Showing papers on "Free trade published in 2005"

Market Size, Trade, and Productivity

Abstract: We develop a monopolistically competitive model of trade with firm heterogeneity—in terms of productivity differences—and endogenous differences in the "toughness" of competition across markets—in terms of the number and average productivity of competing firms. We analyse how these features vary across markets of different size that are not perfectly integrated through trade; we then study the effects of different trade liberalization policies. In our model, market size and trade affect the toughness of competition, which then feeds back into the selection of heterogeneous producers and exporters in that market. Aggregate productivity and average mark-ups thus respond to both the size of a market and the extent of its integration through trade (larger, more integrated markets exhibit higher productivity and lower mark-ups). Our model remains highly tractable, even when extended to a general framework with multiple asymmetric countries integrated to different extents through asymmetric trade costs. We believe this provides a useful modelling framework that is particularly well suited to the analysis of trade and regional integration policy scenarios in an environment with heterogeneous firms and endogenous mark-ups.

Trade Liberalization, Intermediate Inputs and Productivity: Evidence from Indonesia

Abstract: This paper estimates the effects of trade liberalization on plant productivity. In contrast to previous studies, we distinguish between productivity gains arising from lower tariffs on final goods relative to those on intermediate inputs. Lower output tariffs can produce productivity gains by inducing tougher import competition whereas cheaper imported inputs can raise productivity via learning, variety or quality effects. We use Indonesian manufacturing census data from 1991 to 2001, which includes plant level information on imported inputs. The results show that the largest gains arise from reducing input tariffs. A 10 percentage point fall in output tariffs increases productivity by about 1%, whereas an equivalent fall in input tariffs leads to a 3% productivity gain for all firms and an 11% productivity gain for importing firms.

World Trade Flows: 1962-2000

Abstract: We document a set of bilateral trade data by commodity for 1962-2000, which is available from www.nber.org/data (International Trade Data, NBER-UN world trade data). Users must agree not to resell or distribute the data for 1984-2000. The data are organized by the 4-digit Standard International Trade Classification, revision 2, with country codes similar to the United Nations classification. This dataset updates the Statistics Canada World Trade Database as described in Feenstra, Lipsey, and Bowen (1997), which was available for years 1970-1992. In that database, Statistics Canada had revised the United Nations trade data, mostly derived from the export side, to fit the Canadian trade classification and in some cases to add data not available from the export reports. In contrast, in the new NBER-UN dataset we give primacy to the trade flows reported by the importing country, whenever they are available, assuming that these are more accurate than reports by the exporters. If the importer report is not available for a country-pair, however, then the corresponding exporter report is used instead. Corrections and additions are made to the United Nations data for trade flows to and from the United States, exports from Hong Kong and China, and imports into many other countries.

Market Size, Trade, and Productivity

Abstract: We develop a monopolistically competitive model of trade with firm heterogeneity - in terms of productivity differences - and endogenous differences in the 'toughness' of competition across markets - in terms of the number and average productivity of competing firms. We analyze how these features vary across markets of different size that are not perfectly integrated through trade; we then study the effects of different trade liberalization policies. In our model, market size and trade affect the toughness of competition, which then feeds back into the selection of heterogeneous producers and exporters in that market. Aggregate productivity and average markups thus respond to both the size of a market and the extent of its integration through trade (larger, more integrated markets exhibit higher productivity and lower markups). Our model remains highly tractable, even when extended to a general framework with multiple asymmetric countries integrated to different extents through asymmetric trade costs. We believe this provides a useful modeling framework that is particularly well suited to the analysis of trade and regional integration policy scenarios in an environment with heterogeneous firms and endogenous markups.

Why the Move to Free Trade? Democracy and Trade Policy in the Developing Countries

Abstract: Rising international trade flows are a primary component of globalization. The liberalization of trade policy in many developing countries has helped foster the growth of these flows. Preceding and concurrent with this move to free trade, there has been a global movement toward democracy. We argue that these two trends are related: democratization of the political system reduces the ability of governments to use trade barriers as a strategy for building political support. Political leaders in labor rich countries may prefer lower trade barriers as democracy increases. Empirical evidence supports our claim about the developing countries from 1970-1999. Regime change toward democracy is associated with trade liberalization, controlling for many factors. Conventional explanations of economic reform, such as economic crises and external pressures, seem less salient. Democratization may have fostered globalization in this period.

Economic growth in the 1990s : learning from a decade of reform

Abstract: This book is part of a larger effort undertaken by the World Bank to understand the development experience of the 1990s, an extraordinary eventful decade. Each of the project's three volumes serves a different purpose. Development Challenges in the 1990s: Leading Policymakers Speak from Experience offers insights on the practical concerns faced by policymakers, while At the Frontlines of Development: Reflections from the World Bank considers the operational implications of the decade for the World Bank as an institution. This volume, Economic Growth in the 1990s: Learning from a Decade of Reform, provides comprehensive analysis of the decade's development experience and examines the impact of key policy and institutional reforms of growth. Economic Growth in the 1990s confirms and builds on the conclusions of an earlier World Bank book, The East Asian Miracle (1993), which reviewed experiences of highly successful East Asian economies. It confirms the importance of growth of fundamental principles: macro stability, market forces governing the allocation of resources, openness, and the sharing of the benefits of growth. At the same time, it echoes the finding that these principles translate into diverse policy and institutional paths, implying the economic policies and policy advice must be country-specific and institutional-sensitive if they are to be effective. The authors examine the impact of growth of key policy and institutional reforms: macroeconomic stabilization, trade liberalization, deregulation of finance, privatization, deregulation of utilities, modernization of the public sector with a view to increasing its effectiveness and accountability, and the spread of democracy and decentralization. They draw lessons both from a policy and institutional perspective and from the perspective of country experiences about how reforms in each policy and institutional area have affected growth.

Why Globalization Works

Abstract: WHY GLOBALIZATION WORKS Martin Wolf New Haven: Yale University Press, 2004 xviii, 398pp, $4350 cloth (ISBN 0-300-10252-6)Give the antiglobalization gaggle their due After the 1999 "battle in Seattle," mainstream commentators summarily dismissed most of the claims of most of the antiglobalization protestors-often within the space of a single op-ed column That was then Over the past five years the antiglobalization crowd has managed to convince a fair fraction of the globe of the correctness of their arguments: global economic integration empowers multinational corporations at the expense of citizens, enriches the wealthy while impoverishing the poor, and strips away the autonomy of governments, leaving them at the mercy of global capital marketsAs these claims have garnered greater credence, the reaction has been a fuller articulation of the mainstream response Economists and policymakers who support the reduction of national barriers to exchange have generated a raft of books devoted to debunking the myriad claims of the antiglobalization and alternative globalization crowds Some of themDouglas Irwiris Free Trade Under Fire, Brink Lindsey's Against the Dead Hand, Raghuram Rajan's Saving Capitalism From the Capitalists, Johan Norberg's In Defense of Global Capitalism, and Jagdish Bhagwati's In Defense of Globalization-have made some excellent points However, Martin Wolf's Why Globalization Works is the best single book to date that comprehensively addresses all of the claims and counterclaims with regard to economic globalization Wolf, a World Bank economist turned Financial Times editor and columnist, has written the kind of book that makes me envious-because I wish I had written itWolf's argument is simple but compelling: compared to all other forms of economic organization, a system based on free market principles brings the greatest good to the greatest number A market system supported by the legal and popular sovereignty of a liberal democratic polity functions even better Globalization increases the size of the market, which increases the opportunities for growth, which increases the number of nonzero-sum interactions as compared to zero-sum conflicts When contrasted against the alternatives, both theory and practice strongly recommend the unfettered integration of national markets Critics of global market integration-variously dubbed "new millennium collectivists" or "antiglobalizationcom" by Wolf-are simply unable to propose a better international economic arrangementThe first three sections of Why Globalization Works are devoted primarily to the theory side of the argument-how to define globalization, why the free movement of goods, services, and people across borders is a good thing, and the proper division of labor between markets and governments Few of the points made in this section are new, but they serve a useful purpose, which is to point out an alternative frame through which to judge the merits of globalization Protestors tend to focus on cross-sectional analysis-ie, comparing how different parts of the present-day world are experiencing the (mal)distribution of benefits from the globalization phenomenon Wolf argues that the thoughtful observer should also make temporal comparisons How much do individuals benefit during eras of globalization as opposed to periods of segmentation? The answer here is not surprising-periods of globalization generate much greater gains than other periods in history …

Tax Revenue and (or?) Trade Liberalization

Abstract: With the public finances of many developing and emerging market countries still heavily dependent on trade tax revenues, further trade liberalization may be hindered unless they are able to develop alternative sources of revenue. While there is now a well-established body of theory and policy advice on how this might be done in principle, this paper uses panel data for 111 countries over 25 yearscleaned for a variety of problems in standard data sourcesto ask what has happened in practice: Have countries in fact recovered from other sources the revenues they have lost from past episodes of trade liberalization? High-income countries clearly have. For middle-income countries, recovery has been in the order of 45-60 cents for each dollar of lost trade tax revenue, with signs of close to full recovery when separately identifying episodes in which trade tax revenues fell. Troublingly, however, revenue recovery has been extremely weak in low-income countries (which are those most dependent on trade tax revenues): they have recovered, at best, no more than about 30 cents of each lost dollar. Nor is there much evidence that the presence of a value-added tax has in itself made it easier to cope with the revenue effects of trade liberalization.

Trade Liberalization, Intermediate Inputs, and Productivity: Evidence From Indonesia

Abstract: This paper estimates the effects of trade liberalization on plant productivity. In contrast to previous studies, we distinguish between productivity gains arising from lower tariffs on final goods relative to lower tariffs on intermediate inputs. Lower output tariffs can produce productivity gains by inducing tougher import competition whereas cheaper imported inputs can raise productivity via learning, variety, or quality effects. We use Indonesian manufacturing census data from 1991 to 2001, which includes plant-level information on imported inputs. The results show that the largest gains arise from reducing input tariffs. A 10 percentage point fall in output tariffs increases productivity by about 1 percent, whereas an equivalent fall in input tariffs leads to a 3 percent productivity gain for all firms and an 11 percent productivity gain for importing firms.

Trade Liberalization, Poverty, and Inequality: Evidence from Indian Districts

Abstract: Although it is commonly believed that trade liberalization results in higher GDP, little is known about its effects on poverty and inequality. This paper uses the sharp trade liberalization in India in 1991, spurred to a large extent by external factors, to measure the causal impact of trade liberalization on poverty and inequality in districts in India. Variation in pre-liberalization industrial composition across districts in India and the variation in the degree of liberalization across industries allow for a difference-in- difference approach, establishing whether certain areas benefited more from, or bore a disproportionate share of the burden of liberalization.

Spatial Inequality and Development

Abstract: 1. Introduction 2. Regional Output Differences in International Perspective 3. Are Neighbors Equal? Estimating Local Inequality in Three Developing Countries 4. Market Size, Linkages and Productivity: A Study of Japanese Regions 5. Externalities in Rural Development: Evidence for China 6. Opening the Convergence Black Box: Measurement Problems and Demographic Aspects 7. Adverse Geography and Differences in Welfare in Peru 8. How Responsive is Poverty to Growth? A Regional Analysis of Poverty, Inequality and Growth in Indonesia, 1984-1999 9. Reforms, Remoteness and Risk in Africa: Understanding Inequality and Poverty During the 1990s 10. Economic Polarization Through Trade: Trade Liberalization and Regional Growth in Mexico 11. International Trade, Location and Wage inequality in China 12. Spatial Inequality for Manufacturing Wages in Five African Countries 13. Regional Poverty and Income Inequality in Central and Eastern Europe: Evidence from the Luxembourg Income Study 14. Quo Vadis: Inequality and Poverty Dynamics Across Russian Regions

From "Hindu Growth" to Productivity Surge: The Mystery of the Indian Growth Transition

Abstract: This paper explores the causes of India's productivity surge around 1980, more than a decade before serious economic reforms were initiated. Trade liberalization, expansionary demand, a favorable external environment, and improved agricultural performance did not play a role. We find evidence that the trigger may have been an attitudinal shift by the government in the early 1980s that, unlike the reforms of the 1990s, was probusiness rather than promarket in character, favoring the interests of existing businesses rather than new entrants or consumers. A relatively small shift elicited a large productivity response, because India was far away from its incomepossibility frontier. Registered manufacturing, which had been built up in previous decades, played an important role in determining which states took advantage of the changed environment.

Agricultural Trade Reform and the Doha Development Agenda

Abstract: Anderson and Martin examine the extent to which various regions, and the world as a whole, could gain from multilateral trade reform over the next decade. They use the World Bank's linkage model of the global economy to examine the impact first of current trade barriers and agricultural subsidies, and then of possible outcomes from the World Trade Organization's Doha round. The results suggest moving to free global merchandise trade would boost real incomes in Sub-Saharan Africa and Southeast Asia (and in Cairns Group countries) proportionately more than in other developing countries or high-income countries. Real returns to farm land and unskilled labor and real net farm incomes would rise substantially in those developing country regions, thereby alleviating poverty. A Doha partial liberalization could take the world some way toward those desirable outcomes, but more so the more agricultural subsidies are disciplined and applied tariffs are cut.

The changing landscape of regional trade agreements

Abstract: Disclaimer and citation guideline Discussion Papers are presented by the authors in their personal capacity and opinions expressed in these papers should be attributed to the authors. They are not meant to represent the positions or opinions of the WTO Secretariat or of its Members and are without prejudice to Members' rights and obligations under the WTO. Any errors or omissions are the responsibility of the authors. With written permission of the WTO Publications Manager, reproduction and use of the material contained in this document for non-commercial educational and training purposes is encouraged.

Agricultural Trade Reform and the Doha Development Agenda

Abstract: Agriculture is yet again causing contention in international trade negotiations. It caused long delays to the Uruguay round in the late 1980s and 1990s, and it is again proving to be the major stumbling block in the World Trade Organization's (WTO) Doha round of multilateral trade negotiations (formally known as the Doha Development Agenda, or DDA). This study builds on numerous recent analyses of the Doha Development Agenda and agricultural trade, including five very helpful books that appeared in 2004. One, edited by Aksoy and Beghin (2004), provides details of trends in global agricultural markets and policies, especially as they affect nine commodities of interest to developing countries. Another, edited by Ingco and Winters (2004), includes a wide range of analyses based on papers revised following a conference held just before the aborted WTO trade ministerial meeting in Seattle in 1999. The third, edited by Ingco and Nash (2004), provides a follow-up to the broad global perspective of the Ingco and winters volume: it explores a wide range of key issues and options in agricultural trade reform from a developing-country perspective. The fourth, edited by Anania, Bowman, Carter, and McCalla (2004), is a comprehensive, tenth-anniversary retrospective on the Uruguay Round Agreement on Agriculture and numerous unilateral trade and subsidy reforms in developed, transition, and developing economies. And the fifth, edited by Jank (2004), focuses on implications for Latin America.

Has Distance Died? Evidence from a Panel Gravity Model

Abstract: The estimated coefficient of distance on the volume of trade is generally found to increase rather than decrease through time using the traditional gravity model of trade. This distance puzzle proved robust to several ad hoc versions of the model using data for 1962-96 for a large sample of 130 countries. The introduction of an augmented barrier to trade function removes the paradox, yielding a decline in the estimate of the elasticity of trade to distance of about 11 percent over the 35-year period for the whole sample. However, the death of distance is shown to be largely confined to bilateral trade between rich countries, with poor countries becoming marginalized.

Development, Trade and the WTO a Handbook

Abstract: Developing countries are increasingly confronted with the need to address trade policy related issues in international agreements, most prominently the World Trade Organization (WTO). New WTO negotiations on a broad range of subjects were launched in November 2001. Determining whether and how international trade agreements can support economic development is a major challenge. Stakeholders in developing countries must be informed on the issues and understand how their interests can be pursued through international cooperation. This handbook offers guidance on the design of trade policy reform, surveys key disciplines and the functioning of the World Trade Organization (WTO), and discusses numerous issues and options that confront developing countries in using international cooperation to improve domestic policy and obtain access to export markets. Many of the issues discussed are also relevant in the context of regional integration agreements. Separate sections of the handbook summarize what constitutes sound trade policy; the major aspects of the WTO from a development perspective; policy issues in the area of merchandise trade and the liberalization of international transactions in services; protection of intellectual property rights and economic development; new regulatory subjects that are emerging in the agenda of trade talks; and enhancing participation of developing countries in the global trading system.

Product fragmentation and trade patterns in East Asia

Abstract: International product fragmentation—the cross-border dispersion of component production/assembly within vertically integrated production processes—is an important feature of the deepening structural interdependence of the world economy. This paper examines the implications of this phenomenon for global and regional trade patterns, with special emphasis on countries in East Asia, using a new data set culled from the United Nations Commodity Trade Statistics Database. It is found that, while “fragmentation trade” has generally grown faster than total world trade in manufacturing, the degree of dependence of East Asia on this new form of international specialization is proportionately larger than that of North America and Europe. The upshot is that international product fragmentation has made East Asian growth increasingly reliant on extra-regional trade, strengthening the case for a global, rather than a regional, approach to trade and investment policymaking.

Trade liberalization in the Doha Development Round

Abstract: Doha Round The Doha Round faced a long series of launch-delays and a spectacular launch-failure in Seattle in 1999 While the talks did take off in 2001, the negotiating agenda is still ambiguous in a number of crucial areas This paper argues that these ambiguities matter greatly Such ambiguities include the meaning of ‘flexibility and exemptions’, which are part of the evolving framework for market access negotiations This may (or may not) be read as allowing developing countries to opt for much smaller concessions than those to be undertaken by the OECD, or even for no concessions To explore these issues, we examine the impact of multilateral liberalization, developing possible trade liberalization under the Doha Round, starting from a realistic ‘baseline’ including Chinese WTO Accession and the 2004 EU enlargement This allows us to focus on effects specifically attributable to trade liberalization under the Doha Round and the potential impact of the Doha Round itself To this end we employ a global applied general equilibrium model, featuring imperfect competition and variety effects Scenarios include agriculture, manufactures, and services liberalization, as well as trade facilitation We conclude that active developing country participation in terms of market access concessions is critical to their prospects If developing countries continue for the most part with business as usual after the round, in terms of trade policy, there is little scope for actual benefits accruing to developing countries South-South trade liberalization is key to the ‘development’ part of the Doha Development Agenda — Joseph Francois, Hans van Meijl and Frank van Tongeren

National and International Returns to Scale in the Modern Theory of International Trade

Abstract: Since the WWII the largest and fastest growing component of world trade has been the exchange of manufactures between industrialized economies. The emerging of the intraindustry trade has somewhat challenged and cast doubts on the traditional Heckscher-Ohlin-Samuelson (H-O-S) trade model. Economists have some insight into this phenomenon, and attention has accordingly shifted to influence of the product differentiation on the economies of scale. But their research has no little impact on the dominating trade theory. What's more, they cannot give sufficient explanation to the modern trade practices. This paper focuses on the differentiated producer goods and constructs a model yielding international returns to scale. It also employs this model to explore the relations between international returns, the traditional national returns to scale and the factor endowments theory of international trade.

Assessing the Benefits of Trade Facilitation: A Global Perspective

Abstract: This paper estimates the relationship between trade facilitation and trade flows using a panel of disaggregated manufactured goods for the 2000-2001 period for 75 countries. Four categories of trade facilitation are defined, measured and assessed for their impact on bilateral trade flows using a gravity model. The four measures of trade facilitation are: port infrastructure (air and maritime), customs environment, regulatory environments and e-business infrastructure. The results suggest that raising global capacity halfway to the world average in the four areas would increase trade by $377 billion. Most regions of the world increase exports more than imports. In large part, this result stems from increased exports to OECD markets that is obtained through a country's own effort to improve ports, customs, regulations and services infrastructures. In addition, the results suggest that reform and capacity building in trade facilitation in areas related to GATT Articles V, VIII and X that are under discussion at the World Trade Organisation could expand trade and exports significantly. Many of the reform measures necessary to achieve this goal need not necessarily require large-scale investment projects, but rather action in legal and administrative reform to facilitate trade.

Government Spending and Public Support for Trade in the OECD: An Empirical Test of the Embedded Liberalism Thesis

Abstract: According to the embedded liberalism thesis, governments committed to free trade provide insurance and other transfers to compensate those who lose economically from expanded trade. The goal of this spending is to maintain public support for trade liberalization. We provide a micro-level test of the critical assumption behind the embedded liberalism thesis that government programs designed to protect individuals harmed by imports reduce opposition to free trade. Our micro results have important implications for the macro relationship between trade and government spending, which we also test. We find empirical support for the embedded liberalism thesis in both our micro- and macro-level analyses.Earlier versions of this article were presented at the Midwest Political Science Association's 2002 Meeting and at the University of Illinois during summer 2003. We thank the respective panel and seminar participants for their feedback. In addition, we want to acknowledge valuable comments from William Bernhard, Rebecca Blank, Kerwin Charles, Alan Deardorff, John DiNardo, John Freeman, Brian Gaines, Jim Granato, Nathan Jensen, William Keech, Layna Mosley, Robert Pahre, Ken Scheve, Marina Whitman, two anonymous reviewers, and Lisa Martin. They, of course, are not responsible for any errors.

Trade Liberalization, Poverty and Inequality: Evidence from Indian Districts

Abstract: Although it is commonly believed that trade liberalization results in higher GDP, little is known about its effects on poverty and inequality. This paper uses the sharp trade liberalization in India in 1991, spurred to a large extent by external factors, to measure the causal impact of trade liberalization on poverty and inequality in districts in India. Variation in pre-liberalization industrial composition across districts in India and the variation in the degree of liberalization across industries allow for a difference-in-difference approach, establishing whether certain areas benefited more from, or bore a disproportionate share of the burden of liberalization. In rural districts where industries more exposed to liberalization were concentrated, poverty incidence and depth decreased by less as a result of trade liberalization, a setback of about 15 percent of India's progress in poverty reduction over the 1990s. The results are robust to pre-reform trends, convergence and time-varying effects of initial district-specific characteristics. Inequality was unaffected in the sample of all Indian states in both urban and rural areas. The findings are related to the extremely limited mobility of factors across regions and industries in India. The findings, consistent with a specific factors model of trade, suggest that to minimize the social costs of inequality, additional policies may be needed to redistribute some of the gains of liberalization from winners to those who do not benefit as much.

Trade, Growth and the Size of Countries

Abstract: Normally, economists take the size of countries as an exogenous variable. Nevertheless, the borders of countries and their size change, partially in response to economic factors such as the pattern of international trade. Conversely, the size of countries influences their economic performance and their preferences for international economic policies – for instance smaller countries have a greater stake in maintaining free trade. In this paper, we review the theory and evidence concerning a growing body of research that considers both the impact of market size on growth and the endogenous determination of country size. We argue that our understanding of economic performance and of the history of international economic integration can be greatly improved by bringing the issue of country size at the forefront of the analysis of growth.