Bilateral trade effects of fiscal devaluation: Evidence from OECD countries

This paper empirically examines the effects of a fiscal devaluation on bilateral trade. To this end, employers’ social contribution (ESC) and value-added tax (VAT), which stand as the factors that represent typical fiscal devaluation, are embodied within the framework of a gravity model. Fixed effects vector decomposition (FEVD) technique is applied to the empirical models specified within this framework, employing panel data from 22 OECD countries over the 1980–2014 periods. The findings show that the effectiveness of the fiscal devaluation policy seems to alter with respect to how ESC and VAT are measured. Considering the fiscal devaluation policy implemented unilaterally, the policy turns out to be effective in nine countries in the sample.     

The J-Curve: Evidence from Industry-Level Data Between the U.S. and Indonesia

Empirical studies on the impact of currency devaluation or depreciation on the trade balance still continue to occupy the literature. These studies have evolved from using aggregate to disaggregated data. The findings, however, have been mixed. Previous research using aggregate trade flows of Indonesia with the rest of the world or bilateral data between Indonesia and the U.S. as one of its major trading partners found no significant relation between rupiah-dollar rate and Indonesia’s bilateral trade balances. In this article, we disaggregate the trade flows between Indonesia and the U.S. by commodity and show that the trade balances of at least nine out of 23 industries react to exchange rate changes favorably in the long run.     

Accounting for the Differences Between Gross and Value Added Trade Balances

One of the main stylised facts that has emerged from the recent literature on global value chains is that bilateral trade imbalances in gross terms can differ substantially from those measured in value added terms. However, the factors underlying the extent and sign of the differences between the two measures have so far not been investigated. Here, we propose a novel decomposition of bilateral gross trade balances that accounts for the differences between gross and value added concepts. The bilateral analysis contributes conceptually to the literature on double counting in trade by identifying the trade flow in which value added is actually recorded for the first time in international trade statistics. We apply our decomposition framework to the development of intra‐EU‐27 trade balances from 1995 to 2011 and show that a growing share of intra‐EU bilateral trade balances is due to demand in countries other than the two direct trading partners. The latter accounted for 25 per cent of the total variance of intra‐EU gross bilateral trade balances in 2011, which marks a considerable rise from 3 per cent in 1995.     

The economic consequences of corporate tax rates reductions in the EU: Evidence using a computable general equilibrium model

In a globalised world, governments are eager to attract foreign investors by lowering corporate tax rates. Recent trends point towards a revival of a race to the bottom in corporate income tax (CIT) rates in developed economies. EU countries have been active in this respect. A generalised fall in CIT rate could prove detrimental to tax revenues and trigger increase in other taxes to meet fiscal policy objectives. However, it could also spur investment and growth and prove to be a good fiscal policy strategy if, as a result, the corporate tax base increases. The final economic and fiscal impact of a reduction in CIT rates is therefore unclear. Using a CGE model, we find that uncoordinated tax reforms significantly impact national economies and third‐country effects can be significant when large countries implement CIT rate cuts. Small countries are better off unilaterally reducing their CIT rate at the expense of other EU countries. We find that negative spillovers are mitigated when the country reducing its CIT rate restores its budget balance by cutting either public expenditures or social transfers. A larger degree of non‐EU capital mobility also tends to reduce the negative spillover effects of unilateral CIT rate reductions.     

进口中间品质量对企业生产率的影响——基于影响渠道的分析

通过使用2000~2013年中国工业企业数据库和海关数据库测算出企业进口产品的质量,分析进口产品质量对企业生产率的影响以及影响渠道,结果显示:企业进口高质量的资本品、中间品以及消费品能够提升企业生产率;企业进口高质量产品能够通过加剧行业竞争,促进企业提升生产率,提高竞争力;企业进口高质量产品的技术创新效应不同,资本品和消费品的技术创新效应为正,中间品为负;中间品技术创新效应为负的原因是加工贸易中的来料加工占据中国中间品进口的大部分且其技术创新效应为负。     

The effects of bilateral attitudes on imports

Research based on the gravity model has shown that non-economic factors affect international trade, and recent studies have shown that people's perception affects economic exchange. In this study, we explore the effects of attitudes on bilateral trade. Using survey data from the Pew Research Center's Global Attitudes Projects for 68 countries from 2002 to 2015, we find that a more favourable attitude of a country towards another country will increase the former country's imports from the latter. The result is robust to an endogeneity check, to different measures of attitudes and to different estimation methods. However, heterogeneity is observed across different types of goods and countries. The result holds for trade in intermediate and consumer goods, but the effects are not statistically significant for capital goods. The effects are statistically significant for bilateral trade between different country groups, except for high-income countries' imports from non-high-income countries.     

International Outsourcing and the Skill–Specific Wage Bill in Eastern Europe

This paper analyses the effects of international fragmentation in terms of intermediate goods trade on the dynamics of the skilled–to–unskilled labour wage bill ratio in 14 manufacturing industries of the Czech Republic, Hungary and Poland. Both intermediate goods exports and imports of the CEEC exhibit a positive impact on the wage bill ratio. Since 1993, intermediate goods trade with the EU alone has accounted for a considerable reduction of the predicted annual change in the skilled–to–unskilled wage bill ratio in the three CEEC.     

Which manufacturing industries and sectors are most vulnerable to Brexit?

When the UK leaves the EU, trade arrangements between the UK and EU will change. Most of the options for future UK‐EU relationships currently under discussion imply increased trade barriers, which will reduce trade and also have effects on output and prices. In this paper, we use a multi‐market partial equilibrium model to analyse the vulnerability of 122 manufacturing industries to Brexit. In all five Brexit scenarios we model, there is an overall reduction in UK manufacturing output. Output grows in some industries but at the expense of higher consumer and intermediate goods prices. High tech and medium–high tech sectors are more at risk of a decline in domestic production than lower tech sectors. In most areas of the country, demand for high‐skilled workers falls more than for medium and low‐skilled workers.     

Comprehensive Trade Agreements: Conditioning Globalisation or Eroding the European Model?

Trade dynamics within the EU are presently pushing it towards deepening globalisation through bilateral comprehensive trade agreements which establish far-reaching rules that govern the bilateral trade relationship. The European Commission has defended these agreements as a vehicle through which to promote world trade in accordance with European values and norms. However, the theory of fiscal federalism and the principle of subsidiarity tell us that one should not centralise decisions at the supranational level which are better taken at the national or regional level when there are different preferences among countries or regions. Consequently, member state and regional competences ought not to be perceived as a mere obstacle to swift trade deals. Rather, they can provide an important checks and balances function with regard to whether EU trade policy is truly working to condition globalisation according to European values and preferences.     

Welfare implications of trade liberalization and fiscal reform: A quantitative experiment

This paper studies the welfare implications of revenue-neutral trade liberalization and fiscal reform programs for developing economies using a multi-sector dynamic general equilibrium model of a small open economy. We analyze how different combinations of tariffs – on imported consumption goods, intermediate inputs, and capital goods – and taxes – on consumption, labor income and capital income – affect the transitional and long-run welfare. We report three main findings. First, trade liberalization programs financed by consumption and labor income taxes tend to result in substantial welfare gains, but financing the lost tariff revenue through capital income taxes can have an adverse impact on welfare. Second, a significant fraction of welfare changes is due to transitional effects stemming from the allocation of resources in response to changes in tariffs and taxes. Third, trade liberalization and fiscal reform programs often translate into much larger welfare gains in countries that are more open to international financial markets.     

Buyer-seller relationships in international trade: Evidence from U.S. States' exports and business-class travel

International trade has become increasingly dependent on the transmission of complex information, often realized via face-to-face communication. This paper provides novel evidence for the importance of in-person business meetings in international trade. Interactions among trade partners entail a fixed cost of trade, but at the same time they generate relationship capital, which adds bilateral specific value to the traded products. Differences in the face-to-face communication intensity of traded goods, bilateral travel costs and foreign market size determine the optimal amount of interaction between trade partners. Using U.S. state level data on international business-class air travel as a measure of in-person business meetings, I find robust evidence that the demand for business-class air travel is directly related to volume and composition of exports in differentiated products. I also find that trade flows in R&D intensive manufactures and goods facing contractual frictions are most dependent on face-to-face meetings. The econometric identification exploits the cross-state variation in bilateral exports and business-class air travelers by foreign country and time period, circumventing any spurious correlation induced by cross-country differences driving aggregate travel and trade patterns.     

Trade Wars: The Exaggerated Impact of Trade in Economic Debate

The rules governing trade and capital flows have been at the centre of controversy as globalisation has proceeded. One reason is the belief that trade and capital flows have massive effects on the labour market – either positive, per the claims of international financial institutions and free trade enthusiasts, or negative, per the ubiquitous protestors at WTO, IMF and World Bank meetings demanding global labour standards. Comparing the claims made in this debate with the outcomes of trade agreements, this paper finds that the debate has exaggerated the effects of trade on economies and the labour market. Changes in trade policy have had modest impacts on the labour market. Other aspects of globalisation – immigration, capital flows and technology transfer – have greater impacts, with volatile capital flows creating great risk for the well-being of workers. As for labour standards, global standards do not threaten the comparative advantage of developing countries nor do poor labour standards create a ‘race to the bottom’.     

Migration and institutions: Evidence from internal EU mobility

Despite the formal achievement of the free movement of labour within the EU , the institutional characteristics of the labour markets of the Member States may influence European mobility. The paper seeks empirical evidence of the relationship between labour market institutions and intra‐EU migrations, estimating a gravity model for bilateral migration for the period 2001–11. The results indicate that trade union density negatively correlates with the size of bilateral migrations: destinations with relatively high union density are associated with lower migration inflows. Since these countries tend to have a relatively flat earnings distribution, it is also investigated whether their earnings structure reduces their attractiveness as destinations hindering the access to their labour market. Even if a dependence between the earnings dispersion and migrations is found, trade union density remains the main driver of migration patterns. Clear effects of employment protection on EU mobility are not found.     

The Relationship between Political Tensions,Trade and Capital Flows in ASEAN Plus Three

We estimate the effects of political tension on trade and capital flows in ASEAN Plus Three countries in the framework of a gravity model. We quantify political tension through text‐parsing software reading daily Reuters’ articles from 1990 to 2013 and exclude Brunei and Laos due to sparsity of news coverage. Regarding bilateral trade, we find that political conflict, measured by negative reports in Reuters’ articles, seems to only affect bilateral trade between countries that are not both members of the World Trade Organization (WTO). For these countries, a 1 per cent rise in the tension score results in a 0.05 per cent decline in trade. There is weaker evidence that improvement in bilateral relationship, measured by positive reports in Reuters’ articles, is associated with more trade. As for capital flows, while long‐term capital flows, measured by foreign direct investment, appear to be unaffected by short‐term tensions, both a non‐democratic government and a history of war negatively affect FDI.     

The gravity model and trade in intermediate inputs

Is the gravity model as applicable to trade in intermediate inputs as it is to trade in final goods? One of the contributions of this paper is that we explicitly account for the dual nature of products that can be used as either intermediate inputs or final goods. We find that the structural gravity model performs extremely well for describing bilateral trade in final goods and in intermediate inputs. Moreover, this continues to hold even when we focus on a subset of countries in which intermediate inputs trade accounts for a growing share of trade, namely "Factory Asia." However, the gravity model may perform poorly due to model misspecification (i.e., exclusion of intranational trade) and/or sample selection, even after the model considers the dual nature of products. We demonstrate that the poor performance of the gravity model is not attributable to the large trade flow of intermediate inputs, which supports the continued use of the model as these trade flows continue to grow in importance worldwide.     

Costly investment and complementarities in an international trade model with directed technological change

We investigate the impacts on the skill premium and on economic growth in an innovator‐imitator general equilibrium growth model assuming: (a) directed technological change; (b) international trade of intermediate goods; (c) internal costly investment in both physical capital and R&D; and (d) complementarities between intermediate goods in aggregate production. With trade of intermediate goods, the complementarities degree and investment costs influence the economic growth of both countries, but do not affect the countries' skill premia, which are directed by technological knowledge. Additionally, in agreement with related empirical literature, openness to trade of intermediate goods leads to a higher equilibrium skill premium in both countries, whereas its impact on the common growth rate can vary in sign.     

Real Exchange Rate Volatility on the Short- and Long-Run Trade Dynamics in Colombia

The short- and long-run implications of real exchange rate volatility on Colombian bilateral trade commodities and non-commodities with its major trade partners are analyzed from the perspectives of the Marshall-Lerner condition, a cointegration relation with other aggregate variables, and the J-curve hypothesis. Long-run equilibrium on the Colombian bilateral balance of trade with a country is more common when the trade volume is denominated in terms of one of the world's main currencies—as is the case of commodity trade and trade with a country whose national currency is one of these currencies. No evidence of the J-curve was found in any of the analyzed Colombian bilateral balances of trade. Opposite to the predictions of the J-curve hypothesis, more common are the scenarios of short-run improvements in the bilateral trade balances following a devaluation than are those with instantaneous declines. Improvements in the terms of trade are found to have a long-run deteriorating impact on the Colombian balance of trade, especially in the case of non-commodity trade. Policy makers should consider that continuous improvements in the Colombian terms of trade, as the ones recently observed, will ultimately be a detriment to the country's current balance of trade surplus.     

Global Fiscal Adjustment and Trade Rebalancing

The emergence of substantial fiscal deficits and a large build up of government debt in major advanced economies will inevitably lead to a period of fiscal consolidation in coming years. In an earlier paper, Asian Economic Papers, 9, 2010 and 54, explored the effects of this fiscal adjustment in advanced economies on the global economic outlook. This paper focuses on the differences between the impacts of fiscal policy in advanced versus emerging economies. In particular, the need for more fiscal spending on infrastructure in emerging economies and the need for fiscal consolidation in advanced economies leads naturally to the question of what this asymmetric fiscal adjustment might do to global trade balances as well as global economic growth over the coming decades. The adjustment needed in both regions is substantial, and the asymmetry of the adjustment implies important consequences for trade and capital flows between regions as well as asset price adjustments within and between regions.     

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.     

三角贸易模式对中国对美出口增长的影响

中国在国际生产网络中的地位日益突出,主要扮演着加工装配地的角色,即从日本、韩国等工业化国家或地区进口中间品,经过加工装配后再将最终产品出口至以美国、欧盟为主的发达国家或地区,从而形成了三角贸易模式。中国对美出口的快速增加与三角贸易模式的发展密切相关,文章研究表明,中间品进口的增加和三角贸易模式的发展显著地促进了中国对美出口的增加,因此中美贸易失衡主要不是一种双边贸易现象,而是一种结构性现象。