China Trade Policy Review: A Political Economy Approach

Chinese trade policy has experienced ‘great reversal’ in the year of 2008. A series of constraining measures taken previously have been loosened eventually. We investigate this situation using a political economy approach. Unlike in democratic countries, where interest groups play a crucial role in trade policy change, in China, given the political reality, leaders’ will and trade partners’ pressure are the determinant factors. We call this top‐down and outside‐in trade policy. Actually the idea of ‘harmonious society’ and ‘scientific development’ emphasised by top leaders in October 2006 paved the road for the following trade policy adjustment: i.e. reducing tax rebate, limiting processing trade, compressing the catalogue for foreign investment, etc. However, with the shock of a global financial tsunami, these measures get coastal areas relying on foreign trade heavily into trouble. The economic downturn in Pearl River Delta even astonished the decision‐making body, calling on a quick reversal in foreign trade policy. If interest groups had been allowed to express their demand formally and adequately from the very start, the cycle of ‘taking up first but giving up last’ in policy design would have not taken place. In other words, the bottom‐up and inside‐out trade policy should be more stable. Although flexibility is necessary in the face of uncertainty, frequent and discretionary trade policy change usually produces effects of ‘pro‐government’ not ‘pro‐market’. This is unfavourable for the transformation in China. The constraining trade policy in mid‐2007 to mid‐2008 has been a part of the government’s desire to seek healthier development. However, with the inside and outside surroundings getting worse, the structural adjustment (long‐run objective) has had to concede to the economic growth (short‐run objective).     

Intra-industry trade and heterogeneity in pollution emission

This paper develops a model of intermediate goods firms heterogeneity with respect to a pollution parameter to analyze the effects of intra-industry trade on final good output, pollution and welfare. By focusing on intra-industry trade we consider trade between similar countries. We analyze both trade between developed countries, and trade between developing countries. In our model, final good producers pay an environmental tax on the total pollution emitted in their country. Therefore, final good producers determine the overall level of pollution by demanding ‘cleaner’ or ‘dirtier’ intermediate goods. To focus on intra-industry trade we consider only intermediate goods firms trade. We analyze three scenarios: closed economy; open economy with no impediments to trade; and open economy with transportation cost. Our main findings are: i. a developing country closed to trade faces lower final good output and higher total pollution and is thus worse off than a developed country; ii. countries are better off under trade than under autarky, regardless of their development level; and iii. an open economy with low transportation costs are better off than an open economy with no impediments to trade.     

Innocent or Not‐so‐innocent Bystanders: Evidence from the Gravity Model of International Trade About the Effects of UN Sanctions on Neighbour Countries

This paper examines two hypotheses about the effects of UN sanctions on trade flows between land neighbours of the target country and the rest of the world. First, there have been claims that sanctions hurt neighbour countries by cutting off trading routes, increasing transportation costs and disrupting established trading ties. We would expect that a neighbour's trade with the rest of the world would fall, as a result. Second, there is extensive evidence that neighbours have been involved in smuggling. Consequently, neighbours should trade more with the rest of the world during UN trade embargoes, because now they also trade on behalf of the target. I employ the gravity model of international trade to show that, overall, a neighbour's trade with the rest of the world tends to fall during UN sanctions episodes. This confirms the first hypothesis above: on a net basis, land neighbours have been ‘innocent bystanders’ hit by UN sanctions.     

Fair Trade Standards,Corporate Participation,and Social Movement Responses in the United States

This article examines the development of and contestation over the standards for certified fair trade, with particular attention to the U.S. context. It charts fair trade’s rapid growth in the United States since the 1999 advent of formal certification, explores the controversies generated by the strategy of market mainstreaming in the sector, and focuses on five key issues that have generated particularly heated contention within the U.S. fair trade movement. It offers a theoretical framework based in the literatures on agrifood systems, social movements, and public-choice economics, for understanding the corporate response to alternative markets such as fair trade. The article suggests a typology of responses by social movement actors to this increased corporate participation, and assesses the relevance of the U.S. case for the future prospects of fair trade, both in other national contexts and as an international movement.     

Do Economic Integration Agreements Actually Work? Issues in Understanding the Causes and Consequences of the Growth of Regionalism

This paper argues that the ‘competitive liberalisation’ of national governments of the past several decades has created a ‘market’ for regional economic integration agreements (EIAs). Evidence shows that countries that have selected into EIAs – such as free trade agreements – have ‘chosen well’ in the sense that the same economic characteristics that explain and predict bilateral EIAs also explain and predict bilateral trade flows. We show that previous ex post empirical evaluations of the effects of EIAs on trade have tended to underestimate the effects due to ignoring the (endogenous) self‐selection bias of country pairs into EIAs. Accounting for this bias, we find that European economic integration had a much larger impact on trade over the period 1960–2000 than previously found, and other more recent EIAs have had economically and statistically significant effects on members’ trade. The results shed further light on understanding the causes and consequences of the growth of regionalism.     

The Institutionalization of Fair Trade: More than Just a Degraded Form of Social Action

The context of economic globalization has contributed to the emergence of a new form of social action which has spread into the economic sphere in the form of the new social economic movements. The emblematic figure of this new generation of social movements is fair trade, which influences the economy towards political or social ends. Having emerged from multiple alternative trade practices, fair trade has gradually become institutionalized since the professionalization of World Shops, the arrival of fair trade products in the food industry, and the establishment of an official “fair trade” label. With the strength that this institutionalization has generated, fair trade can now be considered a real trade system that questions, as much as it renews, the traditional economic system. In parallel, this transformation has exacerbated the tensions within the movement, which can be characterized as a clash between a “radical, militant” pole and a “softer, more commercial” one. However, it is not the actual institutionalization of fair trade which is being debated among fair trade actors on either side of the fence, but rather the challenges inherent in finding an economic institutionalization acceptable to social economic movements. Therefore the institutionalization process of fair trade should not be seen as mere degradation of social action, but rather as typical of the institutionalization process of new social economic movements. If we need to worry about the highjacking and alteration of the fair trade movement by the dominant economic system, the opposite is no less likely, as new social economic movements contribute to an ethical restructuring of markets.     

What's the Point of Reciprocal Trade Negotiations? Exports,Imports, and Gains from Trade

This paper explains why trade‐policy makers may prefer reciprocal trade negotiations (RTN) to unilateral tariff reductions (UTR) for economic reasons. It answers puzzles like ‘Why WTO reciprocity?’ and strengthens the unnecessarily weak case made for the WTO by those who downplay or dismiss benefits from foreign tariff reductions (FTR). RTN is superior to UTR because it provides economic benefits that UTR cannot – namely, FTR benefits which are clearer than potentially important UTR benefits: Whereas each policy offers efficiency gains, any terms‐of‐trade effect of UTR generally detracts from these gains, while any terms‐of‐trade effect of FTR is typically beneficial (especially for a small price‐taking country) with this benefit augmenting FTR's efficiency gains. Moreover, benefits from reductions in foreign barriers may come from several sources; they are not solely the result of terms‐of‐trade improvement – or economies of scale (the two benefits already noted in the literature, though often dismissed). For example, with foreign NTB elimination, possible home benefits are shown even with rising costs and terms‐of‐trade deterioration. RTN is also superior to UTR because, by eliminating protection in either NTB or tariff form, RTN provides an escape from not only a terms‐of‐trade prisoners’ dilemma, but many other previously unrecognised prisoners’ dilemmas, including one in international rent transfers, and several others with no economies‐of‐scale or terms‐of‐trade motivation. Of course, if superior RTN is not an option, UTR may well be desirable. If reciprocity is an option, but only in a narrower CU or FTA form, such reciprocity may still be superior to UTR, or it may be inferior; theory cannot unambiguously rank these.     

Governance and Globalisation

Unlike the large literature on ‘democracy and trade’, there is a much smaller literature on the effect of the level of democracy in a nation on the level of its foreign direct investment (FDI) inflow. These few studies reveal mixed empirical results, and surprisingly only one study has examined bilateral FDI flows. Moreover, few of these studies use multiple governance indicators separating the ‘pluralism’ effect of democratic institutions from the ‘good governance’ effect, there are no studies on democratic institutions’ various effects on the level of FDI relative to trade, and there are no studies of democratic institutions’ various effects on the selection of countries into FDI. We focus on three contributions. First, we examine the simultaneous effects of the World Bank's (six) Worldwide Governance Indicators (WGIs) – which allow separating the effects of pluralism from those of five other good governance measures – on bilateral trade, FDI and FDI relative to trade using state‐of‐the‐art gravity specifications. Second, we find strong evidence that – after accounting for host governments’ effectiveness in various roles of good governance – a higher level of pluralism as measured by the WGIs’ Voice and Accountability Index reduces trade levels, likely by increasing the ‘voice’ of more protectionist less‐skilled workers, but not FDI levels. Moreover, we find qualitatively different effects of other WGIs – such as political stability – on trade versus FDI flows. Third, we account for firm heterogeneity alongside a large number of zeros in bilateral FDI flows using recent advances in gravity modelling. We distinguish between the (country) intensive and extensive margins and show that pluralism affects FDI inflows negatively at the intensive margin, but positively at the extensive margin.     

An explicit partial‐equilibrium model to justify the Generalized Marshall‐Lerner condition (GML)

Robinson's derivation of the Marshall‐Lerner condition (ML) is more general in that she considers a situation where initially the trade balance is not in equilibrium with the incorporation of the supply curves of exporters. This paper examines a partial equilibrium analysis of a country's imports and exports markets within a theoretical model which considers both the demand and supply sides in these two internationally traded‐goods markets. The aim here is to show explicitly how the Generalized Marshall‐Lerner condition (GML) of Robinson can be obtained. We examined the two effects of the nominal depreciation of the domestic currency on the trade balance: the volume effect and the value effect and how they counterbalance each other. We found that the standard Marshall‐Lerner condition (ML) was not sufficient when the trade balance was initially in deficit and it was also not necessary if the trade balance showed an initial surplus. Moreover, this study provides a new interpretation for Robinson’ sufficiency condition where the trade balance must improve following a nominal depreciation of domestic currency when the elasticity of foreign demand exceeds the ratio of imports to exports. This paper also examines the situation of a small open economy which could not influence the world prices where the foreign demand for exports and the foreign supply of exports are infinitely large. Finally, there is a discussion on two policy implications for exchange rate regulation: the amount of devaluation that is necessary to improve a given trade imbalance as a governments intervention and additional support for the slow improvement of the trade balance in the short run after a devaluation policy known as the J‐Curve effect.     

Measuring International Trade Costs

The costs of international trade have become an increasingly important item in trade negotiations (under the heading ‘trade facilitation’) and element of trade theory, but definition and measurement of trade costs remain in their infancy. This paper argues that the most conceptually appropriate measure is the gap between cost‐insurance‐freight (cif) and free‐on‐board (fob) values of traded goods, but that this must be measured on a consistent volume of trade. Such data are only available for a few countries. We calculate cif–fob gap values for the three largest trading nations that report such data (Australia, Brazil and the USA). These values provide plausible estimates of ad valorem trade costs for the three importing countries and for all countries’ exports. The estimates indicate that although trade costs have fallen over the last two decades, average trade costs now exceed the average tariff rate on imports into the USA and Australia. Country rankings by the cif–fob gap values differ significantly from those by commonly used proxies for trade costs, such as the indicators of time and cost in the World Bank’s Doing Business database, and analysis based on such proxies is likely to produce misleading results.     

Shipping cost and development of the landlocked developing countries: Panel evidence from the common correlated effects approach

We estimate the impact of shipping cost on development for landlocked developing countries (LLDCs). Since container trade is important to them, we construct a country-specific measure of shipping cost, called HarpexCost, which combines the global cost of container shipping with information on how exposed to container shipping each LLDC is. We employ the common correlated effects (CCE) estimator of Pesaran (Econometrica, 2006; 55: 967) to first estimate the impact of HarpexCost on the LLDCs’ development, and then recover the actual impact of shipping cost from these estimates. Overall, we observe that shipping cost has large negative effects on the LLDCs. Building upon these results, we provide new estimates on the cost of landlockedness and how trade benefits their development.     

Free Trade Agreements In the Americas: Are the Trade Effects Larger than Anticipated?

This paper argues that the ‘competitive liberalisation’ of national governments of the past several decades reflects national governments’ expectations of larger trade impacts from regional economic integration agreements (EIAs) than typical ex ante economic models have suggested. Moreover, we show that previous (typically cross‐section) ex post empirical evaluations of the effects of EIAs on trade have seriously over‐ or underestimated the effects, partly due to ignoring the (endogenous) self‐selection bias of country pairs into EIAs. Accounting for this bias, we find that economic integration agreements in the Americas have had much larger impacts on trade over the period 1960–2000 than previously found and the ex post estimates are less fragile than those in earlier cross‐section analyses. The results shed further light on understanding the causes and consequences of the growth of regionalism in the world.     

Wie geht es mit dem Brexit weiter?

The UK’s 2016 EU referendum may account for great income losses in the UK. Gabriel Felbermayr et al. use a “new” quantitative trade model to assess various Brexit scenarios. The results broadly show that all EU member states lose, and the relative losses in the UK are about five times those of the average remaining EU country. These findings have important implications for the EU’s negotiation strategy. The outcome depends largely on the decisions about trade relations. Michael Hüther thinks that the UK is heading for an extremely hard Brexit and that it already shows. Therefore, the UK government should work out a consistent industrial policy and make up its mind about its preferences on its future economic relationship with its neighbours. In light of the currently very close and mutually welfare-enhancing business relations between the EU27 and the UK, one of the central tasks and challenges of the Brexit negotiations is undoubtedly the creation of a new supportive post-supranational legal framework governing these economic transactions in the future. Andreas Grimmel argues that the EU’s crises are largely the result of a certain mode of integration that is based on actors’ interests rather than on a comprehensive constitutional framework.     

A BEHAVIOURAL FINANCE MODEL OF EXCHANGE RATE EXPECTATIONS WITHIN A STOCK‐FLOW CONSISTENT FRAMEWORK

The paper combines behavioural finance to a stock‐flow consistent model of a two‐country economy in the portfolio tradition, with imperfect asset substitutability. ‘Conventionalists’ and ‘chartists’ set their expectations of changes in exchange rates based on some assessed fundamental value and past trends, respectively. We find that exchange rate expectations have a significant effect on exchange rate movements and trade account balances during the traverse and in steady states. A flexible exchange rate regime will continue to provide stabilizing properties, as long as the proportion of chartist actors relative to other agents is not overly large.     

Dark times for cosmopolitanism? An ethical framework to address private agri-food governance and planetary stewardship

The scholarly tradition of cosmopolitanism (illustrated by the old saying, “I am a citizen of the world”) offers important insights into the examination of agri-food multinational corporations (MNCs) as powerful global actors. Acknowledging that agriculture is the business sector with the highest planetary environmental impact, in this paper, we advance existing discussions around cosmopolitanism and the normative implications of considering agri-food MNCs as political actors. Relying on an integrative literature review, we propose a tripartite ethical framework that gives a new momentum to the ideals and tenets of cosmopolitanism. This novel lens offers an integrated, seamless ethical approach and revolves around three dimensions: culture, morality, and governance. The first dimension examines key agri-food cultural and social-ecological issues, the second acknowledges interdependence and causality as central to understanding MNCs’ ethical responsibilities, and the third outlines several governance parameters around legitimacy, planetary reach and efficiency. Hence, our integrative framework resituates the planetary geographical imagination of cosmopolitanism within the biophysical parameters outlined by the planetary boundaries concept, advancing key issues on private agri-food environmental governance and planetary stewardship.     

Reconciling CSR with the Role of the Corporation in Welfare States: The Problematic Swedish Example

This article uses the Swedish example to illustrate how corporate social responsibility (CSR) is understood and interpreted when it enters a welfare state context where social issues have traditionally been the domains of the state and of politicians. Among the implications one finds a relative scepticism of traditionally strong actors on the labour market, such as the state, trade unions and employers. This relative scepticism is primarily explained by an enduring idea of the role of business in society which stands in contradistinction to the idea expressed in the corporate centred idea of CSR. Still, CSR gains a foothold in the welfare state context, mainly because of the flexibility of the concept which allows for ‘escape routes’ – an understanding of CSR that focusses on issues at arm’s length from the traditional welfare context. CSR also benefits from being codified in soft regulation, thereby becoming a legitimate super- national point of reference for all relevant actors. The possibility of developing new global arenas for espousing ideals partly in conflict with traditional ones also explains why CSR has become an established concept. In Sweden, such arenas have been created through the activities of multinational corporations, NGOs, investors, the media, consultants and other actors.     

Do foreign workers reduce trade barriers? Microeconomic evidence

This paper provides evidence that foreign workers reduce firms’ trade costs and thus increase the probability that firms export. This informs both the literature on trade costs and the microeconomic literature on firms’ export behaviour. We identify the nationality of each worker in a large sample of German establishments and relate this to the exporting behaviour of these establishments. We allow for the possible endogeneity of an establishment's workforce by instrumenting the share of foreign workers with the regional distribution of foreign workers in the wider labour market. We find a significant effect of worker nationality on exporting which is not driven by the industrial, occupational or locational concentration of migrants. The effect is much stronger for senior occupations, who are more likely to have a role in exporting decisions by the establishment. The relationship is also stronger when we consider exports to particular regions and workers from these regions, consistent with a gravity model in which trade flows from country i to j are a function of migrants from j in i.     

Turkey: Trade Policy Review, 2007

The purpose of this paper is to discuss the main issues highlighted in the Trade Policy Review: Turkey 2007. The paper studies first the main developments in Turkey’s trade regime and trade performance. Next it discusses Turkish trade policy under the headings of measures affecting imports, exports and foreign direct investment. The paper notes that the formation of the 1995 EU–Turkey customs union has contributed to a significant increase in the contestability of domestic markets through infusing predictability, transparency and stability to trade policy as well as by liberalising market access. But free trade in industrial goods between Turkey and the EU could still not be established mainly because of non‐tariff barriers and in particular because of the various problems faced in the elimination of technical barriers to trade (TBT). The final section of the paper discusses first the role of standards and conformity assessment in general terms and thereafter evaluates critically the Turkish approach to elimination of TBTs.     

International trade in financial services

International trade in financial services is a topic of some importance both to the financial services sector itself and in international trade negotiations. Unfortunately, intrinsic problems in defining and measuring trade in services, combined with a lack of data in many countries, have made empirical analysis of trade in financial services difficult. Recent improvements in data, although still providing only a limited coverage, do now provide a basis for analysis. In this paper, we use data from the OECD International Trade in Services Statistics 2001 database to conduct an analysis of trade in financial services based on standard theories and empirical techniques for international trade. Our results suggest that the key concepts of international trade are of use in understanding international trade flows in financial services. In particular, we find evidence of significant volumes of intra-industry trade in financial services, as well as significant volumes of inter-industry trade for some countries, including the UK. Using Balassa's ‘revealed comparative advantage’ index, the most highly ranked countries are Belgium-Luxembourg, Italy, Switzerland, the UK, the USA and Greece. Using the ‘net export ratio’, the countries that are ranked highest include Germany, Switzerland, the UK, the USA and Belgium-Luxembourg.