Impact of China's WTO Accession on East Asia

The industrialized and newly industrializing economies (NIEs) in East Asia will benefit from China's WTO accession, and the developing economies in the region may incur small welfare losses. China will increase its demand for high-end manufacturing products from Japan and the NIEs and farm products, natural resources, and manufactured goods from developing East Asia. New foreign investment may flow into these expanding sectors. The overall impact on foreign investment is likely to be positive in the NIEs but negative in developing East Asia. The NIEs may face heightened competition in global markets as China's comparative advantage shifts into high-end products. (JEL F11 , F13 , F15 )     

Surges and stops in greenfield and M&A FDI flows to developing countries: analysis by mode of entry

This paper investigates the factors associated with foreign direct investment “surges” and “stops”, defined as sharp increases and decreases, respectively, of foreign direct investment inflows to the developing world and differentiated based on whether these events are led by waves in greenfield investments or mergers and acquisitions. Greenfield-led surges and stops occur more frequently than mergers-and-acquisitions-led ones and different factors are associated with the onset of the two types of events. Global liquidity is the factor significantly and positively associated with a surge, regardless of its kind, while a global economic growth slowdown and a surge in the preceding year are the main factors associated with a stop. Greenfield-led surges and stops are more likely in low-income countries and mergers-and-acquisitions-led surges are less likely in resource-rich countries than elsewhere in the developing world. Global growth accelerations and increases in financial openness, domestic economic and financial instability are associated with mergers-and-acquisitions-led surges but not with greenfield-led ones. These results are particularly relevant for developing countries where FDI flows are the major type of capital flows and suggest that developing countries’ macroeconomic vulnerability increases following periods of increased global liquidity. As countries develop they typically become more exposed to merger-and-acquisition-led surges, which are more likely than greenfield-led surges and stops to be short-lived and associated with domestic macroeconomic policies.     

The growth of China and India: implications and policy reform options for Malaysia

This study explores the trade‐related impacts of rapid growth of China and India on the Malaysian economy and evaluates policy options to better position Malaysia to take advantage of these changes. Higher growth in China and India is likely to raise Malaysia's national income and to expand Malaysia's natural resource and agricultural exports, while putting downward pressure on exports from some manufacturing and service sectors. Increases in the quality and variety of exports from China and India are likely to increase substantially the overall gains to Malaysia. The expansion of the natural resource sectors and the contraction of manufacturing and services reflect a Dutch‐disease effect that will raise the importance of policies to facilitate adaptation to the changing world economy and improve competitiveness. Most‐favoured‐nation (MFN) liberalisation would increase welfare, and, by increasing competitiveness, raise output and exports of key industries. Preferential liberalisation with India and completely free trade with China would provide greater market access gains than MFN reform, but neither would be as effective in increasing income as MFN liberalisation, and free trade agreements would lead to greater competitive pressure on many of Malaysia's industries than MFN liberalisation. Increased investments in education and infrastructure could boost manufacturing and services sectors in Malaysia, while improving trade logistics would benefit sectors with high transport costs, including the agricultural and resource‐based industries.     

Unrestricted Market Access for Sub-Saharan Africa: How Much Is It Worth and Who Pays?

Initiatives to improve market access for the poorest countrieshave recently been announced by the EU, Japan and the USA. Thispaper assesses the impact of these initiatives and others thatmight be taken for a subset of 37 Sub-Saharan African countries(SSA-37). We find that fully unrestricted access to all theQUAD countries (EU, USA, Canada and Japan) would produce substantialgains for SSA-37, leading to a 14% increase in non-oil exports($2.5 billion) and boosting real incomes in SSA-37 by about1%. Most of these gains would come from preferential accessto the highly protected Japanese and European agricultural markets.The smallness of SSA-37 ensures that the costs of trade diversionfor the QUAD, other developing countries and the world as awhole are negligible.     

ASSESSING THE IMPACT OF CHINA'S WTO ACCESSION ON INVESTMENT

Abstract.  After a boom in foreign direct investment (FDI) in China in the early 1990s, FDI slowed in the late 1990s. More recently, with China's accession to the World Trade Organization (WTO) a reality, FDI has once again picked up. This paper explores the linkage between WTO accession and investment in China. We find that investment and capital stocks increase substantially. Moreover, foreign ownership of Chinese assets doubles by 2020. Central to this increase is the expected catch-up in the productivity of the services sectors driven by reforms. These estimates are far larger than those predicted by earlier studies, which ignored the reforms affecting Chinese services sectors, and abstracted from international capital mobility.     

Trade Reform and Poverty: The Case of Mexico

We use a two‐step computationally simple procedure to analyse the effects of Mexico's's potential unilateral tariff liberalisation on real incomes. First, we use the CGE model provided by the Global Trade Analysis Project (GTAP) as the new price generator. Second, we apply the price changes to Mexican household data in order to assess the effects of the policy simulation on poverty and income distribution. Although Mexico widely liberalised most of its imports by the mid 90s, one salient feature is its membership in the North American Free Trade Agreement (NAFTA) with Canada and United States. By choosing GTAP as the price generator, we are able to model the differential tariff structure. Even starting with a low level of tariff protection, simulation results show that the impact of tariff reform on welfare will be positive in general for all expenditure deciles. We find that, when we assume non‐homothetic individual preferences, trade liberalisation benefits people in the poorer deciles more than those in the richer ones.     

Are duty drawbacks on exports worth the hassle?

Abstract.  Many countries use duty drawbacks on exports, yet there is no consensus whether countries should embrace or abandon them. The answer depends on countries' development priorities and economic conditions. An increase in the drawback has a positive impact on export competitiveness, but the welfare effect is ambiguous. A welfare increase is more likely if the economy is small with high input tariffs, low initial drawback, low administrative costs and tariff leakages. In China duty drawback removal after meeting its WTO commitments improves welfare, but hurts economic efficiency, export competitiveness, and real incomes. Further liberalization can mitigate these negative effects.     

Procompetitive Effects of Foreign Competition on Domestic Markups

A short-run model for estimating the procompetitive effects of foreign competition on markups in an oligopolistic, domestic industry is developed and estimated using data on the Australian automobile industry. Estimates reveal that these effects are rather large and cannot be ignored when predicting the effects of a shock affecting foreign costs. These estimates can also facilitate inferences about the nature of interfirm rivalry.     

Impacts of China's Accession to the World Trade Organization

This article presents estimates of the impact of China's accessionto the World Trade Organization. China is estimated to be thebiggest beneficiary (US$31 billion a year from trade reformsin preparation for accession and additional gains of $10 billiona year from reforms after accession), followed by its majortrading partners that also undertake liberalization, includingthe economies in North America, Western Europe, and Taiwan (China).Accession will boost manufacturing sectors in China, especiallytextiles and apparel, which will benefit directly from the removalof export quotas. Developing economies competing with Chinain third markets may suffer small losses. Accession will haveimportant distributional consequences for China, with the wagesof skilled and unskilled nonfarm workers rising in real termsand relative to those of farm workers. Possible policy changes,including reductions in barriers to labor mobility and improvementsin rural education, could more than offset these negative impactsand facilitate the development of China's economy.