Do regional trade agreements really boost trade? Evidence from agricultural products

We evaluate the impact on trade of regional trade agreements (RTAs) using a panel data approach at the detailed product level which exploits exports to third destinations and imports from third origins as benchmarks. This method is robust to both endogeneity and heterogeneity across agreements and across products, and allows differentiation between the impacts of tariff provisions and non-tariff provisions. The analysis covers agricultural and food products for 74 country pairs linked by an agreement entered into force during the period 1998–2009. Our estimate of the mean elasticity of substitution across imports at product level is slightly below four. Counterfactual simulations suggest that RTAs have increased partners’ bilateral agricultural and food exports by 30–40 % on average, with marked heterogeneity across agreements. Also, RTAs are found to increase the probability of exporting a given product to a partner country although this impact is small. Finally, we found non-tariff provisions have no measurable trade impact.     

Do we really know that trade agreements increase trade?

This study surveys the empirical literature in which the gravity equation has been used to study the effect of economic integration agreements (EIAs) on international trade flows. We show that most studies either focus on improving the methodology to assess regionalism’s overall impact, or on a small set of well-known agreements without necessarily adopting new methodological improvements. We bridge this gap by providing individual estimates for EIAs on world trade, while employing first-differencing techniques to correct for endogeneity bias and account for phase-in effects. Overall, EIAs promote trade by at most 50 %. Surprisingly, more than half of the EIAs investigated have had no discernible impact on trade at all, while only about one quarter of the agreements are trade promoting. Characteristics of these agreements, such as their institutional quality, design, and their members’ involvement in the World Trade Organisation, shed more light on how this variation can be understood.     

Do developing countries gain by participating in global value chains? Evidence from India

Review of World Economics - Is it in the interest of a developing country to promote strong local linkages for domestic industries or to participate in global value chains (GVCs) wherein linkages...     

On trade creation and regional trade agreements: does depth matter?

Regional trade agreements (RTAs) are usually classified according to their form into four broad categories: preferential arrangements, free trade agreements, customs unions and common markets. This paper investigates whether the form/depth of RTAs matters concerning their effect on trade. I use a proper specification of the gravity model with panel data on the 1960–2000 period, which specifically control for self-selection into agreements. Results show that creating any kind of RTAs providing trade preferences to their member countries significantly increases bilateral trade. Nevertheless, their average treatment effect on bilateral trade does not significantly differ according to the depth of agreements.

Do trade agreements increase Vietnam's exports to RCEP markets?

The paper reviews recent developments in trade relations between Vietnam and members of the Regional Comprehensive Economic Partnership (RCEP) agreement, and analyses the impacts on Vietnam's exports of tariff reductions in RCEP trading partners. The margin of tariff preferences is adopted as a proxy for the degree of trade liberalisation and a gravity model is used to assess the impacts of the tariff preferences under the AFTA and ASEAN+1 FTAs on Vietnam's major exports. The results show that the effects of tariff preferences differ between the types of preferences and products. The FTA tariff preferences do not exert a stimulating effect on the export of agricultural products but they have positive effects on several manufacturing exports such as garments and footwear.     

Are FDI spillovers regional? Firm-level evidence from China

This paper examines whether spillovers from FDI occur at the national or regional level, using firm-level census data for the Chinese manufacturing industry between 2000 and 2003. We find that FDI provides significant positive spillovers for the productivity of firms in the same industry, but these spillovers are likely to be regional; that is, domestic firms benefit more from the presence of foreign firms in the same sector within the same region. The backward and forward linkage effects of FDI are negative with significant regional disparity. The geographic distribution of FDI also influences spillovers, with an increase in FDI inflow to the top FDI recipient provinces increasing the forward linkage spillovers. Our empirical results also suggest that domestic firms differ significantly in the extent to which they benefit from FDI, though domestic firms with high absorptive capacity are more likely to benefit from FDI.     

Does backward participation in global value chains affect countries’ current account position?

Review of World Economics - This paper addresses the impact of countries’ backward participation in global value chains (GVCs) on their current account balances. Our results, based on a large...     

What are China's real gains within global value chains? Measuring domestic value added in China's exports of manufactures

This paper aims to investigate China's gains of participating in global value chains (GVCs) in terms of GDP in exports (DVA - domestic value added) and the factors affecting China's gains. The paper decomposes the gross exports of China so as to get the components that make up total GDP in the exports of the country, namely the value-added exports and DVA that are returned from abroad. Then the two components are measured to obtain the scale of GDP in China's exports both on country and sector level. The results show that, firstly, both value-added exports and the GDP in China's exports are less than the traditional gross trade statistics, indicating that there is a gap of real trade gains under GVCs. Secondly, comparing whether the proportion of DVA in total exports, the proportion of DVA in exports of manufactures or the proportion of RDV in total DVA, the gaps between China and the developed countries such as the United States, Germany and Japan do exist. Especially, considering the RDV of China, the proportion is significantly lower than that of major developed countries such as the United States and Germany, indicating that China lags far behind developed countries in the capabilities of supplying high value-added intermediate goods. Lastly, the empirical results suggest that DVA in China's exports has progressively increased in response to the productivity enhancement; research and development (R&D) inputs and capital formation, and the synergies between R&D and vertical specialization affect China's DVA growth in exports positively.     

How do private transfers respond to public transfers? Evolutionary evidence from Thailand

Private inter‐household transfers and public transfers can change along with changes in social and economic conditions. However, most previous studies have examined their relationship from static perspectives. This study contributes new evidence by investigating the dynamic relationship between public transfers and private inter‐household transfers over the past three decades using a Thailand data set. The results from econometric analysis show that there is no crowding‐out effect of public transfers on private inter‐household transfers for the country as a whole as well as for urban and rural households separately; instead, inter‐household private transfers increase along with public transfers.     

Do trade and investment agreements lead to more FDI? Accounting for key provisions inside the black box

The previous literature provides a highly ambiguous picture on the impact of trade and investment agreements on FDI. Most empirical studies ignore the actual content of BITs and RTAs, treating them as “black boxes”, despite the diversity of investment provisions constituting the essence of these agreements. We overcome this serious limitation by analyzing the impact of modalities on the admission of FDI and dispute settlement mechanisms in both RTAs and BITs on bilateral FDI flows between 1978 and 2004. We find that FDI reacts positively to RTAs only if they offer liberal admission rules. Dispute settlement provisions play a minor role. While RTAs without strong investment provisions may even discourage FDI, the reactions to BITs are less discriminate with foreign investors responding favourably to the mere existence of BITs.     

Do R&D tax incentives work? Firm-level evidence from China

Tax incentives have been used worldwide to encourage firm R&D, but there is little evidence on their effectiveness as a policy tool in developing countries. We use a panel dataset of Chinese listed companies covering 2007 to 2013 to assess the effects of tax incentives on firm R&D expenditures and analyze how institutional conditions shape these effects. Our results show that tax incentives motivate R&D expenditures for our sample firms. A 10% reduction in R&D user costs leads firms to increase R&D expenditures by 3.97% in the short run. We also find considerable effect heterogeneity: Tax incentives significantly stimulate R&D in private firms but have little influence on state-owned enterprises' R&D expenditures. Moreover, the effects of tax incentives are more pronounced for private firms without political connections. Hence, reducing political intervention complements tax incentives' capacity to foster firm R&D in developing countries.     

Do exchange rate changes have symmetric or asymmetric effects on the trade balance? Evidence from U.S.–Korea commodity trade

Previous studies of the effects of exchange rate changes on Korea’s trade balance have assumed symmetry between currency depreciation and appreciation. In this paper, we distinguish between the two to show that the effects at the industry level are in fact asymmetrical in most industries for Korea’s bilateral trade with the U.S. We employ an auto-regressive distributed lag (ARDL) approach using quarterly data for the period 1989–2014 for the 79 3-digit industries in which trade between Korea and the U.S. took place. Overall, our model incorporating differentiated responses for appreciation versus depreciation reveals a more significant impact of the exchange rate on commodity trade between Korea and the U.S. than a more standard model that imposes symmetry.     

Do China's high-speed-rail projects promote local economy?—New evidence from a panel data approach

This paper evaluates the effect of High Speed Rail (HSR) projects on the economic growth of targeted city nodes (HSR cities) in China using prefectural-level city data from 1990 to 2013. Employing a panel data program evaluation method devised by Hsiao, Ching, and Wan (2012), we construct hypothetical counterfactuals for per capita real GDP of HSR cities in the absence of their respective HSR projects using the outcomes in selected non-HSR cities. We find that the responses to HSR treatment are heterogeneous with regard to location, route, and region. The location-level impact ranges between 5% and 59% and is not temporary. HSR cities with positive effects concentrate along the Hu-Ning Segment, the Yong-Tai-Wen-Fu-Xia Segment, and within the Hunan province along the Wu-Guang HSR. These cities are mainly located in the eastern coastal regions of China, in core urban agglomeration regions that allow them to be transportation hubs. In general, the gain for local economies is greater for cities that are more industrialized, with more ability of the service sector to absorb enough labor, and with better supporting infrastructure. On the other hand, local protectionism hampers the development of HSR cities. We also show that at different project stages, HSR cities experience different gains.     

Do CO2 emissions impact energy use? An assessment of China evidence from 1953 to 2017

Bidirectional causality between energy use and carbon emissions has widely been explored, but the results in the existing research are still controversial. Focusing on China, we reveal the bidirectional causality between energy use and carbon emissions, and then take carbon emissions as a factor influencing energy use into decomposition analysis by the Logarithmic Mean Index (LMDI) approach. The study span 1953–2017 is divided into two main developing stages based on multiple breakpoint tests, stage one: 1953–2001, before entering World Trade Organization (WTO); and stage two: 2001–2017, after entering WTO. The results show that emission effect and per capita emission effect indeed promoted energy use and even surpassed output effect at the beginning of stage two (2001–2005). The changes in energy use followed those in output effect at stage one, emission effect and per capita emission effect at the beginning of stage two, and energy intensity effect at the latter period of stage two. It indicates that energy efficiency has gradually been becoming a dominate role in energy use changes. The impact of energy mix effect was comparatively small.