International Trade, Distribution And Development: Empirical Studies Of Trade Policies

Empirical Studies of Trade Policies

Paul Brenton

• Publisher: WSPC
• Year: 2014
• ISBN:
  9789814603393
• Topic: Ciencias biológicas
• Subtopic: Ciencias en general

International Trade, Distribution and Development brings together a collection of papers that have sought to assess empirically the impacts of policy measures affecting trade. The carefully selected papers analyze the impact of trade barriers and their removal, with a focus on distributional consequences and economic development.

Grounded in rigorous empirical analysis, this book covers a range of policy issues such as impacts of trade on wages, non-tariff barriers, trade preferences, export survival and carbon labelling. An invaluable reference for readers seeking to understand the impact of trade policies, the book also seeks to shed light on future research, especially for research on developing countries.

Contents:

• • Introduction and Overview (Paul Brenton)
• Modelling the Impacts of Trade Barriers and FDI Flows:
  • Quantifying the Economic Effects of Non-Tariff Barriers: The Case of UK Footwear (Alan Winters and Paul Brenton)
  • Voluntary Export Restraints and Rationing: U.K. Leather Footwear Imports from Eastern Europe (Paul Brenton and Alan Winters)
  • Anti-Dumping Policies in the EU and Trade Diversion (Paul Brenton)
  • The Potential Trade Effects of an FTA Between the EU and Russia (Paul Brenton, Natalia Tourdyeva, and John Whalley)
  • Technical Barriers to Trade in the European Union: Importance for Accession Countries (Paul Brenton, John Sheehy, and Marc Vancauteren)
  • Economic Integration and FDI: An Empirical Analysis of Foreign Investment in the EU and in Central and Eastern Europe (Paul Brenton, Francesca Di Mauro, and Matthias Lücke)
  • Assessing the Adjustment Implications of Trade Policy Changes Using the Tariff Reform Impact Simulation Tool (TRIST) (Paul Brenton, Christian Saborowski, Cornelia Staritz, and Erik von Uexkull)
• Trade, Wages and Adjustment:
  • Outsourcing and Low-Skilled Workers in the UK (Robert Anderton and Paul Brenton)
  • What's Trade Got to Do with It? Relative Demand for Skills Within Swedish Manufacturing (Robert Anderton, Paul Brenton, and Eva Oscarsson)
  • Trends in Disaggregated Import and Export Prices in Europe: Implications for the Trade and Wages Debate (Paul Brenton and Anna Maria Pinna)
  • Adjustment to Globalisation: A Study of the Footwear Industry in Europe (Paul Brenton, Anna Maria Pinna, and Marc Vancauteren)
• Trade and Development:
  • Integrating the Least Developed Countries into the World Trading System: The Current Impact of EU Preferences Under ‘Everything But Arms’ (Paul Brenton)
  • Making EU Trade Agreements Work: The Role of Rules of Origin (Paul Brenton and Miriam Manchin)
  • Watching More than the Discovery Channel to Diversify Exports (Paul Brenton and Richard Newfarmer)
  • The Life and Death of Trade Flows: Understanding the Survival Rates of Developing Country Exporters (Paul Brenton, Martha Denisse Pierola, and Erik von Uexkull)
  • What Explains the Low Survival Rate of Developing Country Export Flows? (Paul Brenton, Christian Saborowski, and Erik von Uexkull)
  • Product Specific Technical Assistance for Exports — Has It Been Effective? (Paul Brenton and Erik von Uexkull)
  • Carbon Labelling and Low-Income Country Exports: Review of the Development Issues (Paul Brenton, Gareth Edwards-Jones, and Michael Friis Jensen)

Readership: Postgraduates, researchers, academics, and policymakers interested in international economics, developmental economics and globalization.
Key Features:

• Covers a range of policy issues including the impacts of trade on wages, non-tariff barriers, economic development and carbon labelling
• Explores the impact of trade policies grounded in rigorous empirical analysis

Chapter 1

Introduction and Overview

More than 25 years ago Robert Baldwin decried the “long-standing lack of interest by economists in trade policy matters”. Has this changed? The assertion of this introductory chapter is that empirical analysis of international trade and trade policies is as important as ever. While the theoretical support for the benefits of open trade regimes has been strengthened over time, policymakers remain skeptical that trade liberalization is more than a zero sum game and fail to internalize that openness to trade brings significant benefits to an economy that exceed the costs of adjustment that may be incurred. The chapter then summarises the subsequent collection of papers which have sought to contribute to policy discussions around the impact of trade policies.

Sound empirical analysis is critical for informed and effective trade policy making. This is because trade policies typically have important distributional impacts; of particular concern is how they affect the poor and inequality. Trade policies fundamentally affect the incentives in an economy towards trade-related activities and the allocation of resources across sectors. They also affect long-term growth outcomes and hence the number of jobs in an economy as well as the capacity for certain groups within a country to participate in trade. But too often trade policy discussions and decisions are made by small groups within government using at best limited information on potential economic outcomes and overly influenced by politically well-connected interest groups.

It is important for policymakers and other trade policy stakeholders to have access to relevant and reliable information and analysis on the effects of different trade policies options. Empirical studies can be vital in bringing an important trade policy issue to the attention of policymakers. Certain stakeholders, especially the poor are often sorely under-represented in trade policy deliberations. This is particularly the case for women. In Africa and other regions, women are key participants in trade but their interests are rarely captured by trade officials and political leaders. Analysis that shows the constraints and harassment that women face in crossing borders and the costs these impose on their families can elevate discussion of this issue and lead to implementation of simple measures that can facilitate the activities for poor traders.¹

The availability of data will typically frame the type of analysis that can be undertaken. Detailed and comprehensive data can be used to provide careful estimates of changes in welfare for the country as a whole and for key stakeholders. Nevertheless, policymakers can be confronted with important information even in the most challenging environments using rudimentary data. For example, Brulhart and Hoppe (2012) used simple survey methods to discover that if the residents of San Francisco faced the same charges pro rata in crossing the Bay Bridge to Oak-land as do residents crossing the Congo River between Kinshasa and Brazzaville, a similar distance, they would pay more than $1200 for a return trip. As a result passenger traffic at this obvious focal point for cross-border trade between the two Congo’s is around five times smaller than that between East and West Berlin in 1988— well before the dismantling of the Wall!

Empirical trade analysis can provide some support to the process of policy formulation and to ensure that choices are based on better knowledge of underlying realities. Of course, politicians and officials may not act on this information. The assertion of Rodrik (1995) that “no other area of economics displays such a gap between what policymakers practice and what economists preach as does international trade”, still has much relevance. This is leading to more emphasis on applied trade analysis that looks carefully at the political environment in which trade policy decisions are made and the incentives affecting the actions of officials. It is only by understanding the politics behind trade policy decisions that we will be able to ascertain why it is often very difficult politically to introduce trade measures that it is believed would raise national welfare and also why particular policies are implemented even though theory and empirical analysis suggest they will reduce national welfare.

The trade policy agenda has become much broader in recent decades reflecting key changes in the global economy and in regional trade and in the data and tools available to trade economists that can now be reflected in empirical trade analysis. First, we are no longer living in a bi-polar trading world dominated by trade between rich countries in Europe and North America and developing countries. The emergence of the BRICS and recent growth in Africa has led to a multi-polar trading world with expanding markets in different locations generating new trade opportunities. So the focus is no longer just on enhancing old established trading relationships but allowing new trade flows to new markets to flourish. In many countries in Africa, while important, the challenge is no longer how to add value to commodities and minerals being shipped to rich countries but also how to exploit new opportunities for trade in manufactures, in services as well as agriculture with neighbours and emerging countries in Asia and South America.

Second, the nature of global production and trade has changed throughout the latter part of the last century and has continued into this century. Production processes have been split up and different parts of production relocated around the world. This great unbundling (Baldwin, 2006) necessitates a reappraisal of the role of trade and investment policies and the need to look at competitiveness in a different way. No longer do countries just import and export finished products, for which all of the production stages were undertaken within a strict physical area. Countries now import to produce to be competitive in the domestic market and import to export to integrate into global value chains. At the same time this has exposed workers at all stages of the value-chain, sometimes in sectors or activities that were previously thought to be non-tradable, to competition from the global market. This, in turn, may entail important impacts on particular groups of workers, such as the low-skilled.

Third, is the increasing importance of trade in services. Services are key inputs into all other economic activities and access to a wide variety of efficiently produced services is critical to competitiveness and an additional important factor governing participation in global value chains. Just as one example, more than 83% of the selling price of fresh cut flowers exported from Ethiopia to Europe is accounted by services. Trade opening can be an effective mechanism for increasing competition in services sectors. Competition is essential in order to increase efficiency in the provision of services and improved access to lower priced and better quality services in the domestic market. Also exports of services offer new opportunities to diversify and create jobs. Tourism has been a traditional services export for many developing countries but new opportunities to export are being exploited in finance, telecommunications, and professional services as well as in IT-related services.

While the benefits of liberalizing trade in services are compelling, it can also bring risks and potential costs that may require appropriate government intervention. This arises because of the need to regulate many services sectors to overcome market failures giving rise to concerns about both efficiency and equity. For example, when imports of services through commercial presence are liberalized, it is important that foreign entry leads to more competition and improved service, not merely to a transfer of ownership from a state monopoly to a private one or from a national monopoly to a foreign one. Reforms to establish an appropriate regulatory framework may need to precede the opening up of a particular sector so as to set the rules of the game for new investors by establishing appropriate competition and pricing rules for foreign investors in services, defining service and access requirements when relevant, and ensuring adequate oversight and conflict resolution mechanisms. Hence, trade opening may need to be carefully coordinated with regulatory reform.

Fourth, is the changing climate for trade for developing countries, especially those in Africa. Many countries in Africa have grown strongly since 2000 and are enjoying a sustained period of economic growth. This has been driven by increasing exports of commodities and export diversification remains a key objective to drive job creation and more inclusive growth. It is being increasingly recognized that in addition to exploiting opportunities in global markets there is enormous potential to drive export diversification through regional trade integration (Brenton and Isik, 2012). Regional trade can bring staple foods from areas of surplus production across borders to growing urban markets and food deficit rural areas. With rising incomes in Africa there are emerging opportunities for cross-border trade in basic manufactures such as metal and plastic products that are costly to import from the global market. The potential for regional production chains to drive global exports of manufactures, such as those in East Asia, has yet to be exploited, and cross-border trade in services offers untapped opportunities for exports and better access for consumers and firms to services that are cheaper and provide a wider variety than those currently available.

However, Africa is not achieving its potential in regional trade as substantial barriers remain to the free movement of goods, services, people and capital across African borders with the consequence that it is often easier for Africa to trade with the rest of the world than it is with itself. Effective regional integration is of particular pertinence now. While uncertainty surrounds the global economy and stagnation is likely to continue in traditional markets in Europe and North America, enormous opportunities for cross-border trade within Africa in food products, basic manufactures and services remain unexploited. Regional integration in Africa could provide a much-needed source of export diversification away from minerals and hydrocarbons and a vital source of job creation.

But to deliver integrated regional markets that will attract investment in agro-processing, manufacturing and new services activities, policymakers have to move beyond simply signing agreements that reduce tariffs to drive a more holistic process to deeper regional integration. An approach is needed that: reforms policies that create non-tariff barriers; puts in place appropriate regulations that allow cross-border movement of services suppliers; delivers competitive regionally integrated services markets; and builds the institutions that are necessary to allow small producers and traders to access open regional markets. The appropriate metric for successful integration is not the extent of tariff preferences but rather reductions in the level of transaction costs that limit the capacity of Africans to move, invest in, and trade goods and services across their borders.

This is a different approach to one that proceeds within the straightjacket of specific sequential steps to integration: free trade area, customs union, common market, and economic and monetary union. For example, there are enormous opportunities from trade in services in Africa that are not dependent on a common external tariff being in place. Countries can work to improve trade facilitation at the border and to remove non-tariff barriers with neighbors while free trade agreements are being designed and implemented. Countries that are not members of the same free trade agreements can work to disseminate information on market prices to producers and traders.

Finally, it has become apparent that successful export growth and diversification require not only entry into exporting but survival and subsequent growth. Evidence suggests that developing countries have much lower survival rates for new exports than do rich countries. As a result, more attention needs to be given to the factors that undermine the survival of trade flows including uncertainty (of producers over costs, of buyers over the quality of product they will receive, of both buyers and sellers when contracts are weakly enforced) and lack of information that prevents effective matches between buyers and sellers in international markets. An interesting finding from initial analysis is the importance of learning-by-doing for export survival: experience with exporting the same product to other markets or different products to the same market are found to strongly increase the chance of export survival. A better understanding of such learning effects could substantially improve the effectiveness of export promotion strategies.

Section 1: Modelling the Impacts of Trade Barriers and FDI Flows

The first section of the volume contains a set of papers that have sought to apply appropriate empirical techniques to available data to contribute to dialogue around a range of trade policy issues. The first two chapters of this section focus on a detailed case study of trade policy barriers in the UK footwear sector undertaken under the leadership of Alan Winters in the late 1980s and early 1990s. At that time footwear was typical of a manufacturing sector in high income countries under pressure from imports from developing countries in East Asia for which policymakers granted additional protection beyond tariffs in the form of quantitative restrictions. The particular non-tariff barrier analysed in these papers is voluntary export restraints (VER), a quantitative restriction imposed by a government to limit the quantity of goods that can be exported to another country during a specified period of time. The reason governments impose VERs to limit their own exports is to appease the importing country and prevent the imposition of more draconian and less flexible trade barriers. VERs are typically implemented on a bilateral basis and became a popular form of protection during the 1980s, perhaps in part because they did not violate countries’ agreements under the GATT at that time. However, during the Uruguay Round of trade negotiations members of the newly created WTO agreed not to implement any new VERs and to phase out any existing VERs over a four-year period.

These papers show the high economic costs for UK consumers of the quantitative trade barriers imposed on footwear imports. The papers address a key technical challenge with regard to a quantitative restriction (QR) on trade — it necessarily induces rationing. If suppliers raise their price in response to the restriction so that there is no excess demand then they are rationed, since they would like to sell more than they are permitted to at the new higher price. On the other hand, if prices do not rise fully to clear demand then it is consumers who are rationed, since at that price they would like to buy more than they are able to because of the restriction. Such rationing leads to additional welfare costs beyond those that will be normally estimated. These papers develop techniques for identifying when rationing of consumers was taking place.

Chapter 2 combines the analysis of demand side rationing with a simple supply side simulation model to assess the impact of the VERs on production and employment in the UK. The papers show clearly the high cost to UK consumers of quantitative restrictions on footwear imports in the 1970s and 1980s and the relatively small impacts on output and employment. It is concluded that the economic costs of these restrictions will have considerably exceeded the costs of adjustment that the sector would have borne in the absence of such trade protection.

The third chapter in this section looks at the impact of another controversial trade policy measure: anti-dumping duties. Empirical analysis is essential at all levels in the formulation and implementation of such measures to identify whether dumping has taken place and if so whether it is having a material impact on local firms and then whether anti-dumping measures are appropriate and, if applied, their impact.

The chapter starts from the fact that anti-dumping policies are discriminatory; not only do they discriminate against (some) firms in the targeted country in favour of domestic firms in the protecting country, they also discriminate between firms in countries named in the anti-dumping petition and firms in other exporting countries. In other words, anti-dumping measures may divert trade from named to non-named countries rather than create sales for domestic firms at the expense of the named countries. The chapter applies a simple trade model to detailed import data for products that have been subject to anti-dumping petitions in the EU. It allows for trade to be diverted away from named countries to both EU countries and non-EU countries. The analysis finds no evidence that anti-dumping measures applied in the EU led to a significant increase in imports from fellow EU members. There is however, evidence of a significant increase in the volume of imports from non-EU countries starting in the second year after the anti-dumping investigation is announced and coinciding with a substantial decline in imports from the countries subject to measures. This suggests that anti-dumping measures may not have been successful in protecting EU firms from imports from outside of the EU in products that have been subject to anti-dumping measures. The measures have primarily had the effect of diverting trade from one source in the rest of the world to another.

The next chapter, Chapter 5, written with Natalia Tourdyeva and John Whalley provides an analysis of the potential impacts of a free trade agreement between the EU and Russia. The analysis concentrates on the effects of the preferential removal of tariffs on mutual trade in a situation in which one of the countries has substantially higher tariffs than the other. Empirical analysis of preferential trade agreements plays a key role in their assessment because the standard theory shows the impact on economic welfare is ambiguous. There will be a positive impact if the removal of tariffs creates trade between the two countries as more efficient production from the partner is imported at the expense of less efficient domestic production. However, there will be a detrimental effect on welfare if trade is diverted from more efficient producers in the rest of the world (who still have to pay the tariff) to less efficient producers in the partner, but who benefit from duty-free access.

The chapter looks at the structure of imports in both the EU and the Russian markets to identify the potential for trade diversion. If imports from the potential partner are concentrated in the same products as imports from third countries then an agreement which gives preferential access to imports from the partner could lead to a shift in demand away from the other countries. The higher the external tariff (the larger the margin of preference) for the products which dominate imports from these countries the more likely significant trade diversion will occur. The analysis showed that in the EU market, products of particular interest to Russia, and which also form a large share of EU imports from other countries, tended to face very low duties. However, in the Russian market tariffs tend to be higher on the products that dominate imports from the EU and for which there are significant risks of diversion away from imports from countries selling similar products to Russia. As a general conclusion, countries with high tariffs should be wary of signing preferential trade agreements with countries that have very low tariffs.

The analysis in Chapter 5 focused solely on the economic impacts arising from the removal of tariffs. This remains very pertinent today for agreements such as those that the EU is negotiating with developing countries in Africa. Nevertheless, this collection of papers on trade reflects that regional integration is now quite different from that pursued in the 20th century. Old regionalism focused on the mutual exchange of tariff preferences and trade in goods. The new regionalism concerns a wide range of regulatory issues and is about the “trade-investment-services nexus” (Baldwin, 2011). In this context much greater attention is given to non-tariff barriers to trade (NTBs). One broad type of NTB is technical barriers to trade. These arise when an exporter has to alter their product to be able to access an overseas market due to differing requirements regarding issues such as health, safety, and consumer protection compared to home market or other export markets. Additional costs may also arise if a product has to undergo multiple testing to demonstrate compliance with regulations that differ across markets.

Removing technical barriers to trade (TBT) has become a key element of both global and regional trade negotiations. Chapter 6, written with John Sheehy and Marc Vancauteren, contains an analysis of the potential impacts of removing TBTs on Eastern European countries as part of their process of accession to the European Union. Many of the requirements are in place to achieve genuine public policy objectives and so cannot be removed like traditional trade policy ...

Table of contents

• Cover
• HalfTitle
• Title
• Copyright
• Dedication
• Acknowledgements
• Contents
• Chapter 1: Introduction and Overview
• Section 1: Modelling the Impacts of Trade Barriers and FDI Flows
• Section 2: Trade, Wages and Adjustment
• Section 3: Trade and Development