Age Structure and Trade Openness: An Empirical Investigation

This study focuses on the relationship between age structure and trade openness. We hypothesise that a higher share of the working‐age population in the total population increases trade openness, because the dependent population tends to spend more than the working‐age population on non‐tradable goods such as education and medical services. We estimate the effects of age structure on trade openness using panel data for 85 countries from 1991 to 2010. The empirical results show that the share of the working‐age population has a positive effect on trade openness. An increase in the share of the working‐age population is considered to be one factor that contributed to an increase in trade openness in the sample period.     

Education bias of trade liberalization and wage inequality in developing countries

The aim of this article is to examine the impact of increased trade on wage inequality in developing countries, and whether a higher human capital stock moderates this effect. We look at the skilled–unskilled wage differential. When better educated societies open up their economies, increased trade is likely to induce less inequality on impact because the supply of skills better matches demand. But greater international exposure also brings about technological diffusion, further raising skilled labour demand. This may raise wage inequality, in contrast to the initial egalitarian level effect of human capital. We attempt to measure these two opposing forces. We also employ a broad set of indicators to measure trade liberalization policies as well as general openness, which is an outcome, and not a policy variable. We further examine what type of education most reduces inequality. Our findings suggest that countries with a higher level of initial human capital do well on the inequality front, but human capital which accrues through the trade liberalization channel has inegalitarian effects. Our results also have implications for the speed at which trade policies are liberalized, the implication being that better educated nations should liberalize faster.     

The effects of trade agreements on the growth of major Latin American economies

While the connection between trade openness and economic growth is generally assumed to be positive, empirically, it is not clearly demonstrable. Examinations of the relationship between trade and growth have taken a number of approaches, differing both in the empirical methods, as well as the proxies employed for trade openness, trade liberalization, and growth, but results have been decidedly mixed. Our research differs from prior studies in that it does not examine whether trade policy, trade liberalization or the level of trade itself enhances GDP; but rather whether participating in a specific type of trade agreement/union and/or the number of trade agreements to which a given country or region belongs enhances a country's level of growth. For this purpose, we study the relationship between trade agreements and growth for 18 Latin American countries between 1960 and 2008. Empirical analysis uses an adaptation of the neoclassical Solow growth model. Even though supporters of globalization advance the notion that involvement in trade agreements will help a country's economy, our findings suggest that that may not be consistently so.     

Impact of trade openness on GDP growth: Does TFP matter?

ABSTRACT

The objective of this study is to empirically explore the impact of trade openness on GDP growth initiating with the idea that trade openness cannot be fully characterized through the different openness measures only, we propose to account for total factor productivity (TFP) development level as an additional dimension of countries’ trade integration. Our empirical application is based on 35 years’ balanced panel of 82 countries spanning 1980–2014. To address the potential endogeneity issue, we use the system GMM estimator developed for dynamic panel data models. The results outline that there exists an interesting non-linear pattern between trade openness and GDP growth when TFP development level is taken as an intervening variable into account: trade may have a negative impact on GDP growth when countries have specialized in low-TFP development level; trade openness clearly boosts GDP growth once countries exhibit a minimum threshold of TFP development level. Therefore, there is some pattern of complementarity between trade openness and TFP development level so that the higher the TFP development level, the higher the impact of the trade openness on GDP growth.     

The Impact of Trade Openness on Regional Inequality: The Cases of India and Brazil

Regional inequalities are large in India and Brazil and represent a development challenge. This article aims to determine whether regional inequalities are linked to a country's trade openness. An annual indicator of regional inequalities is constructed for India for the period 1980–2004 and for Brazil from 1985–2004. Results from time series regressions show that Brazil's trade openness contributes to a reduction in regional inequalities. The opposite result is found for India. India's trade openness is an important factor aggravating income inequality among Indian states. In both countries, inflows of foreign direct investment are found to increase regional inequalities.     

The Gravity Model Analysis of Bangladesh's Trade: A Panel Data Approach

The article applies generalized gravity models to analyze Bangladesh's bilateral trade pattern using the panel data estimation technique. The results reveal that Bangladesh's trade is positively determined by the size of the economies, per capita gross domestic product differential and openness of the trading countries. Bangladesh's exports are positively determined by its income, partner countries' total import demand and openness, but negatively determined by partner countries' income and domestic inflation. Bangladesh's imports are positively determined by income of trading countries and degree of openness of the partner countries and negatively determined by partner countries' inflation. Transportation costs affect Bangladesh's trade negatively.     

Dynamic openness and finance in Africa

This study assesses dynamics of openness and finance in Africa by integrating financial development dynamics of depth, activity and size in the assessment of how financial, trade, institutional, political and other openness policies (of second generation structural and institutional reforms) have affected financial development. The empirical evidence is based on Generalized Method of Moments with data from 28 African countries for the period 1996–2010. The following findings are established. (1) While the de jure (KAOPEN) indicator of financial openness improves financial depth, the de facto (FDI) measurement decreases it, with the effect of the latter measure positive on financial size. (2) Whereas trade openness improves financial depth, its effect on financial activity and size is negative. (3) Institutional openness has a positive effect on financial dynamics of depth and activity, while its effect on financial size is negative. (4) Political openness and economic freedom are detrimental to financial depth and activity. Justifications for these nexuses are discussed.     

Preserving your revenue-management system as a trade secret

A hotel's or airline's revenue-management system is (1) quite valuable and (2) a trade secret. Trade secrets involve special proprietary information and processes, including publicly available information that is assembled in a special manner by the trade secret's owner. Establishing that a process is a trade secret involves demonstrating that it is, in fact, a secret, that information about the process is restricted to employees and licensess, and that the owner makes a specific effort to shield the information. Hotels' revenue-management systems are particularly at risk for either general disclosure or corporate espionage because of the relatively rapid turnover of employees and the fact that those employees often go to work for competitors. Thus, a wise hotelier will take the following steps to protect the company's revenue-management system: (1) maintain the information's physical security by restricting access, (2) place restrictive legends on the information stating that it is in fact confidential, (3) state in employee handbooks that the revenue-management information is a trade secret and will be shared only in confidence, (4) require revenue-management employees to sign confidentiality agreements, (5) train employees and remind them regularly of the confidentiality of the revenue-management information, and (6) ask exiting employees to reaffirm their agreement not to share the confidential trade secrets. The former employer may also consider sending an advisory letter to a departing employee's new employer stating that the revenue-management information is confidential, but that letter-writing step involves other issues that require legal counsel.     

Real Output Convergence and Trade Openness: Fuzzy Clustering and Time Series Evidence

In the now extensive literature on the convergence of real per capita output across countries over time, there is surprisingly little attention paid to the role of international trade. Some recent studies have illustrated that standard trade theories provide no clear prediction as to the impact of trade liberalization on output convergence. These studies have also provided somewhat ambiguous empirical evidence regarding this relationship, under-scoring the need for additional results in this area. This paper uses both standard and new approaches to testing for convergence in order to explore the extent to which the degree of trade openness may affect output convergence among countries. Using annual time-series data for 88 countries from the Penn World Table, we obtain somewhat mixed results, but on balance they are quite supportive of a positive relationship (though not necessarily causality) between trade openness and output convergence. Our results also suggest certain directions for further research that would shed more light on this important issue.     

Trade openness,urbanization and CO2 emissions: Dynamic panel data analysis of middle-income countries

Using the Pooled Mean Group (PMG) approach of Pesaran, Shin, and Smith [1999. “Pooled Mean Group Estimation of Dynamic Heterogeneous Panels.” Journal of the American Statistical Association 94 (446): 621–634], this article attempts to empirically examine the heterogeneous effects of trade openness and urbanization on CO₂ emissions in 55 middle-income countries over the period from 1992 to 2012. We find that trade openness has a benign effect on the environment in the short run, but a harmful effect in the long run. Meanwhile, our results show that urbanization has a negative and significant impact on CO₂ emissions both in the short and long run, implying that urbanization improves environmental quality. The results are robust even after controlling for a number of factors such as economic or non-economic factors.     

Quantifying the evolution of world trade, 1870–1949

The typical narrative regarding the evolution of world trade prior to World War II refers to a secular rise starting around 1870 and a subsequent collapse beginning in 1914. This narrative, however, is based on measures of trade openness that do not fully take into account purchasing power differences across countries. Due to lack of alternative data, the measures employed in the existing literature are typically based on non-PPP-adjusted trade data denominated by PPP-adjusted GDP data. The present paper seeks to resolve this inconsistency by constructing new trade share estimates for 62 countries, representing 90% of world GDP, for the period from 1870 to 1949. Our estimates combine historical import and export figures with non-PPP-adjusted GDP values that we estimate via the short-cut method. Our estimates confirm qualitatively the narrative of a dramatic rise and fall of world trade over this period. Yet, they indicate that this rise and fall was quantitatively much more pronounced. We find that trade shares were on average 38% higher than previously documented and the world's level of trade openness in 1913 was comparable to that in 1974.     

The interest group theory of financial development in China: Openness and the role of interest groups

The interest group theory of financial development predicts that the incumbents' opposition to financial development will be weaker when an economy is open to both trade and capital flows. Based on regressions of financial development on trade and financial openness, existing studies only provide indirect tests of the hypothesis and deliver mixed findings. This paper proposes models for direct tests of interest group theory for China. Using Chinese cross-province data, we define and measure interest groups based on the close tie between state-owned enterprises and local government in China. The empirical results show that the opposition from interest groups to financial development cannot be weakened in provinces with high trade or financial openness alone. However, the opposition is indeed weakened in provinces with high levels of both trade and financial openness. These results provide robust support for interest group theory in accounting for cross-province differences and time-series variation in financial development in China.     

On the Irrelevance of Mercosur: Evidence From Foreign Direct Investment

ABSTRACT

This article utilizes data from more than 100 countries over 30 years to identify the key factors that make a country more attractive to foreign direct investment (FDI). We find evidence that a country's potential marginal returns to capital, available infrastructure, degree of trade openness, labor force qualification, and macroeconomic stability have a positive impact on FDI inflows. Our estimates capture a change in the role played by trade protection and an increase in the importance of human capital as globalization progressed. An application of our models illustrates why Mercosur countries have underperformed their peers in attracting FDI.     

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.     

Trade Policy in a Small Advanced Transition Economy: Trade Policy Review of Slovenia, 2002

The aim of this paper is a commentary to the first Trade Policy Review (TPR) of Slovenia and to shed more light on the background of the whole process of trade liberalisation and transition in Slovenia during the 1990s. The TPR praises Slovenia for its sound trade regime, which is in conformity to Slovenia's commitments to the multilateral trading system and detects only a few open issues. The paper puts these issues in a broader context of Slovenia's trade liberalisation after independence in 1991 and recent harmonisation with the EU in the pre‐accession negotiation process. Although there is much scope for improvements in Slovenia's trade policies and practices, one should note that most of the open issues raised would disappear anyway upon Slovenia's accession to the EU by 1 May, 2004, and by subsequent adoption of the CET and full implementation of the acquis communautaire. Some of the problems, such as strong government support to agriculture implemented by Slovenia due to harmonisation with the EU's CAP should, however, be challenged at the broader multilateral level in the framework of the Doha Development Agenda.     

Free trade agreements in a small,open country: The case of Norway

Negotiating free trade agreements (FTAs) has been a high political priority for Norway. Today, it has agreements with 41 countries outside the European Union (EU)/the European Free Trade Association (EFTA), resulting in one of the world's most extensive FTA networks. FTAs cover about 10% of Norway's trade—a share likely to increase in the future. These agreements eliminate tariffs on a substantial number of traded products and have gradually become more comprehensive, covering an expanding range of non‐tariff areas. Hence, they may have trade‐promoting effects beyond tariff reductions as such. On the other hand, the non‐tariff provisions often do not go further than what has already been dealt with in other international agreements or practised domestically, so their overall effect may be limited.     

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.     

Animal crackers: making progress on The Penguin's Progress

The vast majority of academic articles, according to eminent literary critic John Sutherland, read like they're written by robots in a Japanese car factory. And that a Toyota-style recall is sorely needed. This statement may or may not be true, but many scholars would surely concede that remedial writing measures are necessary. This paper describes one such measure, an illustrated novel that's similar to Shrek, only with advertising characters like the Michelin Man instead of fairytale characters like the Gingerbread Man. After an apt introductory anecdote, the rationale for The Penguin's Progress is explained, the difficulties surrounding its creation are itemised, and an extract from the work-in-progress is presented.     

On Income Convergence among China,Hong Kong and Macau

Hong Kong and Macau were reunited with China in the late 1990s as two special administrative regions (SARs). Over the last half century, they were China's good examples of economic development, windows of openness and investors. Owing to historical reasons, China lagged far behind Hong Kong and Macau in terms of per capita incomes. However, rapid economic growth in China over the last three decades must have brought about a significant convergence of the three economies. China's economic success has benefited from the integration of its two SARs and the coastal provinces, especially Guangdong, in terms of technological spillover, massive investment and trade. The economic trickledown, direct investment and trade must have been important drivers of economic integration and income convergence. This paper aims to analyse the trend and studies the determinants of income convergence between China and its two SARs. Both parametric and non‐parametric techniques are employed to quantify the pace of convergence on per capita incomes in Hong Kong, Macau and the Chinese provinces over a period of more than 40 years. We find no evidence of convergence in the pre‐reform period, but strong evidence of both absolute and conditional β‐convergence in the post‐reform period. Over the reform period, the pace of convergence is less than 1 per cent per annum without controlling for trade and more than 2 per cent conditional on trade.     

Does Globalisation Affect Crime? Theory and Evidence

Globalisation sceptics argue that trade liberalisation has high social costs, including an increase in expropriative behaviour such as civil conflict, coercion of labour and crime. We show that a theoretical relationship between trade and expropriation exists, but the sign differs for developed and developing economies. We verify this empirically using data on crime rates. Specifically, we find that trade liberalisation, as measured by both higher openness and lower import duty rates, tends to increase burglaries and theft in very labour‐abundant countries. For other countries, however, we find that trade liberalisation has either a small negative effect on crime or no effect, depending on the country's capital abundance.