Showing papers on "Free trade published in 2019"

Evaluating the environmental effects of economic openness: evidence from SAARC countries.

Abstract: This study investigates the possible environmental effects of economic openness, such as economic growth, foreign direct investment (FDI) inflows, and trade liberalization in South Asian Association for Regional Cooperation (SAARC) countries. The study employed panel autoregressive lag distribution (ARDL) model to evaluate the environmental effects of economic openness; causality test was also conducted to confirm short- and long-run causality among the variables under discussion. The results show that trade, FDI, capital, and economic growth in the long run have a positive correlation with environmental degradation in SAARC countries while FDI, capital, and trade inflows have a negative relation with CO2 emissions in the short run. Furthermore, economic growth by creating new job opportunities improved emissions also in the short run. FDI, trade, capital, and GDP have long-run causality with CO2 emissions. Bidirectional causality was found between GDP and CO2 emissions, unidirectional causality was also running from FDI inflows to economic growth, unidirectional causality running from capital to FDI and trade to capital. Finally, trade and economic growth also have unidirectional causality in the short run. This study concludes, therefore, that SAARC countries should invest in green energy and promote green trade liberalization.

The Impact of Trade Liberalization on Firm Productivity and Innovation

Abstract: Executive SummaryThis chapter reviews the empirical economics literature on the impact of trade liberalization on firms’ innovation-related outcomes. We define and examine four types of shocks to t...

State Control and the Effects of Foreign Relations on Bilateral Trade

Abstract: Can governments still use trade to reward and punish partner countries? While World Trade Organization (WTO) rules and the pressures of globalization restrict states’ capacity to manipulate trade p...

Free Trade Agreements and Environment for Sustainable Development: A Gravity Model Analysis

Abstract: Free trade agreements (FTAs) have a key role in the global value chain. In the meantime, these are also disturbing the environmental balance of the world. The objective of this study is to check whether the trade is good or bad for the environments of countries that are bonded by trade agreements. This study examines the impact of FTAs on bilateral carbon emissions within the gravity framework. We find a positive impact of FTA agreements on bilateral CO2 pollution. However, in an income-based country group analysis, we find mixed evidence regarding FTAs. The analysis concerning high income countries indicates that free trade agreements are beneficial for high income countries, while, in the case of upper middle income and lower middle income countries, we find that the free trade agreements are not beneficial for their environments. These results of the effects of FTAs on bilateral CO2 pollution imply that low income countries have a greater pollution effect even after the implementation of an FTA due to lenient environmental standards. There is a need for developing countries to learn from high income countries, as their FTAs are beneficial for decreasing pollution.

International policy coordination for blockchain supply chains

Abstract: From the adoption of the shipping container to coordinated trade liberalization, reductions in trade costs have propelled modern globalization. In this paper, we analyse the application of blockchain to reduce the trade costs of producing and coordinating trusted information along supply chains. Consumers, producers, and governments increasingly demand information about the quality, characteristics, and provenance of traded goods. Partially due to the risks of error and fraud, this information is costly to produce and to maintain between dispersed parties. Recent efforts have sought to overcome these costssuch as paperless trade agendasthrough the application of new technologies. Our focus is on how blockchain technology can form a new decentralized economic infrastructure for supply chains by governing decentralized dynamic ledgers of information about goods as they move. We outline the potential economic consequences of blockchain supply chains before examining policy. Effective adoption faces a range of policy challenges including regulatory recognition and interoperability across jurisdictions. We propose a high-level policy forum in the Asia-Pacific region to coordinate issues such as open standards and regulatory compatibility.

Economic globalization, nutrition and health: a review of quantitative evidence

Abstract: Unhealthy dietary patterns have in recent decades contributed to an endemic-level burden from non-communicable disease (NCDs) in high-income countries. In low- and middle-income countries rapid changes in diets are also increasingly linked to malnutrition in all its forms as persistent undernutrition and micronutrient deficiencies continue to coexist with a rising prevalence of obesity and associated NCDs. Economic globalization and trade liberalization have been identified as potentially important factors driving these trends, but the mechanisms, pathways and actual impact are subject to continued debate. We use a ‘rigorous review’ to synthesize evidence from empirical quantitative studies analysing the links between economic globalization processes and nutritional outcomes, with a focus on impact as well as improving the understanding of the main underlying mechanisms and their interactions. While the literature remains mixed regarding the impacts of overall globalization, trade liberalization or economic globalization on nutritional outcomes, it is possible to identify different patterns of association and impact across specific sub-components of globalization processes. Although results depend on the context and methods of analysis, foreign direct investment (FDI) appears to be more clearly associated with increases in overnutrition and NCD prevalence than to changes in undernutrition. Existing evidence does not clearly show associations between trade liberalization and NCD prevalence, but there is some evidence of a broad association with improved dietary quality and reductions in undernutrition. Socio-cultural aspects of globalization appear to play an important yet under-studied role, with potential associations with increased prevalence of overweight and obesity. The limited evidence available also suggests that the association between trade liberalization or globalization and nutritional outcomes might differ substantially across population sub-groups. Overall, our findings suggest that policymakers do not necessarily face a trade-off when considering the implications of trade or economic liberalization for malnutrition in all its forms. On the contrary, a combination of nutrition-sensitive trade policy and adequate regulation of FDI could help reduce all forms of malnutrition. In the context of trade negotiations and agreements it is fundamental, therefore, to protect the policy space for governments to adopt nutrition-sensitive interventions.

Contested World Order: The Delegitimation of International Governance

Abstract: This article argues that the chief challenge to international governance is an emerging political cleavage, which pits nationalists against immigration, free trade, and international authority. While those on the radical left contest international governance for its limits, nationalists reject it in principle. A wide-ranging cultural and economic reaction has reshaped political conflict in Europe and the United States and is putting into question the legitimacy of the rule of law among states.

Carbon and health implications of trade restrictions.

Abstract: In a globalized economy, production of goods can be disrupted by trade disputes. Yet the resulting impacts on carbon dioxide emissions and ambient particulate matter (PM2.5) related premature mortality are unclear. Here we show that in contrast to a free trade world, with the emission intensity in each sector unchanged, an extremely anti-trade scenario with current tariffs plus an additional 25% tariff on each traded product would reduce the global export volume by 32.5%, gross domestic product by 9.0%, carbon dioxide by 6.3%, and PM2.5-related mortality by 4.1%. The respective impacts would be substantial for the United States, Western Europe and China. A freer trade scenario would increase global carbon dioxide emission and air pollution due to higher levels of production, especially in developing regions with relatively high emission intensities. Global collaborative actions to reduce emission intensities in developing regions could help achieve an economic-environmental win-win state through globalization.

Foreign Direct Investment, Trade, and Economic Growth in MENA Countries: Empirical Analysis Using ARDL Bounds Testing Approach

Abstract: This article proposed to analyze the interrelationship between foreign direct investment (FDI), international trade, and economic growth for 15 selected Middle Eastern and North African countries over the period 1999–2012 using autoregressive distributed lag test as an approach to examine the cointegration and the vector error correction model. Our findings show that there exists a long-run unidirectional relationship running from FDI to economic growth in MENA countries. We also found that FDI can generate positive spillover externalities for the previously mentioned countries. This belief was also confirmed for the host countries. The results obtained about these countries could be compared to those of other developing countries, considered to be experienced in attracting FDI and trade liberalization. These empirical insights are of a particular interest to policymakers as they help build sound economic policies to ensure a sustainable development.

A real driver of US–China trade conflict: The Sino–US competition for global hegemony and its implications for the future

Abstract: Purpose According to the conventional wisdom, trade is not a zero-sum game, but a positive-sum game. By allowing countries to focus on producing the goods that they can produce relatively efficiently, free trade is largely beneficial for everyone involved. Then, why are the world’s two largest economies (i.e. the USA and China) currently engaged in a trade war, which is likely to hurt their own economies? What is the driving force for the trade war between the two economic giants? The purpose of this paper is to offer an explanation of the underlying cause of the US–China trade war. Design/methodology/approach In an effort to make sense of the trade war between the USA and China, the paper draws the insights from the two international relations theories – i.e. hegemonic stability theory and power transition theory. Findings As China continues to threaten US hegemony in the world in general and East Asia in particular, the Sino–US competition for hegemony will intensify over time. As a result, the trade war between the two countries may persist longer than many anticipate. Further, even if the trade war between the two superpowers ends soon, a similar type of conflict is likely to occur later as long as the Sino–US hegemonic rivalry continues. Originality/value The central thesis of this paper is that “US fear” about its declining hegemony and China’s rapid rise as a challenger of US hegemony is driving a US-launched trade war with China. Since the underlying cause of the trade war between the world’s two largest economies is political (i.e. the Sino–US hegemonic rivalry) rather than economic (e.g. US attempts to improve the trade balance with China by imposing tariffs on Chinese goods), the paper contends that the full understanding of the trade war requires close attention to the importance of power competition between the two superpowers.

Hungry for free trade? Food trade and extreme hunger in developing countries

Abstract: One of the greatest challenges of the twenty-first century is to ensure that the world population has reliable access to adequate, affordable and nutritious food sufficient to avoid hunger. Agricultural trade liberalization is often considered a central element of economic strategies aiming at improving food security in developing countries. Many, however, argue that most developing countries may not benefit from freer agricultural trade and that liberalization may accentuate food insecurity. From an empirical perspective, little is known about the effects of trade on food security in developing countries. We estimated the effects of food trade openness on extreme hunger in developing countries using a novel two-step approach. First, we estimated the reverse causal impacts of hunger on food trade openness using rainfall anomalies as instrumental variables to generate exogenous variation in hunger. In a second step, we estimated the effect of food trade openness on hunger using the residual food trade openness that is not driven by hunger as an instrument. We found that a 10% increase in food trade openness would increase the prevalence of undernourishment by about 6%. We also found evidence that developing countries reduce food trade openness as a response to increased hunger, suggesting protectionist policies. A percentage point increase in undernourishment prevalence would decrease food trade openness by 0.9%. Our results suggest that countries may be better off adopting food self-sufficiency for some time, despite such actions clashing with World Trade Organization’s regulations and current agenda.

The Belt and Road Initiative’s effect on supply-chain trade: evidence from structural gravity equations

Abstract: This article considers the effect of China’s Belt and Road Initiative on supply-chain trade for 64 economies in the period 2002–2011. We employ a structural gravity equation to estimate the impact of trade-cost reducing measures—notably infrastructural improvements and the creation of free trade agreements—on supply-chain trade and welfare in general equilibrium. We find that infrastructural investments will yield asymmetric benefits to China, Russia and Southeast Asian countries stemming from greater European market access. Our results also suggest that China’s alternatives to foster (inter)regional economic growth through the Regional Comprehensive Economic Partnership and the Trans-Pacific Partnership offer much less attractive economic prospects.

Trade shocks and credit reallocation

Abstract: The effect of trade liberalization on welfare and economic activity remains one of the most important questions in economics. The literature identifies a number of key determinants that reduce the potential gains from trade, by focusing on frictions to labor mobility across regions or sectors. This paper contributes to this debate by exploring a novel channel, namely the reallocation of credit in the aftermath of a trade shock. We find that there are endogenous financial frictions that arise from trade liberalization and spillovers between losers and winners from trade that go through banks, as banks can be negatively affected by a trade shock through the portfolio of firms they lend to. Using data from the Italian credit registry, matched with bank and firm level data, we follow the evolution of bank and firm activities prior to and after the entry of China into the WTO. We identify the sectors most affected by import competition from China and estimate the transmission of this trade shock from firms to their lending banks, and the consequence of the shock on banks' lending to other firms. We find that, controlling for credit demand, banks exposed to the China shock decrease their lending relative to non-exposed banks. Importantly, this lending is reduced both for firms exposed to competition from China and to those that are not and that we should expect to expand. The main mechanism is related to the reduction of the core capital of banks, and their resulting funding capacity, through the rise of non-performing loans. We quantify the impact of this effect on real outcomes such as employment, investment, and output and we find relevant aggregate implications. These findings provide evidence that following a trade shock, bank lending has a key impact on the reallocation channel and on the potential gains from trade.

Bilateral FDI flows in four major Asian economies: a gravity model analysis

Abstract: The purpose of this paper is to examine the determinants of foreign direct investment (FDI) flows from some leading developed countries (the USA, Japan, Germany, the Netherlands, the UK and France) into major four Asian economies (China, Korea, India and Singapore).,Using one basic and four augmented versions of gravity model technique, the authors tried to examine the determinants of bilateral FDI flows in four major Asian economies. The study used World Development Indicators, CEPII, KOF and Heritage Foundation data for period 2001–2012.,The results revealed that besides the market size for host and source country, other criteria such as distance, common language and common border also influence foreign investors. Other macroeconomic factors such as inflation rate and real interest rate are among the key factors that attract more FDI. In addition to economic factors, institutional and infrastructural factors such as telecommunication, degree of openness, index of globalisation and index of economic freedom also stimulate the international investors from the developed world to the major Asian countries.,It is altogether possible that only a set of home country specific characteristics or host country specific characteristics does not matter when determining FDI. Most empirical studies using indices such as the index of globalisation and economic freedom are subject to certain methodological limitations such as model selection, parameter heterogeneity, outliers and moral hazard.,More distance between the host and source country would result in less FDI flows due to more managerial and raw material supply chain cost. Similarly, more gross domestic product (GDP) and per capita income (PCI) are leading to more FDI flows into Asian economics. Therefore, major Asian economies should frame their economic policies in such a manner where these counties can strengthen their GDP as well as PCI. Furthermore, above countries should open its economy more and more for better FDI flows as it seems that economic globalisation and economic freedom are major determinants of bilateral FDI flows. The negative impact of inflation and interest rate should be controlled.,From policy perspective, higher scores of economic, social and political globalisation also attract high FDI to the host country. On the same line higher scores in economic freedom mean that less restrictions in terms of economic policies and the policy environment are conducive for free trade and resource transfers. Higher scores in trade freedom, investment freedom and freedom from corruptions also show more developed and conducive policy environment. In the same reasoning higher scores in the composite index of economic freedom which takes information from trade freedom, investment freedom and freedom from corruption and others also encourage flow of FDI in to the host country.,This is the first paper which combines the globalisation index, economic freedom index and distance along with some major macroeconomic variables.

Governing Digital Trade

Abstract: As global data flows and digital technologies transform international trade, governments and regulators have to determine how to benefit from these developments while maintaining the integrity of their domestic regulations. Currently, governments are increasingly restricting global data flows and requiring data localization, undermining the economic benefits of digital trade. To address this trend will require a system of digital trade governance that has two key elements. One element is new digital trade rules, some of which exist in the WTO and others which are being developed in free trade agreements. The other is international regulatory cooperation to develop standards and mutual recognition agreements in areas such as privacy and consumer protection that gives domestic regulators confidence that allowing data to leave their jurisdiction will not undermine achievement of domestic regulatory goals. In the absence of such regulatory cooperation, governments are likely to continue to restrict data flows, relying on the exceptions provisions to their digital trade commitments.

Performance of the Firms in a Free-Trade Zone: The Role of Institutional Factors and Resources

Abstract: Many countries have tried to establish free zones in order to strengthen the competitive advantage of their local companies in global competition. Judging the role of free zones in the performance of companies without analyzing the relevant institutional factors can be confusing, especially in countries like Iran where the government extensively intervenes in the economy. In such economies, institutional factors (institutional support, political relationship, and legitimacy) coupled with resources (financial, human and physical resources) can be more effective at addressing companies’ performance. Using the resource-based view (RBV) and institutional theory, this paper surveyed 151 companies located in the Anzali Free Trade and Industrial Zone (AFTIZ). The results show that the resources have a positive impact on the firms’ competitive advantage and performance. While institutional factors strengthen the resources, they do not moderate the relationship among resources, competitive advantage, and performance.

Does Trade Liberalization a Hazard to Sustainable Environment? Fresh Insight from ASEAN Countries

Abstract: The importance of trade liberalization in altering country’s ecological condition is a very important topic these days; the current examination seeks to study the empirical association between environmental degradation and trade openness in a panel of ASEAN countries. In doing so, the study seeks to analyze the influence of trade liberalization in impacting carbon dioxide emanations in the countries of Malaysia, Indonesia, Singapore, Thailand and Philippine by utilizing advanced methods of panel Dynamic Ordinary Least Square (DOLS) and Fully Modified Ordinary Least Square (FMOLS). The results confirm that all the variables stationary features at the first differential series. Furthermore, the results of bootstrap cointegration, Pedroni, and Kao cointegration check that all the variables are cointegrated in the long term. Finally, the outcomes suggested that trade liberalization has a significant positive impact on carbon dioxide emission. The outcomes confirm that the more theenhance in the liberalization of trade cause the poor environmental condition. Therefore, the study recommends that the government need to enhance trade based on renewable and green technology. Also, the government can adopt a green transportation system such as hybrid vehicles for the logistics and shipping the good from one place to another place.