Aggregate Trade Research Articles

A Measurement of Aggregate Trade Restrictions and Their Economic Effects

Abstract This study develops a new Measure of Aggregate Trade Restrictions (MATR) using data from the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions. MATR is a measure of direct and indirect official government policy related to the international flow of goods and services. MATR is simple, plausible, quantitative, easily updated, based on relevant measures of trade policy and other international restrictions affecting trade (e.g., payment restrictions), and covers an unbalanced sample of up to 157 countries from 1949 to 2019. MATR is strongly correlated with, and—importantly—more comprehensive, in terms of country and time coverage, than existing measures of de jure openness; it is also granular. As such, MATR empowers empirical analysis to increase coverage in research related to trade restrictions and other trade-related openness policies. MATR is used in the study to show that direct and indirect restrictions to trade are associated with significant contractions in output.

Analysis of Financial Development and Trade Performance in Nigeria

Despite the importance of financial development-international trade nexus and its implication for growth, studies have yet to look at the impact of new financial development indicators developed by the International Monetary Fund on international trade performance in Nigeria. This is one of the few attempts made to examine the elasticity of trade to financial development, given the inconclusive findings that permeate the literature. Therefore, this paper investigates the effect of financial development on aggregate trade performance in Nigeria using annual data from 1980 to 2021. The empirical framework is based on the ARDL approach to cointegration and error correction model. The findings revealed that (i) The ARDL bound test revealed the existence of a long-run equilibrium association between the variables; (ii) We find that a unit improvement in financial development induces a 1.1%-1.2% increase in trade performance in the short-run short term and a 9.7% in the long-run; (iii) The results show that a 1% increase in the exchange rate (depreciation) leads to a 0.01% improvement in trade performance in the short-term. The findings have important policy implications. The paper concludes that financial development contributes to trade performance.

Gravity-Based Tools to Assess the Impact of Tariff Changes: An Application to Armenia

This paper uses two empirical tools to quantify the impact of tariff changes on bilateral trade and welfare. Both tools are rooted in structural gravity literature. The first tool estimates the impact of tariff changes on bilateral trade for 5,020 products in a partial equilibrium framework. The second tool quantifies the impact on bilateral aggregate trade in a general equilibrium setup, allowing estimates of trade diversion and welfare changes. These tools are used to estimate the impact of tariff changes on Armenia with regard to (i) its alignment with the external tariff of the Eurasian Economic Union; (ii) free trade agreements between the Eurasian Economic Union and other economies, including Iran and the People’s Republic of China; and (iii) Armenia’s loss of beneficiary status under the Generalised Scheme of Preferences of the European Union.

Gains from trade: Demand, supply, and idiosyncratic shocks

SummaryFirm‐level sales are often used as a proxy for productivity to quantify welfare gains from trade (GFT) using firm‐level data. This approach ignores the fact that heterogeneity in firm‐level sales is driven by factors other than productivity. Our theoretical and empirical analysis reveals that using sales as a proxy conflates persistent productivity with transitory demand and supply shocks, resulting in an over‐dispersed productivity distribution. Assigning this shock‐inflated productivity to a modeled economy's supply‐side results in overestimated GFT. We show how to obtain unbiased productivity estimates, aggregate trade elasticities, and GFT estimates by exploiting the revenue production function from a single‐source country.

The effects of free trade agreements on product-level trade

We use highly disaggregated trade data to test whether “least traded products”–products either not traded previously or only traded in small amounts–experience faster trade growth after the signing of trade agreements and whether this is important for the aggregate trade creation effects of trade agreements. Because we use PPML, an estimator with unique aggregation properties, our product-level estimates are comparable to estimates based on aggregate trade data that are meant to capture aggregate trade creation effects. Using this approach, we find that virtually all of the trade creation associated with trade agreements comes from least traded products. Interestingly, for products that are very highly traded, we find that trade actually declines following an agreement. These results are robust to controlling for general mean reversion effects in the product-level trade data, which we also find evidence for, as well as for differences in observed tariff levels.

Revisiting the J-Curve of Indonesia-China bilateral trade

The examination of the J-curve effect has been grown primarily for the case of aggregate trade level in some countries. Most studies assume that the exchange rate affects the dynamics of aggregate trade balance symmetrically. To fill the gap of the empirical studies, this manuscript attempt to revisit the presence of J-curve and analyze the effect of Indonesian Rupiah vis-à-vis Chinese Yuan on bilateral trade balance between Indonesia and China, whether symmetric or asymmetric. We employ autoregressive distributed lag (ARDL) and its partial sum concept of nonlinear manner to estimate quarterly data from 2002:I to 2017:IV. The result shows evidence of the asymmetric effect of the exchange rate on the trade balance, and the nonlinear approach provides more support to discover the presence of the J-curve impact of bilateral trade between Indonesia and China.

The Effect of the ASEAN FTA on Intra-Regional Trade in Lao PDR

Purpose - This study aims to estimate the effects of the Association of South-East Asian Nations Free Trade Area (AFTA) on international trade in Lao People’s Democratic Republic (PDR) Design/Methodology/Approach - This study empirically analyzes the effects of AFTA on Lao PDR’s intra-regional trade with ASEAN countries using a gravity model by employing panel data from ten ASEAN countries from 1990 to 2017.
 Findings - This paper finds that joining AFTA positively affects aggregate trade volume and exports of Lao PDR. However, joining AFTA does not positively impact Lao PDR’s imports.
 Research Implications - With a very limited number of studies on the effect of AFTA on Lao PDR, most previous studies examine the effect on Lao PDR using a subset of ASEAN countries. This paper contributes to the literature by being the first to empirically analyze the effect of AFTA on intra-regional trade in Lao PDR with all ten ASEAN member countries. The findings of the study suggest that further extending FTA networks with other countries will promote Lao PDR’s trade and its access to the international market.

Are trade restrictions counter-cyclical? Evidence from a new aggregate measure

We present a new Measure of Aggregate Trade Restrictions (MATR) using data from the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions. MATR is strongly correlated with existing measures of trade restrictiveness but more comprehensive in terms of country and time coverage. Our measure is available for an unbalanced sample of up to 157 countries during 1949–2019. We use our new MATR to re-examine how trade restrictiveness varies with the business cycle. Our results confirm that trade restrictions are typically a-cyclical but there is an important difference across income groups: aggregate trade restrictions are a-cyclical in advanced economies but are counter-cyclical in EMDEs, especially in response to increases in unemployment.

Predicting Exporters with Machine Learning

AbstractIn this contribution, we exploit machine learning techniques to evaluate whether and how close firms are to become successful exporters. First, we train various algorithms using financial information on both exporters and non-exporters in France in 2010–2018. Thus, we show that it is possible to predict the distance non-exporters are from export status. In particular, we find that a Bayesian Additive Regression Tree with Missingness In Attributes (BART-MIA) performs better than other techniques with an accuracy of up to 0.90. Predictions are robust to changes in definitions of exporters and in the presence of discontinuous exporting activity. Eventually, we discuss how our exporting scores can be helpful for trade promotion, trade credit, and assessing aggregate trade potential. For example, back-of-the-envelope estimates show that a representative firm with just below-average exporting scores needs up to 44% more cash resources and up to 2.5 times more capital to get to foreign markets.

Global shipping and climate change impacts in Africa: the role of international trade

This paper examines the interacting effect of global shipping and trade on climate change in Africa using data on 31 countries for the period 2006–2016. We employ the system generalized method of moments estimation technique for our analysis. The results reveal that, in both the short run and long run, global shipping and trade contribute significantly to climate change in African countries. Furthermore, we document that the impact of shipping on climate change become larger through the aggregate trade channel. Based on these outcomes, policies designed to reduce emissions from global shipping are important in mitigating the menaces of climate change in Africa.

EXİSTİNG PROBLEMS İN THE SPHERE OF DEVELOPMENT OF İNTERNATİONAL TRADE İN THE REPUBLİC OF AZERBAİJAN

EXİSTİNG PROBLEMS İN THE SPHERE OF DEVELOPMENT OF İNTERNATİONAL TRADE İN THE REPUBLİC OF AZERBAİJAN

Trade and economic growth: Does the sophistication of traded goods matter?

Since the appearance of the seminal paper of Frankel and Romer (Am Econ Rev 89(3): 379–399, 1999), ‘Does trade cause growth?’, the impact of aggregate trade openness on income has been controversial. This research shows that the type of product that is traded has first-order effects, while overall trade intensity has second-order effects on per capita income because of (i) the hierarchical structure of learning-by-doing in products with different levels of sophistication of the production processes; and (ii) the fertility and education effects of trade specialization following the quantity–quality tradeoff framework of Galor and Mountford (Am Econ Rev 96(2): 299–303, 2006). Using data on trade disaggregated by the level of technological sophistication of the production process for 223 countries over the period 1962–2019, we find that (1) the effects of foreign trade on income differ widely across technology categories; (2) high-tech trade has permanent growth effects; and (3) a significant fraction of the impact of trade on income is mediated through education and fertility.

Labour market rigidity and trade margins

AbstractCountries differ, sometimes significantly, regarding their basic labour market structure. Despite the prevalence of theoretical literature, empirical studies examining the impact of labour market rigidity (LMR) on trade is sparse. Existing empirical studies have been limited to aggregate trade flows with cross‐sectional estimations; a limited set of countries (e.g. OECD or Latin America) or to the period after 1990. We utilise a gravity model of trade to examine the impact of LMR on exports for 145 countries between 1964 and 2004. We utilise dis‐aggregated product‐level trade data and decompose total exports into the extensive and the intensive margin to examine this relationship. We also utilise total aggregate international trade relative to domestic sales, which allows for the identification of LMR‐trade relationship, even in the presence of multilateral trade resistance controls. Finally, we estimate the effect of LMR on exports (and the margins) by focusing on a sample of European OECD countries via the difference‐in‐differences estimation. In all cases, we find that a rigid LMR reduces total exports, and this decrease is driven primarily by the intensive margin. Our findings are relevant as recent studies have found the intensive margin to be more important for long‐run export growth and especially for developing countries.

Assessing the effects of hard and soft infrastructure on traditional vs supply-chain trade: the case of Central and Eastern EU member states (CEMS)

ABSTRACT The aim of this paper is to assess the role of hard and soft infrastructure in trade, distinguishing between traditional trade and supply-chain trade. Using factor analysis, we construct four aggregate trade facilitation indicators where we measure hard infrastructure as physical and ICT infrastructure, while soft infrastructure accounts for border efficiency and institutional efficiency. For traditional trade, we use bilateral trade data from UN Comtrade. Supply-chain trade is measured in terms of domestic value-added (DVAFX) embodied in foreign gross exports and foreign value-added (FVA) embodied in domestic gross exports obtained from Eora MRIO database. We use panel data regression analysis with an empirical model specification based on a gravity model and covering the 2000–2019 period. We estimate model with the Poisson Pseudo-Maximum Likelihood Estimator (PPML). To control multilateral trade-resistance terms (MRT), we included reporter and partner fixed effects along with country pair fixed effects. The results confirm a statistically significant relationship between hard and soft infrastructure and trade. ICT and border efficiency have the strongest impact on both types of trade. Supply-chain trade responds most intensely to improvements in institutional efficiency. Results imply that ICT infrastructure and border efficiency might hold even greater importance for CEMS’s traditional and supply-chain trade.

Relevance of the Uruguay and Doha Rounds in the Evolution of International Agricultural Trade: The Case Study of Latin American Countries and Continental Products

This article describes the evolution of the regulation of agricultural trade and analyses key aspects of the negotiations of the Uruguay and Doha Rounds, in which the least developed countries managed to make the final outcome of the negotiations conditional on progress in the liberalisation of agricultural trade. Four Latin American countries (Argentina, Brazil, Chile and Uruguay) participated in the lobbying groups set up in both Rounds with the aim of defending their interests against the agricultural and protectionist policies of developed countries. Using specialised databases on international trade, this paper describes the consequences of these negotiations for the foreign agricultural trade of the countries that actively participated in them, with particular reference to the evolution of European and Latin American trade balances. The results of the research show how Latin American countries have become one of the world’s main exporters of oilseeds and sugar, accounting for a third and a quarter of world exports, respectively. In contrast to the deterioration of the European trade balance, during the period analysed the aggregate trade surplus of Latin American countries increased from USD 4458.75 to 49,656.52 million.

Abnormal pricing in international commodity trading: Evidence from Ghana

Mispricing of international trade in natural resources contributes to significant tax base erosion from developing countries but is difficult to measure using aggregate trade statistics. In this paper, we apply a novel approach motivated by legal rules for trade and transfer mispricing to estimate abnormal pricing in gold and cocoa exports from Ghana, i.e., exports valued outside an assumed arm's length price range that indicates fair market values. Using daily frequency, transaction-level data from Ghana Customs, our results indicate abnormally undervalued exports of gold and cocoa from Ghana equalled USD 8.8 billion in constant prices (base year 2011) or USD 4.1 billion in current prices between 2011 and 2017. Approximately 11% of gold doré exports, 1% of cocoa bean exports, and 7.2% of cocoa paste exports appear abnormally undervalued. The implied corporate tax base erosion equals USD 2.2 billion in constant prices (base year 2011), corresponding to an average annual decrease of 0.3% in Ghana's tax-to-GDP ratio.

Agriculture, food and global value chains: issues, methods and challenges

Agriculture, food and global value chains: issues, methods and challenges

The impact of China's currency swap lines on bilateral trade

In recent years, China's central bank has actively pursued signing bilateral currency swap agreements with other central banks as part of the authorities' efforts to push for the international use of the Renminbi (RMB). This article empirically evaluates the impact of China's bilateral local currency swap lines on partner countries' bilateral trade with China, given the primary purpose of these swap lines is to aid trade settlement in RMB. We show that signing swap lines with China could boost bilateral trade and increase the Chinese share in aggregate trade. This impact is not evenly distributed across all China's trade partners, our further analysis finds that smaller economies, trade-deficit economies, and economies with less reserves benefited from a larger Chinese share in their exports since signing currency swap agreements with China. More importantly, these swap lines promote the trade volume of partner countries more than that of China, which is reflected in the sense that swap agreements had a larger impact on export than on import for the partner countries, integrating these countries into the global value chains by exporting more to China.

Bilateral Trade Imbalances

In standard quantitative models, bilateral trade imbalances are determined by aggregate trade imbalances, expenditure and production patterns, and trade wedges. We calibrate such a model using recent data on incomes, factor endowments, and sector-level expenditures, outputs and bilateral trade flows for 40 economies and the rest of the world. Large pairwise asymmetries in trade wedges are needed for the model’s bilateral-trade predictions to match the data. They account for 21-35% of the standard deviation of bilateral trade imbalances. Aggregate imbalances play a minor role, while more than 50% of the variation is explained by international differences in production and expenditure patterns.

Quality and gravity in international trade

This paper introduces endogenous quality innovations in a multi-country model with heterogeneous firms. We show that quality investments lead to an additional margin of adjustment in the gravity equation. In industries with a high scope for quality differentiation, the elasticity of bilateral exports with respect to fixed costs is lower due to adjustments at the extensive margin, whereas the elasticity with respect to variable costs remains unaffected. We find robust and consistent evidence for the effect of quality differentiation on the gravity equation, using aggregate trade data and Brazilian firm-level data. We apply our model and evaluate the impact of trade policies that reduce fixed export costs. Our results highlight that trade and welfare effects are substantially lower and become much more dispersed across industries than predicted by heterogeneous firm models without quality differentiation.