Estimating Trade Misinvoicing from Bilateral Trade Statistics: The Devil is in the Details

Trade misinvoicing, an important channel of illicit financial flows, is frequently estimated by the partner-country trade data comparison method. However, this method relies on a critical but incorrect assumption that the trade statistics in partner countries exhibit no misinvoicing. This study proves that the assumption of no misinvoicing in partner countries cannot be supported, raising serious doubts about the reliability of the method and a possibility that inappropriate policy decisions may be made based on the erroneous estimates of trade misinvoicing. We introduce an alternative method to estimate trade misinvoicing which does not rely on the trade statistics of partner countries.     

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).     

Malaysian Trade Policy and the 2001 WTO Trade Policy Review

The purpose of this paper is two–fold; to examine developments in trade and investment policy regimes in Malaysia following the on–set of the financial crisis, using the Trade Policy Review Malaysia: 2001 of the WTO as a reference point; and to evaluate the Review in terms of the objectives of the WTO Trade Policy Review Mechanism as set out in the Marrakesh Agreement. It is found that, by and large Malaysia has managed to come out of the crisis without compromising on its long–standing commitment to maintaining a relatively open trade and investment policy regime by the regional standards. However, there are some disturbing post–crisis developments, which deserve scrutiny in a future Review. These include increase in the degree of dispersion of tariff rates because of high tariff peaks relating to a few product lines, increased reliance on non–automatic import licensing to regulate imports of a significant number of products which directly compete with domestic production by public sector enterprises, and unexplained delays in meeting commitments under the General Agreement on Trade in Services (GATS)     

Determinants and Relationships in Sectoral Trade: A Bilateral Model for Knitwear Clothing

The generalized aggregated trade models do not capture the industry or product‐specific competitive situation and overgeneralize the bilateral cases. As a result, product‐specific trade determinants at the sectoral or bilateral level cannot be sufficiently drawn from such generalized models. This holds true for knitwear clothing products, an important component of international textile trade. To remedy this, we propose a sector‐specific bilateral model in the context of knitwear clothing exports from India to the United States. This pair of countries is chosen due to unilateral trade flows as well as to underline the contrasting features of developed north versus developing south. The vector autoregression (VAR) model was found more appropriate than other available modeling choices. We used monthly frequency data from January 2006 to December 2012. The traditional determinants such as exchange rate and price competitiveness remain relevant. Chinese competition emerges as a significant determinant, which underlines the relevance of a sector‐specific bilateral trade model. The 2009 recession showed a clear impact, albeit for only a few months. Our model is parsimonious but has more explanatory power than generalized models. Policy researchers may further explore the model for more fine‐tuned policy on sector‐specific factors. © 2016 Wiley Periodicals, Inc.     

A New Measure of Trade Openness

Trade openness, popularly measured as (X + M)/GDP in the hundreds of studies published to date, consistently considers the world's biggest trading countries such as the USA, the UK, Japan and Germany to be closed economies, irrespective of the data set used. This study suggests a composite trade share measure that more completely reflects reality by combining two important dimensions of trade openness: trade share and the relative importance of a country's trade level to total world trade. Robustness tests support the new proposed measure in lieu of the conventional measure of openness and suggest that the latter may not only be incomplete but may also overstate the impact of trade on such things as income and the environment.     

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.     

Non‐Tariff Measures,Specific Trade Concerns and Tariff Reduction

This paper studies the determinants of the recent proliferation of Specific Trade Concerns raised at the WTO on non‐tariff trade measures (NTMs), with a focus on sanitary and phytosanitary (SPS) and technical barriers to trade (TBTs). Even though NTMs are imposed de jure to protect consumers from unhealthy products, they increase trade costs de facto. So, when tariff protection lowers, NTMs become effective barriers to trade and the exporting countries can complain at the dedicated committee at the WTO (STCs). Therefore, we study whether STCs are raised by exporting countries as a consequence of tariff reductions in importing countries, that is when non‐tariff measures become barriers to trade. Using a recent database on STCs over the period 1996–2010, we find empirical evidence that SPS and TBT concerns are raised by exporting country as a consequence of importer's tariff cut.     

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.     

Trade Costs in Bilateral Trade Flows: Heterogeneity and Zeroes in Structural Gravity Models

This paper contributes to the explanation of international trade flows with structural gravity models taking heterogeneity and excess zeroes into account. We introduce a more general hypothesis on the structure of trade costs in Helpman et al. (The Quarterly Journal of Economics, 2008; 123 , 2, 441) theoretical model that is capable of explaining over‐dispersion in trade data. Zero‐inflated negative binomial models are considered to analyse the impact of trade costs, measured in terms of geographical distance and contiguity effects. An analysis related to a sample of 37 countries' trade flows, with heterogeneous effects across sectors and trade‐integrated areas, such as APEC and EU, is presented. The size of exporting and destination economies and cultural and institutional factors are considered as influencing both the extensive and the intensive margin of trade.     

Putting Canada in the penalty box: Trade and welfare effects of eliminating North American Free Trade Agreement

Three years ago, very few economists would have imagined that one of the newest and fastest growing research areas in international trade is the use of quantitative trade models to estimate the economic welfare losses from dissolutions of major countries' economic integration agreements (EIAs). In 2016, "Brexit" was passed in a UK referendum. Moreover, in 2019, the existence of the entire North American Free Trade Agreement (NAFTA) is at risk if the US withdraws—a threat President Trump has made if the proposed US–Mexico–Canada Agreement is not passed by the US Congress. We use state‐of‐the‐art econometric methodology to estimate the partial (average treatment) effects on international trade flows of the six major types of EIAs. Armed with precise estimates of the average treatment effect for a free trade agreement, we examine the general equilibrium trade and welfare effects of the elimination of NAFTA (and for robustness US withdrawal only). Although all the member countries' standards of living fall, surprisingly the smallest economy, Mexico, is not the biggest loser; Canada is the biggest loser. Canada's welfare (per capita income) loss of 2.11% is nearly two times that of Mexico's loss of 1.15% and is nearly eight times the US' loss of 0.27%. The simulations will illustrate the important influence of trade costs—international and intranational—in contributing to the gains (or losses) from an EIA's formation (or elimination).     

On the Path to Trade Liberalisation: Political Regimes in Trade Negotiations

The number of free trade agreements (FTA) has increased substantially since 1990 despite efforts to promote multilateral trade liberalisation. While there is evidence on the determinants of FTA formation, still little is known on the processing of trade agreements, particularly regarding the pre‐implementation duration. This paper fills the research gap by using event data on the negotiation, the signing and the implementation of trade agreements. Duration analysis is employed to examine the connection between regime types and the lengths of the negotiation and the ratification stages. The results support the claim that higher levels of democratisation are associated with shorter negotiations, while political constraints lead to delays. Moreover, the depth of an agreement matters: a higher number of WTO‐X and WTO+ provisions do not only prolong the negotiation stage, but also the subsequent ratification. Against the background of potential anticipation effects of trade agreements, these results are of interest for exporting firms that assess the timing of implementation.     

金融发展、技术创新与对外贸易产业升级——基于空间计量的实证研究

内生经济增长理论认为,金融发展对技术创新和对外贸易产业升级均具有十分重要的作用。文章利用省际数据,引入空间回归方法估计了金融发展对技术创新水平的影响;再进一步控制技术创新水平,加入空间依赖性来估计金融发展对对外贸易产业升级的促进作用。实证研究表明银行信贷与技术创新和对外贸易产业升级均具有显著的正向关系;股票市场仅与对外贸易产业升级有着显著的正向关系;保险市场并没有表现出对技术创新和对外贸易产业升级的促进作用。     

Trade Policy Issues in a Small African Economy: The Trade Policy Review of The Gambia 2004

The Gambia displays many of the classic characteristics of a small open economy, with the vulnerabilities that implies. The sum of its imports and exports are around 100 per cent of GDP, with a limited number of export commodities and a wide variety of imports, including some key staple foods. The Trade Policy Review of The Gambia 2004 provides a very helpful review and assessment of current trade patterns and policies. The latter rely predominantly on import and export taxes. While quite substantial trade reform measures have been implemented recently, these have led to only a very small reduction in the average tariff rate, and trade policy displays a substantial anti‐export bias. Other important issues highlighted by the Trade Policy Review include serious capacity constraints relating to trade policy, and a failure to discuss connections between trade policy and growth and poverty reduction – again common characteristics of many small economies.     

Protecting Innovation Through Patents and Trade Secrets: Evidence for Firms with a Single Innovation

Abstract

This paper analyzes the use and effectiveness of patents and trade secrets designed to protect innovation. While previous studies have usually considered patents and trade secrets as substitutes for one another, we investigate to what extent and in what situations the two protection methods are used jointly. We identify protection strategies for single innovation firms and hence overcome the assignment problem of existing empirical studies, that is, whether firms using both protection methods do so for the same innovation or for different innovations. Employing firm panel data from Germany, we find fairly few differences between the determinants for choosing secrecy and patenting. Single innovators that combine both strategies, 39% of the group, tend to aim at a higher level of innovation and act in a more uncertain technological environment. Firms combining both protection methods yield significantly higher sales with new-to-market innovations, providing some evidence for a complementarity of the two protection methods.     

Formulating Trade Policy in a Small Hydrocarbon‐dependent Economy: The Case of Trinidad and Tobago

We examine the status of Trinidad and Tobago's trade policy regime based mainly on the WTO's Trade Policy Review 2005 and to a lesser extent the Review of 1998. The paper highlights the areas identified by the WTO that the country needs to address to ensure compliance with the rules, disciplines and commitments made under the Multilateral Trade Agreements and the existence of a trade regime characterised by little or no distortions. It undertakes this discussion against the background of Trinidad and Tobago's role as a founding member of CARICOM and the increasing influence of this body in determining its trade policies in particular and economic policies in general. The study highlights the progress made by Trinidad and Tobago in establishing an outward‐oriented trade regime since embracing reforms in the mid‐1980s. However, the need for much deeper reforms is stressed if the country is to realise its ambitious objective of becoming the manufacturing base and the commercial, trans‐shipment and financial hub of the western hemisphere. Further, it points to the inextricable link between the country's economic fortunes and international petroleum prices, and increasing over‐reliance on the hydrocarbons sector. Consequently, it stresses the need for getting its diversification strategy ‘right’ if it is to minimise the fallout effects associated with the bust that inevitably follows a petroleum boom.     

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.     

浙江省金融发展与对外贸易关系的实证研究

利用VAR估计、协整检验和格兰杰因果检验方法研究了浙江省金融发展与对外贸易之间的关系,结果表明,该省的外贸规模、外贸商品结构分别与金融相关率和信贷转化率之间存在长期稳定的协整关系,但金融发展对该省外贸规模和外贸商品结构优化的作用则较弱,建议该省拓宽融资渠道,提高金融机构运行效率,加强金融体系风险监管,以促进对外贸易持续发展和贸易结构不断优化.     

Trade facilitation and the extensive margin

The literature on trade facilitation has mostly focused on implications for trade volumes. However, recent theoretical contributions have emphasized that trade costs – such as transaction costs related to cross-border trade procedures – affect both the traded volumes of ‘old’ goods (the intensive margin) and the range of traded goods (the extensive margin). This article therefore tests whether trade facilitation affects the extensive margin by counting the number of 8-digit products that are exported from developing to EU countries, and using this as the dependent variable in an estimation. Moreover, it also tests whether the extensive margins in differentiated and homogeneous goods are affected in the same way by transaction costs. Estimation results suggest that if export transaction costs – proxied by the number of days needed to export a good – declined by 1%, the number of exported differentiated and homogeneous products would rise by 0.6% and 0.3%, respectively. Policy simulations further illustrate that if all countries were as efficient at the border as the most efficient country at the same level of development, the number of exported differentiated and homogeneous products would increase by 62% and 26%, respectively.     

Transpacific Trade Imbalances: Causes and Cures

This paper explores the causes of the transpacific trade imbalances using an empirical global model. It also evaluates the impact of various policies to reduce these imbalances. We find the fundamental cause of trade imbalance since 1997 is changes in saving‐investment gaps, attributed to the surge of the US fiscal deficits and the decline of East Asia's private investment after the 1997 financial crisis. Our simulation results show that a revaluation of East Asia's exchange rates by 10 per cent (effectively a shift in monetary policy) cannot resolve the imbalances. We find East Asia's concerted efforts to stimulate aggregate demand can have significant impacts on trade balances globally, but the impact on the US trade balance is not large. US fiscal contraction is estimated to have large impacts on the US trade position overall and on the bilateral trade balances with East Asian economies. These results suggest that in order to improve the transpacific imbalance, macroeconomic adjustment will need to be made on both sides of the Pacific.