Trade Policy Reforms Research Articles

EU Trade Policy Reform: Towards Reciprocal Concessions with Developing Countries

EU Trade Policy Reform: Towards Reciprocal Concessions with Developing Countries

Trade Liberalization Index and Economic Growth in Developing Countries: Does Stage of Development Matter?

This paper analyses the widely used Sachs and Warner (1995) index of trade liberalization for 193 countries extending the period up to 2009 identifying 134 countries as open, 23 countries as closed, and 36 countries with ambiguous status, and then investigates the impacts of trade liberalization on economic growth using a dynamic growth model for a disaggregated levels of income. For this purpose, this study uses the biggest panel data set in this literature covering the period of 1985-2009. The results show that the impact of trade liberalization on economic growth differs based on the income levels of the developing countries. As indicated by the estimated results, the lower-middle-income countries, on average, benefit up to 3.45 percent points more compared to other developing countries from the trade liberalization. This finding makes a strong case for a clear departure from the ‘Washington Consensus’ approach and claims that trade liberalization with the same priority to all developing countries does not ensure economic growth. Also, the findings strongly suggest considering the stage of economic development of the developing countries while recommending their trade policy reforms.

Impact of Trade Openness on Food Security: Evidence from Panel Data for Central Asian Countries.

The problem of food insecurity has become increasingly critical across the world since 2015, which threatens the lives and livelihoods of people around the world and has historically been a challenge confined primarily to developing countries, to which the countries of Central Asia, as typical transition countries, cannot be immune either. Under this context, many countries including Central Asian countries have recognized the importance of trade openness to ensure adequate levels of food security and are increasingly reliant on international trade for food security. Using the 2001–2018 panel data of Central Asian countries, based on food security’s four pillars (including availability, access, stability, and utilization), this study empirically estimates the impact of trade openness and other factors on food security and traces a U-shaped (or inverted U-shaped) relationship between trade openness and food security by adopting a panel data fixed effect model as the baseline model, and then conducts the robustness test by using the least-squares (LS) procedure for the pooled data and a dynamic panel data (DPD) analysis with the generalized method of moments (GMM) approach, simultaneously. The results show that: (1) a U-shaped relationship between trade openness and the four pillars of food security was found, which means that beyond a certain threshold of trade openness, food security status tends to improve in Central Asian countries; (2) gross domestic product (GDP) per capita, GDP growth, and agricultural productivity have contributed to the improvement of food security. Employment in agriculture, arable land, freshwater withdrawals in agriculture, population growth, natural disasters, and inflation rate have negative impacts on food security; and (3) this study confirms that trade policy reforms can finally be conducive to improving food security in Central Asian countries. However, considering the effects of other factors, potential negative effects of trade openness, and vulnerability of global food trade network, ensuring reasonable levels of food self-sufficiency is still very important for Central Asian countries to achieve food security. Our research findings can provide scientific support for sustainable food system strategies in Central Asian countries.

Determinants of Domestic Value Added in Exports: Empirical Evidence from India’s Manufacturing Sectors

Over the last decade, trade policy reforms have significantly influenced the internationalization of Indian manufacturing firms, leading to deeper participation of the country in global value chains (GVCs) and international production networks (IPNs). With the growing participation of foreign firms in the value chain, the domestic value-added (DVA) content embodied in Indian exports have displayed a declining trend. Recently, in 2020, India has decided to launch the ‘Atmanirbhar (self-reliant) Bharat Abhiyan’, which, in principle, aims to consolidate the manufacturing sector, leading to increasing DVA embodied in exports (DVA-content), apart from employment generation. The current article attempts to analyse the drivers of India’s DVA in exports for select manufacturing industries over 2000–15 by using the OECD trade in value added (TiVA) database. The empirical results reveal that sectoral DVA content is positively influenced by both domestic capital and foreign direct investment (FDI), and labour skill intensity, but negatively influenced by the presence of unskilled workers. Moreover, FDI inflows in sectors characterized by high skill-intensity and high-relative growth rate play a crucial role in influencing DVA content. Finally, the presence of larger and more capital-intensive firms is found to be a major driver of DVA. On the policy front, therefore, the empirical results underline that export promotion policies alone will not be able to resolve employment worries, a major concern in India, as vast numbers of unskilled and low-skilled workers trapped in the agricultural sector or working in unorganized and micro-industries fail to figure in the country’s export value addition. A concerted effort towards labour skill enhancement as well as technology transfer is necessary for exports to play a more positive role.

Can Africa raise export competitiveness through economic complexity? Evidence from (non)‐parametric panel techniques

AbstractEconomic complexity is an indicator of a nation's productive capabilities. It therefore determines the nature and quality of the products that a country can put up for exports. This suggests that building economic complexity can serve as a channel through which African countries can boost export competitiveness. To this end, the impact of economic complexity on the export volume of Africa's top 10 exporting countries which jointly account for about 78% of total trade volume on the continent for the period 2000–2018, is examined. Employing a parametric common correlated effects mean group estimation technique and a non‐parametric time‐varying model with fixed effects technique, this study shows that economic complexity is indeed a determinant of export competitiveness. However, its effect is not as powerful as those of GDP, real exchange rate, trade openness and foreign direct investment. This suggests that, although policies that emphasize economic complexity are useful, they should not be treated as stand‐alone policies. Instead, governments should adopt holistic trade policy reforms that take economic complexity into account, along with other factors such as exchange rates, economic growth, trade openness and foreign direct investment.

Commentary: unions and the evolution of trade and industry policy under the ardern government

ABSTRACT New Zealand’s structural development has been dominated for the last generation by a strongly neoliberal, market-focused orientation. The country has signed several neoliberal free trade agreements, and for long periods largely abandoned active or strategic industry policy. It has seen the steady decline of manufacturing as a proportion of total production and of higher value manufacturing as a proportion of exports, and failed to significantly diversify its exports, retaining high dependence on a few primary commodity exports. Productivity performance has been notably poor. The Labour-led government elected in 2017 has demonstrated its willingness to at least partly break with neoliberal precepts in other policy areas; this commentary surveys its approach to date in industrial and trade policy reforms, and the role of unions in these developments. There are initial promising steps but the free trade agreements place significant restraints on what is possible.

Policy analysis indicates health-sensitive trade and subsidy reforms are needed in the UK to avoid adverse dietary health impacts post-Brexit.

The United Kingdom's food system will be greatly impacted by Brexit-related trade deals and policy developments-with implications for dietary risk factors and public health. Here we use an integrated economic-health modelling framework to analyse the impacts of different policy approaches to Brexit. A 'soft Brexit' that is in line with the EU-UK Trade and Cooperation Agreement increases diet-related mortality in the United Kingdom as costs for health-promoting and import-dependent foods increase and their consumption decreases. Negotiating free-trade agreements with the United States and Commonwealth countries as part of a 'global Britain' approach could triple the negative health impacts of Brexit as greater availability of energy-dense foods increases weight-related risks without meaningfully reducing dietary risks. Eliminating import tariffs on health-sensitive horticultural products could mitigate the negative health impacts of Brexit, and reforming agricultural subsidies to incentivize greater domestic horticultural production could lead to net health gains. Combining these health-sensitive approaches to trade policy and subsidy reform doubled the health gains, offering a promising approach for mitigating the detrimental impacts Brexit could have on dietary health in the United Kingdom.

The Impact of Trade on Poverty in Sub-Saharan Africa: Do Sources Matter?

Global trade development has provided noteworthy global poverty gains since the 1990s. Accordingly, Africa has gradually engaged itself in trade and trade policy reforms through multilateral and regional trade agreements among other initiatives. Nonetheless, poverty levels in the Sub-Saharan Africa (SSA) region remain relatively high. Recognizing that existing evidence on trade-poverty nexus is based on aggregate trade, we provide a new perspective on SSA by disaggregating trade by sources for the period 2003-2017. We employed the Generalised Method of Moments (GMM) estimation of a panel data model derived from the Modified Basic Household Model and Neo-Conservative Poverty Theory for analysis. The results document poverty gains from trade liberalization, with the extent varying according to sources. Specifically, trade from MENA and within SSA was found to offer more gains. Furthermore, findings suggest that poverty gains from trade are strengthened with better institutional quality. It follows that to accelerate poverty gains from trade liberalization, SSA should promote intra-Africa trade as well as trade with MENA countries. To accelerate the gains, Africa has to invest in better institutions, in particular, to improve governance and corruption eradication

Labour Market Adjustment and Intra-Industry Trade: Empirical Results from Indian Manufacturing Sectors

During the last two decades, India has witnessed several trade and industrial policy reforms. The objective of the study is to examine the relationship between dynamism of India’s two-way trade, measured through Marginal Intra-Industry Trade (MIIT) index, and labour market adjustments, reflected through absolute employment changes, in select manufacturing sectors over 2001–2015. India’s MIIT in select sectors generally display an upward trend over the sample period, while a mixed dynamics is observed on the employment front. The generalized method of moments (GMM) estimation results indicate that MIIT, increase in productivity, skilled workforce intensity, industrial concentration, incremental FDI inflows and trade openness positively influence absolute employment changes, whereas unskilled wage exerts a negative impact on the same. The analysis further concludes that high relative growth rate, skill-intensity, incremental FDI inflows and higher productivity in a sector, also characterized by higher MIIT, may lead the firms to employ more productive and competitive resources, resulting in higher absolute changes in employment. The obtained results do not support the Smooth Adjustment Hypothesis (SAH) predictions in the Indian context.

Do Poverty Rates Matter for Trade Openness in Developing Countries?

A voluminous literature has been devoted to the effect of countries’ participation in international trade (for example through trade policy reforms and greater trade openness) on their poverty level, but not on the issue the other way around. The current analysis contributes to filling this gap in the literature by examining the effect of poverty on trade openness in a set of 99 developing countries over the period 1980–2014. Results suggest that while over the full sample poverty exerts a negative effect on trade openness, this effect ultimately depends on countries’ development levels, proxied by their real per capita income level. A rise in poverty levels reduces trade openness in relatively poor countries, but increases it in relatively advanced economies. These findings suggest that enhancing the ability of poor countries to participate in international trade would help promote greater trade openness, which could in turn help reduce poverty. The international community has a key role to play in that respect.

Domestic and international impacts of the rice trade policy reform in the Philippines

Faced with high domestic rice prices that have fueled inflation above the 2018 target and penalized poor consumers the most, the government of the Philippines has decided to abandon the quantitative restrictions on imports and replace them with tariffs. This paper uses a global rice model based on a partial equilibrium framework to assess the possible impacts of this reform on imports, production, consumption and prices. In contrast with past similar studies, we address three key concerns (i) the heterogeneity in farm price across 16 regions in response to the combined effect of the tarriffication and the average historical trend in productivity increase at 1.5% between 2001 and 2018, (ii) the differentiation of imports by origin partly due to the different tariffs applied to countries within and beyond the Association of South East Asian Nations, and (iii) the effect on domestic prices in third countries. The simulation results suggest that the reform would increase imports by 2.47 million tons (20.7%) in 2019. We also find a large decline in farm prices and retail prices respectively by PhP 6.1/kg (30.1%) and PhP 7.6/kg (17.4%) in 2019 that explains an increase in rice consumption. We estimate the fall in total inflation at 1.2% in 2019 but less over time. Further, the large fall in farm prices in 2019 is shared quite evenly among regions in the short term but returns to pre-reform levels in the near term. Using a higher price elasticity of supply for one region obtained from panel data surveys, we show a more pronounced decline in production than the national average. Such differentiated results confirm the relevance of using a regionally disaggregated model to design more targeted policies. We also show a slight increase in world prices, which led to small increases in the domestic prices of South and Southeast Asian rice markets. While this reform is largely pro-poor consumers, policy makers would need to use the additional tariff revenue to help rice growers either increase their competitiveness and modernize their rice production or shift to other crops.

Effects of Paperless Trade Policy and Aid for Trade on Export Performance: Evidence from SASEC And CAREC Countries

The study aims to investigate the causal effect of cross-border paperless trade policy reforms and aid for trade on export performance in 14 Asian developing countries. Sample countries are selected based on membership of the South Asia Sub-regional and Economic Cooperation (SASEC) and Central Asia Regional Economic Cooperation (CAREC). This study uses annual panel data from 2005 to 2017, exploits the Economic and Social Commission for Asia and the Pacific (ESCAP) Trade Facilitation Measures survey data to sort out the pre-treatment and post-treatment period of the paperless trade policy transformation, and employs the difference-in-differences method of estimation. The results show that the adaptation of paperless trade facilitation policy measures and aid for trade to trade facilitation and the communication technology sector has a positive and statistically significant impact on export performance in Asian economies including in SASEC and CAREC region. However, the findings of this study also point out that the economic growth, foreign direct investment and the labour force has a positive effect on export performance. Thus the results from this study suggest that the export performance in these regions could be enhanced by adopting paperless trade policy measures and more aid allocation for the trade facilitation and communication technology sectors.

Trade liberalization and the geography of industries in South Africa: fresh evidence from a new measure

ABSTRACT Economic theory postulates that trade liberalization influences the location patterns of manufacturing activities across regions. However, the direction of this impact remains theoretically controversial. While few authors suggest that trade openness causes dispersion of economic activities, others argue that it strengthens agglomeration tendency. Against the background of ongoing debates in both mainstream economics and in geography, this paper explores the role of trade policy in shaping the patterns of geographical distribution of manufacturing activities across South Africa’s provinces over the period 1993–2016. Contrary to the previous literature, we employ a new measure of trade openness which is able to account for both South Africa’s trade share of her GDP and her relative size of trade compared to the world trade in a given year. Using this measure of openness, the study draws an inference based on the Eicker–White robust covariance Poisson Pseudo-Maximum Likelihood (PPML) which performs well in the presence of heteroscedasticity and data with zero values. The findings suggest that trade openness matters considerably for explaining the industrial patterns across South Africa’s provinces. In particular, industries facing trade liberalization are most likely to settle in proximity to the metropolitan cities surrounding Gauteng. The implication is that South African authorities can use trade policy reforms to complement appropriate redistributive spatial development policies. Such can ensure a fair inter-provincial distribution of industries and mitigate inequalities, especially the spatial dimensions.

Revisiting trade and environment nexus in South Africa: fresh evidence from new measure.

The paper revisits the dynamic effect of trade openness on environmental quality in South Africa by employing a fresh proxy of trade openness suggested by Squalli and Wilson (The World Economy 34:1745-1770, 2011) over the period 1960-2016. Contrary to the previous literature, the new proxy is constructed to take into consideration both South Africa's trade share of its GDP and its relative size of trade in relation to the world trade in a specified period of time. Adopting this novel approach to capture openness, the study applies the autoregressive distributed lag (ARDL) bounds test for cointegration approach to investigate the long-run association between trade openness and environmental quality. Our findings show that the results of the long run are materially different from those of the short run. While trade openness has a significantly beneficial impact on CO2 emissions in the short run, it has a measurably detrimental consequence on it in the long run. These findings are new to the literature and contrast with the previous studies. While confirming the existence of an inverted U-shaped curve that validates the existence of environmental Kuznets curve (EKC) hypothesis for South Africa, our results are further supported by the non-linear ARDL model, which reveals evidence of asymmetric pass-through effects of changes in trade openness on CO2 emissions. This paper suggests that South Africa's policymakers must continue to improve trade policy reform with complementary policies to create a less carbon-intensive environment and promote lasting value for reductions of greenhouse gas (GHG) emissions and constantly support the establishment of greener technologies that ultimately lower CO2 emissions.

Challenges of “On Terms to Be Agreed” in WTO: LDC’s Experiences for Ethiopian

Ethiopia has been in the process of accession to the WTO since January 2003. Accession to the WTO is not an end by itself but it’s a key element for speed up national development goal directly or indirectly. Indeed, lessons from recently accessed countries indicate that, the WTO accession process is quit complex and demands well preparation in order to take decisions on trade policy reforms to meet the requirement of accession. Thus, this article examines the experience of Least Developed Countries which has been finalized their WTO accession process i.e. Cambodia, Nepal, and Yemen. Finally, the article has found that, in toting up to personal knowledge and skill of negotiators, Ethiopia shall bargain after deep studies on the commitment packages to reduce possible challenges and to prepare for remedy by formalizing institutional mechanisms open for stakeholder’s participation. Key terms: WTO Accession Process, Experiences of LDC’s, Ethiopia Accession DOI : 10.7176/JLPG/86-02 Publication date :June 30 th 2019

TRADE LIBERALIZATION AND FIRM PRODUCTIVITY: ESTIMATION METHODS MATTER

In this paper, we show that the relationship between trade liberalization and firm productivity is sensitive to the method used to estimate the production function. We estimate the productivity of Colombian manufacturing plants using the methods of Levinsohn and Petrin, Ackerberg et al., and Gandhi et al. and at times come to surprisingly different conclusions about firm productivity growth after the liberalization. Results from a growth decomposition exercise and from a quantile regression model reinforce the dissimilarity of results across methods. (JEL F13, 14, D24, C14)

Biswajit Nag & Debashis Chakraborty (eds), India’s Trade Analytics: Patterns and Opportunities

Abstract. India, a leading developing country, initiated the process of trade liberalization since early nineties, but the wider effects of the reforms started taking shape only in the new millennium. The unilateral trade policy reforms undertaken by the country were supplemented by the WTO-induced liberalization measures from mid-nineties onwards. The investment liberalizations ushered in updated technology and global management practices across sectors. The internal policy reforms as well as the evolving global trade architecture created a number of winner sectors across the Indian economy, e.g., – tea and spices, fisheries (agriculture), garments, leather products, automobiles (manufacturing) and IT services (services). Confident with growing export potential as well as the rising trade openness in the partner countries, India started entering into a number of regional trade agreements (RTAs), primarily in Asia, from 2005 onwards. Keywords. Trade, Patterns and Opportunities. JEL. F00, F10, F13, F40.

Entrepreneurial Innovation and Export Diversification: Strategies for India's Global Trade Expansion

Indian global trade growth is driven by entrepreneurial innovation and export diversification, according to this report. The study analyzes India's export landscape, examines entrepreneurial innovation's impact on export growth, assesses export diversification challenges, and proposes policy strategies to boost India's global trade competitiveness. Secondary data sources such as academic publications, government reports, and industry analyses are reviewed for the methodology. Significant findings emphasize the importance of entrepreneurial innovation in export competitiveness, export diversification in reducing sectoral concentration risks, and a coherent policy framework that includes trade policy reform, export promotion initiatives, infrastructure development, innovation support, and regulatory reforms. Data availability, localization, policy coordination and implementation, and continual monitoring and assessment are policy implications. This report emphasizes innovation-led diversification for sustained growth and competitiveness in India's global trade expansion.

Joining Global Production Networks: Experience and Prospects of India

Cross‐border dispersion of different stages/slices of the production processes within vertically integrated global industries (“global production sharing”) has been a key structural change in the global economy in recent decades. This paper examines India's experience with exploiting opportunities created by this phenomenon for export expansion from a comparative East Asian perspective. The analysis reveals that India has so far failed fitting into global production networks in electronics and electrical goods, which have been the prime movers of export dynamism in China and the other high‐performing East Asian countries. The findings of this study provide further support to the case for completing the unfinished reform agenda, encompassing both trade and investment policy reforms, and “behind‐the‐border” reforms. There is also a strong case, based on the experiences in East Asia and elsewhere, for combining further reforms with a proactive investment promotion campaign to attract multinational enterprises engaged in global production networks.

Export performance of developing countries: Does landlockedness matter?

AbstractLandlockedness imposes additional costs on trade and reduces international competitiveness. This paper examines the determinants of export performance in developing countries, within a comparative perspective of landlocked developing countries (LLDCs) and non‐landlocked developing countries, by using a standard gravity modeling framework. The study covers data from 1995 to 2015. The results suggest that despite recent trade policy reforms, the overall export performance of LLDCs is lower than that of non‐landlocked developing countries due to the inherent additional trade costs associated with landlockedness. The conventional wisdom that export performance is aided by economic openness also applies to LLDCs, but distance‐related trade costs have a greater negative impact on exports from LLDCs than on other developing countries. The immediate trade policy challenge for LLDCs is therefore to create a more trade‐friendly environment by lowering tariffs, reforming exchange rates and entering into regional trade agreements.