Showing papers on "Free trade published in 2022"

Better, Faster, Stronger: Global Innovation and Trade Liberalization

Abstract: Abstract This paper estimates the effect on innovation of increased market access facilitated by trade liberalization. We use a novel empirical design that exploits tariff cuts during the 1990s, along with detailed data on innovation among firms from 65 countries. Our results reveal a large effect of tariff cuts on innovation as measured by patent data, suggesting that multilateral liberalization has promoted innovation and growth. These effects are not driven by the deterioration of innovation quality, and the results are robust to controlling for changes in the patent system and to industry-wide trends in innovation.

Demystifying Australia-China Trade Tensions

Abstract: In 2020 Australia’s political relations with China plumbed new depths. Trade and other economic ties were also hit with disruption. Contributing to this deterioration, and complicating an accurate assessment of the consequences, has been a raft of misunderstandings. This article demystifies the bilateral trade tensions by exposing the deeper drivers of political friction, providing a critical assessment of the vulnerability of the Australian economy, and placing the current state of Australia’s relations with China in a comparative regional perspective. These discussions provide context for a detailed analysis of the legal issues that Chinese trade measures have created under the rules of the World Trade Organization (WTO) and the China – Australia Free Trade Agreement (ChAFTA). We show that these legal issues have been over-simplified in existing work. A clear understanding of these issues offers the best prospect for an improved relationship trajectory, serving both countries’ interests. China, Australia, Trade tensions, WTO, Free Trade Agreement

International integration processes influence on welfare of country

Abstract: The primary objective of the research is to investigate the influence of international integration processes on national welfare. Peculiarities of trade and economic liberalization of trade through mechanism of regional trade agreements (RTA) forming have been scrutinized. Integration, which develops due to RTAs, is the most important mechanism of the international cooperation in the field of economic policy. This integration is a coordination and protection mechanism, which functions in a broad spectrum of policies. An exceptional role of RTAs in reaching country economic security has been estimated. RTAs being a result of a compromise reached by protectionism and anti-protectionism forces have been grounded. Using tools of the multiple regression model, the influence of integration processes, in which Ukraine and China participate, on national economic growth rates and on GDP per capita (as major parameters reflecting national welfare level) was simulated. This allowed detecting of the positive direct dependence between the trade liberalization and economic growth rates, as well as the inverse dependence between the trade liberalization and GDP per capita, for both countries. Based on these regression models, economic growth rates and GDP per capita were predicted for next years; according to this prediction, graduate increasing of national welfare shall occur in Ukraine and China.

Agricultural trade liberalization and domestic fertilizer use: Evidence from China-ASEAN free trade agreement

Abstract: The China-ASEAN (Association of Southeast Asian Nations) Free Trade Agreement (CAFTA) has been recognized as a significant progress in regional economic integration for member countries. While the existing literature has widely studied the trade effects of Free Trade Agreements (FTAs), it remains unclear how it affects environment-related input use. This paper examines the impacts of agricultural trade liberalization on the domestic fertilizer use following the CAFTA. Using a combined dataset consisting of country- and product-level fertilizer use and predictors over the period 1995–2015, this paper empirically examines the impact of CAFTA on the domestic fertilizer use for the exported fresh fruits and vegetables (FFV) from China to ASEAN members. We use the synthesis control method to identify the aggregate impacts of CAFTA on the domestic fertilizer use, followed by the propensity score matching difference-in-difference (PSM-DID) method to examine the mechanism through which fertilizer use is increased. We find that the total volumes of the domestic fertilizer use for Chinese exported FFV increased significantly following the implementation of the Early Harvest Program under CAFTA in 2004. This impact is more evident for exports to the initial ASEAN members compared to the new members. The PSM-DID results suggest that CAFTA increased the degree of export concentration on ASEAN members. The evidence is consistent with the export diversion effect of a customs union instead of the export creation effect due to trade liberalization.

International Trade Liberalization and Domestic Institutional Reform: Effects of WTO Accession on Chinese Internal Migration Policy

Abstract: Economic institutions that impede factor mobility become more costly when an economy experiences substantial transitions such as trade liberalization. I study how trade triggers changes in labor institutions that regulate internal migration in the context of China's Hukou system. Using a newly-collected dataset on prefecture-level migration policies, I document an increase in pro-migrant regulations following WTO entry and estimate the impact of prefecture-level tariffs on exports on migration regulations from 2001 to 2007. I find that regions facing more export market liberalization enacted more migrant-friendly regulations.

Trade costs and free trade agreements: Implications for tariff complementarity and welfare

Abstract: This paper develops a three-country model of intra-industry trade under imperfect competition with trade costs between countries to examine the effects of a free trade agreement (FTA). Under sufficiently high trade costs, FTA member countries might have an incentive to set optimal external tariffs that are higher than the pre-FTA optimal tariffs (i.e., the tariff complementarity effect may not exist) and the formation of an FTA may worsen the non-member country’s welfare. Whether the member countries benefit from the FTA depends on the trade costs and the degree of substitutability among differentiated goods.

An empirical analysis of Colombia's trade liberalization process and its effect on the equilibrium of its structural trade deficit

Abstract: This article examines the extent to which Colombia's trade liberalization, as a government strategy to boost its exports, has helped to balance its structural trade deficit. Based on the trade gravity model theory, we derive two-way specifications (Colombian exports and imports) in order to analyze bilateral trade flows (fuels and non-fuels) between Colombia and 136 countries from 2005 to 2018. Additionally, we compare the real export performance of Colombia with its main partners through the trade potential index (TPI), to assess the effect of Colombia's openness on bilateral trade. The econometric approach indicates that the free trade agreement (FTA) factor has a negative net effect on Colombia's exports and a positive net impact on Colombia's imports. Finally, the TPI analysis allows us to infer that although there is an evolution towards the intensification of Colombian trade, this trend is greater in imports than in exports, which suggests a deepening of the Colombian trade deficit.

The Trade Effects of the African Continental Free Trade Area: An Empirical Analysis

Abstract: This study examines the possible effects of the African Continental Free Trade Area (AfCFTA) agreement tariff reduction protocol on intra-African goods trade using two approaches: trade indices and a gravity model. In both approaches, an attempt to identify the trade-creation and trade-diversion effects of the proposed AfCFTA is made. The two approaches combined suggest that the AfCFTA could raise intra-African exports from the average annual value of US$ 72.7 billion (2015–2017) by about US$ 13.7 billion (by about 19%). For the success of the AfCFTA, the success in political activism needs to be combined with a continental industrial strategy that includes continental protection for infant industries in tandem with this continental liberalisation.

Asymmetric role of human capital and trade liberalization in the economic growth of Pakistan: Fresh evidence from the nonlinear analysis

Abstract: Human capital and trade liberalization are playing a central role in growth theories. However, the link between human capital, trade liberalization, and economic growth remains a challenging question due to the inconclusive results of the previous studies. Paper contributes to this debate through asymmetric links among human capital, trade liberalization, and economic growth by incorporating labor and capital for Pakistan's economy by applying the nonlinear autoregressive distributed lag model. Results suggest that the positive and negative asymmetric impact of trade liberalization and human capital on growth substantially vary in the short and long run. In the long run, the increased trade liberalization hurts economic growth, while increased human capital has a minimal positive impact on economic growth in the short and long run. The implications of this paper are for economists and policymakers to strengthen the role of human capital and trade liberalization for Pakistan.

Does Trade Policy Uncertainty Exacerbate Environmental Pollution?—Evidence from Chinese Cities

Abstract: Although the relationship between trade and environment has been widely discussed in past studies, trade policy has been in a state of continuous change in recent years. Previous studies have focused on the impact of trade opening or liberalization on the environment, ignoring discussion of the dynamic changes of trade policy. Therefore, it is very important to explore the connection between trade policy changes and environmental pollution for future environmental protection. In order to realize the in-depth study of this mechanism, the paper will try to solve the following three problems: (1) What is the relationship between change in trade policy uncertainty and China’s environmental pollution? (2) What is the mechanism by which trade uncertainty changes environmental pollution? (3) Due to China’s vast territory and regional differences, will changes in trade policy uncertainty have heterogeneous effects due to regional differences? To solve these problems, based on China’s accession to the WTO at the end of 2001, this paper, for the first time, uses PM2.5 concentration data of 246 prefecture-level cities in China to explore the impact of trade policy uncertainty on China’s environmental pollution, then we make an in-depth analysis of the impact path and heterogeneity of urban spatial distribution and city size. We found that, after China’s accession to the WTO, the growth rate of PM2.5 concentration reduced in cities with lower trade policy uncertainty and the inhibition effect was different due to the spatial distribution of city size. A further mechanism test shows that reduction in trade policy uncertainty can improve environmental pollution through industrial, structural and technological effects.

The Relationship between Trade Liberalization, Financial Development and Carbon Dioxide Emission—An Empirical Analysis

Abstract: In recent years, the global economy has become more closely related among countries, and people’s pursuit of economic growth has caused the destruction of the environment. This paper selected panel data from 30 provinces in China from 1997 to 2020 to investigate the dynamic relationship between trade liberalization, financial development and carbon dioxide emissions by constructing a PVAR model. We also consider technology as an important variable for studying the effect on carbon dioxide emissions. We draw the following conclusions. First, financial development promotes carbon dioxide emissions, while trade liberalization has no significant impact on carbon dioxide emissions. Second, China’s trade liberalization promotes financial development, which has limited support for international trade. Third, there is a two-way causal relationship between financial development and carbon dioxide emissions, and there is also a two-way causal relationship between trade liberalization and financial development. Finally, there is a significant inverted “U” curve relationship between trade liberalization and innovation efficiency, environmental regulation and innovation. According to the results, we believe that openness to trade impacts emissions of carbon dioxide, opening a new function path: namely, trade openness and financial development result in high carbon dioxide emissions; consequently, China has relied on this process in the development of their financial system.

Trade Liberalization and Comparative Advantage: Evidence from Indonesia and Asian Trade Partners

Abstract: This study analyzes whether ongoing liberalization has resulted in more profound trade expansion for Indonesia versus regional partner countries. A gravity model is first employed to find whether regional trade agreements resulted in more significant intra-regional exports or diverted trade. This study applies the generalized method of moment (GMM-sys) and the Poisson pseudo-maximum likelihood (PPML) estimator. Four groups of manufactured products are aggregated according to technology intensity, and two nature-based groups of products are estimated in the dynamic panel model. Additionally, revealed comparative advantage (RCA) and a trade balance index (TBI) for 5120 products are used to map goods based on specialization–advantage patterns. The gravity model indicates that regional trade agreements supported trade in manufactured and naturally sourced goods but not in high-tech and primary goods. Additionally, export expansion took place in goods that revealed comparative advantage and export specialization. Competition has increased between Indonesia and four regional trade partners: China, India, Thailand, and Vietnam. Indonesia gained from trading primary materials while losing in some low-cost manufacturing sectors. The potential for trade expansion remains large, as trade patterns differ among regional partners.

Wine: The punching bag in trade retaliation

Abstract: Wine is an extensively traded product that is a common target for retaliation in trade disputes. We analyze the impact of tariffs and tariff retaliation by estimating a structural gravity model of global wine trade. We then simulate the effects of tariffs and tariff retaliation, as well as the effects of trade liberalization, on trade and welfare in the international market for wine. We show that recent trade disputes threaten to reduce wine trade by nearly $340 million annually and significantly reduce consumer welfare, while complete trade liberalization would expand trade by roughly $76 million.

The Impact of Trade Liberalization on Income Inequality: Does the Direction of Trade Matter?

Abstract: Recent trends in inequality have raised concerns among researchers and policymakers globally. The role of globalization, one of the leading forces driving this trend, continues to be intensely debated in academic and policy circles. Invoking standard trade theory, this paper analyses whether and the extent to which trade liberalization has contributed to the recent trends in inequality. The approach and findings of the paper are novel: previous studies of trade liberalization’s impact on inequality do not explicitly control the direction of trade. The empirical results show that trade liberalization is associated with decreasing income inequality overall, but contingent on the direction of trade, it has opposing effects: North–North and South–South trade are inequality-reducing while North–South trade is inequality-increasing. Simply put, liberalizing trade between countries of similar developmental levels does not raise inequality. This paper affirms, using recent data, that trade with developing countries raises inequality in developed countries. Additionally, it finds that North–South trade (particularly imports from high-income to low-income countries) may also raise inequality in developing countries, contrary to Heckscher–Ohlin–Stolper–Samuelson model predictions. Skill-biased technical change, a consequence of trade liberalization between North and South, is the main mechanism driving inequality increases in developing countries.

Why do legislators rebel on trade agreements? The effect of constituencies’ economic interests

Abstract: Most trade agreements are ratified with overwhelming support by legislators throughout the world. This lack of opposition is surprising given the strong distributional consequences of trade and the expectation of conventional political economy theory that parliamentary votes on trade policy should be closely contested between winners and losers of globalization. To analyze the driving forces behind legislators’ voting behavior while avoiding the obscuring effect of party discipline, I analyze under which circumstances legislators decide to rebel against their party’s position when voting on the ratification of trade agreements. I put forward two hypotheses: First, rebellions are more likely when the trade agreement is with a larger trading partner and when the liberalization through the agreement is more comprehensive. Second, legislators will rebel when their party’s position does not align with their constituency’s economic interests. These hypotheses are supported by a series of multinomial regression analyses based on an original dataset comprising votes of several thousand legislators from multiple countries on the ratification of trade agreements.

A sustainable future for Africa through continental free trade and agricultural development

Abstract: Developing and integrating agricultural markets may be key to addressing Africa’s sustainability challenges. By modelling trade costs from farm gate to potential import markets across eight African regions, we investigate the impact of individual components of continental free trade and the complementary role of domestic agricultural development through increased market access for farmers and agricultural intensification. We find that free trade would increase intra-African agricultural trade sixfold by 2030 but—since it does not address local supply constraints—outside food imports and undernourishment would reduce only marginally. Agricultural development could almost eliminate undernourishment in Africa by 2050 at only a small cost of increased global greenhouse gas emissions. While continental free trade will be enabled in Africa through the African Continental Free Trade Area, aligning this with local agricultural development policies is crucial to increase intra-African trade gains, promote food security and achieve climate objectives. The sustainability effects of agricultural development and market integration on African food systems are varied and complex. Using an integrated modelling framework, this study investigates the impact of both continental free trade and agricultural development on African food imports and exports, undernourishment and sectoral greenhouse gas emissions until 2050.

The Impact of Fiscal Policy and Trade Liberalization on Economic Growth: Evidence from Structural Breaks for Jordan

Abstract: Purpose: The main purpose of this study is to examine the impact of fiscal policy and trade liberalization on Jordan's economic growth. Design/methodology/approach: The study used Augmented Dicky Fuller unit root tests and Kapetanios unit root tests with structural breaks for the empirical investigation. Findings: Government spending and taxation have a favourable influence on economic growth, according to the simulation results. Public debt has a negative but negligible effect on economic growth. Economic growth is significantly influenced by trade liberalisation. Research implications: The consequence is the proportion of spending on infrastructure and human resources should be increased by taxes financing rather than foreign loans. Improving the competitiveness of domestic industries is necessary for free trade to have a positive effect. Originality/value: This study is innovative due to the absence of research that addresses Fiscal Policy, Trade Openness and economic growth with the structural break in Jordan.

Implementing and Enhancing Labour Standards Through FTAs? A Critical Analysis of the Panel Report in the EU-Korea Case

Abstract: The EU has been a long-time advocate of including labour provisions in trade agreements. The labour provisions in the EU’s Free Trade Agreements (FTAs) have gone through intergenerational development and become a staple practice. Moreover, recent years witnessed the EU’s strengthened enforcement of labour commitments made in FTAs by trade partners. In 2018, the EU initiated a dispute settlement process against Korea based on the EU-Korea FTA, which is the first and, up to now, the only case on alleged violations of labour provisions in an EU FTA. In the published report, the Panel makes findings on three key jurisdictional and substantive issues: the requirement of a trade-labour linkage, the incorporation of International Labour Organization (ILO) labour standards into the FTA, and the obligation to ratify the fundamental ILO Conventions. Based on a critical analysis, the Panel’s decisions arguably not only left much to be desired at the technical level, but may exert an unpleasant effect on the development of the relationship between labour protection and FTAs. Nevertheless, the EUKorea case provides an important opportunity to revisit the appropriateness of using FTAs to implement and enhance labour standards, including enforcing labour provisions through a dispute settlement process. Dispute Settlement, Free Trade Agreements, Labour Standards, The EU-Korea Labour Dispute, Trade-Labour Linkage

Trade liberalization, domestic reforms, and income inequality: Evidence from Taiwan

Abstract: This paper estimates the effects of trade liberalization on household income inequality and investigates whether trade liberalization or domestic reforms are the main factors influencing increasing inequality in Taiwan, a middle-income open economy. We construct an empirical model by decomposing the sources of household disposable income in the quintile ratio and separate trade partners into OECD (Organisation for Economic Co-operation and Development) and non-OECD countries. Using time-series data to estimate the long-run effect, we find that net exports to OECD countries increase inequality, whereas net exports to non-OECD countries insignificantly decrease inequality. This finding diverges from the prediction based on the Stolper–Samuelson theorem. Overall, trade liberalization increases income inequality, and the effect is mainly attributed to net exports to OECD countries. Moreover, we provide evidence that domestic reforms, particularly technological progress in favor of skilled labor and industrial structural change, rather than trade liberalization, are the main driving forces of income inequality.

Decomposing the effect of trade on environment: a case study of Pakistan

Abstract: Using time-series data from 1984 to 2019, the study examines the vigorous trade-environment relation in Pakistan. Pakistan is an interesting case study in which trade liberalization has expanded economic activity while also increasing environmental pollution during the last two decades. As a result, determining whether trade and industrial operations have contributed to environmental degradation is crucial. Our first goal is to look at how trade affects the environment in terms of scale, composition, and technique. The second step is to look into the pollution haven theory. The study uses a new approach to measuring trade openness called composite trade intensity, which differs from the traditional approach. The dynamic autoregressive distributed lag (ARDL) simulation framework, which was recently developed, was employed. The findings show that the scale impact raises CO2 emissions while the technique effect helps to lessen them, proving the existence of an environmental Kuznets curve (EKC) hypothesis. The composition impact contributes to increased pollution in the environment. Through the expansion of pollution-intensive export businesses, trade openness degrades environmental quality over the long as well as in the short term. The notion of a pollution hypothesis has also been proven. The quality of the environment deteriorates as a result of urbanization, whereas it improves as a result of good governance. Economic growth, trade openness, urbanization, and CO2 emissions have bidirectional causality, according to frequency domain causality findings. Based on our empirical findings, the study concludes that individual efforts, as well as collective efforts at the international level to reduce carbon emissions, are critical to solving the problem of environmental degradation and making the world a completely peaceful place.

Trade Integration, Growth and Employment in West Africa: Implications for African Continental Free Trade Area (Afcfta)

Abstract: Abstract This study investigated the effects of trade integration on economic growth and employment in West Africa from 2005 to 2019. Using a two-step panel GMM estimation technique, results showed that trade between West Africa member states and other SSA countries has more reinforcing growth propelling effect. That is, trade deepening between West African countries and other SSA countries has the tendency to boost growth more than when trade is just among the West African countries. Results also showed that although trade integration has not led to expansion in employment in the West African region, increased volume of trade among countries would foster more employment generation. The policy import of the study is threefold. First, when West Africa countries trade among themselves, the benefits of trade in enhancing economic growth and employment generation is small. Second, with trade between West Africa and other countries and regions in SSA, West Africa stands better chance of harnessing more growth and employment benefits from trade integration. Third, there is therefore the need for West Africa to key into the AfCFTA implementation as deeper trade within Africa has great potentials of fast-tracking growth and more employment generation for the region.