Distinguishing China's processing trade in the world input-output table and quantifying its effects

ABSTRACT

Distinguishing processing trade is crucial to national input-output table-based research on China's international trade. This paper further investigates the importance of distinguishing China's processing trade in multicountry input-output table-based studies. We focus on the bias in China's bilateral trade in value added caused by China's undistinguished processing trade. We construct a product-by-product world input-output table capturing China's processing trade based on the World Input-Output Database. Empirical studies show that, if China's processing trade is undistinguished, the profile of China's bilateral trade in value added would be seriously distorted; China's bilateral net trade in value added with some economies, such as Japan, Korea and Taiwan, would be significantly underestimated, while it would be significantly overestimated for some other economies, such as the United States. Distinguishing processing trade in multicountry input-output tables is also crucial when China's bilateral trade in value added is considered.     

The Australia-United States Free Trade Agreement: An economic evaluation

A bilateral Free Trade Agreement (FTA) between Australia and the United States came into effect on 1st January 2005. Since the U.S. is one of the main trading partners for Australia, it was anticipated that the FTA would bring a substantial increase in Australia's bilateral trade with the United States. It would also have important implications for Australia's other main trading partners such as Japan, and China. This paper seeks to provide a quantitative assessment of the impact of the FTA by undertaking simulations using the Global Trade Analysis Project (GTAP) model. By simulating the GTAP multi-country CGE model, the paper evaluates various economy-wide effects, sectoral level effects, and trade diversion and trade creation effects in the two countries in response to bilateral free trade. It will also identify the effects on trading partners outside the FTA. The results will provide a preliminary indication of the magnitude of welfare gains involved.     

中国与印度贸易摩擦的原因及对策分析

随着中印双边贸易发展迅速,中国已成为印度的第二大贸易伙伴,印度也已成为中国在南亚地区最大的贸易伙伴。但印度对华贸易保护呈现愈演愈烈之势。在WTO成员国中,印度是金融危机以来对我国发起贸易救济案件最多的国家,两国间的贸易摩擦问题已不容忽视。本文通过对总贸易额、进出口商品构成、反倾销的比例等数据的比较,从宏观、政策和产业三个角度,分析了中印贸易摩擦存在的原因,并从政府、行业协会和进出口商会、企业的角度,制定出应对中印贸易摩擦的对策建议。     

The Location of Comparative Advantages on the Basis of Fundamentals Only

We propose a new way to locate the comparative advantages of two economies linked by international trade. We construct a competitive benchmark based only on the fundamentals of the two economies: endowments, preferences and technologies. The direction of trade is endogenously determined by a linear program with an input-output core. The factor contents of that trade are compared with factor endowments to test the Heckscher-Ohlin model in the presence of different technologies and preferences. We can also evaluate the gains of free bilateral trade. The model is applied to a customs union between Europe and Canada. The Heckscher-Ohlin factor abundance specialization hypothesis is supported by the data.     

Who's most exposed to the world trade slowdown?

• ? A new indicator of exposure to the world trade slowdown points to Asian economies like Taiwan and Korea being most exposed, but also to significant vulnerability in Germany. Better insulated from the slowdown are the less open economies, such as the US, Brazil and India.
• ? Asian economies’ exposure is greater due to their generally high export orientations and strong trade integration with China – especially significant given the escalation of US‐China trade tensions. Likewise, Germany is highly export‐oriented but is also specialised in capital goods exports, which tend to weaken most in trade downturns.
• ? The indicator used is based on factors including trade openness, export specialisation in weakening sectors and exposure to spillovers from US‐China tariffs. It explains around 40% of the pattern of economic slowdown from 2017–2019 across a sample of key economies.

     

Impact of China's currency valuation and labour cost on the US in a trade and exchange rate model

Ricardian dynamic general equilibrium analyses show that under free trade arrangements a low income country with lower wage cost and large endowment of labour has comparative advantage in trade. Efficiency gains from this enhance economic growth and welfare of households simultaneously in both low income and advanced economies. Theoretical predictions are empirically validated here with structural VAR analysis based on quarterly data over the time period 1995:1 to 2009:1 on China's relative wage cost, interest rate differential, real effective exchange rate (REER), relative GDP and the US current account balance. It is shown how the relative prices of labour, capital and the currency affect the economic activity in China and current account balance in the US. With free capital inflows and outflows and restrictions on labour mobility, comparative advantage of China and the trade deficit of the US will both be minimised if China allows real appreciation of the Yuan and complete adjustment in prices. Higher production cost and prices in China could reduce welfare of Chinese households and the trade imbalance of the US, while higher relative GDP of China lowers the current account balance for the US.     

Henry George and Immigration

Henry George's opposition to free immigration may be surprising in light of his positions on other aspects of economic theory and policy. This essay reviews George's statements on immigration policy, discusses inconsistencies of these statements with his positions on free trade and Malthusian population theory, compares George's views with the neoclassical economic perspective on immigration, and suggests that implementation of George's policy of taxing land values would share the gains from immigration in a manner that might reduce opposition to open borders.     

The Impact of Trade Liberalization on Micro Enterprises: Do Banks Matter? Evidence from Indian Manufacturing

This paper looks at the impact of trade liberalization on micro enterprises with differential access to banks. I use Indian data on rural micro enterprises employing less than ten workers in the manufacturing sector to find that trade liberalization, measured by a fall in the tariff, is associated with a larger increase or a smaller decrease in output, capital–labour ratio and labour productivity in districts with a larger number of bank branches per capita. Evidence is consistent with strong complementarities between trade liberalization effects, and the economic dynamism and access to financial intermediation associated with greater bank presence in the enterprise's location. The study underscores that trade liberalization can be beneficial to micro entrepreneurs under certain conditions and emphasizes reallocation resulting from trade liberalization. The study hence highlights the role for development policy in exploiting gains from trade.     

RAPID GROWTH IN CHINA AND THE ASIAN ECONOMIES: SOME STYLISED FREE‐MARKET POLICY INFERENCES

The focus of this article is on the rapid growth of the Chinese economy and its ongoing interaction with the rest of Asia. It concludes that rapid growth in both Asia and China has resulted from free‐market‐oriented neoclassical economic policies and principles. Owing to its economy's size, its openness and the briskness of its GDP growth, China has influenced economies across the globe as well as the more proximate regional economy.     

REGIONAL ECONOMIC INTEGRATION AND ITS IMPACTS ON GROWTH, POVERTY, AND INCOME DISTRIBUTION: THE CASE OF INDONESIA

Indonesia continually tries to open its economy through free trade areas (FTAs) on bilateral, regional, and multilateral bases. This paper discusses the impacts of FTAs on the Indonesian economy, particularly for economic growth, poverty, and income distribution. By using a Global Computable General Equilibrium (GCGE) model, we conducted the simulation analysis by setting eighteen scenarios for the ongoing and potential FTAs of different frameworks. Indonesia is found to benefit from joining in FTAs, except for the FTA with India. It is also implied that FTAs increase rural household income at higher rates than they increase urban household income. Moreover, FTAs' impacts are more favorable for unskilled workers than for skilled ones, and also for relatively poor households more than for rich households, both in urban and rural areas. In brief, FTAs provide Indonesia with income redistribution effects.     

Production fragmentation and trade integration: East Asia in a global context

This paper examines the implications of international production fragmentation for global and regional trade patterns, with special emphasis on countries in East Asia. It is found that, while trade in parts and components (fragmentation trade) has generally grown faster than total world manufacturing trade, the degree of dependence of East Asia on this new form of international specialization is proportionately larger than in North America and Europe. International production fragmentation has certainly played a pivotal role in the continuing dynamism of the East Asian economies and increasing intra-regional economic interdependence. There is, however, no evidence to suggest that this new form of international exchange has contributed to reducing the region's dependence on the global economy. On the contrary, growth dynamism based on vertical specialization depends inexorably on extra-regional trade in final goods, and this dependence has in fact increased over the years.     

Dynamic gains from North American free trade in an equilibrium model of the current account

The benefits of economic integration in North America are explored by quantifying the gains that the two small open economies of the region can obtain from free trade in financial assets as a vehicle to smooth consumption. Numerical simulations of a stochastic intertemporal equilibrium model are used to estimate the effects of free financial asset trading on economic activity and welfare. The results suggest that in Mexico, where business cycles have been larger and access to world markets has been more limited, free asset trading would produce more benefits that in Canada, where the risk of business cycles is smaller.     

Outsourcing and trade in a spatial world

This paper provides an analysis of outsourcing and trade in a spatial model à la Hotelling. In this setting, we discuss the trade-off between transport-cost-related disadvantages and outsourcing-related production cost advantages of a large economy and we investigate how the existence of national transport costs influences both the structure of industrial production and the pattern of final goods trade. In addition, the model gives a rich picture of the possible welfare effects of trade liberalization. In particular, we show that a final goods exporting country definitely gains from economic integration, while a final goods importing country may lose. Finally, when lowering domestic outsourcing activities, trade liberalization may reduce world welfare, even if pro-competitive effects lead to a decline in consumer prices.     

Outsourcing and trade in a spatial world

This paper provides an analysis of outsourcing and trade in a spatial model à la Hotelling. In this setting, we discuss the trade-off between transport-cost-related disadvantages and outsourcing-related production cost advantages of a large economy and we investigate how the existence of national transport costs influences both the structure of industrial production and the pattern of final goods trade. In addition, the model gives a rich picture of the possible welfare effects of trade liberalization. In particular, we show that a final goods exporting country definitely gains from economic integration, while a final goods importing country may lose. Finally, when lowering domestic outsourcing activities, trade liberalization may reduce world welfare, even if pro-competitive effects lead to a decline in consumer prices.     

The universal pathway to commodity structure upgrading in global trade evolution

Some scholars have proposed that economies grow by upgrading the commodities they produce and export. Product space theory holds that the export structure is determined by a country’s factor endowment and technological level, proposing the revealed comparative advantage (RCA) to analyze the specialization on commodities for countries. With the development of global trade, the network of multilateral trade relations has become increasingly hierarchical and complex. It would, therefore, be valuable to identify general patterns across countries of upgrading the commodity structure in the evolution of their participation in global trade. This paper shows that a typical pattern of change in the dominant types of foreign trade occurs when an economy has grown to a certain scale. With economic development, the advantages of high-technology commodities in trade gradually become more prominent.

     

Why do some economies benefit more from climate finance than others? A case study on North-to-South financial flows

The Copenhagen and Paris Agreements, in which developed countries committed to mobilise USD 100 billion a year by 2020, indicate that climate finance will continue to grow. Even though economic development is not the aim of climate finance, climate-related disbursements will generate an economic impact on recipient countries’ economies. This impact will also reach other countries (including climate finance donors) through induced international trade. In this paper, we apply a structural decomposition analysis to study why the economic impact of climate finance varies between countries. We focus on specific climate actions and quantify the contribution of four drivers: value-added intensity, domestic multiplier, foreign multiplier and trade structure. The paper helps identifying the factors with the greatest potential to enhance the economic gains of climate finance in each country. This information can be useful for policy-makers trying to design national strategies that exploit the synergies between climate action and economic development.     

Economic freedom as driver of growth in transition

This paper reviews the political economy of economic growth in post-communist economies making the transition to free markets, focusing on the role of economic policy and institutions. We test the hypothesis that better institutions, measured in terms of economic freedom, contribute to growth. To begin with, the empirical results from the cross-section of transition economies confirm this hypothesis. Yet the question is deeper than that since there is an interactive effect between economic freedom and investment. The paper concludes that non-linearities are present in the growth model.     

新兴经济体发展对国际社会的影响力研究

当今世界经济呈现多极化趋势,新兴经济体成为世界经济增长的主要动力,对世界政治经济格局产生深刻影响。本文阐述新兴经济体在政治、经济、社会等各方面发展状况,分析新兴经济体的发展对国际社会的影响力。新兴经济体的发展促进了世界经济、国际贸易的稳步发展和产业结构调整,为消除世界范围的贫困和维护世界和平做出了积极的贡献,为发展中国家加快发展和加强“区域化”多边合作提供了可借鉴模式,同时对全球治理结构转型和国际秩序重塑产生一定影响。     

Do U.S. macroeconomic surprises influence equity returns? An exploratory analysis of developed economies

Given the dominant role the U.S. economy plays in global trade, we explore how U.S. macroeconomic surprises affect stock markets in ten major developed economies as well as in China and India. We do not find strong enough evidence to conclude that U.S. macro shocks materially and consistently influence equity returns and volatilities in the economies studied. Consistent with previous research, it appears that only in few markets are return levels materially influenced by macro surprises generated in the U.S. Also, only a small number of macro shocks seem to be of any consistent significance. For returns levels, inflation, productivity, consumer confidence, and retail sales seem to matter. At the same time, conditional volatilities appear to be influenced by inflation, retail sales, durable goods, industrial production, consumer confidence, gross domestic product, and trade balance surprises. Finally, our exploratory analysis indicates that the degree of bilateral trade connectedness may partially explain the extent to which macroeconomic surprises are transmitted across countries.     

World Economic Prospects Monthly

Overview: Growth resilient to protectionist concerns

• ? Despite the mounting threat of more protectionist trade measures, we expect the impact on global growth and trade to be mild. Given this, and the still fairly solid underlying economic picture, we have left our global GDP growth forecasts for 2018 and 2019 unchanged at 3.2% and 3.0% respectively.
• ? Although economic data in Q1 painted a pretty solid picture, there are signs that the global expansion may lose momentum in Q2. Most notably, the global PMI fell sharply in March, more than offsetting the gains of the previous three quarters or so. Some of the decline may reflect an over‐reaction to recent trade threats and could be reversed in April and despite the drop, the surveys still point to strong growth. But the fall highlights the risk that lingering trade tensions could damage confidence and prompt firms and consumers to delay investment and major spending plans.
• ? On a more positive note, China's economic growth picked up markedly in early 2018, which could provide a fillip to global trade growth in the near term. Given the betterthan‐expected start to the year, we have made no change to our 2018 China GDP growth forecast (of 6.4%) despite the probable negative effects of trade measures.
• ? Meanwhile, most advanced economies remain in the late expansionary stage of the cycle. And those that show signs of slowing, such as the Eurozone, are doing so from multi‐year highs. While we have nudged down our 2018 Eurozone GDP growth forecast slightly to 2.2%, the pace is expected to remain well above trend. We judge the impact of US tariffs and counter‐measures on the US economy to be subdued and have lowered our GDP growth forecasts for 2018 and 2019 by just 0.1pp.
• ? For now, we see further solid growth for the world economy this year even in the environment of rising protectionism. While there is a risk that a further escalation of trade tensions could trigger a sharper slowdown in global GDP growth, we still see the risks of a full‐blown and damaging trade war as limited and the chances of protectionism leading to recessions as smaller still.