Effects Of Trade Policies Research Articles

The spillover effect of trade policy along the value Chain: Evidence from China's rare earth‐related sectors

AbstractThis study examines the heterogeneous spillover effects of an export control policy from an upstream sector to its related downstream sectors. In 2010, China implemented tough policies on rare earth production and export that created a significant price premium for rare earth in foreign markets, thus offering downstream sectors in China cost advantages over their foreign competitors. This study exploits China's policy as an exogenous shock and performs a detailed examination of Chinese customs data. The results show that the export control policy has increased the export price of rare earth downstream products from China, whereas the effects on export quantity and value have been heterogeneous across sectors: they are significant for sectors in which the rare earth cost share is high, and the elasticity of substitution is low.

Effects of trade policies on external trade performances of ECOWAS countries (1996–2017)†

AbstractThe objective of the article is to analyse the effects of trade policies on foreign trade performance (manufacturing exports and imports) of the Economic Community of West African States over the period 1996–2017. Using a new continuous trade policy index and controlling for the endogeneity of the variables of interest, the findings indicate that the trade policies significantly increase imports but much more exports. Furthermore, the analysis of the interaction model reveals that the effects of trade policies on manufacturing trade performance increase with financial development and the rate of cellular mobile subscriptions. These findings have implications for economic policies.

Import demand elasticities revisited

Import demand elasticities are regularly used to compute trade restrictiveness indices, to transform estimated effects of trade policies into ad-valorem equivalents, or to judge on the prohibitive level of various tariff and non-tariff policy instruments. The fast rising number of negotiations of free trade agreements and the fact that non-tariff measures are at the core of these strongly motivates for an update of the import demand elasticity estimates provided by Kee, Nicita, and Olarreaga in 2008 which are based on trade data for the period 1988–2001. Following their GDP function approach, we present import demand elasticities for more than 150 countries and over 5000 products over the period 1996–2014. Countries exhibiting the highest average elasticities belong to the economically biggest countries in their respective regions, while countries with the lowest import demand elasticities are typically small island states. Import-weighted results suggest that especially countries rich in natural resources are facing an inelastic import demand, with the agri-food sector being more price-responsive than the manufacturing sector. Finally, import demand for intermediate goods seems to be more elastic than demand for products destined for final consumption.

Bias and consistency in three-way gravity models

We study the incidental parameter problem for the “three-way” Poisson Pseudo-Maximum Likelihood (“PPML”) estimator recently recommended for identifying the effects of trade policies and in other panel data gravity settings. Despite the number and variety of fixed effects involved, we confirm PPML is consistent for fixed T and we show it is in fact the only estimator among a wide range of PML gravity estimators that is generally consistent in this context when T is fixed. At the same time, asymptotic confidence intervals in fixed-T panels are not correctly centered at the true parameter values, and cluster-robust variance estimates used to construct standard errors are generally biased as well. We characterize each of these biases analytically and show both numerically and empirically that they are salient even for real-data settings with a large number of countries. We also offer practical remedies that can be used to obtain more reliable inferences of the effects of trade policies and other time-varying gravity variables, which we make available via an accompanying Stata package called ppml_fe_bias.

The dynamics of the U.S. trade balance and real exchange rate: The J curve and trade costs?

We study how changes in trade barriers contributed to the dynamics of the US trade balance and real exchange rate between 1980 and 2015 - a period when trade tripled. Using two dynamic trade models, we decompose fluctuations in the trade balance into terms related to trade integration (global and unilateral) and business cycle asymmetries. We find three main results. First, the relatively large US trade deficits as a share of GDP in the 2000s compared to the 1980s mostly reflect a rise in the trade share of GDP. Second, controlling for trade, only about 60% of net trade flows are due to business cycle asymmetries. And third, about two-thirds of the contribution of business-cycle asymmetries are a lagged response. For instance, the short-run Armington elasticity is about 0.2 while the long-run is closer to 1.12 with only 6.9% of the gap closed per quarter. We show that a two-country IRBC model with a dynamic exporting decision, pricing-to-market, and trade cost shocks can account for the dynamics of the US trade balance, real exchange rate, and trade integration. The model clarifies how permanent and transitory changes in trade barriers affect the trade balance and how to identify changes in trade barriers. It shows that uneven trade policy shocks substantially bias Armington elasticity estimates downward. We also show the effect of temporary trade policies on the trade balance depends on whether they induce a trade war.

Do protectionist trade policies integrate domestic markets? Evidence from the Canada-U.S. softwood lumber dispute

We consider the effects of protectionist trade policies on international and domestic market integration, using evidence from the long-standing softwood lumber trade dispute between Canada and the United States. The benefits of trade liberalization are widely acknowledged, including better domestic-to-foreign price transmission due to reduced tariffs and lower trade costs between countries. Yet in recent years we see efforts to protect specific domestic groups, including producers, through a revival of protectionist trade policies. Such policies could improve the domestic price transmission across domestic markets as consumers may seek lower-cost alternatives domestically. We investigate these ideas using a bi-variate three-regime threshold vector error-correction model to examine the spatial price transmission between Canadian and U.S. markets and within U.S. domestic markets. We do that by introducing a structural break at the start of an effective free trade period within our sample. The results suggest that duty-free treatment for imported Canadian softwood lumber substantially lowers the transaction costs between the two nations. Prices are more easily transmitted from the Canadian market to the U.S. at a higher speed, but the speed of price transmission in the reverse direction is not statistically significant. The U.S. domestic market experienced a higher speed of price adjustment across domestic regions prior to the free trade period, which provides evidence that protectionist policies lead to better domestic market integration.

Impact of Trade on Inequality: New Evidence of What, When, and Where

Abstract The relationship between trade and inequality is complex, and the existing literature concludes that the impacts of trade on inequality are ambiguous. This article addresses this ambiguity and presents robust evidence that the effects of trade on inequality depend on economic development, when it occurred in recent decades, and their various measures. It proposes a novel identification strategy to solve for endogeneity problem in the literature by using trade as predicted by a gravity equation as an instrument for actual trade. It estimates the effect of both trade policies and trade volumes on inequality measured both before and after taxes and transfers. This article takes advantage of large and long panel data by conducting cross-examinations by economic development and economic history. The results show that international trade exacerbates inequality in the pre-taxes, but the effects disappear after taxes and transfers are adjusted; thus, it supports the compensation hypothesis. It increases inequality in rich economies while reducing it in poor economies, which confirms the standard Stolper and Samuelson theorem. Post-1991 trade experience was inequality increasing but pre-1991 trade was inequality decreasing; however, trade opening by reducing regulations, taxes, and tariffs was always inequality increasing. (JEL codes: D63, P33, and F63)

“There would be no unilateral détente!”: financial sector of theCOMECON countries in the late 1970s – early 1980s as a source of Western political influence

The object of this research is the processes that took place in the COMECON member-states due instability of the financial sector. The subject of this research is the impact of the economic factor upon the evolution of bipolar system of international relations and sociopolitical sustainability of the Soviet Union during the 1979 – 1983. The article provides a scientific assessment of extent of awareness of the US intelligence on the financial solvency of the COMECON member-states, their ability to meet repayment schedules for both interest and debts, and the consequences of possible default of any of the countries during the financial crisis. The authors set the task to analyze the target points of foreign analytics regarding the “dependency” of Western European enterprises on their Eastern business partners, as well as clarify the extent to which a significant decline in trade between the East and the West affected the Soviet and Western European economy. The use of unpublished foreign and domestic archival documents, as well as foreign periodicals define the novelty of this research. This article is first to disclose the information on how the United States turned the severe financial problems of Eastern European countries for the purpose of political pressure on such issues as Afghanistan, crisis in Poland, and construction of the Soviet gas pipeline. Leaning on the introduced into the scientific discourse CIA documents, assessment is given to the effectiveness of trade and economic policy of the United States and its Western European allies in relation to Eastern Europe. The article also analyses the support of centrifugal tendencies in the economy of the Eastern European countries of the Soviet bloc.

Trade policies, firm strategies, and adaptive reconfigurations of global value chains

The recent U.S.–China trade conflicts cast new light on the role of trade policies in global value chains (GVCs). Contrary to the expectation that trade restrictions lead to the shrinking or disruption of GVCs, our article posits that the unintended consequences of trade policies (both restrictions and trade agreements) are amplified by the prevalence and organizational complexity of GVCs. We anchor our argument in the historical evolution of three classic GVCs – apparel, automobiles, and electronics – from the 1970s to the present. Our framework highlights the dynamic interaction between GVC-oriented trade policies and firm strategies, which often has counterintuitive implications in terms of upgrading outcomes for the countries and companies involved in these GVCs. While trade policies often provide momentum for an adaptive reconfiguration of GVCs, firms’ strategic actions are crucial in modifying the geographic and organizational features of GVCs in ways that support their longevity. Firm strategies can mediate the effect of trade policies on GVC configurations in two ways: (1) firms can accommodate trade restrictions and trade agreements by altering supply and demand locations and by switching supply-chain partners; and (2) firms pursue diverse strategies to upgrade their value chain activities, leveraging the shifting geographies associated with new trade rules.

Analysis of international trade integration of Eurasian countries: gravity model approach

The recent changes in world politics and economy, along with the breakup of the Iron Curtain, directly influenced the foreign trade structure of the Eurasian countries. The foreign trade relations, controlled by the central planning during the Union of Soviet Socialist Republics (USSR) era, began to be formed according to free-market conditions. In this paper, empirical gravity models, covering data of 86 countries for the 1994–2018 period, are used to determine factors affecting the international integration process of the Eurasian countries. For these purposes, we estimated the classical and augmented gravity models to scrutinize the effects of border, infrastructure, trade policies, and institutions, along with the main factors. Based on the estimation results, we concluded that the Eurasian countries during the analysis period were 35% less integrated with the world trade system than the predicted potential level.

Organizational Form and Trade Liberalization: Plant-Level Evidence

This paper studies how firms’ internal organization shapes the impact of international trade. Using establishment-level data from the U.S. Census and a difference-in-difference specification, I find that, relative to standalone firms, conglomerates are more likely to restructure after trade liberalization episodes, focusing on their core competency and improving firm productivity and product market performance. Adjustments through the extensive margin account for the majority of the productivity growth differential between conglomerates and standalones experiencing trade shocks. Aggregate industry productivity remains relatively unchanged in industries dominated by conglomerates’ core business but decreases significantly in others. My findings suggest that firms’ internal organization has important consequences on the effects of trade policies. This paper was accepted by Gustavo Manso, finance.

The Effect of Trade Policy on The Position of Indonesian Coffee Market among The Major Importing Countries

Indonesia is the largest coffee producer in the world after Brazil, Vietnam and Colombia, but it was confronted with market problems. This paper, therefore, analysed the demand system as the position market for Indonesian coffee, either green bean or roasted coffee in the main importing countries such as Germany, Japan and The United States. The linear Approximate Almost Ideal Demand System (LA/AIDS) model was used to analyse the position of Indonesian coffee and its competitors. Time series data from 1996 to 2017 were obtained for the analysis. Empirical results indicated that most of the slope coefficients were statistically significant and in accordance with microeconomic theory. The variables of trade policy effected the Indonesian coffee trade. Indonesian green bean was found to be elastic in Germany, Japan, and The United States. Then, Indonesian roasted coffee was found to be inelastic in Japan. Indonesian green bean was a luxury good only in Germany, but Indonesian roasted coffee was an inferior good in Germany and The United States. Both Indonesian green bean and roasted coffee were a necessity in Japan. Almost Indonesian coffee substitute for Brazilian coffee and Colombian coffee, and complementary with Vietnamese coffee as its competitor.

The impact of macroeconomic policies on Tunisian current account, an ARDL approach

During 1980-2010 Tunisian current account deficit was persistent and worsens between 2011-2018 following the Jasmine revolution of 2011 and contribute to slow down country growth and development. The objective of this study is: 1) to examine the linkage between persistent Tunisian current account deficit and a broad set of macroeconomic variables related to fiscal, monetary and trade policies between 1980-2018; 2) enlighten policy makers in their decision-making process related to the adjustment mechanisms. Based on ARDL approach, the key findings of this study show robust empirical evidence of short and long-run effects of fiscal and monetary policies, while the effect of trade policy is only apparent in the short-term. Therefore, we conclude that, in the short-term, both a tight monetary policy and a balanced fiscal budget are necessary to adjust the current account balance. However, these reforms are not sufficient; making the Tunisian current account deficit sustainable requires structural changes to the economy over the long-term.

Tariffs, Agricultural Subsidies, and the 2020 US Presidential Election: Unintended Consequences

This paper provides evidence on the unintended effects of US and Chinese trade policies on the 2020 US presidential election. In response to a series of US tariffs imposed on Chinese goods, China imposed retaliatory tariffs, especially on US agricultural products, which largely affected Republican-leaning counties. The US government then subsidized US farmers by providing direct payments through the Market Facilitation Program (MFP) to mitigate the Chinese retaliatory tariffs. Using the universe of actual county-level MFP disbursement data, we find that US agricultural subsidies outweighed Chinese retaliatory tariffs and led to an increase in the Republican vote share in the 2020 presidential election. The impact is more pronounced in solidly Republican states, implying that Trump allocated rents in exchange for political patronage. However, the MFP payments were not influential enough in swing states to win the election. Finally, we uncover evidence that China’s retaliatory trade policy and US agricultural policy unexpectedly exacerbated political polarization in the US, especially the rural-urban divide.

An assessment of import tariff costs for Italian exporting firms

Since production and trade are increasingly organized within global value chains (GVCs), assessing who effectively pays the cost of protection is not straightforward and since productive processes are internationally fragmented, quantifying the effects of trade policy requires an enhanced analytical framework that takes international input–output linkages into account to assess the implications trade costs have on competitiveness at national and sector levels. This paper defines a new synthetic measure of trade protection based on the value added in trade, capturing the effects that the tariff structure has on exporting firms that rely on imported intermediate inputs. The index, defined in a general equilibrium framework, provides a theoretically sound protection measurement in the context of GVCs. We assess trade protection by computing protection indexes at the bilateral level on both gross imports and imports to exports using the Global Trade Analysis Project computable general equilibrium model. These indexes are used to investigate the relationship between the European Union tariffs and integration of the Italian GVCs. In the case of Italy, imports to exports are overall less protected than gross imports with significant differences at the sector level. Despite the low levels of nominal protection, industrial sectors play a central role in explaining our results. EU tariffs mostly affect Italian exporting firms in the case of chemical products, wearing apparel and leather products.

The effects of services trade policies. Introduction to the special issue

AbstractThis is the introduction to the special issue on services trade policy.

Търговска политика и икономически растеж в Нигерия

This study examines the effect of trade policy on Nigeria’s economic growth and uses annual data spanning from 1983 to 2018. The Augmented Dickey-Fuller test revealed that the variables employed have a mixed order of integration (i(0), i(1)). Thereafter, an Autoregressive Distributed Lag (ARDL) technique was employed because it suits the outcome of the pre-estimation test. A cointegration test among the variables was conducted using the ARDL bound test technique. The ARDL estimates showed that the adjusted trade ratio and the price-based variables have a positive impact on the GDP in both the short and the long run. The impulse response function for the estimated ARDL model was computed in order to confirm the accuracy of the Bound testing result. Interestingly, the findings remained robust when the potential effect of the trade policy was accounted for using the impulse response function (IRF) (see the Appendix). The IRF showed dynamically that the GDP responded positively to the trade policy at a higher horizon contrary to the short run estimate, thereby giving more credibility to the result of the ARDL which was being transformed by the IRF. The dynamic responses made it possible to find out that the GDP responded positively and negatively to trade policy, but that the accumulated (long run) effect was positive. The conclusion was reached that in Nigeria the adjusted trade ratio was procyclical while the price-based mechanism was countercyclical throughout the scope of study. The suggestion was made that the policy makers should adopt policies that can promote international trade and innovations, and can shut out any form of black market premium that may cause distortions.

The Effects of Trade Policy on Trade among the EU and BRICS Countries

The Effects of Trade Policy on Trade among the EU and BRICS Countries

Capital flows under global uncertainties: Evidence from Turkey

This paper investigates the effects of global economic uncertainty and trade policy–related uncertainty in the US in predicting the bond and equity flows to Turkey during the period from January 2008 to November 2019. We use the time-varying Granger-causality test to assess the ability of economic policy uncertainty and capital flows to forecast Turkish equity and bond markets using fund-level data on bond and equity inflows compiled by the Emerging Portfolio Fund Research (EPFR) global database. Although we found no evidence of causality in the standard Granger-causality test, the time-varying robust causality test detects significant episodes that imply a causal relationship between capital flows and uncertainty indexes, especially during the global financial crisis and the election of the Trump administration.

THE IMMIGRATION EFFECTS OF TRADE PROTECTIONISM: EVIDENCE FROM OECD COUNTRIES

In the context of the current Presidential administration’s policy to reduce imports to the US and its restrictive attitudes toward immigration, it is relevant to investigate how imports and immigration are related. Existing studies have typically analyzed the effects of immigration on imports. But we wondered if the reverse causality could be worthy of examination. Thus, this study explores the impacts of trade policy on immigration. The first part discusses whether trade policies impact immigration, and the second part delves deeper into the heterogeneous effects of trade policies on high-skilled and low-skilled immigration. A large country’s restrictive import policies increase labor demand stemming from the increased demand for import substitution. Thus, workers in the exporting countries see a strong incentive to move to importing countries. Such restrictions also affect the propensity to immigrate of high- and low-skilled workers differently. Net capital inflows increase because trade restrictions appear to decrease capital outflows to exporting countries in part by losing investors’ confidence. This increases the demand for high-skilled workers as capital complements them. Therefore, high-skilled workers are more migratory than those of low-skilled. Using a panel of 20 OECD countries for the period of 1980–2010 and an instrumental variable method, the results show that restricted trade policies increase immigration and that such policies have a stronger impact on the high-skilled immigration than those of low-skilled. A clearer understanding of the channels through which trade will be a determinant of skilled migration may assist policymakers to craft an appropriate policy environment that enhances import substitution of skill-intensive goods that would serve to discourage skilled emigration.