Asymmetric effects of financial development on South-South and South-North trade: Panel data evidence from emerging markets

Using bilateral trade data in total and technology-and-skill-intensive manufactured goods for 28 developing countries that account for 82% of all developing country manufactures exports between 1978 and 2005, this paper explores the effects of financial development on the pattern of specialization in South-South and South-North trade. The empirical results using dynamic panel regressions and comprehensive sensitivity tests suggest that financial development in the South has an economically and statistically significant positive effect on the share of total and technology-and-skill-intensive manufactures exports in GDP, and total exports in South-South trade. In contrast, no such significant or robust effect of financial development is found in South-North trade. Overall, the positive effect of financial development is found to be asymmetric favoring South-South significantly more than South-North trade. In addition, financial development is found to be increasing technology-and-skill-intensive manufactured goods exports significantly more than total manufactured or merchandise goods exports.     

Trade liberalization and unemployment: Theory and evidence from India

A widely held view among the public is that trade liberalization increases unemployment. Using state and industry-level unemployment and trade protection data from India, we find no evidence of any unemployment increasing effect of trade reforms. In fact, our state-level analysis reveals that urban unemployment declines with trade liberalization in states with flexible labor markets and larger employment shares in net exporter industries. Moreover, our industry-level analysis indicates that workers in industries experiencing greater reductions in trade protection were less likely to become unemployed, especially in net export industries. Our results can be explained within a theoretical framework incorporating trade and search-generated unemployment and some institutional features of the Indian economy.     

eBay’s anatomy

We use a new US-firm-level dataset covering all domestic and international sales made through eBay, an online marketplace, to provide insights about firm heterogeneity in online international trade. One is that the share of firms that export is surprisingly high, at 85%.     

PROTECTION,INVOLUNTARY SELF‐EMPLOYMENT AND WELFARE

A small open economy operates with a unionized import‐competing sector and an informal “self‐employed” sector. Productivity varies across people in the informal sector. The full‐employment structure accommodates “underemployment or involuntary self‐employment” in the flexible‐wage informal sector. Protection increases the cost of capital and may increase the set of people who are involuntarily employed in the informal sector. Even if one ignores the consumption distortion effect of a tariff, the tariff may fail to be second‐best because it may raise underemployment. Our results on tariff‐reform are consistent with some recent empirical evidence.     

Commercial policy variability, bindings, and market access

Protection unconstrained by rules often varies substantially over time. Rules-based disciplines, such as WTO tariff bindings and bindings on market access in services, constrain this variability. We examine the theoretical effects of such constraints on the expected cost of protection and offer a formalization of the concept of “market access”, emphasizing both the first and second moments of the distribution of protection. As an illustration, we provide a stylized examination of Uruguay Round bindings on wheat.     

China's export growth and the China safeguard: threats to the world trading system?

Abstract Is there evidence from China's pre‐WTO accession period that newly imposed U.S. or EU import restrictions deflect Chinese exports to third markets? We examine this question by drawing on a newly constructed data set of U.S. and EU product‐level import restrictions on Chinese trade imposed between 1992 and 2001, and we estimate their impact on Chinese exports to alternative markets. We find no systematic evidence that the import restrictions imposed during this period resulted in Chinese exports surging to third markets. To the contrary, there is weak evidence of a chilling effect on China's exports to third markets.     

The role of importers and exporters in the determination of the U.S. tariff preferences granted to Latin America

This paper investigates the role played by domestic importers and foreign exporters in improving preferential access to the domestic market. To this end, the framework used in this paper extends the protection for sale analysis to explicitly model the role of domestic importers and foreign exporters in the determination of preferential trade treatment. The predictions of the model are tested using data on preferential trade between the United States and Latin American countries. The results suggest that Latin American exporters and US importers' lobbying efforts have a significant and important role in determining the extent of preferential access granted by the United States. More interestingly, these findings also show that U.S. importers capture a very substantial share of the rents generated by tariff preferences. These results therefore shed a pessimistic view on preferential trade schemes as a reliable source of gains for developing countries.     

The MFN clause,welfare, and multilateral cooperation between countries of unequal size

This paper analyzes MFN in a “competing exporters” model of trade between three countries with unequal endowments and shows that MFN yields higher aggregate welfare than tariff discrimination even as it makes low income countries worse off. Furthermore, in a repeated game of tariff cooperation, multilateral free trade is easier to sustain under MFN punishments relative to discriminatory ones. This conclusion holds even when tariff discrimination takes the form of bilateral trade agreements. Overall, the analysis shows that from the viewpoint of low income countries, MFN and multilateral tariff cooperation are complementary in nature.     

On the emergence of an MFN club: equal treatment in an unequal world

Abstract .  Motivated by GATT, we endogenize the formation of a club whose members have to abide by the MFN principle of non-discrimination. The underlying model is that of oligopolistic intraindustry trade. While an MFN club does not alter average tariff levels across countries, it increases aggregate world welfare; makes non-members worse off; and can immiserize its high cost members. These results imply that (i) core WTO rules such as MFN are valuable even if multilateral negotiations deliver limited trade liberalization and (ii) the distributional effects of MFN maybe one reason why developing countries have been granted Special and Differential treatment at the WTO.     

How reasonable are assumptions used in theoretical models? Computational evidence on the likelihood of trade pattern changes

Abstract .  In theoretical literature it is common to make the assumption that in a multi-country, multi-good world, the direction of trade (import and export by commodity) is predetermined and fixed for each good for each country. We consider a simple three-country, three-good, pure-exchange model with CES preferences. We compute free trade competitive equilibria, three-country non-cooperative Nash equilibria, and customs union equilibria for randomised parameterizations, and find that trade pattern changes between free trade and customs union equilibria in around 35% of cases.     

Strategic competition and optimal parallel import policy

Abstract In a two‐country Hotelling type duopoly model of price competition, we show that parallel import (PI) policy can act as an instrument of strategic trade policy. The home firm’s profit is higher when it cannot price discriminate internationally if and only if the foreign market is sufficiently bigger than the domestic one. The key mechanism in the model is that the home firm’s incentive to keep its domestic price close to the optimal monopoly price affects its behavior during price competition abroad. We also analyze the welfare implications of PI policies and show that our key insights extend to quantity competition.     

Law, trade, and development

This paper uses a Ricardian model to generate predictions about the influence of institutions on trade in differentiated (complex) and commoditized (simple) products and then uses a rich international trade data set for empirical tests. The model draws the distinction between the role of international transaction costs and domestic production costs in the trade of complex and simple products. The effects of institutions predicted by the model are identified with a three-step estimation procedure. We find that when countries have low quality institutions, institutional reform primarily influences production costs and has little influence on the volume of trade. Institutional reform, however, increases the diversity of exports in complex goods markets. Conversely, in countries with more developed institutions, institutional reform primarily influences transaction costs and is associated with gains in the volume and the diversity of complex exports.     

Heterogeneity of southern countries and southern intellectual property rights policy

Abstract.  We develop a model with one innovating northern firm and heterogeneous southern firms that compete in a final product market. We assume southern firms differ in their ability to adapt technology and study southern incentives to protect intellectual property rights. We find that, in a non-cooperative equilibrium, governments resist IPR protection, but collectively southern countries benefit from some protection. We show that, in general, countries with more efficient firms prefer higher collective IPR protection than those with less efficient firms. Given the aggregate level of IPR protection, it is more efficient if the more efficient countries have weaker IPR protection.     

Optimizing international technology diffusion: A middle-income country's perspective

The paper develops a North–Middle–South model to formulate a middle economy that plays catch-up via imitative R&D to acquire newer technologies from a higher-wage innovative forerunner, while playing “reverse catch-up” via outbound FDI to transfer older technologies to a lower-wage follower. A critical policy dilemma facing the middle economy is how to balance its R&D-driven technology inflows against its FDI-driven technology outflows. Numerical simulations are used for dynamic welfare analysis. This paper finds that tightening FDI permits the middle economy to keep a lower saving rate without weakening its ability to acquire newer technologies in the long run.     

Export promotion agencies: Do they work?

The number of national export promotion agencies (EPAs) has tripled over the last two decades. While more countries made them part of their export strategy, studies criticized their efficacy in developing countries. EPAs were retooled, partly in response to these critiques. This paper studies the impact of today's EPAs and their strategies, based on new survey data covering 103 developing and developed countries. Results suggest that on average they have a statistically significant effect on exports. Our identification strategies highlight the importance of EPA services for overcoming foreign trade barriers and solving asymmetric information problems associated with exports of heterogeneous goods. There are also strong diminishing returns, suggesting that as far as EPAs are concerned, small is beautiful.     

Do South‐South trade agreements increase trade? Commodity‐level evidence from COMESA

Abstract .  South-South trade agreements are proliferating. Yet the impact of these agreements is largely unknown, as existing North-North and North-South micro-level studies are likely to yield misleading predictions for South-South trade agreements. This paper estimates the impact of COMESA on Uganda's imports between 1994 and 2003. Detailed import and tariff data at the 6-digit Harmonized System level are used for more than 1,000 commodities. Based on a difference-in-difference estimation strategy, the paper finds that – in contrast to evidence from aggregate statistics – COMESA's preferential tariff liberalization has not considerably increased Uganda's trade with member countries, on average, across sectors. The effect, however, is heterogeneous across sectors. Finally, the paper finds no evidence of trade-diversion effects.     

Measuring the return on household enterprise: What matters most for whom?

Return on assets (ROA) from household enterprise is crucial for understanding the well-being and productivity of households in developing economies. Yet the definition and measurement of household enterprise ROA remain inconsistent or unclear. We illustrate potential measurement problems with examples from various actual surveys. We then take advantage of a detailed integrated household survey to perform a robustness analysis, acting as if we had gathered less data than was actually the case, to see what matters and for whom. The three issues that matter most for accurate measurement of household enterprise ROA are the choice of accrual versus cash basis of income, the treatment of household's own labor in enterprise income, and the treatment of non-factor income. Also, this sensitivity matters most for a relatively poor region dominated by crop cultivation relative to a richer region with non-farm enterprises. Though the choice between accrued income and cash income matters less when the frequency of the data declines, there remains high sensitivity in longer-term and annualized data. We conclude the paper by providing recommendations on how to improve the survey questionnaires for more accurate measurement in field research.