Composition of trade flows and the effectiveness of fiscal devaluation

We empirically explore whether the magnitude of the effects of fiscal devaluation, which consists of reducing the employers’ social security contribution rate and increasing the value‐added tax rate, depends on the composition of trade flows. Our sample comprises data on bilateral balances of trade between 28 European Union (EU) Member States and their main EU trade partners over the 2000–14 period. We use robust ordinary least squares regressions, controlling for the country‐pair and time fixed effects, to test whether there are differences in the sizes of relationships between these taxation forms and bilateral trade balances for different types of goods, by distinguishing between: (i) consumer, intermediate and capital goods; and (ii) labour and capital‐intensive goods. Our results show that the overall effectiveness of fiscal devaluation depends on the composition of trade flows. Value‐added tax is more strongly (positively) associated with (bilateral) balances of trade in consumer goods, compared to balances of trade in capital and intermediate goods. The employers’ contribution rate, in contrast, is more tightly (negatively) related to balances of trade in capital goods. The latter finding also holds true for trade balances of labour‐intensive goods compared to balances of capital‐intensive goods.     

Services Provision and Temporary Mobility: Freedoms and Regulation in the EU

International posting of workers and mobility of self‐employed service suppliers lie between outright migration and trade in goods: their regulation, for both distributional and market‐correcting purposes, is not as difficult to harmonise as that of labour markets, but personal mobility is more visible and socially intrusive than product market interactions. This paper analyses economic and legal tensions between national regulatory frameworks and international competition in these areas, in both the intra‐EU and global contexts, highlighting how interactions between the external and internal roles of the European Commission may foster efficient integration of markets and policies in this and other fields.     

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.     

Assessing the Benefits to Developing Countries of Liberalisation in Services Trade

This paper discusses the potential impacts of services trade liberalisation on developing countries and reviews existing quantitative studies. Its purpose is to distill themes from current literature rather than to advocate specific policy changes. The picture emerging is one of valiant attempts to quantify in the presence of formidable analytical and data problems yielding only a clouded image of likely impacts on trade, consumption, production and welfare emerging to the point that the policy implications of results are not always clear. A central intuition would seem to be that with genuine two‐sided (OECD/non‐OECD) liberalisation in services that are seemingly considerably labour‐intensive in delivery, the potential should be there for significant developing country gains from global liberalisation allowing full cross‐border delivery. However, this picture is neither fully endorsed by available studies, neither is it explicitly contradicted. This seems to be the case for a number of reasons. One difficulty with the studies is that the conceptual underpinnings of what determines trade in services and how this trade differs analytically from that of trade in goods (if at all) is an issue prior to assessments of impacts of liberalisation of trade in services on developing countries being discussed. Key issues here are the treatment of mobility for service providers (both firms and workers), and the differing analytical structures needed to analyse individual service items (banking, insurance, telecoms, etc.). Some recent analytical work suggests that liber‐alisation in some service items, such as banking, need not always yield gains, and this contrasts with quantitative studies where analytical structures mirror conventional trade in goods treatments. The discussion and measurement of barriers to service trade in both developed and developing countries is also problematic. One is talking of domestic regulation, entry barriers, portability of providers, competition policy regimes more so than only barriers at national borders, as with tariffs. Both representing and quantifying such barriers raise major difficulties, and these are also spelled out in the paper. Which barriers actually restrict trade, and which do not because they are redundant is one issue, for instance. It is also often misleading to represent barriers in simple ad valorem equivalent form. As a result, numerical modelling work on the effects of service trade barriers which is based on ad valorem equivalent modelling is often not fully convincing. In addition, individual country results vary considerably across studies in ways that it is frequently hard for outsiders to understand. Studies do, however, point towards a tentative conclusion that effects are small and positive for developed and most developing countries if FDI flow changes accompanying service trade liberalisation are excluded from the analysis, but much larger and more variable across countries if they are present. This could be taken to suggest that mode 3 GATS liberalisation (roughly captured in some studies) might be important for developing countries; but mode 4 GATS liberalisation could be even more important given large barriers to labour flows across countries. Thus, if service trade liberalisation is thought of primarily as a surrogate for improved functioning of global factor markets in which more capital flows to developing countries and more labour flows from them to developed countries, then developing countries could benefit in a major way from genuine two‐sided (OECD/non‐OECD) liberalisation. Developing countries fear, however, that in global negotiations on services liberalisation where there is an asymmetry of power that largely one‐sided liberalisation may be the outcome, and their gains will be correspondingly limited. The paper concludes by evaluating econometric studies on linkage between services liberalisation and country growth rules, and briefly discusses some key sectoral issues in health services and transportation.     

The Determinants of GATS Commitment Coverage

This paper investigates hypotheses about the determinants of trade and investment liberalisation with a particular focus on the market access and national treatment commitments under the General Agreement on Trade in Services (GATS). We set up a database of these GATS commitments and use the ratio of all commitments listed by a country to the possible number of commitments as a measure of liberalisation of market access/national treatment. Our empirical analysis suggests that larger and ‘richer’ countries commit to more liberal regimes of market access and national treatment. This is surprising since economic theory predicts the largest welfare gains for low‐skilled abundant (skilled‐labour/physical‐capital‐scarce) economies. Also, our findings suggest that liberalisation is stronger among geographically close countries with strong ties in goods trade.     

International Migration and Child labour in Developing Countries

This paper investigates the labor market effect of international migration on child work in countries of origin. We use an original cross‐country survey dataset, which combines information on international migration with detailed  individual‐level data on child labour at age 5–14 in a wide range of developing countries. By exploiting both within and cross‐country variation and controlling for country fixed effects, we find strong and robust evidence on the role of international mobility of workers in reducing child labour in disadvantaged households through changes in the local labour market.     

The Performance of Trading Firms in the Services Sectors – Comparable Evidence from Four EU Countries

We examine trade complexity and the implications of adding additional dimensions of trade for firm performance among services producers. We use unique firm‐level data to compare these patterns across four EU countries. Overall, services firms are relatively less engaged in trade than manufacturing firms; they mostly trade goods and are more likely to import than to export. Trade in services is quite rare; services are more likely to be traded by firms already trading goods. Trading firms in the services sectors are significantly larger, more productive and pay higher wages than non‐traders. Two‐way traders outperform one‐way traders. Changes in trading status by either adding another dimension of trade (imports, exports) or another type of product (goods, services) are infrequent and are associated with significant preswitching premia. In contrast, learning effects from switching trading status are uncommon. This points to significant fixed cost of being engaged in trade and confirms some previous findings that trading services firms have similar traits as their manufacturing counterparts. Apart from greater trade participation in smaller countries, we do not observe systematic differences in terms of trade or switching premia between the four countries that might be attributable to differences in country characteristics.     

China,India and the Commodity Boom: Economic and Environmental Implications for Low‐income Countries

The international role of China has risen steadily for two decades – and has become even more important in the current global recession. The growing supply of labour‐intensive manufactured exports from China has been accompanied by a huge expansion in its imports both of raw materials and of skill‐intensive manufactured parts and components. This ‘offshoring’ of intermediates production by a large, labour‐abundant economy has economic and environmental implications for other developing economies. More recently, the rapid expansion of the Indian economy and trade indicates that it too will soon exert similar effects on global markets. We sketch a model showing how the growth of these developing‐country ‘giants’ generates adjustment pressures on other developing economies. We discuss in particular how differences in relative factor endowments of resource‐rich economies can produce quite different outcomes in the context of product fragmentation and expanding commodity trade. We also explore the effects on production, trade, environment and prospects for future growth in resource‐rich economies, particularly in the context of weak institutions and other market failures. We illustrate these different impacts by considering the cases of Indonesia, Malaysia and Thailand and highlight implications for growth, development and policy.     

Determinants of Bilateral Trade Protection

In this paper, determinants of bilateral protection levels are empirically identified when controlling for multilateral trade regulation and importing‐country‐specific factors. Strong empirical support is provided of that three bilateral factors are influencing the bilateral protection level. Specifically, a country's protection level on goods from a trade partner is positively affected by the domestic import penetration of goods produced by the trade partner, negatively influenced by the intra‐industry traded share of these imports and positively affected by the trade partner's protection level on domestic goods. Moreover, very high explanatory values are provided in the cross‐section estimations, indicating that these determinants, policy regulations and importer‐specific factors jointly explain almost all of the variation in bilateral protection levels. The results are general in the sense that estimations are performed for a large sample of bilateral trade relations including 22 trade partners that are highly differentiated in terms of country characteristics. The overall results indicate that, to the extent that policy makers can affect bilateral protection levels under multilateral trade regulation, they act on political‐economy rather than economic goals.     

Understanding the international mobility of Chinese temporary workers

Using unique panel data on the temporary movement of Chinese workers to 191 economies during 1992–2015, I investigate the patterns and determinants of labour mobility in the services trade. I estimate a gravity model of labour mobility in two categories, namely overseas labour services and overseas contracted projects. I find that distance (proxy for migration costs) and income are not the most important determinants of the latter. For overseas contracted projects, the dispatch of workers is not driven by their pure economic aims but by the Chinese government's policies and strategies such as its overseas project promotion policy. Furthermore, I employ the difference‐in‐differences estimation method to investigate the impact of this policy upon labour mobility. The results show that the policy of promoting overseas contracted projects has causal and positive effects on labour mobility in construction‐related sectors.     

Beyond Border Barriers: The Liberalisation of Services Trade in Tunisia and Egypt

Tunisia and Egypt have both recently undertaken significant steps toward trade reform. They have committed to a partnership agreement with the European Union. Both countries have also joined the WTO and are participating in Doha Round discussions on the liberalisation of non‐tariff barriers on both goods and services trade. These developments provide an interesting context within which to investigate not only the changes in welfare associated with reforms affecting the trade in goods, but also the impacts of services liberalisation. Using open‐economy computable general equilibrium models for both Tunisia and Egypt, this paper explores the reasons why structural differences in these two economies imply different opportunities and challenges with trade reform and services liberalisation. The gains from eliminating barriers at the border for goods trade are significantly greater for Tunisia than Egypt. Both countries, however, gain substantially from liberalisation of foreign direct investment in services. Furthermore, economic growth is more evenly distributed across sectors than with liberalisation of trade in goods alone. In addition to reporting on the impact of alternative policies on income, output, employment and trade, sector‐level effects are also considered.     

Trade Effects of the European Union's Service Directive: Contrasting ex ante Estimates with Empirical Evidence

One of the top priorities to improve the European Union's growth performance is the creation of a single market for services. The directive on services adopted by the Parliament and the Council by the end of 2006 aims at removing barriers to the free movement of service providers on the internal market. Previous studies quantified ex ante sizable effects of implementing the directive in its original form. This paper is a first attempt to evaluate ex post the trade effects induced by a directive – which excludes the country‐of‐origin principle – by performing a difference‐in‐difference‐(in‐differences) estimator on a sample of EU‐ and non‐EU countries in the period 2004 to 10. We account for non‐tariff trade barriers and the endogeneity of regional trade agreements and find that the service directive adds to a reallocation of business services trade within the EU. Accounting for the trade effect of past deregulations, the EU directive fosters a deeper integration of the new member states into the European service value‐added‐chain and promotes business service exports from third countries towards the EU significantly more than trade of country pairs in the control group. The reorientation of the EU‐15 towards the new members is in turn associated with less intense intra‐EU‐10 businesses, while business trade between EU‐15 members is not significantly affected.     

Services Offshoring and its Impact on Productivity and Employment: Evidence from Germany, 1995–2006

Economists have recently recognised services offshoring as an important influence on domestic labour market outcomes. Services are of particular interest since their significance has grown in terms of both quantity and quality. Only one and a half decades ago, most services were considered non‐tradable, but the emergence and development of new information and communication technologies has made many services internationally tradable. The liberalisation of international trade in services trade has further accelerated the volume of services trade. Our econometric estimations focus on services offshoring by German manufacturing sectors. We use revised input–output data from 1995 to 2006. We first estimate the impact of services offshoring on labour productivity. We then measure the effects of services offshoring on labour demand. The results show that services offshoring increased sectoral labour productivity, but reduced German manufacturing employment. The overall results suggest that labour demand decreased over 1995–2006, because labour‐reducing productivity and substitution effects dominated labour‐augmenting scale effects from services offshoring.     

WHY ARE GOODS CHEAPER IN RICH EUROPEAN COUNTRIES? BEYOND THE BALASSA–SAMUELSON EFFECT

In wealthy European countries consumer goods tend to be cheaper than consumer services. Usually explained in terms of cost developments and/or foreign‐trade considerations, this trend could also be a reflection of demand‐side regularities. Estimation of a cross‐country demand system indicates that goods are ‘necessities’ whereas services are ‘luxuries’. The relative price of goods responds negatively to the rising supply of goods and positively to the rising supply of services, with the former response being much stronger. If the supplies of both items were to rise at the same speed, the relative price of goods would have to fall.     

Migration and servicification: Do immigrant employees spur firm exports of services?

Services play an increasingly important role in production, employment and international trade but are subject to substantially higher trade costs relative to manufactured goods. Knowledge of how these trade costs can be mitigated is important for facilitating trade of services. In this paper, we analyse the role of immigrant employees as facilitators of firm exports of services, a role that remains largely unexamined. We bridge the gap in existing research by drawing on new data for nearly 30,000 Swedish firms during the period 1998–2007 within a heterogeneous firm framework. The results have important policy implications. As the multilateral approach to facilitating trade is challenged and more countries are imposing measures to restrict the cross‐country mobility of people, policymakers may need to find new ways to promote exports of services. Our results indicate that immigrant employees spur firms' export of services activities: hiring one additional foreign‐born worker can increase services exports by approximately 2.5 per cent, on average, with a stronger effect found for skilled and newly arrived immigrants. Therefore, policymakers could leverage the findings of this study to implement initiatives that utilise high‐skilled immigrants to promote services exports.     

Quality standards for used durables: An indirect subsidy?

We construct a theoretical framework to study the impact of quality standards for used durable goods on trade ?ows, pro?ts and consumer welfare. We show that asymmetric quality standards generate trade in used goods from high- to low-standard countries while at the same time reducing trade in new goods. Producers in the exporting country bene?t from this change while consumers lose. In the importing country consumers are better off but domestic industry is hurt. These ?ndings suggest that quality standards on used goods may be a powerful policy tool whose use should be monitored by the WTO.     

Globalisation,Women's Economic Rights and Forced Labour

Globalisation critics are concerned that increased trade openness and foreign direct investment exacerbate existing economic disadvantages of women and foster conditions for forced labour. Defenders of globalisation argue instead that as countries become more open and competition intensifies, discrimination against any group, including women, becomes more difficult to sustain and is therefore likely to recede. The same is argued with respect to forced labour. This article puts these competing claims to an empirical test. We find that countries that are more open to trade provide better economic rights to women and have a lower incidence of forced labour. This effect holds in a global sample as well as in a developing country sub‐sample and holds also when potential feedback effects are controlled via instrumental variable regression. The extent of an economy's ‘penetration’ by foreign direct investment by and large has no statistically significant impact. Globalisation might weaken the general bargaining position of labour such that outcome‐related labour standards might suffer. However, being more open toward trade is likely to promote rather than hinder the realisation of two labour rights considered as core or fundamental by the International Labour Organisation, namely the elimination of economic discrimination and of forced labour.     

Product Complexity,Quality of Institutions and the Protrade Effect of Immigrants

The paper assesses the trade‐creating impact of foreign‐born residents on the international imports and exports of the French regions where they are settled. The protrade effect of immigrants is investigated along two intertwined dimensions: the complexity of traded goods and the quality of institutions in partner countries. The trade‐enhancing impact of immigrants is, on average, more salient when they come from a country with weak institutions. However, this positive impact is especially large on the imports of simple products. When we turn to complex goods, for which the information channel conveyed by immigrants is the most valuable, immigration enhances imports regardless of the quality of institutions in the partner country. Regarding exports, immigrants substitute for weak institutions on both simple and complex goods.     

On Some Effects of International Fragmentation of Production on Comparative Advantages,Trade Flows and the Income of Countries

In traditional trade models, whether based on technological differences or on relative factor endowments, merchandise composition and directions of trade are derived from closed‐economy conditions. But nowadays one of the basic assumptions of traditional trade models, i.e. that production processes are integrated within just one country, is being increasingly violated as previously integrated productive activities are segmented and spread over an international network of production sites: as a result, an increasingly large share of trade flows is made up of intermediate and unfinished goods being transferred from one country to another in order to be processed. In this paper we submit that such new configuration of production processes has important effects on at least three dimensions of economic research. First, we show that international disintegration of production processes leads to a lessening of the power of comparative advantages when it comes to explaining both merchandise composition and directions of trade, while it is the concept of absolute advantage to become increasingly relevant; second, we show that empirical measures of revealed comparative advantages are inherently misleading if they do not account for differences in the stage‐of‐processing of traded goods; third, we estimate a simple model of aggregate demand accounting for international trade in intermediates: results of estimation lend support to our prior that participation of a country in the process of international fragmentation of production plays a specific and significant role in determining its year‐over‐year change in GDP.     

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.