Regionalism in standards: good or bad for trade?

Abstract.  Regional agreements on standards have been largely ignored by economists and blessed by multilateral trade rules. Using a constructed panel data that identifies the different types of agreements at the industry level, we find that such agreements increase the trade between participating countries but not necessarily with the rest of the world. Harmonization of standards may reduce the exports of excluded countries, especially in markets that have raised the stringency of standards. Mutual recognition agreements are more uniformly trade promoting unless they contain restrictive rules of origin, in which case intra-regional trade increases at the expense of imports from other countries.     

The MFN clause,welfare, and multilateral cooperation between countries of unequal size

This paper analyzes MFN in a “competing exporters” model of trade between three countries with unequal endowments and shows that MFN yields higher aggregate welfare than tariff discrimination even as it makes low income countries worse off. Furthermore, in a repeated game of tariff cooperation, multilateral free trade is easier to sustain under MFN punishments relative to discriminatory ones. This conclusion holds even when tariff discrimination takes the form of bilateral trade agreements. Overall, the analysis shows that from the viewpoint of low income countries, MFN and multilateral tariff cooperation are complementary in nature.     

Do South‐South trade agreements increase trade? Commodity‐level evidence from COMESA

Abstract .  South-South trade agreements are proliferating. Yet the impact of these agreements is largely unknown, as existing North-North and North-South micro-level studies are likely to yield misleading predictions for South-South trade agreements. This paper estimates the impact of COMESA on Uganda's imports between 1994 and 2003. Detailed import and tariff data at the 6-digit Harmonized System level are used for more than 1,000 commodities. Based on a difference-in-difference estimation strategy, the paper finds that – in contrast to evidence from aggregate statistics – COMESA's preferential tariff liberalization has not considerably increased Uganda's trade with member countries, on average, across sectors. The effect, however, is heterogeneous across sectors. Finally, the paper finds no evidence of trade-diversion effects.     

Trade effects of monetary agreements: Evidence for OECD countries

This paper analyses the effects of monetary agreements on trade flows using a sample of 25 OECD countries over the period 1950-2004. We find that these agreements have boosted intra-bloc trade. This result especially applies to the case of the euro. More importantly, in contrast to regional trade agreements, all monetary agreements analysed show evidence of trade-creating effects with third countries. Finally, only the euro shows a symmetric impact for the trade-creating effect with non-members, that is, using the euro promotes both the Eurozone's exports and its imports to non-Eurozone markets to a similar extent.     

WTO as Moral Support

International cooperation in trade policies under the auspices of the WTO makes countries "feel" more obliged to uphold agreements. The paper emphasizes the role of the WTO to give moral support: countries incur "psychological costs" when they renege on the agreements that are formally signed under the WTO. Using the concept of Kandori's (2003 ) "morale equilibrium," we formalize this idea and show that countries can agree on a cooperative level of the binding tariffs but they occasionally deviate from the agreement, which lowers the morale and invites further deviations in the future.     

Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model

This paper uses a gravity model to assess ex-post regional trade agreements. The model includes 130 countries and is estimated with panel data over the period 1962-1996. The introduction of the correct number of dummy variables allows for identification of Vinerian trade creation and trade diversion effects, while the estimation method takes into account the unobservable characteristics of each pairs of trade partner countries, the endogeneity of some of the explanatory variables as well as a potential selection bias. In contrast to previous estimates, results show that regional agreements have generated a significant increase in trade between members, often at the expense of the rest of the world.     

FREE TRADE NETWORKS WITH TRANSFERS*

We investigate the network of bilateral free trade agreements (FTAs) in the context of a network formation game with transfers. In a previous paper we showed that without international transfers countries with different industrialization levels cannot sign an FTA, so that the global free trade network, in which every pair of countries signs an FTA, is not in general pairwise‐stable. In this paper we show that, even if the world consists of fairly asymmetric countries, the global free trade network is pairwise‐stable when transfers between FTA signatories are allowed. Moreover, it is a unique pairwise‐stable network unless industrial commodities are highly substitutable.     

Determinants of foreign direct investment

Empirical studies of bilateral foreign direct investment (FDI) activity show substantial differences in specifications with little agreement on the set of included covariates. We use Bayesian statistical techniques that allow one to select from a large set of candidates those variables most likely to be determinants of FDI activity. The variables with consistently high inclusion probabilities include traditional gravity variables, cultural distance factors, relative labour endowments and trade agreements. There is little support for multilateral trade openness, most host‐country business costs, host‐country infrastructure and host‐country institutions. Our results suggest that many covariates found significant by previous studies are not robust.     

The Welfare Synergy of Bundling International Environmental Agreements with International Trade Treaties

This paper examines whether linking environmental cooperation with international trade agreements improves the welfare of the participating countries and allows countries to move closer to free trade compared with trade‐only agreements. The model is an infinitely repeated game with the threat of reversion to Nash equilibrium if an economy deviates from the cooperative agreement. It is found that such a synergy exists in a symmetric two‐country model with two goods, both emitting pollutants even when the externalities have local impact. A combination of analytic and numerical simulation analysis is used to derive the conclusions.     

Trade creating free trade areas and the undermining of multilateralism

This paper indicates that the consequences of regional trade agreements for the world trade system may be deceiving—an arrangement's apparent virtue may constitute the source of its drawback. In a model where governments have political, as well as economic, motivations, I show that a free trade area induces its members to reduce protection against the non-members, and to do so sufficiently deeply to generate overall trade creation. Trade creation amplifies the excluded countries’ access to the integrating markets, but also reduces their extra gains from multilateral liberalization. Thus, trade creation can reverse the support of the excluded countries to liberalization on a multilateral basis. This is more likely to happen when governments outside the free trade area are more responsive to special interests.     

双边自由贸易协定深度异质性及区内全球价值链效应——基于GVC修正引力模型实证研究

双边自由贸易协定深度嬗变,全球价值链引致贸易形成机制和形式变化,使得自由贸易区理论基础、影响机制和功能效应更替。本文基于对双边自由贸易协定深度演化以及相较于其他区域贸易协定的深度异质性研究,将公司产权理论纳入自由贸易区理论框架,形成双边自由贸易区内全球价值链效应的多维理论机制,并且运用适应全球价值链发展的修正引力模型和世界银行的贸易协定内容数据库对理论机制假设结论进行实证检验。研究发现:双边自由贸易协定总深度对区内成员国之间的全球价值链关联产生正向影响,相较于贸易相关条款深度而言,投资相关条款深度影响更大。此外,自由贸易区对象国差异性也会影响双边自由贸易区全球价值链效应的发挥。根据对象国不同选择差异化的自由贸易区深度在双边自由贸易区构建中重要性凸显。本文将为全球价值链背景下中国构建高标准自由贸易区网络的对象国选择、自由贸易区模式选择等提供政策参考。     

Investment in trade facilitating infrastructure: A political-economy analysis

This paper analyzes public investment in infrastructure that facilitates international trade. It considers a world consisting of small open economies that face transport costs for exporting or importing a particular good. Transport costs can be lowered by an improvement in transport infrastructure. National governments non-cooperatively decide about their respective country's investment level. Governments' preferences are assumed to be biased in favor of producers' interests with consequences for equilibrium investments: Exporting countries, whose producers benefit from a transport cost reduction, spend more for infrastructure than importing countries, whose producers are protected by transport costs from foreign competition. This outcome is inefficient, and governments have an incentive to cooperate internationally. The paper also incorporates bilateral trade with two goods that benefit from infrastructure improvements as well as trade that results from offshoring.     

On the trade-diversion effects of free trade agreements

Trade-diversion effects of free trade agreements (FTAs) have not been thoroughly examined empirically. Using a novel empirical approach, we confirm that FTAs divert trade away from non-member countries and even more so from internal trade (domestic sales) in member countries.     

Trade taxes and international investment

Abstract .  This paper demonstrates that international investment disturbs the conventionally understood equivalence between import tariffs and export taxes. Fundamentally, remittances to foreigners introduce an additional pecuniary channel between countries so that two-good Lerner Symmetry generally will not hold. Moreover, because tariffs subsidize investors in the local import competing sector while export taxes can extract rent from foreign investors in the export sector, the pattern of international investment will influence government preferences over trade policy  instruments  as well as levels. Notably, trade tax symmetry is restored by introducing a third policy tool in the form of a direct a tax on international remittances.     

Trade policy and productivity

Previous studies on the determinants of productivity emphasized the role of trade and institutions but omitted trade policy due to endogeneity concerns. This paper considers the role of one important element of trade policy: free trade agreements (FTAs). Based on recent work on the determinants of FTAs, we suggest an instrument which is based on the propensity to enter an FTA due to (exogenous) geographical characteristics. We find that differences in institutional quality and trade, due to variations in geography and trade policy, have a sizeable effect on productivity and can explain the huge variation in per capita income across countries.     

The high road and the low road to international competitiveness: Extending the neo‐Schumpeterian trade model beyond technology

Extending the neo‐Schumpeterian trade model, we estimate a ‘social‐gap’ model for a group of 17 OECD countries over the period 1975–1995. We find that government spending on social protection, employment protection regulations, union density, strike activity, and income security in the labor market (all measured in ‘gap’ form) are statistically significantly related to changes in international competitiveness. Specifically, we find some support for a Calmfors–Driffil, nonlinear, relation between cooperative labor relations and social spending patterns on the one hand, and international trade (and inward foreign investment) competitiveness on the other, implying that countries with relatively stronger institutional arrangements have better international economic performance than countries in the middle of the scale of conflict and cooperation. Our results indicate that models focusing solely on innovative effort are misspecified, and may suffer from an omitted variable bias caused by the absence of consideration of other institutional factors influencing international trade and investment.     

Capital mobility,openness, and saving-investment relationship in Asia

The main objective of this paper is to investigate the relationship between openness to trade and saving-investment behaviour in Asia during the period 1990–2006. We use this relationship to examine whether those Asian countries that are more open to trade and enjoy less trade barriers have also higher degree of capital mobility. Cluster analysis is used to classify the countries into different groups according to the share of trade in their gross domestic products and their average tariff rates. The goal is to place the countries that are similar to each other in terms of their trade policy in one group. We apply the Generalized Least Square (GLS) technique to a set of balanced panel error correction models to estimate the short- and long-run relationship between saving and investment. The estimation results indicate that there exist long-run equilibrium relationships between domestic saving and investment in all groups regardless of their degree of trade openness. Moreover, contrary to Amirkhalkhali and Dar (2007) for the case of OECD, we find out that more openness in terms of trade policy is associated with higher degree of capital mobility for the case of Asian countries. One policy implication of this result for the Asian economies is that trade openness can be used as a strategy to attract capital from abroad. Our findings also confirm the prediction of new open economy macroeconomic models regarding the short- and long-run behaviour of current account.     

Why are Trade Agreements Regional?

This paper shows how distance may be used to coordinate on a unique equilibrium in which trade agreements are regional. Trade agreement formation is modeled as coalition formation. In a standard trade model with no distance between countries a familiar problem of coordination failure occurs, giving rise to multiple equilibria; any one of many possible trade agreements can form. With distance between countries, regional trade agreements generate larger rent‐shifting effects than nonregional agreements. Countries use these effects to coordinate on a unique equilibrium.     

Partial cross-ownership and strategic environmental policy

This paper analyzes the effect of passive investment in rival firms on the setting of cooperative and non-cooperative environmental taxes. We consider two firms located in different countries, with each firm owning the same percentage of the stock of its rival. We show that bilateral partial cross-ownership affects the taxes set by the countries in the cooperative and non-cooperative cases. When the stake that one firm has in its rival is great enough and environmental spillovers are low enough, cooperative taxes are lower than non-cooperative taxes. For the remaining values of parameters the opposite result is obtained.     

Trade negotiations, domestic policies, and the Most Favored Nation clause

Abstract.  This paper illustrates how restricting trade instruments to non-discrimination links trade agreements to non-trade agreements and, under certain conditions, helps governments further lower tariffs and/or domestic standards (policies). These conditions are: (i) governments' objective functions are sufficiently concave with respect to domestic standards (policies); (ii) domestic standards are sufficiently valued; and (iii) policies are strategic complements. These can then be used as a rationale for restricting safeguard measures to non-discrimination.