Estimating the effects of non‐discriminatory trade policies within structural gravity models

We propose a simple method to identify the effects of unilateral and non‐discriminatory trade policies on bilateral trade within a theoretically consistent empirical gravity model. Specifically, we argue that structural gravity estimations should be performed with data that include not only international trade flows but also intra‐national trade flows. The use of intra‐national sales allows identification of the effects of non‐discriminatory trade policies such as most favoured nation tariffs, even in the presence of exporter and importer fixed effects. A byproduct of our approach is that it can be used to recover estimates of the trade elasticity, a key parameter for quantitative trade models. We demonstrate the effectiveness of our techniques in the case of most favoured nation tariffs and “time to export” as representative non‐discriminatory determinants of trade on the importer and on the exporter side, respectively. Our methods can be extended to quantify the impact on trade of any country‐specific characteristics as well as any non‐trade policies.     

Economic Performance, Trade Restrictiveness, and Efficiency

The paper addresses the question of whether trade restrictiveness impacts economic performance, via a trade restrictiveness index that is decomposable into a trade distortion and a domestic distortion component. The paper builds on the Anderson and Neary price index measure of trade distortion, in evaluating trade restrictiveness via a distance function approach. This is accomplished by adding a “dual” version to their trade restrictiveness price index, based on distance functions that scale output quantities. The authors compute the trade restrictiveness quantity index (TRQI) using a parametric frontier approach to model the production side of the economy, and a panel of information on the agricultural sector of a set of European Community countries. The results suggest that the use of TRQI makes a considerable difference to interpretations of the efficiency impact of agricultural trade policies in EC countries, as compared to policy‐oriented aggregates or result‐oriented measures of trade restrictiveness.     

Growth,Real Exchange Rates and Trade Protectionism since the Financial Crisis

Existing evidence suggests that protectionist activity since the financial crisis has been muted, raising the question whether the historically well‐documented relationship between growth, real exchange rates and trade protectionism has broken down. We use a novel and comprehensive dataset that stretches beyond the traditionally considered tariff and trade defense measures to study the responsiveness of trade policies to business cycles and price competitiveness in the time period since the financial crisis. We find that the specter of protectionism has not been banished. Countries continue to pursue more trade‐restrictive policies when they experience recessions and/or when their competitiveness deteriorates. Our results suggest that the global economy continues to be exposed to the risk of a creeping return of trade protectionism.     

Distortions to agricultural incentives: Evidence from Nigerian value chains

Understanding how policies affect price transmission and incentives for producers and consumers along the complete value chain is a relevant research question due to the more globalized structure of agricultural value chains. In particular, Nigerian agricultural value chains have been targeted by a number of policy decisions. We analyze the import‐oriented palm oil value chain and the export‐oriented cacao value chain, estimating the price distortions from policies and their implications for production incentives at the regional level. For palm oil, due to protective trade policies and domestic initiatives, the nominal rate of protection (NRP) at the farmgate for palm oil producers shows that producers have been protected. NRPs at the border for cacao beans and cocoa products are negative, which may be due to a quality gap, the export market structure, and the concentration of buyers in global markets. Negative NRPs at the farmgate are seen for all regions, showing disincentives in the cacao beans export market reverberate through the domestic market despite domestic support policies. In both value chains, NRPs at farmgate vary across regions partially due to regional policy frameworks and partially due to local conditions impacting price transmission.     

The impacts of trade and self‐sufficiency policies on heterogeneous rice farms in Malaysia

This paper develops a farm household model of heterogeneous Malaysian rice farmers. The model determines the domestic price of milled rice in equilibrium. The model is simulated to analyze the effects of free trade, self‐sufficiency achieved through trade policy, and the impact of free trade and self‐sufficiency when rice productivity expands. The ex ante results for free trade predict that total rice supply rises as the increase in imports offsets the decrease in domestic production, causing the domestic price of milled rice to fall by 15.8 percent. While this price decrease generates negative income effects for rice farmers, it leads to an expansion of consumption of milled rice by both the farm and urban populations. The results for self‐sufficiency through heightened tariffs predict that production for domestic rice farmers increases. However, with fewer imports, total rice supply falls, causing the domestic price of rice to increase by 41.5 percent. Because free trade is politically unfeasible and trade‐driven self‐sufficiency policies contract total rice consumption, boosting rice production through research and development is an effective way for Malaysia to increase the total supply of rice while limiting its dependence on imports.     

The Challenges of Climate Policy

Climate policy planners and the public should be aware of both economic challenges and arguments that may influence the intensity of the climate policies with which they have to cope. This article examines six economic challenges: cap‐and‐trade versus taxes, non‐price regulations, energy efficiency policies, mitigation versus adaptation, trade effects, and transmission planning. Three additional challenges affect the end itself: ‘fat tails’, discount rates, and whether environmental protection should be evaluated by willingness to pay. If future generations cannot compensate the present for climate policy costs, climate policy is inherently redistributive and cannot be evaluated through cost–benefit analysis alone.     

Do trade flows respond to nudges? Evidence from the WTO’s Trade Policy Review Mechanism

Relatively little is known about the economic effects of WTO members’ communications outside of official negotiations and dispute proceedings. This paper considers whether interactions between members through the Trade Policy Review Mechanism, the WTO’s prime transparency institution, lead to subsequent changes in bilateral trade flows. Trade policy concern submissions are more likely to lead to positive trade responses when (i) the receiving country is less concerned about terms‐of‐trade losses, (ii) the submitter is more willing to engage in WTO disputes with the reviewed member to challenge controversial trade policies, and (iii) the submitting country challenges trade policies in the nonchemical manufacturing sector. Nudges through the TPR process are not successful in raising agricultural trade.     

Border tax adjustments and tariff‐tax reforms with consumption pollution

We develop a model of a small open economy, where pollution per unit of consumption between domestically produced and imported quantities of the same good differs. We show that the first‐best policy combination calls for consumption taxes on all polluting goods, and border tax adjustment (BTA) measures, that is, tariffs or import subsidies. We identify conditions under which well‐known tariff‐tax reform policies for developing economies, such as a consumer‐price‐neutral piecemeal reform of trade and a consumption tax, and a consumer‐price‐neutral reform of all trade and consumption taxes improve welfare. We also evaluate whether reforms of trade taxes alone are superior to consumer‐price‐neutral reforms of trade and consumption taxes.     

Exchange rate versus credit policy: Analysis with a monetary model of trade and inflation in India

A general equilibrium model of the trade balance and inflation in India is specified, and empirically analyzed. The model takes into account many important institutional features of India such as foreign exchange rationing, and emphasizes the effects of monetary disequilibrium on the trade balance. Policy simulations compare the dynamic responses to devaluation with the responses to tight credit policy. It is shown that the relative price effects of policies are often significantly offset by perverse liquidity effects which serve to raise absorption. However, the trade balance effects of devaluation are found to be more enduring than those of tight credit policy.     

The PPP hypothesis and structural breaks: the case of Mexico

We test the purchasing power parity hypothesis for the Mexican peso/US dollar real exchange rate using monthly data for 1969–2010. Results suggest that the real exchange rate reverts to a changing mean. These mean shifts can be explained by liberalization policies implemented during the 1980s and 1990s that reduced trade barriers in the Mexican economy. Such policies modified the tradable/non-tradable goods composition of the price index producing mean shifts in the real exchange rate associated with PPP.     

ESTIMATING SPATIAL CONSUMER PRICE INDICES THROUGH ENGEL CURVE ANALYSIS

In this paper we propose a method of estimating spatial multilateral price index numbers from cross‐section consumer expenditure data on different items using Engel curve analysis. The novelty of the procedure is that it overcomes the problem of data inadequacy, a problem that is shared by most of the developing countries. The procedure does not require item‐specific price/unit value data and price index numbers can be calculated from consumer expenditure data grouped by per capita income/total consumer expenditure class in a situation where unit level data are not available. To illustrate the method, we use published state‐specific data of the 50th round (1993–94) and 55th round (1999–2000) consumer expenditure surveys of India's National Sample Survey Organization (NSSO) and calculate the spatial consumer price index numbers for 15 major states of India, with All‐India taken as base, separately for the rural and the urban sector for each round.     

Economic Growth in Canada and the United States: Supply‐Push or Demand‐Pull?

Understanding the nature of structural change and the sources of economic growth of an economy, especially the relative importance of different industries, is essential for policy‐making. This paper estimates industry contribution to economic growth in both Canada and the United States. It argues that industry contribution should be evaluated on the basis of the performance of an industry in terms of creating economic value relative to other industries. In particular, it calls for the quantity and the price effects, which is consistent with real GDP in the chained‐Fisher index that values the industry more when its price rises and less when its price declines. This is an important departure from the traditional methodologies that consider only quantity effect. This paper shows that the contribution from demand‐driven industries is significantly more than the finding based on traditional thinking.     

Offshoring and Trade Balance in Developed and Emerging Economies

This paper analyzes the effects of off‐shore outsourcing for international trade, especially for the emerging and poor economies, in a two‐sector specific factor model, with a nontraded good being one of the sectors. The phenomenon of offshoring is modeled by incorporating the reduced use of domestic labor in the production function. This is regarded as a characteristic feature of offshoring in the literature. We find that increased offshoring leads to an increase in the relative price of the nontraded good. Given that this relative price can be interpreted as the real exchange rate, increased offshoring leads to exchange rate appreciation. This suggests that offshoring actually makes the goods and services from the emerging economies more competitive in the world market, and thus can be a contributory factor in the positive trade balance experienced by many emerging economies since early 2000s.     

Mega‐Regional Agreements and Their Impact on Australia

This paper estimates the effects of emerging mega‐regional agreements on the economy of Australia using a Computable General Equilibrium model. Scenarios considered include the 11‐member Comprehensive and Progressive Agreement for Trans‐Pacific Partnership (CPTPP) agreement, its possible enlargement to include five additional members (‘TPP16’) and the Regional Comprehensive Economic Partnership (RCEP) currently under negotiation. The study finds that Australia stands to enjoy real income and trade gains along both the CPTPP and RCEP paths. However, since Australia is already benefiting from its own liberal trade policies and many prior trade agreements, benefits are relatively modest, typically below one per cent of real income.     

Carbon pricing and terms of trade effects for China and India: A general equilibrium analysis

Using country-specific dynamic computable general equilibrium (CGE) models, this paper estimates carbon prices in China and India, and compares the effects of carbon pricing policies under terms of trade effects. Estimated carbon prices are higher in China due to differences in emission intensity and in the rate of deployment of new technologies in the models. Differences in carbon prices open up the possibility of carbon trading between the two countries to achieve mitigation objectives. Further, under assumptions about different exchange rate regimes and international fossil fuel prices, the effects of carbon pricing policies on the two economies are mostly similar in terms of direction but, expectedly, different in terms of magnitude. Terms of trade effects could exacerbate carbon pricing effects to a greater degree in China as the country is significantly more dependent than India on external trade and investment. Policymakers should factor in terms of trade effects while designing or evaluating carbon pricing policies in the two countries.     

A Two‐Country Game of Competition Policies

Recently a number of studies have recognized that trade policy can be substituted for by competition policy. This study demonstrates, however, that there is a fundamental difference in the working of terms‐of‐trade effects between competition policy and tariff policy and that if countries optimally set their respective competition policies, it is unlikely to result in a tariff‐war‐like state in which all countries adopt distortionary policies. Instead, in a Nash equilibrium, one country maintains perfect competition in its domestic service sector while the other country tolerates imperfect competition.     

The Myth of Fair Prices: A Graphical Analysis

The issues of fair trade and in particular fair price policies, have been neglected in most international trade courses. The authors show how the latter can be explained to undergraduate students applying the simple graphical methods normally used in general equilibrium trade theory. They show that fair pricing strategies can be looked upon as a suboptimal device for redistributing the gains from trade as compared with a transfer of funds.     

U.S. import and export elasticities: a panel data approach

This article describes the creation of a new dataset on sectoral-level import and export elasticities in the U.S. between the years 1978 and 2001. It proposes the use of panel data techniques as a means of generating import price indexes, and then using them to measure trade elasticities while instrumenting for the endogeneous variables. In particular, it provides a dataset listing trade elasticities for a broad range of sectors at the North American Industry Classification System 4-digit, and 6-digit and the Harmonized Tariff System 6-digit, and 10-digit levels of industry aggregation. These results are compared to previous estimates in the literature. The resulting estimates can be used in a wide-range of applications in empirical studies of international trade policy, particularly in analyzing the welfare effects of international trade.     

市场歧视、区际边界效应与经济增长

跨区域商品价格差被认为是研究国内区际贸易的有效替代指标,文章首先以我国12个样本城市六大类商品价格为考察对象,经回归分析认为:除了距离等控制因素外,"樊纲指数"和"政府支出占GDP的比率"较好地解释了我国六大类商品价格偏差的边界效应,说明市场化进程落后的地区更可能筑起商品贸易的政策壁垒,而具有"父爱"意识的政府在高财政支出比率情形下更有能力实施保护战略,从而验证了文章的边界效应假说.实证分析还获取了两个层次的边界效应(包括品类边界效应和省份边界效应),并作为市场一体化指标被纳入文章的经济增长方程进行回归;结果显示:地方保护壁垒造成的省份市场分割,影响到保护战略实施省份的自身经济绩效.