Showing papers on "Free trade published in 2015"

Does product market competition foster corporate social responsibility? Evidence from trade liberalization

Abstract: This study examines whether product market competition affects corporate social responsibility (CSR). To obtain exogenous variation in product market competition, I exploit a quasi-natural experiment provided by large import tariff reductions that occurred between 1992 and 2005 in the U.S. manufacturing sector. Using a difference-in-differences methodology, I find that domestic companies respond to tariff reductions by increasing their engagement in CSR. This finding supports the view of “CSR as a competitive strategy” that allows companies to differentiate themselves from their foreign rivals. Overall, my results highlight that trade liberalization is an important factor that shapes

Power politics and international trade

Abstract: Recent literature attributes the relative scarcity of open international markets to the prisoner's dilemma structure of state preferences with respect to trade. We argue that the prisoner's dilemma representation does not reflect the most critical aspect of free trade agreements in an anarchic international system, namely, their security externalities. We consider these external effects explicitly. Doing so leads us to two conclusions: (1) free trade is more likely within, rather than across, political-military alliances; and (2) alliances are more likely to evolve into free-trade coalitions if they are embedded in bipolar systems than in multipolar systems. Using data drawn from an SO-year period beginning in 1905, we test these hypotheses. The results of the analysis make it clear that alliances do have a direct, statistically significant, and large impact on bilateral trade flows and that this relationship is stronger in bipolar, rather than in multipolar, systems…

Domestic Value Added in Exports: Theory and Firm Evidence from China

Abstract: China has defied the declining trend in domestic content in exports in many countries. This paper studies China’s rising domestic content in exports using firm- and customs transaction-level data. The approach embraces firm heterogeneity and hence reduces aggregation bias. The study finds that the substitution of domestic for imported materials by individual processing exporters caused China’s domestic content in exports to increase from 65 to 70 percent in 2000–2007. Such substitution was induced by the country’s trade and investment liberalization, which deepened its engagement in global value chains and led to a greater variety of domestic materials becoming available at lower prices.

New Trade Models, New Welfare Implications

Abstract: We show that endogenous firm selection provides a new welfare margin for heterogeneous firm models of trade (relative to homogeneous firm models). Under some parameter restrictions, the trade elasticity is constant and is a sufficient statistic for welfare, along with the domestic trade share. However, even small deviations from these restrictions imply that trade elasticities are variable and differ across markets and levels of trade costs. In this more general setting, the domestic trade share and endogenous trade elasticity are no longer sufficient statistics for welfare. Additional empirically observable moments of the micro structure also matter for welfare. (JEL F12, F13, F41) Over the last decade, new theories of trade with heterogeneous firms in differentiated product markets have been developed. These theories were designed to account for features of disaggregated trade data: only some firms export, exporters are more productive than non-exporters, and trade liberalization induces intra-industry reallocations of resources between those different types of firms. These reallocations represent a new potential channel for the gains from trade. However, the implications of these models for aggregate welfare (combining together all welfare channels) were left unanswered. In a recent paper, Arkolakis, Costinot, and Rodriguez-Clare ( 2012)—henceforth, ACR—show that there exists a class of heterogeneous and homogeneous firm models in which a country’s domestic trade share and the elasticity of trade with respect to variable trade costs are sufficient statistics for the aggregate welfare gains from trade. Therefore, if the different models within this class are calibrated to the same domestic trade share and the same trade elasticity, they imply the same welfare gains from trade. Based on this result, ACR ( 2012, p. 94) summarizes the contribution of new theories of heterogeneous firms to the aggregate welfare implications of trade as “So far, not much.”

Reducing transatlantic barriers to trade and investment: An economic assessment

Abstract: This study reviews the importance of the bilateral economic relationship between the EU and US. It integrates NTB estimates, based on gravity modeling and firm surveys, with computable general equilibrium (CGE)-based estimates for the economy-wide impact of reducing both tariff and non-tariff barriers (NTBs). Estimates are provided with regards to expected changes in GDP, sector output, aggregate and bilateral trade flows, wages, and labour displacement, among other issues. The study investigates different policy options for the deepening of the bilateral trade and investment relationship between the EU and US. These range from partial agreements that are limited in the scope of barriers they would address (tariffs only, or services only, or procurement only) to a full-fledged free trade agreement (FTA) with a comprehensive liberalisation agenda covering simultaneously tariffs, procurement, NTBs for goods, and NTBs for services. The study also quantifies potential benefits from NTB reduction affecting FDI. The overall message is that negotiating an agreement that would be of a comprehensive nature would bring significantly greater benefits to both economies. A core message that follows from the results is that focusing efforts on reducing NTBs is critical to the logic of transatlantic trade liberalization. Different approaches to the same regulatory challenges have the unintended consequence of increasing costs for firms, which have to comply with two regulatory environments, dragging down labour productivity. Negotiation on NTBs provides the opportunity to pursue a mix of cross-recognition and regulatory convergence to reduce these barriers. Compared to a focus on NTBS, just limiting the exercise to tariffs would lead to much more limited, though positive effects. CEPR report for the European Commission.

Trade Liberalization, Quality, and Export Prices

Abstract: This paper presents theory and evidence from disaggregated Chinese data that tariff reductions induce a country's producers to upgrade the quality of their exports. We first document stylized facts regarding the effect of trade liberalization on export prices. Next, we develop an analytic framework that relates a firm's choice of quality to its access to imported intermediates. In the model, a reduction in import tariffs induces a firm to increase export quality and raise its export price in industries where the scope for quality differentiation is large and lower its export price in industries where the scope is small. The predictions are consistent with the stylized facts and are highly robust econometrically.

Trade Liberalization and Markup Dispersion: Evidence from China's WTO Accession

Abstract: In this paper, we empirically investigate whether trade liberalization affects markup dispersion, a potential source of resource misallocation. The identification uses China's WTO accession at the end of 2001. We show that trade liberalization reduces markup dispersion within a narrowly defined industry. We also examine both price and cost responses to trade liberalization, as well as heterogeneous effects across firms and across locations. Our study contributes to the literature by identifying another potential channel through which free trade benefits a nation. (JEL F13, L11, O14, O19, P23, P31, P33)

Alliances, Preferential Trading Arrangements, and lnternational Trade

Abstract: We analyze the effects of alliances and preferential trading arrangements on bilateral trade flows. Both factors are likely to promote trade among members, but we argue that the interaction between them is central to explaining patterns of commerce. The combination of an alliance, which creates political incentives for participants to engage in trade, and a commercial institution, which liberalizes trade among members, is expected to provide a considerable impetus to commerce among parties to both. The results of our quantitative analyses support these arguments. Both alliances and preferential trading arrangements strongly affected trade from 1960 to 1990, and allies that included a major power conducted considerably more trade than their nonmajor-power counterparts. Moreover, the interaction between alliances and preferential trading arrangements is fundamental to explaining patterns of bilateral commerce: Parties to a common preferential trading arrangement and a common alliance engage in markedly greater trade than do members of either type of institution but not both…

The Global Trade Slowdown: Cyclical or Structural?

Abstract: This paper focuses on the sluggish growth of world trade relative to income growth in recent years. The analysis uses an empirical strategy based on an error correction model to assess whether the global trade slowdown is structural or cyclical. An estimate of the relationship between trade and income in the past four decades reveals that the long-term trade elasticity rose sharply in the 1990s, but declined significantly in the 2000s even before the global financial crisis. These results suggest that trade is growing slowly not only because of slow growth of Gross Domestic Product (GDP), but also because of a structural change in the trade-GDP relationship in recent years. The available evidence suggests that the explanation may lie in the slowing pace of international vertical specialization rather than increasing protection or the changing composition of trade and GDP.

Trade Liberalization, Quality, and Export Prices

Abstract: This paper presents theory and evidence from highly disaggregated Chinese data that tariff reductions induce exporters to upgrade product quality. The paper documents two stylized facts and develops a simple analytic framework to predict that import tariff reductions induce an incumbent importer/exporter to increase the quality of its exports and to raise its export price in industries where the scope for quality differentiation is large while to lower its export price in industries where the scope for quality differentiation is small. The predictions are consistent with the stylized facts based on Chinese data and robust to various estimation specifications.

Is the WTO passe

Abstract: The WTO has delivered policy outcomes that are very different from those likely to emerge out of the recent wave of preferential trade agreements (PTAs). Should economists see this as an efficient institutional hand-off, where the WTO has carried trade liberalization as far as it can manage, and is now passing the baton to PTAs to finish the job? This paper surveys a growing economics literature on international trade agreements and argues on this basis that the WTO is not passe. Rather, and subject to some caveats, this survey of research to date suggests that the WTO warrants strong support while a more cautious view of PTAs seems appropriate.

The World Trade Organization: Law, Practice, and Policy

Abstract: 1. The World Trade Organization 2. Sources of Law 3. The WTO and Domestic Law 4. Dispute Settlement 5. Enforcement of WTO Obligations: Remedies and Compliance 6. The Most-Favoured Nation Principle 7. The National Treatment Principle 8. Tariffs, Quotas, and Other Barriers to Market Access 9. Agriculture 10. Subsidies and Counterveiling Duties 11. Antidumping 12. Safeguards 13. Technical Barriers to Trade 14. Preferential Trade Agreements in the WTO 15. Export Controls and National Security 16. Trade in Services 17. Intellectual Property 18. Government Procurement 19. Developing Countries 20. Environmental Protection and Trade 21. Trade and Investment 22. Competition Policy and Trade 23. Future Challenges

China and Africa : expanding economic ties in an evolving global context

Abstract: Economic growth in Sub-Saharan Africa (SSA) has averaged roughly 5 percent per year over the past decade, improving living standards and bolstering human development indicators across the continent. Stronger public institutions, a supportive, private sector–focused policy environment, responsible macroeconomic management, and a sustained commitment to structural reforms have greatly expanded opportunities for countries in SSA to participate in global markets. In recent years, many countries in the region have benefited from an increasingly favorable external environment, high commodity prices, and an especially strong demand for natural resources by emerging economies, particularly China. Over the longer term, leveraging Chinese investment to support broad-based growth will require policies designed to boost the competitiveness of sectors in which China’s economic rebalancing may create a comparative advantage for SSA. To date, few African countries have been able to benefit from large-scale Chinese investment outside the resource sector. However, as China’s growth slows and its economy shifts toward a more consumption-driven model, it is likely that global demand for resource imports will slow as well. Countries with the most heavily concentrated export mix, particularly in the mineral and oil sectors are the most vulnerable to China’s economic rebalancing and should be ready to adopt measures to mitigate the impact of negative terms-of-trade shocks. By contrast, as wage rates in China continue to rise and firms refocus their attention on domestic demand, countries in SSA will be well positioned to exploit emerging opportunities for investment in export-oriented manufacturing. Ethiopia provides an instructive example, as its inexpensive yet relatively skilled labor force, coupled with the government’s proactive efforts to court Chinese investors, have enabled Ethiopia to attract substantial investments in labor-intensive industries. Infrastructure enhancement, workforce development, and good-governance reforms offer a promising strategy for many countries in the region. Although the establishment of industrial zones has yielded mixed results, several salient success stories warrant careful attention. This report discusses how Africa could take advantage of the untapped opportunities offered by China’s progressively intensifying investment and trade ties with SSA. It is hoped that this analysis will enrich the ongoing dialogue between policy makers, private firms, and civil society regarding China’s increasingly important role in the growth and development of Sub-Saharan Africa.

Decomposing the trade-environment nexus for Malaysia: what do the technique, scale, composition, and comparative advantage effect indicate?

Abstract: This paper investigates the impact of trade openness on CO2 emissions using time series data over the period of 1970QI-2011QIV for Malaysia. We disintegrate the trade effect into scale, technique, composition, and comparative advantage effects to check the environmental consequence of trade at four different transition points. To achieve the purpose, we have employed augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests in order to examine the stationary properties of the variables. Later, the long-run association among the variables is examined by applying autoregressive distributed lag (ARDL) bounds testing approach to cointegration. Our results confirm the presence of cointegration. Further, we find that scale effect has positive and technique effect has negative impact on CO2 emissions after threshold income level and form inverted U-shaped relationship-hence validates the environmental Kuznets curve hypothesis. Energy consumption adds in CO2 emissions. Trade openness and composite effect improve environmental quality by lowering CO2 emissions. The comparative advantage effect increases CO2 emissions and impairs environmental quality. The results provide the innovative approach to see the impact of trade openness in four sub-dimensions of trade liberalization. Hence, this study attributes more comprehensive policy tool for trade economists to better design environmentally sustainable trade rules and agreements.

Trade Liberalization and the Skill Premium: A Local Labor Markets Approach †

Abstract: Trade economists have long studied the effects of globalization on wage differences between workers with different levels of skill or education. 1 This literature has generally sought to link globalization to changes in the economy-wide skill premium. Attanasio, Goldberg, and Pavcnik (2004) and Gonzaga, Menezes Filho, and Terra (2006) are salient examples that investigate whether changes in sector-specific prices or tariffs, changes in skill composition within and across sectors, and movements in the skill premium are consistent with the predictions of workhorse trade models, such as the HeckscherOhlin model. However, there is little evidence directly establishing a causal effect of globalization on the skill premium. 2 More recently, a growing body of research has focused on trade’s differential effects across local markets within a country. 3 In this paper, we combine these two strands of literature by developing a theoretically consistent approach to studying the causal

Macroeconomic potentials of transatlantic free trade: a high resolution perspective for Europe and the world

Abstract: Critics of the proposed Transatlantic Trade and Investment Partnership (TTIP) dismiss its potential welfare gains as small compared with its risks. We contribute to this debate by investigating the driving forces behind the magnitudes of the estimated welfare gains using the structurally estimated general equilibrium trade model by Egger and Larch (2011) for 173 countries. In our baseline scenario, the TTIP amounts to a reduction of ad valorem trade costs across the Atlantic between 16 and 26 percentage points. We find that the TTIP could yield substantial gains for the EU (3.9%), the United States (4.9%), and the world (+1.6%). While welfare gains are heterogeneous within the EU, the TTIP does not systematically favour richer or more central member states. The majority of third countries would be negatively affected (0.9% on average). We identify as key drivers for the magnitudes of the welfare effects different assumptions about trade cost specifications, about the assumed trade cost reducing potential of the TTIP, about different levels of aggregation, and about the regulatory spill-overs of the TTIP on third countries. Our insights on the drivers for the welfare effects help to understand differences across current evaluations of the TTIP.

Skill Biased Heterogeneous Firms, Trade Liberalization and the Skill Premium

Abstract: We propose a theory that rising globalization and rising wage inequality are related because trade liberalization raises the demand facing highly competitive skill-intensive firms. In our model, only the lowest-cost firms participate in the global economy exactly along the lines of Melitz (2003). In addition to differing in their productivity, firms differ in their skill intensity. We model skill-biased technology as a correlation between skill intensity and technological acumen, and we estimate this correlation to be large using firm-level data from Chile in 1995. A fall in trade costs leads to both greater trade volumes and an increase in the relative demand for skill, as the lowest-cost/most-skilled firms expand to serve the export market while less skill-intensive non-exporters retrench in the face of increased import competition. This mechanism works regardless of factor endowment differences, so we provide an explanation for why globalization and wage inequality move together in both skill-abundant and skill-scarce countries. In our model countries are net exporters of the services of their abundant factor, but there are no Stolper-Samuelson effects because import competition affects all domestic firms equally.

Open Trade, Closed Borders: Immigration in the Era of Globalization

Abstract: What explains variation in immigration policy, especially policy regulating low-skill workers? A common argument invokes prejudice against foreigners as an explanation for why nations close their economies to immigrants. This prejudice has been ubiquitous throughout history even as immigration policies changed. Social theories of this sort may be descriptively true but are not helpful in predicting variation in policy. Other scholars have turned to the role that native labor plays in protecting its interests against immigration, but they have not explained why labor is able to restrict immigration when it has not been able to restrict trade, even though open trade has wreaked as much, if not more, havoc on labor. A third group of scholars focuses on states' concerns about the fiscal costs of immigrants as an explanation for the changes in policy over time. While fiscal costs are likely to play a role, this argument cannot explain exclusion prior to the creation of the modern welfare state in the early twentieth century. Finally, a fourth group of scholars has examined the power of immigrants themselves. While immigrants clearly affect immigration policy in democracies, they have never been a sufficiently large plurality of the polity to be able to change policy on their own, and they have less voice in autocracies where they can more easily be deported.

Global Supply Chains and Trade Policy Responses to the 2008 Crisis

Abstract: The collapse in trade and the contraction of output that occurred during 2008–9 was comparable to, and in many countries more severe than, the Great Depression of the 1930s. However, it did not give rise to the rampant protectionism that followed the Great Crash. The idea that the rise in the fragmentation of production across global value chains – vertical specialization – may be a deterrent against protectionism is under appreciated in the literature. Institutions also played a role in limiting the extent of protectionist responses. World Trade Organization discipline raises the cost of using trade policies for member countries and has proved to be a stable foundation for the open multilateral trading system that has been built over the past 50 years. Using tradeand protection data for seven large emerging market countries that have a history of active use of trade policy, the influence of these and other factors on trade policy responses to the 2008 crisis are empirically examined. An instrumental variables strategy is used to identify their impact. Participation in global value chains is found to be a powerful economic factor determining trade policy responses.

Mega-Regional Trade Deals in the Asia-Pacific: Choosing Between the TPP and RCEP?

Abstract: The emergence of “mega-regional” trade agreements has recently become the most significant trade policy issue in the Asia-Pacific. Since 2010, governments in the region have launched negotiations for two new trade agreements: the United States-led Trans-Pacific Partnership (TPP) and the ASEAN-led Regional Comprehensive Economic Partnership (RCEP). Differentiated by their membership, scope and level of ambition, the TPP and RCEP embody competing visions for how the Asia-Pacific trade system should evolve, and regional governments must now make choices over which initiative better serves their economic and political interests. This article explores the trade policy choice posed by these mega-regional trade negotiations, reviewing the evolution of the Asia-Pacific trade system, the recent emergence of the TPP and RCEP, and the competitive dynamics inherent in the development of the two proposals. It argues that four key considerations (trade policy ambition, the role of ASEAN, US-China geopolitical r...

Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades - eScholarship

Abstract: Tariff Reductions, Entry, and Welfare: Theory and Evidence for the Last Two Decades ∗ Lorenzo Caliendo Yale University and NBER Robert C. Feenstra UC Davis and NBER John Romalis University of Sydney and NBER Alan M. Taylor UC Davis, NBER, and CEPR November 2016 Abstract We use a multi-sector, heterogeneous-firm trade model to study the trade and welfare effects of commercial policy. We show that the effect of tariffs on entry, especially in the presence of production linkages, can reverse the traditional positive optimal-tariff argument. We then use a new tariff dataset, and apply it to a 189-country, 15-sector version of our model, to quantify the trade, entry, and welfare effects of trade liberalization over the period 1990–2010. We find that the impact on firm entry was larger in Advanced relative to Emerging and Developing countries; that more than 90% of the gains from trade are a consequence of the reductions in MFN tariffs (the Uruguay Round); and that for some countries, particularly some Emerging and Developing countries, there are additional gains from a further move to complete free trade. The countries gaining from the elimination of tariffs have a strong rank correlation with those that gain from a negative optimal tariff, which comprise one-quarter of the countries in the world. Keywords: trade policy, monopolistic competition, gains from trade, input-output linkages, multilateralism, bilateralism. JEL Codes: F10, F11, F12, F13, F15, F17, F60, F62. Contact information: Caliendo: lorenzo.caliendo@yale.edu; Feenstra, rcfeenstra@ucdavis.edu; Romalis, john.romalis@sydney.edu.au; Taylor, amtaylor@ucdavis.edu. Financial support from the National Science Foun- dation is gratefully acknowledged. We thank Federico Esposito and Mingzhi Xu for excellent research assistance. For their helpful comments we thank Andres Rodr´iguez-Clare, Kyle Bagwell, Fernando Parro, Stephen Redding, Esteban Rossi-Hansberg, Ina Simonovska, and seminar participants. The usual disclaimer applies.

The Impact of Infrastructure on Trade and Economic Growth in Selected Economies in Asia

Abstract: Infrastructure plays a key role in facilitating trade, especially since recent trade liberalization in Asia has resulted in significant tariff reductions. This study quantifies the impacts of both hard and soft infrastructure on trade volume for exporters and importers in the region as well as on various economic growth indicators.

Europe Inc. : regional and global restructuring and the rise of corporate power

Abstract: Part 1 Background section on corporate Europe, the role of corporate lobby groups in European integration and shaping EU policies, corporate lobby groups and the Amsterdam Treaty case study the trans European transport network case study - the biotech industry lobby case study - the PR industry. Part 2 The EU and economic globalisation: the single market impact after 6 years the single currency structural adjustment in Europe the role of the EU and the European industrial lobby groups within the WTO the EU, European industry and the MAI transatlantic free trade TABD, NTM, NTEP etc. central and eastern Europe. Part 3 Corporate power versus democracy in Europe.

The global trade slowdown: cyclical or structural ?

Abstract: This paper focuses on the sluggish growth of world trade relative to income growth in recent years. The analysis uses an empirical strategy based on an error correction model to assess whether the global trade slowdown is structural or cyclical. An estimate of the relationship between trade and income in the past four decades reveals that the long-term trade elasticity rose sharply in the 1990s, but declined significantly in the 2000s even before the global financial crisis. These results suggest that trade is growing slowly not only because of slow growth of gross domestic product, but also because of a structural change in the trade-gross domestic product relationship in recent years. The available evidence suggests that the explanation may lie in the slowing pace of international vertical specialization rather than increasing protection or the changing composition of trade and gross domestic product.