Open Trade Policies Research Articles

Institutions and trade‐related inequality

AbstractTrade liberalization is famously known for both creating winners and losers via processes of dislocation, sectoral reallocation, and specialization. This paper studies the conditions under which excess “losers” are generated during the process of liberalization with a focus on the role of institutions in economic transition. I contend that poor institutions, in particular property rights and democracy, can create unnecessary hardship in the transition to greater openness, generating a much higher burden on compensatory policies and making it more difficult to sustain open trade policies. Using a new dataset of trade openness, economic inequality, and institutions, and using 3SLS estimation to account for endogeneity, the analysis finds that this is indeed the case: high property rights and more democracy appear to help to mitigate trade‐related inequality. Moreover, poor institutions create a downward spiral, with greater inequality leading to lower trade openness. These results imply that basic institutions can help to minimize losses sparked by globalization, while other well‐meaning policies can actually increase disruptions.

Trade-environment nexus in OIC countries: fresh insights from environmental Kuznets curve using GHG emissions and ecological footprint.

Being closely correlated with income and economic growth, trade openness impacts the environmental quality through different means. The study analyzes the robustness of the environmental Kuznets curve (EKC) hypothesis in OIC countries by examining the extent to which trade openness influence environmental quality through different environmental indicators for the period 1991 to 2018. A new methodology dynamic common correlated effects (DCCE) is applied to resolve the issue of cross-sectional dependence (CSD). We have used greenhouse gas (GHG) emissions, carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O) along with ecological footprint as indicators of environmental quality. Results of DCCE estimation identify a negative association of trade openness with CO2, N2O, and CH4, while the positive relationship with the ecological footprint in overall OIC countries and higher income OIC countries. On the other hand, trade openness has a positive association with all environmental indicators in lower income OIC countries. Our findings confirm that inverted-U-shaped EKC exists in all groups of OIC countries when CO2, CH4, and ecological footprint are used as environmental indicators. However, a U-shaped EKC exists in overall OIC countries and lower income OIC countries when N2O is used. Eventually, it is recommended that if OIC countries continue trade openness policies and energy sector reforms and maintain sustainable use of biocapacity; then, they will be able to combat environmental issues with the increase in income.

Does international trade competition influence candidates and voters? The case of Japanese Lower House elections

In this study, we explore the effects of regional exposure to manufacturing imports and exports on candidates and voters in national elections through panel data analyses, dealing with the possible endogeneity issues. We show that candidates tailor their stances toward trade policy in response to changes in local trade exposure. Increased manufacturing exports drive candidates to support relatively open trade policies; however, increased manufacturing imports do not influence candidates’ stances on trade policy. We also find that changes in local trade exposure influence citizens’ voting behavior. In districts with increased exports of manufacturing products, voters tend to cast ballots for parties that pledge to promote a free trade agreement as opposed to those that adopt a cautious attitude toward it. In districts that experience increased imports of manufacturing products, voters tend to support parties that are clearly opposed to establishing it. The economic issues related to international trade appear to be important to both candidates and voters in elections.

IMPACT OF TRADE OPENNESS ON ENVIRONMENT IN CHINA

The study investigates the impact of trade openness on pollution in China by applying wavelet-coherence analysis, phase-difference technique and Breitung and Candelon (2006) causality test. The estimated results provide some dynamic association between trade openness and pollutant variables. The results indicate that trade openness has increased pollution in China especially after 2001 when China became member of WTO. It suggests that “pollution haven hypothesis” exists in China. These results imply that trade openness has increased exports which has increased domestic production by increasing the scale of industries, which in turn has increased pollution in the country. The findings of spectral domain causality test show that trade openness causes carbon emission both in short, medium and long runs. It indicates that trade openness forecast carbon emissions in China. The results suggest that China should take suitable measures while following trade openness policy to avoid pollution.

FREE MARKET ECONOMY AND THE EFFECT OF MACROECONOMIC FACTORS ON GROWTH: THE CASE OF SOUTH KOREA

The aim of this study is to empirically analyze the impact of capital stock, employment level, human capital, total factor productivity, openness policy, government spending and household consumption on growth in South Korea between 1965 and 2017. Because of this reason, regression analysis was performed in the time series to observe the effects of variables. We have been reached that the effect of trade openness policies on growth was insignificant among the independent variables at the result of regression analysis. The other results have shown that total factor productivity, labor, and capital have the greatest impact on economic growth, while the variables with the smallest impact are public expenditures, consumption expenditures, and human capital, respectively.

Trade Liberalization, Economic Reforms and Foreign Direct Investment – A Critical Analysis of the Political Transformation in Vietnam

The purpose of this study is to discuss the trends of integration into the global economy since political and economic reforms (so-called Doimoi) and its influence on every presence of foreign investment in Vietnam. Lasting 20-year-war period and ended in 1975, by the mid-1980s per capita income was stuck between $200 and $300, Vietnam’s government introduced Doimoi through a series of reforms, and steered the country to be a socialist-oriented market economy. Based on the analysis of reform process and integration, the results are concerned. Our results demonstrate that foreign direct investment performance has significantly embraced trade liberalization with gusto. Further, the open trade policy in relation to FTAs could significantly promote foreign investment and maximize its benefits on the economy.

Australian Trade Policy in the Twenty‐First Century

AbstractIn the 1980s and 1990s, Australia moved from a protectionist trade policy to very open trade policies. This paper analyses the evolution of these policies in the twenty‐first century: first signing bilateral agreements in the 2000s and then participating in negotiation of mega‐regional agreements (TPP/CPTPP and RCEP). To some extent these shifts have reflected stasis in the World Trade Organisation (WTO) and its inability to make agreements on new areas. Underlying drivers of Australia's beyond‐WTO trade agreements have been the fragmentation of trade along global value chains and the emergence of new trade technologies associated with the spread of the internet.

How Can We Explain Regime Type Differences If Citizens Don't Vote Based on Foreign Economic Policy?

Abstract Political economy research shows that more democratic governments generally have more open trade policies with more flexible exchange rate regimes, yet political behavior theory argues that citizens do not think of foreign economic policy as salient and do not cast their votes considering such issues. This note investigates the puzzle about how democracies could have different foreign economic policies than autocracies if citizens do not vote based on these international issues. Using a political model with two possible ways for societal actors to influence state policy (electoral and/or special interest pressure), it first considers how voting based on salient domestic outcomes like inflation and unemployment may lead democratic governments towards more open trade and flexible exchange rates. Second, if more societal groups are able to lobby as special interests in more democratic regimes, then governments may also be pushed toward these same foreign economic policies. Thus, there is no fundamental contradiction between the political economy empirical results and the political behavior theory, although scholars need to adjust their theories to explain foreign economic policy differences across political regime type.

THE DETERMINANTS OF ETHIOPIA�S BALANCE OF PAYMENTS: AN EMPIRICAL ANALYSIS

ABSTRACT Ethiopia has been gradually depreciating its currency, birr to make its products competitive and to stimulate them to the global market. Though Ethiopia has persistently depreciated its currency for the last twenty years, it has experienced chronic difficulty balancing its payments. Initially using the elasticity, absorptive, and monetary approach, the study attempted to investigate the determinants of Ethiopia’s balance of payments. Then, by interlinking the most statistically significant predictors of the elasticity, absorptive, and monetary approach into one regression equation, the study used ordinary least square (OLS) analysis techniques to investigate the determinants of Ethiopia’s balance of payments for the period 2000-2018. Negating the elasticity approach, the results of the OLS analysis failed to explain the relationship between currency devaluation and Ethiopia’s balance of payments. However, the variable, open trade policy (that is, lower tariffs, quotas, and subsidies) indicated that even in trade liberalization policy that the country followed, Ethiopia’s balance of payments showed a significant deficit. Based on the absorptive approach, the data indicated a positive relationship between domestic investment expenditure and Ethiopia’s balance of payments. That is, from 2000-2018, Ethiopia’s domestic investment expenditure exceeded its national income (GDP). Finally, contrary to the assumptions of monetary approach, the data indicated that marginal increase in foreign exchange reserves created significant negative effects on Ethiopia’s balance of payments. Overall, the study indicated the significant determinants of Ethiopia’s balance of payments included open trade policy, domestic investment expenditure, and foreign exchange reserves. According to the availability of data the study is limited to 18 years (2000-2018).The policy implies that dis-equilibrium in Ethiopia’s balance of payments could be reasonably handled through the generation of potential new businesses, validation of the new products in the global market, and the proper management of accumulated convertible foreign exchange reserves generated from exports, foreign assistance, and remittance. Keywords Balance of payments, Currency Devaluation/Appreciation, Elasticity, Absorptive, Monetary determinants

To create sustainable seafood industries, the United States needs a better accounting of imports and exports

Global seafood trade nearly doubled in recent decades, fueled by decreasing transportation costs, advances in preservation and processing technologies, and open trade policies and is now among the most highly traded commodities (1). The United States is currently the world’s top seafood importer and among the top five exporters (2). It is often quoted that 90% of seafood consumed in the United States is imported, implying only 10% is of domestic origin. Over the past decade, this statistic has been widely shared and highlighted with more than 60 news articles quoting it annually since 2014 ( SI Appendix , Fig. S1), and it is increasingly used to support proposed policy changes. In recent years, the former US Secretary of State, current US Secretary of Commerce, and members of Congress have all cited the number to call for new policy measures addressing seafood sustainability and dependence on foreign seafood (Fig. 1). Fig. 1. A better accounting of the globalized seafood supply chain will help support the US seafood industry, achieve sustainable production, and meet consumer demand. Image credit: Allison Horst (University of California, Santa Barbara, CA). However, we argue that far more than 10%, likely 35–38%, of seafood consumed in the United States is of domestic origin. Precise estimates are difficult because of complex supply chains: for instance, some seafood caught in the United States is exported for processing and imported again under a different trade code for consumption in the United States. Such globalized supply chains are commonplace with many products relying on numerous foreign inputs and crossing international borders multiple times. For example, beef production between the United States and Mexico can involve multiple exchanges of calves, adults, and final products (3). These counterintuitive patterns are created by low tariffs and transportation costs that allow producers to optimize for favorable interest rates … [↵][1]1To whom correspondence should be addressed. Email: jgephart{at}sesync.org. [1]: #xref-corresp-1-1

Role of Education in Economic Development of Pakistan

Education is considered to play a key role in the economic development of any country because, it is the mechanism through which knowledge, skills and experience regarding different fields can be acquired and ultimately creating the comparative advantage for the country. Hence, the researcher of the study decided to investigate the role of education through the research scholarship in terms of human capital, labor productivity, family, national trade and social equality in order to find out their contribution in the economic development of Pakistan. Hence, the researcher while delving into the matter amazingly found that human capital through the accumulation of new knowledge, ideas and technological know-how, labor productivity enhancement through the effective and efficient human resource, trade openness policy through tariff reforms in order to increase export, the key role of family, as the individuals make decisions at that level, creating social equality through re-distributive policies, all can play their contributory role in the economic development of Pakistan. Keywords : Economic Development, Pakistan, Education DOI : 10.7176/JESD/10-10-18 Publication date :May 31 st 2019

Trade Openness, Inclusive Growth, And Inequality: Evidence From Jordan

This study examines the impact of trade openness, poverty, and inequality on inclusive growth in developing economies, taking Jordan as an example. Using panel data from 1990 to 2015, it examines the relationship between trade openness policies, growth rates, poverty, and income inequality in various provinces of Jordan. The empirical analysis assesses whether trade openness policies and reforms have enhanced income equality, and reduced poverty across provinces. Further, within the framework of inclusive growth, the study explores how per capita income growth has changed after trade openness reform. Different econometric techniques, such as the generalized method of moments, fully modified ordinary least square, and dynamic ordinary least square, are employed to assess the relationship between trade openness, poverty, inequality, and inclusive growth. To determine the univariate properties of the series under investigation, two panel unit root tests, based on Levin, Lin and Chu (2002) and Hadri (2000), are implemented. Both aggregate and provincial level panel data are used. Furthermore, two panel cointegration tests are employed—Kao (1999) and Pedroni's (1999) residual cointegration-based tests. The empirical results show that trade openness has a positive and significant effect on inclusive growth, though it is substantially weakened by poverty and income inequality at the national and provincial levels. This inequality is the likely cause for the small contribution of trade openness to inclusive growth. The effect of trade on inclusive growth is significantly positive for all provinces, but the contribution of trade openness varies according to local and provincial factors. Consequently, this study recommends better policies for promoting sustainable and inclusive growth—policies that amend inequality and reduce poverty are more likely to enforce the positive effect of trade openness on inclusive growth. Finally, the study contributes to existing literature, and assists local and international policymakers in understanding the effect of trade openness on inclusive growth at the country and provincial levels. To the best of our knowledge, this is possibly the first attempt to analyze inclusive growth in Jordan.

Foreign Investments in Development, does it really matter? An analysis under Pakistan’s Perspective

Foreign investments’ (F.D.I) remains a ‘substantial element’ in the economic development of developing nations, such as Pakistan. In recent times, the F.D.I received a greater consideration as a growth accelerating catalyst in the developing economies. As the F.D.I assists a country in terms of better technology, transfer of skills and the much-required money for development. Studies validate the relationship between the F.D.I and ‘Gross domestic Product’ (G.D.P) with empirical findings. Study uses longitudinal data for the past 21 years, from 1996 till 2016 in order to investigate the effect of F.D.I on the economic development of Pakistan. Apart from F.D.I, other variables such as Political stability, terrorism and Trade openness too included in this study. A ‘least square technique’ is smeared to empirically test impact of ‘independent variables’ on G.D.P. Results demonstrates F.D.I puts a positive impact in the ‘economic growth’, and it is apparent with the help of statistics that there is a greater F.D.I impact whenever there are open trade policies in the country. Keywords: G.D.P, F.D.I, Trade Openness, Terrorism, Political Instability, Capital accumulation, Capital investments, Capital stocks, International economics, Time series, Time series analysis, Growth capital, Emerging technology DOI : 10.7176/PPAR/9-2-08

FDI and Trade Policy Openness in Sub-Saharan Africa

Trade openness is an important determinant of Foreign Direct Investment (FDI) inflows into Sub-Saharan Africa (SSA). Consequently, studies have examined the relationship between FDI inflows and trade openness. This study develops a new measure of trade openness to re-examine the relationship between FDI inflows and trade policy openness using principal component analysis. This new measure captures the ease of trading activities and trade tariffs. Dynamic panel estimation technique was employed to analyze the relationship between trade policy openness and FDI inflows in SSA countries. The results indicate that an open economy attracts FDI. The study recommends efforts at reducing cost of trade.

Managing rapid change and rapid-growth in emerging industries

Increasingly, competitiveness is not an option for firms that seek to survive and grow in the interconnected world. Countries and industries are facing an unprecedented change in their business structures with new young and dynamic firms reshaping old business models as smaller firms are internationalising successfully. They are not only entering developed economies; but also in emerging economies due to globalisation, removal of barriers and open-trade policies. At home, they are becoming the drivers of jobs and wealth creation and innovation. We posit that emerging industries are also affected as rapidly-growing enterprises (RGEs) change and challenge industry's operating environments. In developed economies RGEs are dynamic, take advantage of newly-emerging or fragmented markets to deliver higher values in spite of their constrained resources. In the emerging economies, the dynamism and liberalisation of international markets are changing the relative values of resources and increasing the importance of becoming a learning organisation for which RGEs offer an excellent model. The paper presents a theoretically based framework to facilitate and guide the transition. A discussion in the conclusions explores implications and suggests public policy recommendations.

IMPACT OF FOREIGN DIRECT INVESTMENT, IMPORTS AND TARIFF DEREGULATION ON EXPORTS AMONG PIONEERING ASEAN MEMBERS: PANEL DATA ANALYSIS

Following the successful development of the first-tier Newly Industrialized economies of South Korea and Taiwan, governments have gradually moved from import-substitution policies to export-led or export-led import substitution policies. The Association of Southeast Asian nations are no exception as the rapid pace of trade liberalization has been referred to as the prime driver of economic growth in these countries. While the industrial policies of these countries may not be as effective as those of the first-tier NIEs, the pioneering ASEAN members of Indonesia, Malaysia, Philippines, Singapore and Thailand have enjoyed rapid growth and structural change since the 1970s. Indeed, Singapore’s per capita income has remained higher than that of South Korea and Taiwan. Indonesia, Malaysia, Philippines and Thailand became middle income countries by the turn of the millennium. Hence, using panel data over the period 1970-2015 this paper seeks to analyze the influence of foreign direct investment, imports and tariff deregulation on export growth among the five pioneering ASEAN members. The results show that open trade policies in general and increases in FDI, imports and tariff deregulations has helped the ASEAN-5 stimulate exports. Keywords: Exports; Foreign direct investment; Imports; Tariffs; ASEAN.

Effective Complementary Policies to “Aid for Trade” to Enhance Pro-Poor development strategy in Africa

Poverty reduction is one of the main reasons taken into consideration within successive governments all over the world. Economic development and poverty reduction need consistent policies between recipient, donor countries and other international actors. Accordingly, the WTO started focusing on trade-related technical assistance for the least-developed countries (LDCs). Even though WTO is not a development agency, it tries to ensure that trade openness policies work together with development assistance mechanisms effectively as a requirement. This led to launching various technical assistance and capacity building programs on both bilateral and multilateral levels. Aid for Trade (AfT) agenda is considered one of these programs that enable developing countries to benefit from trade liberalization. In many cases, these programs fail in reducing poverty in recipient countries. This paper tests the hypothesis that AfT programs help remove poverty in African countries as well as determines the efficient components of complementary policies. This hypothesis is tested using annual data for 48 countries within 1996-2014. The results of this paper confirms the previous studies that trade openness harms the poor and that AfT was insignificant in reducing poverty. This paper suggests that the coordination between donors and recipients is required. Additionally, AfT programs in African countries need to be supported with some activities that would help them benefit from the integration in world trade.

Is Mercosur promoting trade? Insights from Argentinean wine exports

As a consequence of the rapid and significative decrease in domestic demand, to avoid structural surplus traditional wine producing countries have been forced to export a growing share of their wine production. This article empirically investigates Argentinean trade policy on the wine sector over the last years, in order to understand its effect on export flows. An expanded gravity model was estimated through a Poisson pseudo-maximum likelihood estimator, in order to account for heteroskedasticity. The data used refer to Argentinean exports of bottled wine to all main world importers during the period 1997-2010, and account for more than 90% of total trade flows. Our results show that Mercosur membership has promoted Argentinean wine exports to other Latin American countries, but may as a whole have been counter-productive. A more open trade policy could increase Argentinean bottled wine exports by more than 5.8%. In addition, given the rise in wine importation and consumption in countries with high tariff barriers, such as China, the small number of free trade agreements could penalize Argentinean exports even more in the future.

A Framework of Trade Policy for Bhutan Compatible with the Gross National Happiness

Bhutan highly values psychological aspects of social welfare and well-being by setting requirements for satisfying the threshold of the gross national happiness (GNH) index in making national policy decisions. The GNH index, however, includes factors that are seemingly unfavorable to an active trade policy. One of the most urgent tasks facing Bhutan is to improve general living standards, especially the creation of decent jobs for the young. The country needs to benchmark successful development strategies in other countries, and to recognize that no country can develop an economy without an open trade policy. This paper discusses the relationship between the GNH and trade policy, and tries to analyze trade policy issues of Bhutan: inclusive growth, trade facilitation, incidence of tariffs, and World Trade Organization accession. It explores trade and industry policy that is compatible with the GNH guidelines. It also points out that the structure of the Bhutanese government is less oriented to trade policy than its neighbors, and suggests a new organization for promoting a more active trade policy. It concludes by underlining the importance of an active trade policy for Bhutan.

Rand volatility and inflation in South Africa

The floating exchange rate regime, coupled with a more open trade policy and the growth in imports, leaves South Africa vulnerable to the effects of exchange rate behaviour on import, producer and consumer prices, which all contribute to inflation. Given the central role that inflation targeting occupies in South Africa’s monetary policy, this paper examines the effect of exchange rate shocks on consumer prices using monthly data covering the period January 1994 to December 2013. Consistent with developing countries story, results show a modest exchange rate pass-through to inflation, although inflation is mainly driven by own shocks. The variance decompositions also reveal that foreign exchange rate shocks (REER) contribute relatively more to inflation than money supply shocks (M3). This suggests that South African inflation process is not basically influenced by money supply changes. The practical implication is that that the volatility of the rand is not a serious threat to inflation. The SARB should therefore focus on price stability and not be unduly worried about the volatility of the rand.