Trade Diversion Research Articles

The threshold effect of export sophistication on natural resources-trade diversification nexus

This study is an investigation into the influence of export sophistication on the complex nonlinear relationship between natural resources and trade diversification. It aims to explore if export sophistication’s threshold value affects the relationship between natural resources and trade diversification. A panel data of 106 nations was collected for the period of 2000–2018. This study develops its dynamic panel threshold model estimated with the difference GMM model. Our results reveal that natural resources and trade diversification have an inverse U-shaped relationship which is mediated by export sophistication. It implies that abundant natural resources, which give access to various markets, might assist trade diversification in nations with low export sophistication. However, in highly developed economies, resource wealth may prevent trade diversification since horizontal specialization patterns result in high prices, restricting market accessibility. The results of the study also explain the complex interactions between resources abundance, export sophistication, and trade diversification and offer critical insights for effective management of natural resources in emerging and industrialized economies. The study confirms the “resource curse” and the Dutch Disease effect, which demonstrates the means to deal with economic issues through the export sophistication. The research makes useful contribution to the existing literature on economic development and resource management by adding the dynamic threshold model and enhancing the robustness to the existing understanding on the issue.

The Role of Trade Agreements in Trade Creation or Trade Diversion: A Case of Pakistan

International Trade agreements are the source of trade creation or trade diversion. In the case of trade creation, it helps to rapid, sustainable economic development. This study assesses the trade creation and diversion effect for the notified trade agreements of Pakistan. This manuscript is based on an augmented gravity model with robust theoretical multilateral resistance terms. The model analyzes the impacts of trade agreements by using panel data over a period from 1962 to 2020. Making use of Poisson Pseudo maximum likelihood (PPML) family models with fixed effects, time-specific and dummy variables, it removes the issues of Jensen’s inequality E(lnXij ) ≠ lnE(Xij), heteroscedasticity, and zero-trade errors. This study's outcomes confirm that the trade agreements of Pakistan positively impact trade and exports. It can be concluded from this study that notified trade agreements of Pakistan are a source of trade creation. It further suggests that Pakistan should continue to pursue trade agreements with countries with complementary economies and focus on previously signed mutual agreements that are still not in force.

Costs and Benefits of Regional Connectivity: An Analysis from Bangladesh Perspective

Aims: This paper aims to investigate the costs and benefits of regional connectivity in Bangladesh from the economic perspective through using the analytical tools of benefit-cost analysis.
 Study design: The study is conducted based on forecasted secondary data from different related published sources. A qualitative stakeholder survey is conducted to evaluate the intended impact of regional connectivity on the economy of Bangladesh.
 Methodology: The study uses qualitative research tools to assess the impact of bilateral or multilateral connectivity and uses the tools of benefits-costs analysis (NPV, BCR, and IRR) applied to evaluate the effectiveness of regional connectivity from bilateral and multilateral perspectives. Our key hypothesis is that ‘regional connectivity improves benefits’.
 Results: The study shows that Bangladesh can gain from connectivity. However, gains from regional connectivity, especially, bilateral connectivity is very sensitive to the changes in the variables particularly, transshipment charge, volume of transshipment, and cost of building physical infrastructure. With modest values of the parameters, we find that connectivity generates a positive net present value, if Bangladesh can charge rationally against the cost of building infrastructure. From the stakeholders’ point, connectivity is beneficial, particularly multilateral connectivity generates more net benefit than the bilateral connectivity. Besides, the economic costs, the security concern can play a big effect on the social cost of such connectivity. Meanwhile, grave concern is aired on incurring a huge project cost, if Bangladesh implements the project with a higher interest tide loan from India. Moreover, the imposition of congestion fees, water pollution, and traffic fees derive the benefit from transit facilities.
 Conclusion: The net gains from regional connectivity depend on trading patterns’ transshipment of goods, trade creation, and trade diversion among the partners through the connectivity process. Bangladesh needs to adopt gains-optimizing strategies for fixing the direct and indirect fees. Bangladesh should prioritize the silk-route connectivity more than the Asian Highway to attract FDI and sunset industry from China.

How trade diversification affects resources sustainability in China: Exploring the role of institutional quality and environmental policies uncertainty

Natural resources are imperative to foster economic progression; however, unsustainable resource allocation elevated natural resource depletion and drastic environmental menaces. Besides, the worldwide COVID-19 pandemic has emerged as a worldwide uncertainty that dampens economic performance, whereas the economic recovery from the pandemic intensifies resource exploitation. Manifestly, China has attained tremendous economic progress in the last few decades, but unremitting and intensive resource consumption triggers the material footprint (MF) in China. Therefore, evaluating the mitigating factors to inhibit MF is essential. This study elucidates the impact of trade diversification (TD), institutional quality (IQ), ecological regulation (ER) and economic uncertainty (EPU) on MF in China from Q1-2000 to Q4-2021. The autoregressive distributed lag (ARDL) approach is employed to investigate the short and long-run model's relationship. The unit root testing affirms the stationarity conditions of variables at the first difference, while the bound ARDL co-integration test endorse the long-run co-integration association. The findings exhibit that TD, IQ and ER reduces MF, whereas the EPU significantly derives MF. Short-run parameters echoed identical outcomes with lower magnitudes, and the co-integrating term significantly converges the model to a long-run equilibrium position with 65.7% per annum. Overall the research offers stringent and resilient-ecological policies to diversify the trade basket and develop a sound institutional structure to decrease the uncertain global shocks and resource inefficiencies.

Assessing the Effect of Joining the World Trade Organization on Trade Performance: A Study of CIS Countries

This research delves into the impact of World Trade Organization (WTO) membership on trade dynamics in the Commonwealth of Independent States (CIS) region, focusing on the potential augmentation or diversion of trade resulting from CIS countries’ WTO accession. The study context is grounded in the interplay between regionalism, represented by regional trade agreements and historical connections, and global integration facilitated by WTO membership. The study also scrutinizes the potentially complicating role of the Eurasian Economic Union (EAEU) regional bloc, referencing the ‘Spaghetti Bowl’ phenomenon of overlapping trade agreements. The gravity model of trade serves as a conceptual foundation to understand the effects of WTO membership and regional trade agreements on trade costs. Empirical results suggest that WTO membership has not enhanced trade for the CIS. Instances of trade within the CIS region where there is only one WTO member have resulted in a positive trend, even though there is no robust evidence that it is due to WTO membership. The EAEU enhances trade and serves as a trading bloc within the region. This study highlights that while the WTO strives to foster trade liberalization and growth, its effects can be region-specific and complex, as demonstrated by the CIS region’s experience. The research also hints at the importance of intra-regional trade and unique regional factors as critical determinants of trade patterns, which can enhance broader trade expansion and economic development.

Deliberate Surrender? The Impact of Interwar Indian Protection

Abstract What is the role of trade policy in promoting intra-Empire trade? We address the question in the context of interwar India, whose trade policies have been accused of harming British export interests. We quantify the impact of trade policy on the value and composition of Indian imports, using novel disaggregated data on both trade policies and imports for 114 commodity categories coming from 42 countries. We find that, even though Indian protection lowered total imports, it substantially boosted imports from the United Kingdom. Despite the rising tariff barriers facing British exporters, trade diversion from other countries ensured that Indian trade policy benefited them overall.

Finance and export diversifications Nexus in Russian regions: Role of trade globalization and regional potential

We investigate if financial development (FD) can reduce the export concentration in regional context, corroborating the role of the World Trade Organization (WTO) membership, sanctions and investment potential. Given the considerable heterogeneity in data across regions and over time, we apply the Method of Moments Quantile Regression (MMQR) to analyze panel time-series data from 2009 to 2019. Our finding shows that bank credit disbursement as a proxy of FD drives export diversification in all quantiles (q10-q90), where the role of FD is pronounced at middle to higher quantiles. Besides, the impact of financial development on trade diversification is profound in the regions with higher business potential compared to the lower business potential. We affirm that the adaption of WTO membership elevates trade diversification through promoting competitiveness and providing nascent exporting sectors opportunities to grow. Surprisingly, the economic sanctions imposed in 2014 promoted Russian regional trade diversification. We provided several practical policy implications.

Aggregating an economic model and GIS to explore trade potentials of India-Caspian countries and a way forward for INSTC

The Caspian countries have a crucial role in new trade scenarios for India as it constantly steers towards its trade diversification and expansion. With the establishment and expansion of INSTC (International North South Transport Corridor), the importance of Caspian countries (Azerbaijan, Iran, Turkmenistan, Kazakhstan, and Russia) has increased. INSTC is also seen as a gateway to Central Asia. It is, therefore, of utmost significance to estimate the trade potential of the aforesaid with India adopting novel methods and techniques with giving due attention to the role of INSTC. The objective of the present study is to examine the role of INSTC in the light of geographical background and in promoting Indian trade. The study also attempts to analyze past trends of Indo-Caspian trade potential. A profound gravity model is developed to estimate India-Caspian countries' recent pattern of trade potential. Population, GDP, trade, and service area of the countries' ports are taken as influencing variables in modelling the trade potential and their statistical significance is estimated using ordinary least square method. The integration of GIS based network analysis and service area modelling is performed first time for estimating trade potential as it represents the port's connectivity to the hinterland. The findings of the gravity model postulate that recent years have been full of changes where Iran has lost its dominance, and Azerbaijan has risen to capture the top position from 2015 to 2020. Steady growth has been observed in Russia and sudden growth in Azerbaijan. The present study is a standalone in which the service area of ports has been used and has a positive relation with trade.

Nepal-India Trade: Pre and Post Globalization Comparisons

Nepal and India have trade relations since pre historic age. The pattern of trade between these two countries has not remained same from prehistoric age to the current period. Nepal and British India signed first treaty of commerce in 1st March, 1792. Nepal’s had trade surplus with British India before both the countries signed a treaty of friendship on December 21, 1923 AD. Nepal’s trade deficit with India has been increasing. Nepal introduced country-wise and commodity-wise trade diversification initiatives to raise its export to India and lessen its reliance on India in international trade. Nepal has brought several reformations in trade policies though after 1991 when it liberalized its economy for increasing export and reducing volume of trade deficit. This study compares India-Nepal trade in past before down of democracy in Nepal, in between 1950 to 1990 and after 1990 in order to analyse effects of various trade treaties and policies in Nepal-India trade. It uses historical-analytical method using secondary sources of data to carry out the study. It covers data from 1900 AD to 2020/21. The study finds that various revisions in trade treaties between Nepal and India and trade reformation policies have not been effective in increasing export of Nepal, its trade deficit and dependency in India.

Trade diversion effects of the US–China trade war on Vietnam

AbstractThis paper empirically examines the US–China trade war that began in mid‐2018, focusing on the impact on a third country, Vietnam. Using regression analysis, we found that while the trade war had a negative impact on US imports from China for all targeted products, there was a partial offset from increased imports from other countries. Notably, US imports from Vietnam experienced a sharp increase, particularly after the third round of US import tariffs on Chinese goods. Additionally, our research reveals that the four rounds of tariff escalation affected US imports from China differently depending on their end‐use and technology intensity.

Free trade and carbon emissions revisited: The asymmetric impacts of trade diversification and trade openness

AbstractIn the context of trade protectionism impacting economic and environmental sustainability, a more comprehensive understanding of the impact of trade on carbon emissions is critical to economic and environmental sustainability. Existing literature mainly explores the impact of trade on carbon emissions from the perspective of trade openness, neglecting the perspectives of trade diversification and trade direction. This study aims to fill this gap by investigating the impact of trade openness (measured by trade volume, import, and export), and trade diversification (measured by import diversification and export diversification) on carbon emissions based on data from OECD and G20 countries between 1997 and 2019. The study further explores the heterogeneity, asymmetry, and mediation effects. The results demonstrate that (i) the impact of trade on carbon emissions is heterogeneous, with trade openness leads to an increase in carbon emissions, while trade diversification leads to a reduction in carbon emissions. Moreover, import diversification has the strongest effect on reducing carbon emissions. (ii) The impact of trade openness on carbon emissions is asymmetry. Trade openness increases carbon emissions at 10%–50% quantile levels and reduces carbon emissions at 80%–90% quantile levels. However, the impact of trade diversification on carbon emissions is consistent. (iii) The impact of trade openness on carbon emissions is mediated by technology effect and structural effect. On one hand, trade openness leads to an increase in carbon emissions by the industrial structure. On the other hand, it contributes to the reduction of carbon emissions by technological progress. These findings could serve to better understand the complexity of free trade's impact on economic and environmental sustainability.

Pak-Afghan Bilateral Trade:

Afghanistan and Pakistan are located at the junction of Central Asia and South Asia. Owing to geographical contiguity, common border, common culture and similar consumption patterns, bilateral trade between the two countries should have increased with the passage of time, in line with the assumptions of the Gravity Model of international trade. However, it has been observed that during the period 2012-2018, bilateral trade between the two countries has either stagnated or declined. There are various causes responsible for the declining trends in trade where this study uses both quantitative and qualitative evidences as primary and secondary data. The gravity model of trade was estimated by using random effect estimation technique for panel data set (secondary data). Furthermore, the trade potential was estimated which shows that Pak-Afghan trade is operating below potential level. For qualitative evidences, the input of the actual stakeholders (primary data) including traders, transporters, clearing agents and customs officials was taken and analyzed. The finding of the study shows that Pak-Afghan trade is operating below the potential level and is not in line with GMT. Similarly the non-tariff barriers (NTBs) for Pak-Afghan bilateral trade have resulted in trade diversion to Afghanistan’s trade with India, Iran and Uzbekistan.

The Impact of Animal Disease Outbreaks on China’s Meat Imports

ABSTRACT We assess the effect of three animal disease outbreaks on China’s meat imports from 1992 to 2017, namely foot-and-mouth disease (FMD) for swine, bovine spongiform encephalopathy (BSE) for cattle, and highly pathogenic avian influenza (HPAI) for poultry. Using system-GMM and FGLS estimators, we find that outbreaks of animal diseases in exporting countries reduce China’s import of the meat products. Additionally, we find positive trade diversion and substitution effects in both FMD and HPAI but negative effects in BSE. Although these results indicate that China can accommodate its meat consumption needs through international trade now, we are skeptical that it can continue to do so if animal husbandry practices do not improve in China. This calls for major meat exporters to improve production efficiency and reduce the prevalence of animal diseases. With increasing environmental pressure and high dependency on imported feed caused by the expanding livestock sector, we recommend a sustainable diet by encouraging less consumption of meat.

Discovering the role of trade diversification, natural resources, and environmental policy stringency on ecological sustainability in the BRICST region

Understanding the role of trade diversification, natural resources, and environmental policies is crucial for achieving ecological sustainability. By unraveling the interactions between these factors, we can identify strategies to minimize the negative environmental impact of resource-dependent economies while fostering sustainable trade patterns. This research aims to bridge the gap by examining the influence of trade diversification, natural resource rent, environmental stringency policy, renewable energy resources and economic growth on the ecological footprint of BRICST (Brazil, Russia, India, China, South Africa, and Turkey) countries from 1995 to 2021. The advanced panel-based technique Method of Moments Quantile Regression (MMQR) is deployed, followed by robustness estimators. The outcome implies that natural resource rent and economic growth pose environmental stress at several quantiles of ecological footprint. Conversely, trade diversification, renewable energy consumption and environmental policy stringency mitigate the adverse effects of industrialization in the BRICST nations. Manifestly, the impact of trade diversification is increasing from lower to higher quantiles while the influence of environmental policy stringency is decreasing on the conditional quantiles of ecological footprint. The study provides effective policies to save the quality of the environment in the BRICST region.

Collective Resilience: Deterring China's Weaponization of Economic Interdependence

Abstract Since the 2010s, China has used economic coercion against Western and Asian states to achieve territorial and political goals. China's leveraging of its market is a form of “predatory liberalism” that weaponizes the networks of interdependence created by globalization. The United States and other like-minded partners have mostly used piecemeal “de-risking” measures such as decoupling, supply chain resilience, reshoring, and trade diversion to reduce dependence on China and thereby minimize vulnerability to its economic coercion. But these practices do not stop the Chinese government's economic bullying. “Collective resilience” is a peer competition strategy designed to deter the Xi Jinping regime's economic predation. What informs this strategy is the understanding that interdependence, even asymmetric interdependence, is a two-way street. Original trade data show that the previous and current targets of economic coercion by the Xi Jinping regime export over $46.6 billion worth of goods to China on which it is more than 70 percent dependent as a proportion of its total imports of those goods. These target states could band together in a collective resilience alliance and practice economic deterrence by promising to retaliate against China's high-dependence trade should Beijing act against any one of the alliance members.

Trade Destruction and Trade Diversion of Indian Anti-dumping Duties Against Bangladesh

In this study, we investigate Indian anti-dumping (AD) duties imposed on eight products (Harmonized System classification) from Bangladesh over the period 1998–2020. Using the Poisson pseudo-maximum likelihood method, panel regression analysis is applied to examine the relationship between Indian AD duties and goods imported from Bangladesh. Our results provide weakly suggestive significant evidence of trade destruction in the full sample, though statistical significance is enhanced for all product groups other than lead-acid batteries at the product-level investigation. We also provide suggestive evidence for trade diversion from AD duties. Overall, our results show Indian AD duties to be correlated with a decrease in imports from Bangladesh, and an increase in imports of goods from other, unnamed countries. This suggests that India’s protectionist measures may have been ineffective in protecting local producers, as any adverse effects of protectionism on Bangladesh may be offset by import diversion to other foreign suppliers. We also discuss the policy implications of these findings.

Analysing Trade Creation and Trade Diversion effects in ECOWAS Regional Trade Agreement

Aim/Purpose – The study focuses on trade creation and trade diversion effect in the Economic Community of West African States (ECOWAS) regional trade agreement. It examines if the ECOWAS regional trade agreement has brought about trade creation and/or trade diversion before the period of ban on certain items of importation by the Nigerian government as against the terms of the agreement. 
 Methodology – The study uses augmented gravity model. Estimations were carried out on bilateral trade flows, trade creation and trade diversion within the region. Secondary data (2008-2018) were obtained from reliable sources. Ordinary least squares (OLS) and panel data regression was used to analyze the data. 
 Findings – It was found that the GDP (wealth), population and political stability of the exporting countries will significantly foster intra-regional bilateral trade flow while variables like land area, landlocked and distance will significantly reduce bilateral trade flow in the region. The population, landlocked, political stability and corruption perception variables of the importing countries are found not to be statistically significant. R2 being the coefficient of determination falls between 54.8% and 63.3% which implies that the independent variables have been able to explain 54.8% to 63.3% of the total variations in the dependent variable.
 Research implications – Membership of some of the ECOWAS members in Global System of Trade Preferences among developing countries (GSTP) was found to have resulted in trade diversion; whereas, participation of some of ECOWAS members in West African Economic and Monetary Union (WAEMU) has contributed to the level of trade creation in ECOWAS region.
 Originality/value/contribution – The level of trade creation in the ECOWAS region can be improved upon provided all member states adhere strictly to the terms of the agreement.

Impact of Global Supply Chain Crisis on Chinese Forest Product Enterprises: Trade Trends and Literature Review

The global supply chain crisis caused by COVID-19 and the trend of “anti-globalization” continuously impact international trade. As one of the central processing centers of global primary products, China’s forest product enterprises import raw materials and export manufactured products, which are vulnerable to the worldwide supply chain crisis. This article reviews research on the influence of the pandemic and the Sino–US trade war on the international trade of wooden products and China’s forestry enterprises that import raw timber materials and export wooden products. Furthermore, with the analysis of trade data, we found that China’s forest product enterprises are facing a shortage of wood materials and rising import prices. Regarding export, they face the problems of increased trade costs and fluctuating product demand. Moreover, the influence of the global supply chain crisis causes China’s trade diversion effect. This article comprehensively analyzes how the global supply chain crisis affects wood-based product enterprises and offers suggestions for further developing China’s forestry enterprises.

How fiscal decentralization and trade diversification influence sustainable development: Moderating role of resources dependency

After ratifying the Paris Climate Agreement (PCA), most advanced economies are contributing incessantly to the international climate change framework. However, their “Intended Nationally Determined Contributions (INDC) pledges are still far from achieved due to their high consumption of natural resources, which spurs economic activities and environmental impairments. Therefore, to coup this predicament, this study evaluates the influence of natural resource rent (NTR), fiscal decentralization (FSD), and trade diversification (TDF) on the sustainable development of G-7 countries from 1995 to 2020. The ecological footprint is used as the proxy to accurately represents environmental sustainability. The direction and magnitude of the asymmetric association of the nexus between FSD, NTR, TDF, and EFP have been evaluated with the quantile-based econometrics approach of “Method of the Moments Quantile Regression” (MMQR). The estimates of MMQR suggested that fiscal decentralization and trade diversification have negative and significant coefficients at all quantiles (Q0.25- Q0.90), which implies that these variables are the plausible solution to reducing ecological footprint by sharing the fiscal power with the local or subnational governments and excluding the specialized products from the trade basket. In contrast, NTR and GDP are positively and significantly associated across all quantiles (Q0.25- Q0.90), indicating the adverse impact of these variables due to the escalation of resource consumption and GHG emissions. Additionally, for the robustness of the MMQR estimates, the “Augmented Mean Group” (AMG) and “Common Correlated Effect Mean Group” (CCEMG) confirm a similar direction of association between variables. The results provide policy recommendations to enhance environmental sustainability through FSD and TDF.

Nepal’s Foreign Policy: A Special Bond with India

After the unification of Nepal, the founder of the nation, King Prithvi Narayan Shah formulated an underlying principle of Nepal's foreign policy based on Geopolitics. He described the geographical situation of Nepal as a ‘yam between two boulders’, referring to the two big neighbours of Nepal – China and India. King Prithvi Narayan Shah was not only a great warrior but a visionary leader, who had appropriately assessed the geopolitical sensitivities of Nepal and adopted non-aligned foreign policy. He also said it was important for the county to keep a balanced relationship with these two huge neighbours. He cautiously moved maintained distance and balance considering the imperatives of the fragile situation. Nepal's foreign policy thereafter has passed through the turbulent periods; extreme loyalty had been maintained to the southern neighbour and pro-northern approach surfaced consequently. With the formation of the elected government after the promulgation of new constitution, major shift is observed in Nepal's foreign policy- the diversification of Nepal's trade and transit to China. The main objective of this paper is to explore the foreign relation of Nepal India. This paper makes a brief description and analysis of Nepal's foreign policy, political and economic dynamics of these relations, and new developments in Nepal-India relation based on secondary sources.