Trade Integration Research Articles

CLUB CONVERGENCE OF REAL WAGES IN THE EUROPEAN UNION

This study analyzes real wage convergence within the European Union, scrutinizing it on both regional and national scales. It questions the prevalent notion that open labor movement within the EU naturally leads to wage parity. Using a flexible log t regression and clustering algorithm, the research uncovers a lack of real wage convergence across all EU countries and regions. Instead, it identifies distinct convergence clubs based on real wages, delineated as core versus peripheral countries, and further divided into four regional categories. These findings suggest the existence of significant differences between the core and peripheral countries, hindering wage equalization. Clubs converge to different steady states which yield substantially different average real wages. At the national level, the formation of these wage-based clubs is influenced by the output gap and unemployment benefits, competitiveness and labor productivity, trade integration, and partly by human capital and development level. This study's results are robust and consistent with economic theories concerning real wage determinants. On the regional front, the analysis reveals a complex interplay of multiple variables affecting club formation, with no significant distinctions between certain club pairings. The findings highlight the complex dynamics of wage convergence in the EU, influenced by both economic and non-economic factors. The differences between core and peripheral EU countries are still strong and affect labor market outcomes and real wage convergence.

Indonesia’s export growth decomposition in ASEAN and ASEAN dialogue partners

Purpose ― This paper evaluates Indonesia's trade integration efforts and their impact on export competitiveness from 1989 to 2021. It examines the evolution of trade arrangements, starting with the ASEAN Preferential Trade Arrangement (APTA) and progressing to bilateral agreements.Methods ― Based on Leamer and Stern, the Constant Market Share Analysis (CMSA) measures Indonesia’s export competitiveness over the years.Findings ― The results indicate no significant improvement in competitiveness during the analysis period, with export growth primarily driven by the effect of world growth. Although competitiveness did not shift markedly over time, it remained positive overall, suggesting a buffer effect during economic crises.Implications ― The paper suggests Indonesia should pursue deeper trade integration and unilateral economic reforms. Drawing on Korea’s experience, combining export promotion policies with trade agreements could enhance market access and foster internal competitiveness.Originality ― This study provides long-term insights into Indonesia’s export competitiveness amidst global trade integration efforts and offers policy recommendations based on the success of Korea’s trade reforms.

COVID-19 and South Asia: an overview

The article explores the global impact of the COVID-19 pandemic, highlighting its severe effects on health systems, economies, and poverty levels. With an estimated 6.9 million deaths worldwide and the deepest recession since World War II, the pandemic had diverse regional impacts. South Asia, for example, experienced varying degrees of health and economic challenges; India faced over 500,000 deaths and a sharp economic downturn, while other nations in the region were less severely affected. The pandemic’s relatively brief duration, aided by global responses like lockdowns, social distancing, and rapid vaccine distribution, facilitated a quicker economic recovery, bolstered by unprecedented counter-cyclical policies. The article also examines South Asian case studies, including regional trade integration, the economic benefits of vaccination, and the socio-economic impacts on women in Bangladesh. It further discusses Pakistan’s response, Sri Lanka’s populist policies, and Indonesia’s monetary policy adjustments, offering valuable lessons for managing global health crises and economic downturns.

EU food price inflation amid global market turbulences during the COVID‐19 pandemic and the Russia–Ukraine War

AbstractSince the COVID‐19 pandemic and the Russia–Ukraine War, global food markets have been in turmoil. Agricultural input and energy prices doubled between 2020 and 2022, with immediate consequences on food accessibility. We examine the drivers of the EU food inflation patterns, and how trade integration shapes these dynamics. We find that food price inflation has been mainly driven by surges in agricultural production costs and, to a lesser extent, by global food price increases. Trade openness has not exacerbated the inflating dynamics during this period. We conclude with reflections on inflationary, production, and trade policies.

Amazon deforestation and CO2 emissions: A macroeconomic approach using the GVAR

AbstractWe analyzed the relationship between economic variables, Amazon deforestation, and CO2 emissions in Brazil. We used a macroeconomic approach of a system of open economies (global vector autoregressive [GVAR]). We constructed the international economy using 34 countries, representing 77% of the world GDP and 80% of world CO2 emissions. GVAR allows us to simulate the world economy, capture spillover effects, incorporate the externality of gas emissions, treating Brazil as a small open economy, and including trade integration in the analysis. We found that domestic and external shocks affect Amazon deforestation and CO2 emissions; the principal external shock is the Chinese one, followed by the European and the US shocks. China, directly and indirectly, affects CO2 emissions and deforestation in Brazil through two channels (exchange rates and policy rates). The estimates showed that Brazilian currency and commodity prices are relevant for deforestation, while industrial production is for gas emissions. Other results are that (i) the Brazilian economy affects CO2 emissions in Latin America (and the principal influence of China is on Asia), and (ii) the Chinese shock loses importance when using bilateral trade in 1999–2001, when China was not a fundamental trade partner of Brazil. Alternative model configurations demonstrate that soybean prices and Argentina influence Brazilian carbon emissions and Amazon deforestation. Specifically, soybean prices emerge as a major driver of carbon emissions. These results suggest that geography and trade integration matter to understanding Amazon deforestation and CO2 emissions. Our estimates highlight the importance of government policies and international cooperation in curbing Amazon deforestation.

Regional Trade and Financial Mobilisation as Preconditions for Economic Growth: The Case of ECOWAS

This empirical study delves into the Economic Community of West African States (ECOWAS) and its impact on economic growth through regional trade and financial mobilisation amongst its 15 member states. Through examination of data from 2005 to 2022, the study took into consideration a blend of static and dynamic panel data econometrics to explore nuances of trade openness, foreign direct investment (FDI), Domestic Credit to the Private Sector (CPS), and other factors influencing Real Gross Domestic Product (RGDP). The findings highlight a positive relationship between trade openness, FDI and economic growth, emphasising the importance of regional trade integration and foreign investment in driving economic development. Conversely, domestic credit shows a negative association with economic growth, thereby indicating the need for cautious assessment of credit allocation and financial sector efficiency. The study also reveals the important role of institutional quality in fostering economic growth, thereby recommending for policy reforms that strengthen governance frameworks and promote institutional resilience. Astonishingly, the analysis shows no significant relationship between inflation, transportation infrastructure, and economic growth. Theses insights contribute to a clear understanding of the dynamics between regional trade, financial mobilisation, and economic development within ECOWAS, thereby offering valuable implications for policymakers, with the aim of enhancing economic growth and integration in the region.

Calibrating Ukraine’s Growth Model: How Can Ukraine Emulate Poland’s Growth?

This study provides a comparative analysis of the economic growth paths of Ukraine and Poland from a growth‑model perspective and determines how to calibrate Ukraine’s growth model to converge with Poland’s booming economy. The methodology comprises an approach to operationalizing growth models for GDP growth decomposition into “import‑adjusted” demand components, drawing on national input‑output data from 2000 to 2019. I found that from 2000 to 2003, both European economies relied on a combination of exports and domestic consumption. Expanded trade integration and an FDI boost after Poland joined the EU in 2004 spurred the Polish growth model’s shift to a distinctively export‑led, FDI‑driven strategy with accelerated GDP growth rates. In Ukraine, in the wake of the great financial crisis, I identified a transition to a consumption‑led growth model that, along with a declining investment component of aggregate demand, led to fading growth rates. An analysis of sectoral contributions to GDP growth revealed that avoiding deindustrialization in Poland underpinned the country’s export‑led strategy, unlike Ukraine, which underwent a key sectoral shift from manufacturing to a commodities‑based orientation after 2008. Both these economies demonstrated a high level of integration into global value chains, focusing on labor‑intensive manufacturing and services, but Poland has outperformed Ukraine in terms of share of high value‑added exports, which increased after EU accession. Following the Polish pattern, I propose that Ukraine’s growth model should activate the FDI driver of economic growth, upgrading the export structure and moving up value chains to unlock the country’s growth opportunities. The study represents the first comparison of Ukraine’s and Poland’s economic growth paths that traces the changes in dominant final demand components and macro‑sectors in the two countries’ economic growth profiles. This paper contributes to the comparative political economy literature on the growth models of peripheral economies, providing insights that can inform policies for growth model transformation.

The multiple dimensions of resilience in agricultural trade networks

Abstract The global food and agricultural trade network is crucial for food security. Shocks such as those posed by extreme weather events, conflicts, pandemics, and economic crises can test the resilience of the trade network to the sudden interruption of trade flows. Depending on the level of connectivity in the trade network and its structure, such shocks have the potential to propagate through the entire network and can affect countries’ food availability and variety. The paper contributes to the literature on food and agricultural trade networks in two main ways: (1) understanding the global trade network as a complex system that can be affected by and responds to shocks, we define and operationalize its resilience as a multidimensional concept which is shaped by the interdependencies in the network and their structure; (2) applying techniques from network analysis to examine the evolution of three dimensions of resilience within the global food and agricultural trade network between 1995 and 2019. The main findings show that, between 1995 and 2007, trade connectivity among countries increased. Overall, this bolstered countries’ and the network's resilience to trade shocks. However, vulnerabilities persisted in terms of ensuring sufficient product variety and quantity. Adding to these vulnerabilities, trade integration stalled in the second half of the series, pointing to a slight tendency towards trade disintegration and potentially lower resilience of countries to trade shocks already in 2019.

General, high-tech, and mid-tech regional trade introversion indexes as measures of trade integration within RTAs

General, high-tech, and mid-tech regional trade introversion indexes as measures of trade integration within RTAs

International trade and wage inequality: Evidence from Brazil

We study the effect of the bilateral trade integration with China on wage inequality in Brazil. Previous studies have documented the contribution of trade opening to the decline in inequality since the 1990s, driven primarily by cross-firm pay differences. We find a sharper reduction in wage inequality over the 2000s, parallel to China’s accession to the WTO. Our analysis of the China shock suggests that some firms are harmed by import competition, especially those in the High-Tech Manufacturing sector, while others profit from increased exports and cheaper inputs. We rationalize these patterns by extending the theoretical framework of Helpman et al. (2017) to include sector heterogeneity in trade exposure and firm-level selection into imports. Our model indicates that the rise of China led to a reduction in cross-firm wage inequality in Brazil by about 5%.

Trade openness and growth in a small economy: Evidence from Malawi

AbstractEconomists often debate whether a country should pursue a discriminatory regional trade or the broader multilateral trade expansion. This paper contributes to the discourse by presenting empirical evidence on the impacts of regional and multilateral trade openness on economic growth of expansion in Malawi. Using the ARDL‐EC model and data spanning the period 1995–2020, the estimates show that the impact of multilateral trade openness on the long‐run growth rate is positive and statistically significant. At the disaggregated level, the results show that both intra‐ and extra‐African merchandise trade openness have positive and significant impact on the long‐run growth rate. The evidence also suggests that the impact of a change in the level of intra‐African merchandise trade openness on long‐run growth is larger than that of a similar change in the level of extra‐African merchandise trade openness. Thus, our results suggest that policymakers can pursue both regional and multilateral trade expansions simultaneously to accelerate Malawi's economic growth. To augment the benefits of trade, however, we recommend that policymakers focus on deepening intra‐African trade integration and diversifying the country's export base beyond the primary commodities; and to increase the processing of export products to enhance the dynamic benefits to spur faster growth.

Trade Complementarity and Substitutivity between China and Nigeria in Exports: Evidence from the Data in 1996-2022

This study examined the China and Nigeria’s export relations with a view to determining the mutuality of the trade benefits to both countries. Using data for the period 1996 to 2022 from World Integrated Trade Solution (WITS) database, the paper estimated four distinct measures of trade relations (the revealed comparative advantage index, the trade integration index, the complementarity index and the export similarity index) and then analyzed the effect of trade complementarity and substitutivity on exports of Nigeria and China respectively. Based on the findings, China’s top export destination in sub-Saharan Africa is Nigeria, and one of Nigeria’s top export destinations globally is China. Furthermore, the comparative advantage index showed that China has a comparative advantage in manufactured goods, capital goods, consumer goods, intermediate goods, and mechanical and electrical goods, whereas Nigeria has a comparative advantage in fuels and basic materials. Meanwhile, Nigeria’s trade integration index showed that Nigeria’s trade connections to China are weak, while China’s trade integration index showed that its ties to Nigeria are strong. This implies that China depends less on Nigeria’s exports and that Nigeria is more dependent on China’s exports. In addition, Nigeria’s and China’s export structures differed significantly, but it was determined that these trade links are advantageous to both parties and increased their respective export trade. However, the two countries’ trade rivalry will jeopardize their mutual benefits from trade in addition to sharply lowering the volume of their respective exports.

India’s Trade Integration with the Republic of Korea: A Services Trade Analysis of India–Korea CEPA

India and the Republic of Korea signed the India–Korea Comprehensive Economic Partnership Agreement (CEPA) in 2009 and have been actively engaged in upgrading this agreement since 2015. This article analyses the India–Korea CEPA from a services trade perspective. It compares the services commitments undertaken by the two countries under the India–Korea CEPA and the WTO. It further assesses the gains for India from the CEPA by comparing services exports and imports before and after the CEPA came into operation. The study finds that India’s services exports to Korea have increased more than its imports from Korea, resulting in an increase in India’s services trade surplus with Korea after the CEPA. The study recommends exploring bilateral labour agreements with Korea to facilitate the movement of natural persons in specific sectors and further liberalisation commitments from Korea in services of India’s interests during the CEPA upgradation. JEL Classification: F13, F14, F15

Preferential trade agreements as insurance

We investigate preferential trade agreement (PTA) formation when risk averse countries face demand uncertainty and, hence, have an insurance motive for pursuing trade integration. In this environment, when deciding which type of PTA − if any − they wish to form, countries seek to maximise their net welfare; that is, their expected utility less a risk premium. The desire for insurance influences, not just whether a particular PTA forms, but also the preferred depth of integration. We analyze the insurance implications of free trade agreements (FTAs), customs unions (CUs), and countries choosing to stand alone. We further distinguish between shallow CUs and deep CUs; in the former, members maximise the sum of their individual net welfares, while in the latter they maximise the net value of the sum of their individual expected welfares. We show that differences in country risk attitudes and the levels of risk they face, as well as the degree to which these risks are correlated with each other, each, and together, influence the formation and design of TAs. When countries’ demands are uncorrelated, they form a deep CU if their levels of risk aversion are sufficiently different. If, however, their risk attitudes are similar, countries opt for shallower trade integration − either a shallow CU or a FTA − if they face low levels of uncertainty, and choose to stand alone if one country faces a sufficiently high level of uncertainty. When countries’ demands are correlated, they tend to form a deep CU if their demands are strongly negatively correlated, a FTA if their demands are strongly positively correlated and a shallow CU when their demands are weakly correlated. Intuitively, differences in country risk attitudes (i.e., their degree of risk aversion) act as an additional source of comparative advantage. Deeper integration − particularly via a CU − permits less risk averse members to essentially export their relative partiality for risk to more risk averse partners, thereby effectively providing the latter with insurance.

Assessing trade supply chain vulnerability and trade participation of SMEs in India: insights from a comprehensive analysis

PurposeThis study presents the impact of Economic Policy Uncertainty (EPU)-induced Trade Supply Chain Vulnerability (TSCV) on the Small and Medium-Sized Enterprises (SMEs) in India by leveraging the World Bank Enterprise Survey data for 2014 and 2022. Applying econometric techniques, it examines firm size’ influence on productivity and trade participation, providing insights for enhancing SME resilience and trade participation amid uncertainty.Design/methodology/approachThe econometric techniques focus on export participation, along with variables such as total exports, firm size, productivity, and capital intensity. It addresses crucial factors such as the direct import of intermediate goods and foreign ownership. Utilizing the Cobb-Douglas production function, the study estimates Total Factor Productivity, mitigating endogeneity and multicollinearity through a two-stage process. Besides, the study uses a case study of North Indian SMEs engaged in manufacturing activities and their adoption of mitigation strategies to combat unprecedented EPU.FindingsResults reveal that EPU-induced TSCV reduces exports, impacting employment and firm size. Increased productivity, driven by technological adoption, correlates with improved export performance. The study highlights the negative impact of TSCV on trade participation, particularly for smaller Indian firms. Moreover, SMEs implement cost-based, supplier-based, and inventory-based strategies more than technology-based and risk-based strategies.Practical implicationsPolicy recommendations include promoting increased imports and inward foreign direct investment to enhance small firms’ trade integration during economic uncertainty. Tailored support for smaller firms, considering their limited capacity, is crucial. Encouraging small firms to engage in international trade and adopting diverse SC mitigation strategies associated with policy uncertainty are vital considerations.Originality/valueThis study explores the impact of EPU-induced TSCV on Indian SMEs’ trade dynamics, offering nuanced insights for policymakers to enhance SME resilience amid uncertainty. The econometric analysis unveils patterns in export behavior, productivity, and factors influencing trade participation during economic uncertainty.

A sectoral analysis of a developing country's exports in the context of trade integration: Evidence from Colombia

The research delves into the effectiveness of Colombia's trade liberalisation process in boosting its exports at the industrial level. Based on an empirical workhorse approach to international trade, the gravity model, we evaluate the effect of trade openness on Colombian exports at the industrial level following the SITC4 categorisation. For this purpose, panel data on Colombian exports to all its trading partners between 2007 and 2020 were used. The results establish that Colombia's trade openness has boosted the exports of most of its industries, except for exports of the mineral fuels, lubricants and related materials group, which is a group of goods that represents the country's largest exports. Furthermore, the research also confirms the prominent impact of labour productivity in boosting Colombian exports of most product groups. Consequently, Colombian policymakers should support a re-composition of the Colombian export basket in order to take proper advantage of trade integration formulas, within a global energy transition framework.

Challenges and Opportunities in International Trade Policy Implementation: Insights from the Cameroonian Ministry of Trade

This study meticulously explores the intricate dynamics of Cameroon's trade policies, aiming to elucidate their current state, identify significant challenges, and propose strategic enhancements for more robust economic integration and growth. Against the backdrop of a globalized economy, Cameroon's trade policies play a crucial role in shaping its economic landscape. The research employed qualitative methodologies, including an extensive literature review of works published by various authors on the topic, to garner a comprehensive understanding of the policy environment. The findings reveal critical barriers such as infrastructural deficits, regulatory inefficiencies, and policy implementation challenges that impede effective trade operations. These obstacles not only hinder trade efficiency but also limit Cameroon's potential to capitalize on global market opportunities. The study concludes with several strategic recommendations: prioritizing infrastructure investment to alleviate logistical bottlenecks, streamlining regulatory frameworks to enhance transparency and reduce bureaucratic hurdles, and improving policy-making processes. These measures are designed to fortify Cameroon's trade policy framework, thereby enhancing its economic prospects and global trade integration. The research underscores the importance of a holistic, strategic approach to trade policy development, advocating for sustained, coordinated efforts among all relevant stakeholders. By addressing the identified challenges and leveraging highlighted opportunities, Cameroon can significantly improve its trade policy outcomes, fostering sustainable economic growth. Keywords: Trade Policy, Cameroon, Economic Integration, Regulatory Framework, Stakeholder Engagement, Infrastructure Investment.

Crises and Contagion in Equity Portfolios

We examine the international impact of recent financial crises on contagion dynamics within international equity portfolios. First, we highlight the importance of macroeconomics for portfolio weighting for each region, and then we examine contagion via a structural regime-switching model and a contagion test. We also examine sources of contagion using regime variables, crisis events, and macroeconomic variables. In particular, we study the Argentine debt crisis, the US financial crisis, and the EU sovereign debt crisis. The macroeconomic variables include changes in market capitalization, trade integration, GDP growth, inflation rate, and interest rate. We also employ two classifications, one relating to the portfolio weighting scheme and another one that considers implied global and regional betas. The empirical findings reveal the existence of financial contagion for all the crises that we investigate. Both methods produce similar results. Stronger contagion is evident for global rather than regional betas. Europe is the region with the highest level of contagion and the one mostly affected by the crises. As far as macroeconomic variables are concerned, they are very important in two ways. They statistically significantly explain contagion, while they also reveal contagion under various portfolio weighting schemes. Both methods suggest that the Argentinian crisis mainly contributes to contagion. The research implications suggest that asset allocation and portfolio management should consider both the global and the regional aspects of contagion as differences can occur.

Unveiling the Economic Impact of Technology Trade in Leading Global Economies

Abstract In today's rapidly evolving technological era, high-tech trade is not just a part of international commerce but a key factor that shapes the economic landscapes of nations. The objective of this paper is to analyze how technological innovation, as represented by high-tech exports, contributes to economic growth and to identify the disparities in economic progress among countries with different levels of integration into the global high-tech market. This paper focuses on the importance of high-technology trade in economic development. Specifically, it aims to establish a connection between technology-intensive exports and Gross Domestic Product in three major global economies: China, the United States, and the European Union. The study's empirical evidence strongly supports a notable association between high-technology exports and the growth of gross domestic product, thereby reaffirming the crucial role of technological trade in enhancing economic development. Furthermore, the analysis provides additional insight by highlighting those economies with extensive involvement in the global high-technology market experience superior economic growth. This underscores the vital significance of technological innovation and trade integration in attaining a competitive advantage in the global economic landscape. This study adds to the existing literature by providing empirical evidence of the economic consequences of technology trade, highlighting the need for policy frameworks that encourage innovation and integration into the global high-technology market.

Genesis of economic integration of Ukraine into the EU

The paper examines the genesis of economic integration of Ukraine to the EU. The purpose of the paper is to investigate the genesis of economic integration of Ukraine to the EU and develop recommendations for their development. The result of bilateral trade integration following the implementation of the consolidated and all-inclusive free trade zone was the modernization of Ukraine's trade policy. The primary dominants may include: the increase in trade turnover between the countries and the increase in the share of European countries in the structure of foreign trade of Ukraine; changes in import duties; improved access to the market; harmonization of legislation; establishment of tariff quotas; а further reduction in non-tariff barriers to trade; home ownership of the region is one hundred percent improved robotic work; harmonization of the technical regulation system; systems of standardization, metrology, conformity assessment and market visibility; sanitary and phytosanitary visits; Strengthening the protection of intellectual rights. The genesis of economic integration of Ukraine to the EU was investigated. An analysis of the Vikonanny Ugodi about association for 2022 and 2023 was carried out. We have analyzed the strengths and weaknesses, the emerging opportunities and threats to the integration of Ukraine into the EU. Directly from further scientific research, it is important to look at the most important aspects of the economic integration of Ukraine, since the most important payments will ensure the formation of the revenue side of the budget from further It is re-divided into different socio-economic goals of the state.