has followed, and measures their effects on the economy. It considers the impact of several liberalisation scenarios: unilateral liberalisation; regional liberalisation through APEC (Asia Pacific Economic Cooperation) and AFTA (the ASEAN Free Trade Area); and multilateral trade liberalisation through the Uruguay Round (UR). The results show that the full implementation of UR and APEC liberalisation would greatly benefit Indonesia, and that unilateral liberalisation, carried out in conjunction with the UR commitment, would lead to large welfare gains. On the other hand, the creation of AFTA is expected to add little to welfare in Indonesia or in the other ASEAN member countries.     

Short-run Effects of Tariff Reform in Zimbabwe: Applied General Equilibrium Analysis

This paper applies a short-run computable general equilibriummodel for Zimbabwe to analyse how tariff reform could have modifiedthe effects of the actual trade liberalisation that took placein the 1990s. This is important because the trade liberalisationremoved quantitative restrictions but left tariff rates intact.The results show that tariffs on intermediates have held backproduction in traded sectors. Thus, the nature of the tradereform taken contributed to more deindustrialisation than necessary.The results also show the tradeoff with respect to the fiscalbalance, which points to the need to ensure that an alternativetax system is in place before removing customs tax revenue.     

增值税扩围改革有助于减轻服务业税负吗?——基于投入产出表的分析

增值税扩围改革对服务业行业流转税负担的影响同时包含"税率提高的增税效应"与"进项抵扣的减税效应"。利用投入产出表数据,分析并测算了增值税扩围改革影响各服务业行业流转税负变动的净效应,结果发现:不同服务业行业的税负变化情况差异较大,商务服务业等大多数行业的税负将减轻,但租赁业等部分行业的税负可能会加重,税改后的增值税税率水平选择与中间投入比率是影响服务业行业税负变动的主要因素。为了优化服务业发展的税收环境,使增值税扩围改革有助于减轻服务业的流转税负,应根据税负平衡点审慎选择服务业行业税改后适用的增值税税率。当前制定的租赁业、交通运输业的试点税率水平偏高,有必要降低。     

What does liberalisation do for exports and growth?

What Does Liberalisation Do for Exports and Growth? - This paper addresses the issues of whether exports and growth are related and whether any relationship appears to be affected by liberalisation. A production function approach using time series analysis is used to investigate both issues, for a sample of some 14 countries which have undergone liberalisation episodes. The results suggest that though exports and growth are positively related, the relationship does not appear to be a robust one. Moreover, it is a relationship which appears to be significantly affected by liberalisation in only a minority of cases.     

TRADE LIBERALIZATION AND PRICE‐COST MARGIN IN INDIAN INDUSTRIES

Using panel data for 137 three‐digit industries for 1980/81 to 1997/98, the paper examines the effect of trade liberalization on price‐cost margins in Indian industries. An econometric model is estimated to explain variations in price‐cost margins, taking tariff and nontariff barriers among the explanatory variables. The results indicate that the lowering of tariffs and removal of quantitative restrictions on imports of manufactures in the 1990s had a significant pro‐competitive effect on Indian industries, particularly concentrated industries, tending to reduce the price‐cost margins. The paper notes that despite the pro‐competitive effects of trade liberalization reinforced by domestic industrial deregulation, the price‐cost margin increased in the post‐reform period in most industries and aggregate manufacturing, which is attributed to a marked fall in the growth rate of real wages and a significant reduction in labor's income share in value added in the post‐reform period, reflecting perhaps a weakening of industrial labor's bargaining power.     

THE DETERMINANTS OF FINANCIAL DEVELOPMENT: INSTITUTIONS, OPENNESS AND FINANCIAL LIBERALISATION

This paper provides new evidence that sheds light on the influence of institutional quality, trade openness and financial liberalisation on financial market development, using data from 27 economies (the G-7, Europe, East Asia and Latin America) during 1980-2001. The dynamic panel data analysis results demonstrate that real income per capita and institutional quality are statistically significant determinants of banking sector development and capital market development. The trade openness, however, is more prominent in promoting capital market development. In terms of financial liberalisation, the empirical results suggest that domestic financial sector reforms tend to promote banking sector development, whereas stock market liberalisation is potent in delivering stock market development. Nevertheless, the financial liberalisation programmes are more responsive in developed economies.     

Trade openness and income inequality in China and the SAARC Region

The paper empirically examines the effects of trade liberalisation on income inequality in China and the South Asian Association for Regional Cooperation countries. Panel data analysis is conducted for the period of 1973 to 2012. The results show that liberal trade policies have increased income inequality in these countries. These results are robust to alternative liberalisation measures. The control variables used have differing effects on income distribution. Per capita income has an increasing effect on income inequality, while education, financial development, financial openness, democracy, and government size are shown to reduce income inequality. These outcomes can be expected to have important policy implications for the use of trade liberalisation in these countries.     

Measurement of the intensity of the reforms in professions and economic activities in Greece via a composite regulation index

The institutional framework regulating professions/ economic activities of the service sector in Greece has been recently liberalised extensively, to promote competition, conform to European Community regulations and fulfil commitments under the Memoranda of Economic and Financial Policies. This paper aims to capture quantitatively this major structural reform, by measuring for the first time the degree of regulation in 90 professions/ activities affected by the relevant reform laws. The degree of regulation is measured both for the regime before and for that after the laws, and the methodology employed is that of composite regulation indices. The index values obtained are used for evaluating the extent of the reforms and estimating correlations and regressions. The results of the analysis point to the existence of significant barriers to competition before the reforms and extensive liberalisation of the regulatory framework after the adoption of the relevant laws. Moreover, the results suggest that professions/activities characterised by more stringent restrictions before the reforms tend to be characterised by a comparatively higher intensity of regulations after the reforms.     

Regional stock markets and the economic development of Southeast Asia

The paper examines the contribution made by the establishment and operation of a local stock exchange to the economic development of Southeast Asian (SEA) countries. The paper informs investors and policymakers about the current status of SEA stock market development and the associated positive and negative effects of such initiatives. Policymakers have placed a clear focus on SEA stock markets as a primary driver of regional economic growth. However, it is questionable whether SEA is ready for such an ambitious economic initiative, particularly given the reported negative effects of lesser developed stock markets. Despite these negative implications, the benefits appear to outweigh the costs for SEA stock markets. It is perceived that SEA stock markets will drive further economic reform, financial liberalisation, and market integration, promising tremendous benefits for both the region and the international investment community. The paper concludes with questions regarding the efficiency of stock markets in SEA and offers recommendations for further empirical research.     

Integration and intra-industry trade adjustment in South Africa

This article analyses intra-industry trade adjustment by the Southern African Customs Union after 1994, and links between trade liberalisation and employment are examined. The traditional Grubel-Lloyd index is complemented by marginal inter- and intra-industry trade measures, and trade expansion of sectors is scaled, related to change in total exports and imports. In three different empirical approaches, large differences are found: in the level of intra-industry trade (IIT) between different sectors (categorised into resource-based, labour-intensive, scale-intensive and differentiated industries); in the level of IIT of individual sectors in trade with the SADC6, the European Union and the rest of the world; and in the economic significance of trade expansion for different industries and with different trading partners. Trade expansion is dominated by differentiated and scale-intensive industries, indicating that the main economic gain of international integration is found in the opportunity to exploit economies of scale in a larger market. IIT and marginal IIT are positively related to increases in labour productivity, and negatively related to employment change. Interindustry trade and both export and import expansions are positively related to employment gain, but only export is positively related to increased labour productivity.     

Can trade liberalisation in South Africa reduce poverty and inequality while boosting economic growth? Macro–micro reflections

South Africa is trapped in a cycle of modest growth, unacceptable poverty levels and record unemployment. This has led to renewed interest on the relationship between macro (growth) and micro (poverty and distribution) issues. This paper uses a macro–micro tool that couples a computable general equilibrium model with microsimulation models to examine the impact of further unilateral trade policy reforms on growth, poverty and welfare. Trade liberalisation alone has very minimal short-run macroeconomic consequences while its long-term impacts are positive and magnified by technical factor productivity (TFP) effects. Trade liberalisation has no appreciable impact on poverty in the short run even if we allow for trade-induced TFP increases. In the long run, however, poverty reduces even in the case when we do not allow for TFP increases. Trade liberalisation policy has been found to be progressive despite the low level of tariff protection remaining in South Africa.     

Does mixed-ownership reform improve SOEs' innovation? Evidence from state ownership

This paper investigates the impact of the ongoing mixed-ownership reform on the innovation activities of SOEs in China. We find that the reform improves SOE’s innovation, and the impact is heterogeneous, by exploring in different industries and different regions with the influence of macroeconomic environment. This effect is stronger for SOEs in monopoly industries and eastern developed region. As a new form of state-sector reform, this mixed-ownership reform happens not only in SOEs like previous privatization, but also in a reverse direction. We also find its positive impact of improving the innovation for POEs being mix-reformed. To deal with endogeneity concerns, PSM, DiD and IV estimations are used. We also introduce highway as an instrumental variable, All the results in the 2SLS estimations are robust. Additional tests help isolate the effect of intervention from explanations of macro-economic effects, including house price, private employees, credit and equity finance.