Trade liberalization, outsourcing, and the hold-up problem

This paper shows that, in a bilateral relationship where a foreign supplier has to make a relationship-specific investment but cannot enforce a complete contract, the standard hold-up problem of underinvestment is aggravated when trade incurs a tariff. In this context, we identify two new channels through which trade liberalization enhances international trade. First, lower tariffs increase the incentives of foreign suppliers to undertake cost-reducing investments. Second, lower tariffs may prompt vertical multinational integration. These indirect effects imply that responses of trade volumes to trade liberalization are greater than standard trade models suggest and help explain current trends toward foreign outsourcing and intra-firm trade.     

Reciprocated unilateralism in trade policy

Using the menu-auction approach to endogenous determination of tariffs and allowing additionally for lobby formation itself to be endogenous, this paper analyzes the impact of unilateral trade liberalization by one country on its partner's trade policies. We find that such unilateral liberalization may induce reciprocal tariff reductions by the partner country. Intuitively, unilateral liberalization by one country has the effect of increasing the incentives for the export lobby in the partner country to form and to lobby effectively against the import-competing lobby there for lower protection.     

An Analysis of Trade Performance of the Australian Passenger Motor Vehicle Industry: Trends,Patterns, and Determinants

This article presents an empirical analysis of the trends, patterns, and determinants of the Australian passenger motor vehicle industry trade in the context of policy liberalization. Although export orientation and import penetration ratios have shown rising trends, especially since the early 1990s, faster growth in import penetration has led to a surge in the industry’s trade deficit. Econometric results appear to suggest that tariff protection, export incentives, and government assistance have made the industry less competitive, in domestic and world markets. These findings indicate that further liberalization may help improve the Australian passenger motor vehicle industry’s trade performance.     

Optimal trade,industrial, and privatization policies in a mixed duopoly with strategic managerial incentives

Abstract

This paper examines optimal trade, industrial, and privatization policies in a home-market model of mixed international duopoly with strategic managerial incentives. Under linear demand and constant marginal costs, the optimal degree of privatization is shown to depend crucially on cost and demand parameters and on the availability of strategic trade and industrial policies. If both firms are equally efficient, optimal trade and industrial policies drive out the foreign firm and the privatization policy loses its effect on national welfare; however, if the home firm is less efficient, then full privatization combined with an import tariff and a production subsidy is optimal for the home country, while an export subsidy is optimal for the foreign country. If trade and industrial policies are unavailable and if both firms are equally efficient, full state-ownership, which drives out the foreign firm, becomes optimal; however, if the home firm is less efficient, only partial privatization is optimal, The state-ownership share is increased if either the market size grows, the home firm's efficiency increases, or the foreign firm's efficiency decreases. Further, the paper demonstrates the potential conflict between privatization and trade liberalization policies.     

Global agricultural trade liberalization: Is Sub-Saharan Africa a gainer or loser?

This paper analyzes the potential impact of agricultural trade liberalization on Sub-Saharan Africa. We used the Agricultural Trade and Policy Simulation Model to estimate the potential effects of agricultural trade liberalization, mainly in the US and EU, on the world-market prices of agricultural commodities. We then used the estimated price changes to assess the impact of these reforms on net-food importers as well as other Sub-Saharan African countries that enjoy preferential trade agreements with the EU and US. The results indicate that the world market prices of all commodities imported by Sub-Saharan Africa are expected to rise while the prices of the key export commodities of the region would either decline or remain unchanged. Given that the prices of major food commodities are expected to rise, net-food-importing countries will experience increasing import bill, thus leading to welfare loss. Major Sub-Saharan Africa sugar exporters who are beneficiaries of preferential agreements such as the EU sugar protocol and US AGOA initiative will become losers as preferences erode due to global liberalization. Thus, the region is expected to generally become a net loser from the current WTO reform modalities.     

Workers' remittances and Dutch Disease in Bangladesh

Workers' remittance is one of the major sources of foreign exchange earnings for Bangladesh in recent years. It accounted for 12% of GDP in 2009 and has colossal socio-economic implications for the country. However, the inflows of foreign exchange earnings can exert adverse effects on the international competitiveness of an economy as postulated by the Dutch Disease theory. Using Johansen Cointegration and Vector Error Correction Model and annual data from 1971 to 2008, this paper investigates the effects of remittances on the external trade competitiveness as measured by the movements of real exchange rate of the country. The results of the study suggest that the influx of workers' remittances significantly appreciates the real exchange rate and deteriorates the external trade competitiveness of Bangladesh. While increased terms of trade indicates similar adverse effects, openness in goods and capital markets and nominal devaluation improve the trade competitiveness of the country. Therefore, greater trade openness and channelling remittances to the priority investment projects can be powerful policy devices to improve the external competitiveness and avert ‘Dutch Disease' in Bangladesh.     

Policymakers' horizon and trade reforms: The protectionist effect of elections

This paper shows that electoral incentives deter politicians from supporting trade liberalization. We focus on all major trade liberalization bills introduced since the early 1970s in the U.S. Congress, in which House and Senate members serve respectively two- and six-year terms and one third of senators face elections every two years. We show that senators are more likely to support trade liberalization than House representatives. However, this result does not hold for the last generation of senators, who face elections at the same time as House members, suggesting that inter-cameral differences are driven by term length. Considering senators alone, we find that the last generation is less likely to support trade liberalization than the previous two. This result is pervasive and holds both when comparing the behavior of different senators voting on the same bill and that of individual senators voting on different bills. The protectionist effect of election proximity disappears for senators who are retiring or hold safe seats.     

A comparative study of farmers' markets visitors' needs and wants: the case of Alabama

Many studies refer to the importance of farmers' markets for both food producers and for visitors. For producers, the ability to obtain higher returns and/or market part of their produce as value‐added products can be strong incentives, while for consumers benefits include having access to fresher, often tastier foods or simply visiting as a social activity. Relatively few studies, however, explore visitors' needs and wants with regards to their farmers' market experience, that is, from visitors' perspective. The present study explores this dimension, comparing visitors' views in two different farmers' markets, one recently developed (since 2009) in a rural area vs. one already established (since 2004) in a university town (urban area). A total of 356 farmers' market visitors participated in the study. Respondents' comments from the two different farmers' markets are very much in agreement in the context of their needs and wants. Primarily, visitors want more product variety, an extended season, that is, not only limited to the summer season, and more vendors. The fact that more than half of the respondents regularly visit farmers' markets demonstrates their need and interest in locally produced foods. Given such strong interest, the potential for beneficial producer–consumer interactions in the sites studied appears to be enormous. Furthermore, farmers and other food producers have an ideal opportunity to increase the interest of consumers, ‘convert’ them to their foods and realise important benefits in the process. The overall findings also suggest opportunities for the establishment of other farmers' markets in a state (Alabama) with a long agricultural tradition.     

Trade and technology adoption

This paper endogenizes firms' choices of production technology in what would be a standard Melitz model otherwise. The responses of firms' productivity to trade liberalization are heterogenous: exporters, on average, improve their level of technology adoption, whereas nonexporters downgrade their level of technology adoption. The degree to which firms adjust production technology depends on domestic market size, export destination market size, trade impediments, and export status. The conflicting empirical results of the impact of trade liberalization on exporters' productivity are rationalized by showing that changes in different trade costs (variable vs. fixed costs) affect firms' productivity differently. We calibrate the model's parameters to match firms' characteristics in the global economy. The results indicate that endogenous productivity increases the gains from trade liberalization.     

Timing of trade liberalization

Abstract

This paper studies the effects of trade liberalization on growth and long-run global income inequality using a two-country model of human capital accumulation by credit-constrained households. I show that the timing of trade liberalization is a crucial determinant of its effects on growth. Moreover, I show that the size of the long-run income gap between the two countries depends on the difference in domestic income inequality when they open up to trade. Based on these results, I analyze the effects of redistributive policy within a country. I show that redistribution in one country may increase income per capita of its trading partner if it is undertaken in a steady state, while the opposite is true if the policy is undertaken during transition.     

Thailand: Opportunities and risks in a fast‐changing business environment

Thailand's business environment is changing dramatically in the wake of the worst financial crisis and economic recession in the country's recent history. Some of these changes may be ephemeral, and Thailand will return to old business practices once the crisis eases, but many of the economic and political reforms now being implemented can make trade and investment in Thailand easier, more transparent, and less affected by corruption. Some of the reforms will not deliver the expected results. Others may increase uncertainty that will be counterproductive in the short run. But some of the constitutional changes—the restructuring of family controlled conglomerates, better regulation of the financial sector, demands for stronger corporate governance, and new incentives for private investment—can have profound impacts on the country's business climate and the way American companies do business in Thailand. © 2001 John Wiley & Sons, Inc.     

Innovation and trade with heterogeneous firms

This paper examines how trade liberalization affects the innovation incentives of firms, and what this implies for industry productivity. For this purpose we develop a reciprocal dumping model of international trade with heterogeneous firms and endogenous R&D. Among the robust results that hold both in the short run when there is no entry, and in the long run under free entry are that trade liberalization increases aggregate R&D when trade costs are low and decreases R&D when trade costs are high. Expected industry productivity rises as trade costs fall.     

Putting industries into the Eaton–Kortum model

The article introduces the industry dimension into the Eaton-Kortum model of trade. Industries are linked with each other by domestic and international trade in intermediate goods. The model is parametrized using data for eight industries in 1989. It is used to perform several counterfactual simulations that are relevant to today's policy debates. First, the model is used to study the effects of the US–EU trade wars. It is found that trade wars have a greater negative effect on countries with large initial net export positions. It is also found that some trade war scenarios are more beneficial to the US while others to the EU. Second, the model is used to study the effects of trade barrier reductions between the high-income and middle-income countries. The results show that this trade liberalization tends to reinforce the pattern of trade according to technological comparative advantages. The results also show which industries should be targeted for barrier reductions depending on policy goals. The third set of simulations investigates spillovers from the technological growth in the US machinery industry. The results show how geography, technology, and industry links affect the propagation of this growth across countries and industries.     

Foreign Direct Investment Policy–Friendly Business Environment in R&D Sectors: Baltic States versus Visegrad Countries

This article examines the impact of foreign direct investment (FDI) policy on inward FDI in the Visegrad and Baltic countries. The analysis of business environment highlights that the countries in both regions attempt to create a friendly business environment by means of similar methods. However, the countries in both regions focus on fiscal incentives such as taxes, which do not play a major role in attracting inward FDI in R&D. The results of attracting FDI are better in the Visegrad countries, which implement financial incentives toward inward FDI along with fiscal incentives. According to empirical analysis, it is noticed that a higher intervention level and a higher support level guarantee the volume of inward FDI. The country's introduced FDI policy enables it to orient industry and to implement economic strategic targets. FDI policy does have an impact on promoting the development of the entire country.     

Cooperative and non-cooperative R&D and trade costs

We examine the effect of trade liberalization on the level and mode of R&D in an international duopoly setting. Firms have the choice to invest in R&D either independently or cooperatively. A reduction in trade cost increases R&D irrespective of the mode of R&D. However, an increase in spillovers has ambiguous effects on R&D. More precisely, we find that an increase in spillover leads to higher R&D activity under cooperation but lower R&D activity under non-cooperation. Concerning cooperation versus non-cooperation, we find that firms prefer cooperation only if trade costs are low. Consumers are better off under cooperation if spillovers are high. We find that there can be a mismatch between private and social incentives. If spillovers are low and trade costs are low then cooperation might be privately profitable but socially undesirable. On the other hand, if there are large spillovers and high trade costs then cooperation may be socially desirable but not privately profitable.     

Does Taiwan's entry into the WTO truly reduce its agricultural output values?

This study has used the time series data of Australia, China, Denmark, India, Japan, the Netherlands, Norway, the Philippines, South Korea, Spain, and the United States from the World Bank to estimate the agricultural economic shock of Taiwan's accession to the World Trade Organization (WTO). We have adopted the recently developed panel data approach for policy evaluation to construct the annual agricultural growth path of Taiwan, which is mainly based on the cross-sectional correlations between the domestic and international agricultural trade markets in the absence of Taiwan's entry into the WTO. Our results have not only revealed the importance of ex post counterfactual analysis, but also provided empirical evidence that the agricultural economic shock is not as severe as predicted by many ex ante studies. Based on these results, we have concluded that the outcome may have arisen from the slow progress of achieving agricultural trade liberalization under the WTO and the Taiwanese Government's effective adoption of phase-in periods and relative adjustment policies.     

Aid for trade and trade policy in recipient countries

ABSTRACT

This article explores the impact of Aid for Trade (AfT) flows on trade policy in 123 recipient countries over the period of 2002 to 2015. It shows empirical evidence that AfT interventions are conducive to trade policy liberalization. These results apply to both the entire sample and to the sub-sample of least developed countries (LDCs). Additionally, the analysis shows that the lower the development level, the higher the positive impact of AfT inflows on recipient countries’ trade policy liberalization, although above the US$ 4,885.40 threshold of real per capita income, AfT inflows exert no significant impact on trade policy.     

当代国际贸易新现象研究

20世纪90年代以来,国际贸易发展有三个明显的特征,即国际贸易增长快于生产的增长,贸易自由化成为各国的主流贸易政策的同时贸易保护主义又增加了新的表现形式,以及多边国际经济协调机制不断强化且区域自由贸易安排也备受青睐.本文在此基础上,首先,分析了当代国际贸易增长的内在动力与有利条件;其次,总结出国际贸易发展趋势中的新特点;进而揭露了贸易自由化进程中各种矛盾现象的本质;最后,给出了相应的结论与政策思路.     

Investment liberalization and international trade

This paper estimates the cross-price elasticity of exports with respect to investment costs for bilateral relations between 36 countries. We show that the effect of reducing foreign direct investment costs on exports depends on country characteristics and trade costs as predicted by the [Markusen, 1997] and [Markusen, 2002] model. When countries differ in relative factor endowments and trade costs are low, investment liberalization stimulates exports, whereas when countries are similar in terms of relative factor endowments and size, and trade costs are moderate to high, investment liberalization reduces exports.