Multilateral Trade Liberalization Research Articles

Clubbing in trade policies: How much a threat to the multilateral constitution?

AbstractPreferential trade agreements (PTAs) have mushroomed over the last decades. However, the various forms of bi- and plurilateral arrangements have always been met with the concern that their proliferation might come at the expense of overall trade freedom because of undermining multilateral governance. This paper starts from the fact that international treaties are notoriously difficult to enforce, as is compliance with (trade) agreements. By focusing on the political economy of how cooperation in trade liberalization is ultimately sustained via the threat of retaliation as institutionalized within the World Trade Organization (WTO), the paper illuminates a novel and completely different channel between PTA membership and multilateral trade liberalization. Exploring their interaction with respect to trade freedom, we explain that PTA membership actually improves on the working of multilateral arrangements that are supposed to ensure cooperation in trade liberalization, thus effectively catering to more open trade.

Effect of multilateral trade liberalization on services export diversification

PurposeThis study investigates the effect of multilateral trade liberalization on services export diversification with a view to complementing the recently published work on the effect of multilateral trade liberalization on export product diversification.Design/methodology/approachThe empirical exercise been performed using a panel dataset of 133 countries over the period 1995–2014.FindingsThe findings show that multilateral trade liberalization is associated with greater services export diversification in both developed and developing countries alike. This is particularly the case in countries with a high reliance on manufactured goods exports or those that enjoy greater export product diversification. Interestingly, multilateral trade liberalization enhances services export diversification in countries that experience higher foreign direct investment inflows.Research limitations/implicationsThese findings highlight the importance of multilateral trade liberalization for services export diversification. The study has considered explicitly supply-side factors that could affect services export diversification. This is because the indicator of multilateral trade liberalization is highly correlated with some demand-side factors, such as the world demand for services exports. Therefore, another avenue for future research could involve looking at the demand side factors that could influence services export diversification, and whether the degree of multilateral trade liberalization matters for the influence of these demand factors on services export diversification.Practical implicationsThe current study through its positive effect on both export product diversification and services export diversification, greater cooperation among World Trade Organization (WTO) Members on trade matters could help revive economic growth, particularly in the current COVID-19 pandemic that has significantly plummeted it.Originality/valueTo the best of our knowledge, this is first study that has investigated this issue.

The Effectiveness of China's Foreign Trade Liberalization

Abstract This paper studies the ex-post trade effects of China's multilateral, regional and bilateral trade liberalization using augmented gravity and panel data estimation methods for the period 1995–2016. China's accession to the WTO was revealed to have had a significant impact on the volume of trade as well as on bilateral exports and imports. Regional trade agreements and the majority of bilateral trade agreements were found not to be effective in increasing China's foreign trade. Only the agreements with Chile, Costa Rica and Switzerland were effective in increasing China's trade volume. Moreover, the results for Chile were driven by increases in both exports and imports, while for Costa Rica and Switzerland only by increased imports from these countries.

Revisiting time as a trade barrier: Evidence from a panel structural gravity model

AbstractIn this paper, we revisit the evidence on the effects of time spent on border‐crossing procedures for international trade using a theory‐consistent structural gravity model. We exploit a rich panel dataset including domestic trade flows and employ a recent econometric estimator that exhibits favorable asymptotic properties for inference. The results indicate a significant negative effect of the time required for border procedures that is driven by the time needed for document preparation. We find that an additional day spent on those procedures corresponds to an ad valorem tariff equivalent of 0.4 percentage points. The parameters of our structural model are used to simulate three counterfactual scenarios, quantifying the effect of past and potential future trade facilitation efforts for middle‐, low‐, and high‐income countries. Full endowment general equilibrium effects suggest that in times of stagnating multilateral and bilateral trade liberalization efforts, unilateral implementation of trade facilitation carries the potential to induce an alternative stimulus for trade and welfare, especially for low‐ and middle‐income countries.

Multiregionalizm: porażka czy sukces Światowej Organizacji Handlu?

Przedmiot badań: Od lat w dyskusji ekonomicznej trawa debata, czy gospodarki powinny być bardziej skłonne do liberalizacji handlu na preferencyjnych zasadach regionalizmu handlowego, czy w oparciu o klauzulę najwyższego uprzywilejowania, promowany przez Światową Organizację Handlu (WTO). Współcześnie wszystkie kraje członkowskie WTO mają zawarte przynajmniej jed­no regionalne porozumienie handlowe (RTA). Przedmiotem badań są RTA, które z jednej strony wy­dają się konkurować z WTO, to z drugiej – mogą wspierać wielostronny system handlowy WTO.1
 Cel badawczy: Celem artykułu jest ocena zmian obserwowanych w tworzeniu się regionalnych ugrupowań handlowych i ich wpływu na wielostronny system handlowy. Badania skupią się na analizie RTA i odpowiedzi na pytanie, czy RTA odgrywają wyłącznie pozytywną (teoria Haberle­ra), czy może także negatywną (teoria Vinera) rolę w wielostronnej liberalizacji handlu.
 Metoda badawcza: Zastosowane metody badawcze obejmują przegląd literatury na­ukowej i raportów na temat regionalnych umów handlowych, statystyczną analizę da­nych ze źródeł wtórnych. Dokonano analizy zmian zachodzących w RTA pod względem ilościowym (liczba, dynamika), jakościowym (umowy dotyczące liberalizacji towarów i usług) i strukturalnym (zakres) na przestrzeni ostatnich dekad. Dane o RTA uzyskano z bazy danych WTO oraz danych UNCTAD.
 Wyniki: Z przeprowadzonej analizy wynika, iż kraje należące do WTO są jednocześnie powią­zane odrębną preferencyjną umową z jednym, bądź kilkoma innymi krajami. Multilateralna za­sada KNU jest osłabiana poprzez głębsze preferencje w ramach RTA, przez co multilateralizm handlowy traci na znaczeniu. RTA rozwijają się w sposób, który wykracza poza istniejące zasady wielostronne.

Multilateral Trade Liberalization and Democracy: Does Export Product Diversification Matter?

This paper explores the effect of multilateral trade liberalization (MTP) on democracy, using a set of 148 countries over the period 1996–2016. In particular, it investigates whether this effect depends on countries’ level of export product concentration. The analysis shows that MTP promotes democracy only when it reaches a certain threshold. Furthermore, MTP promotes democracy in countries that enjoy a high degree of export product diversification, including away from primary products, or in those with low dependence on natural resource rents. These findings have important policy implications.

International Trade Cooperation and Exogenous Economic Shocks in Developing Countries

This article explores whether the World Trade Organization (WTO), through its role of promoting multilateral trade liberalisation and mobilising greater financial resources (i.e., Aid for Trade [AfT] flows) in favour of the trade sector in developing countries, contributes to reducing the size of external economic shocks experienced by these countries. An empirical analysis is carried out using a sample of 111 countries over the period 1996–2016 and relying on the two-step system generalised method of moments (GMM) approach. The findings indicate that taken separately, multilateral trade liberalisation and AfT flows reduce the size of shocks. While the two factors are substitutable in negatively influencing countries’ size of shocks, it also appears that multilateral trade liberalisation always results in smaller shocks, irrespective of the amount of AfT that accrues to countries. JEL: F13, F14, F32, F35

Effects of Regional Trade Agreement to Local and Global Trade Purity Relationships

In contrast to the rapid integration of the world economy, many regional trade agreements (RTAs) have also emerged since the early 1990s. This contradiction has encouraged scholars and policymakers to explore the true effects of RTAs, including both regional and global trade relationships. This paper defines synthesized trade resistance and decomposes it into natural and artificial factors. Here, we separate the influence of geographical distance, economic volume, and overall increase in transportation and labor costs and use the expectation maximization algorithm to optimize the parameters and quantify the trade purity indicator, which describes the true global trade environment and relationships among countries. This indicates that although global and most regional trade relations gradually deteriorated during the period 2007–2017, RTAs generate trade relations among members, especially contributing to the relative prosperity of European Union (EU) and North American Free Trade Agreement (NAFTA) countries. In addition, we apply the network to reflect the purity of the trade relations among countries. The effects of RTAs can be analyzed by comparing typical trade unions and trade communities, which are presented using an empirical network structure. This analysis shows that the community structure is quite consistent with some trade unions, and the representative RTAs constitute the core structure of international trade network. However, the role of trade unions has weakened, and multilateral trade liberalization has accelerated in the past decade. This means that more countries have recently tended to expand their trading partners outside of these unions rather than limit their trading activities to RTAs.

Multilateral Trade Liberalization and Trade Tax versus Non-Trade Tax Revenue

Cet article examine l’impact de la libéralisation commerciale multilatérale (et non de la libéralisation commerciale nationale, largement explorée dans la littérature) sur l’ampleur de la diversification des recettes fiscales. Cette dernière est approximée par le ratio des recettes fiscales commerciales sur le ratio des recettes fiscales non-commerciales. L’analyse utilise principalement l’estimateur des effets fixes, sur un panel déséquilibré de 145 pays, couvrant la période 1995-2015. Les résultats montrent que la libéralisation commerciale multilatérale promeut la diversification des recettes fiscales, c’est-à-dire, qu’elle réduit le ratio des recettes fiscales commerciales aux recettes fiscales non-commerciales. En outre, les pays les moins avancés bénéficient plus que les pays relativement plus avancés de cet impact positif de la libéralisation commerciale multilatérale sur l’ampleur de la diversification des recettes fiscales. Par ailleurs, les pays fortement dépendant du secteur agricole enregistrent un effet plus important de la libéralisation commerciale multilatérale sur la diversification des recettes fiscales que les pays dont les économies sont moins dépendantes du secteur agricole. Ces résultats suggèrent donc qu’une réduction plus importante des barrières commerciales à l’échelle mondiale, notamment à travers une plus grande coopération entre les Membres de l’OMC pour promouvoir la libéralisation commerciale multilatérale, contribuerait à renforcer la diversification des recettes fiscales.

Aid for Trade Flows and Wage Inequality in the Manufacturing Sector of Recipient-Countries

The present article aims to contribute to the literature on the effectiveness of Aid for Trade (AfT) flows in recipient-countries by investigating the effect of these resource flows on wage inequality in the manufacturing sector of recipient-countries. The analysis has shown that AfT interventions help reduce wage inequality in the manufacturing sector of countries that liberalize their trade policies, enjoy greater trade openness, experience higher exports of labour-intensive, low-skill and high skill manufacturing products. Additionally, AfT interventions contribute to dampening the negative effect of export product concentration (for example on primary products) on wage inequality in the manufacturing sector. Finally, AfT flows reduce wage inequality in the manufacturing sector of countries that import manufacturing products (including machinery and transport equipment goods) or enjoy a greater extent of multilateral trade liberalization.

Does Trade Liberalization Improve Public Health? The Effect of Free Trade Agreements and Multilateralism in Pharmaceutical Sector in India.

Despite several economic reforms in India post-1991, millions of Indian households do not have access to drugs because they lack purchasing power or public health facilities. The present article critically examines the potential public health implication of trade liberalization to facilitate access to a variety of good quality drugs at affordable costs. Using the partial equilibrium model, the article suggests that multilateralism and free trade agreements (FTAs) both have a positive impact on welfare gains, consumer surplus, and trade volume in pharmaceutical industries in India. However, the study found that multilateralism is clearly associated with improved human welfare, particularly health. Multilateral trade liberalization should, therefore, be viewed in terms of its wider socioeconomic impact, rather than through the narrow lens of country-specific FTAs.

Free Trade Agreements in the World Trade System: Substance and Semantics

Over the past three decades, free trade agreements (FTAs) have become an integral and enduring part of the global trading system. The number of FTAs notified to the World Trade Organization increased from 19 in 1990 to 292 by January 2019.1 However, debate on the economic case for following the FTA path as an alternative to multilateral and unilateral trade liberalisation is far from settled. The purpose of this note is to assess key themes of this policy debate. The focus is solely on the economic rationale of FTAs, even though political considerations play a key role in the proliferation of FTAs. JEL Codes: F13, F15, F55

Multilateral trade liberalisation helps promote export product diversification: Trade tensions damage the prospects of the poorest economies

AbstractUsing a large panel dataset over a 20‐year period, this article explores the effect of multilateral trade liberalisation on export product diversification. Empirical results show that multilateral trade liberalisation is positively associated with export product diversification. However, less‐developed economies experience a greater positive effect than relatively advanced economies. This analysis suggests that if trade tensions reduce cooperation on trade matters among World Trade Organization members, it may hinder export product diversification in developing countries, and the poorest countries might be the most adversely affected.

Preferential trade agreements and antidumping protection

Are preferential trade agreements (PTAs) stumbling blocks or building blocks towards multilateral trade liberalization? We address this question by investigating the effects of the negotiation and implementation of PTAs on the use of antidumping (AD) (i.e., the most common form of contingent trade protection) by member countries against non-members as there has been a concurrent surge in regionalism and AD activity since the 1990s. Theoretically-derived empirical predictions are supported by the empirical analysis based on the 15 most intense users of AD. The results demonstrate that both the negotiation and the implementation of PTAs lead to fewer AD measures against non-member countries, except for members of customs-union agreements in force facing large import surges from non-members. Thus, our results highlight a building-block effect of PTAs on multilateral trade cooperation when it comes to AD protection.

Effect of multilateral trade liberalization on export performance in developing countries

PurposeThe purpose of this study is to examine empirically whether the impact of multilateral trade liberalization on export performance and export performance convergence in developing countries depends on the amount of Aid for Trade (AfT) flows that accrue to these countries. Export performance is measured by export of goods and services to gross domestic product ratio, whereas export performance convergence refers to the process whereby a developing country’s export performance catches up with the world’s average export performance.Design/methodology/approachThe analysis has used an unbalanced panel data set covering a sample of 97 developing countries, over the period 2002 to 2015. The two-step system generalized methods of moments has been used to address the question empirically.FindingsEmpirical results show that multilateral trade liberalization generates higher export performance and convergence in export performance in developing countries only when it is accompanied by higher AfT flows to developing countries, with a view of helping these countries enhance their trade capacity and reap the opportunities offered by multilateral trade liberalization in the international trade market.Research limitations/implicationsThese findings indicate that greater access to the international trade market is not sufficient to promote developing countries’ export performance and convergence in export performance. Such a promotion could materialize if multilateral trade liberalization is accompanied by higher AfT flows (to enhance these countries’ capacity to trade). The findings therefore indicate that the current context of escalation of trade tensions would likely result in lower degree of multilateral trade liberalization, and eventually lower AfT flows to recipient-countries, and ultimately hamper developing countries’ export performance and convergence in export performance.Practical implicationsThe findings therefore indicate that the current context of escalation of trade tensions would likely result in lower degree of multilateral trade liberalization, and eventually lower AfT flows to recipient-countries, and ultimately hamper developing countries’ export performance and convergence in export performance. An avenue for future research could be to perform the same analysis when data would be available over a longer time period. Future studies on the matter could also investigate whether the findings obtained apply to components of export performance, including for example manufactured exports and non-manufactured exports.Originality/valueMany papers related to the AfT effectiveness have looked at the effect of AfT inflows on recipient-countries’ export performance. However, little attention has been paid to the effect of multilateral trade liberalization on developing countries’ export performance and export performance convergence and particularly to whether this effect would depend on the amounts of AfT that would accrue to developing countries to help them develop their trade capacity. To the best of our knowledge, no previous paper has addressed this issue.

Does multilateral trade liberalization help reduce poverty in developing countries?

ABSTRACTThis article investigates the impact of multilateral trade liberalization on poverty in developing countries from a macroeconomic perspective. The empirical analysis suggests that multilateral trade liberalization is conducive to poverty reduction in developing countries. This outcome therefore suggests that greater multilateral cooperation on trade matters among countries, in particular the Members of the World Trade Organization, would allow further trade liberalization at the multilateral level to the benefit of poor people in developing countries.

Multilateral trade liberalization and developing countries’ economic exposure to shocks

PurposeThe purpose of this paper is to examine the impact of multilateral trade policy (MTP) liberalization on developing countries’ economic exposure to shocks.Design/methodology/approachThe analysis is conducted on a panel data set comprising 120 countries over the period 1996–2013 and uses the within fixed effects estimator.FindingsThe empirical results suggest that over the entire sample as well as sub-samples of least developed countries (LDCs) and non-LDCs, multilateral trade liberalization have a negative and significant impact on economic exposure to shocks. Interestingly, LDCs appear to experience the highest magnitude of the reducing impact of multilateral trade liberalization on countries’ economic exposure to shocks.Research limitations/implicationsThese findings suggest that a greater cooperation among countries in the world, including among WTO members to further liberalize trade would surely contribute to reducing developing countries’ economic exposure to shocks.Practical implicationsThe current study shows that the current backlash against trade and the consequent strong appeal for domestic trade protectionist measures would likely to undermine the likelihood of further multilateral trade liberalization. One implication of this could be a rise in countries’ economic exposure to shocks.Originality/valueTo the best of the author’s knowledge, this is first the study on this matter.

Some Common Lessons from Uncommon FTAs

The present study endeavours to observe the trade creation and trade diversion effects of three free trade agreements (FTAs) in Asia, namely, India–Japan CEPA (IJCEPA), India–Sri Lanka FTA (ISFTA), and India–Bhutan FTA (IBFTA). The article aims to evaluate three uncommon FTAs that include developing–developed, developing–developing and developing–least developed countries. The objective is to evaluate the effects of these FTAs on exports and draw lessons for both the contracting parties and for other economies to commence FTAs that promote trade liberalization. This paper also aims to debunk the myth that FTAs between developing-least developed countries is not beneficial for the developing or least developed counterpart. The study applies augmented gravity model to capture the trade creation and trade diversion effects. The results confirm that ISFTA and IBFTA have trade creation effect, while in case of IJCEPA, there is trade diversion. These bilateral agreements can open the ways for multilateral trade liberalization in the long-run. JEL : F10, F13, F14

Fiscal Space for Trade: How Could the International Trade Community Help?

This paper examines the issue of fiscal space for trade, proxied by countries’ public expenditure for the trade sector. It provides empirical evidence that improvement in countries’ overall fiscal space results in higher public expenditure for trade. Furthermore, by promoting multilateral trade liberalization, the international trade community (including the World Trade Organization, WTO) could help enhance countries’ overall fiscal space, which would in turn translate into greater fiscal space for trade. Thus, rising restrictive trade measures in the world would likely undermine the promotion of multilateral trade liberalization and affect countries’ capacity to fund the development of their trade sector.

CGEBox: A Flexible, Modular and Extendable Framework for CGE Analysis in GAMS

We present CGEBox, an open-source and open-access framework for regional and global Computable General Equilibrium analysis realized in the General Algebraic Modeling System (GAMS) software. It flexibly depicts different nestings in production and factor supply, supports different functional forms for demand and choices in modeling international trade sectors (Armington, Armington plus Constant Elasticity of Transformation to distribute supply, Melitz and Krugman model). Either a regional household approach or separate accounts for government and potentially multiple private households with related closures are available. Supply and factor markets can be dis-aggregated to sub-regions and an implementation for GTAP-AEZ is available. We compare the layout of different well-known global and single country CGE models and discuss to what extent our flexible framework can replicate these layouts. In a structural sensitivity analysis, we compare major results under multi-lateral trade liberalization and endowment changes in one country for different model configurations. These reflect important structural differences between the chosen examples as well as additional features such as the Melitz model or endogenous capital stocks driven by investments in a comparative-static setting. We find relative limited differences in global and regional welfare between models based on the Armington assumption, even if other features differ such as closures, nestings or functional form in demand. A discussion on further joint development of such a framework leads to our summary and conclusions.