Trade Policy Variables Research Articles

Impact of trade and investment on income surge in Bangladesh: Evidence from trade liberalization regime

Trade and investment are crucial drivers of economic growth. Successful execution of trade and investment policy can elevate a developing country to a sustained growth path and make it self‐reliant. Bangladesh implemented a trade liberalization policy in the 1980s, deviating much from its conservative trade policy. This article assesses the impacts of trade, investment in physical as well as human capital, and a few trade policy variables on income surge for the liberalized regime. The econometric analysis finds that export, import, and domestic investment stimulate income. The impact of foreign investment is not conducive. Public spending on education also contributes to the income surge. Among the policy variables, trade openness and currency depreciation produce a beneficial impact. Population growth retards economic growth. The baseline results hold in the estimations involving several specifications of variables and testified as robust. The article views that a comprehensive approach to trade and investment policy would ensure the comparative advantage of trade and the well‐being of Bangladesh.

Assessing the Seafood Trade Diversion Arising from Economic Sanctions: Evidence from Russia and Western Countries.

Since 2014, economic sanctions between Russia and Western nations have significantly altered the global seafood trade. The consequent decline in bilateral trade also had spillover effects on the rest of the world (ROW). According to earlier studies, economic sanctions appear to negatively impact bilateral trade and income. However, few studies examine how Russian sanctions affect the world as a whole and estimate their effects on the fisheries industry. This study seeks to close this gap by quantifying the extent to which Russian sanctions have impacted trade in terms of trade deflection, trade destruction, trade depression, and trade creation. To this end, panel data from 185 countries were created for the years from 2005 to 2020. With trade policy variables that account for changes in trade channels, a structural gravity trade model was specified. Based on calculations using the Poisson pseudo-maximum likelihood (PPML) fixed effect model, economic sanctions led to a 119.28% surge in Russia's seafood imports from the rest of the world (ROW), alongside a 39% decline in imports from Western countries. The extent of trade deflection, which includes the exports of Western nations diverted from Russia to the ROW markets, increased by 5.49%. The results demonstrate that trade between sanctioned states, as well as global trade, is significantly impacted by economic sanctions.

The effects of digital trade policies on digital trade

AbstractAs digital trade expands worldwide, the importance of policy factors in digital trade is garnering attention. However, the effectiveness of digital trade‐related policies on digital trade flow is empirically underinvestigated because of challenging data requirements. To overcome this, we combine recently developed, but separately used digital trade‐related datasets to empirically test how digital trade policies affect digital trade flows. In particular, we examine the effects of digital trade policies from two dimensions: unilateral domestic regulations and bilateral trade agreements. Our results reveal that a pair of countries experiences an increase in digital trade flow when they have a trade agreement containing digital trade‐related provisions. This tendency is even stronger when digital trade agreements contain more specific rules. On the contrary, domestic regulations recognised as digital trade barriers actually inhibit digital trade flows, and their negative effect is greater when the regulations are implemented by the importing country than the exporting one. Decomposing the barriers into several areas of regulations, we examine which area is more crucial than the others. These results may seem rather obvious, but conversely, they confirm the validity of our approach to measure digital trade flows across countries and the relevance of the digital trade policy variables.

Regionalism or Multilateralism: Evidence from India

With an impasse at Doha round of negotiations, many countries started to change their course of economic liberalization from generic policies of multilateralism to regional trade agreements (RTAs). In this scenario, India plausibly lacks the presence and will of concluding such agreements with some of its major trading partners while being sceptical about the existing ones. Using structural gravity, this study has quantified the impact of country-specific globalization levels and RTAs on international trade among India and its 32 major trading partners. Unlike a plethora of studies employing the gravity model on Indian trade policy issues, we have made use of many recent advancements in gravity modelling. Our methodology robust to the use of intra-national trade data, two alternative estimators, and multiple scenarios naturally addresses the endogeneity issues that are prominent with trade policy variables like RTAs. The empirical results reveal that RTAs have a comparatively strong impact in promoting trade among sample countries. However, country-specific globalization levels measured by the KOF globalization index have a very negligible impact on promoting trade among sample countries. Furthermore, we have obtained very slight asymmetries across the impact of country-specific globalization levels on exports versus imports of mid-income countries with high-income countries. JEL Codes: F1, F14, F15, F60, F68

Trade Policy Impact on Global Value Chain Participation of the South Asian Countries

This article provides an empirical analysis on the relationship between trade policy and global value chain (GVC) participation of the South Asian countries using Asian Development Bank’s country-sector Wang, Wei and Zhu decomposed exports data. We employ theoretically grounded three-way fixed effects gravity model with bias correction for incidental parameter problem to get unbiased and consistent coefficients for trade policy variables. This study finds strong evidence for the depressing effect of border tariffs on bilateral exports and forward and backward GVC participation. The negative effects are most prominent in the agriculture and food sectors. Moreover, we find that the regional trade agreements (RTAs) of South Asian countries have a negligible impact on trade and GVC participation in most sectors. However, we find evidence for the phasing-in effect of RTAs and a strong negative effect on bilateral food trade and GVC participation. Reformulating trade policy priorities and restructuring the RTAs to remove strict general regulatory measures like sensitive lists and rules of origin (ROO) should be South Asian policymakers’ priorities for robust trade lead growth. JEL Classification: F14, L23, O11, O55, Q17

Non‐tariff measures and productivity of Ukrainian food‐processing firms

AbstractUsing detailed data on veterinary, ecological, sanitary, phytosanitary and mandatory certification measures, this paper studies the effect of non‐tariff measures (NTMs) on firm productivity in the food‐processing industry through forward and backward linkages. Using quantity and value of output at product level, we calculate and compare quantity‐ and revenue‐based measures of total factor productivity (TFP). Exploiting the episode of NTM liberalisation in Ukraine in 2008–2012, we find that NTMs on intermediate inputs have a negative effect on quantity‐based TFP. Other trade policy variables, including input tariffs and output NTMs also negatively influence productivity. The effect on the revenue‐based TFP is weaker due to price and quality adjustments. Interacting changes in input NTMs with import intensity prior to trade liberalisation, we find that firms that used imported inputs more intensively tend to have lower long‐run TFP growth.

The trade policy effect in international trade: case of Pakistan

The debate on free trade and protectionism is ravaging in recent years. The industrialized countries are losing more and more market to the benefit of emerging countries. Liberals worry about new tariff barriers, while protectionists fear that unevenly distributed losses and gains will lead to significant economic dislocation of workers in import-competing industries. The economic policy of restricting imports and the economic policy of opening exports remain two critical measures of international trade. This study uses the gravity model to investigate the impacts of trade policy measures on trade flows between Pakistan and its dominant trading pattern for the period 2006 to 2015. The findings revealed the statistically significant correlation of trade policy variables on exports and imports. The study extended the analysis by examining four specificities groups of trade policy and continuing the analysis by estimating different country groups according to geographical or organizational clusters. The findings indicated that the specificities of trade policy have a statistically significant effect on exports and imports. Moreover, the signs of the coefficients are opposite in both models. The main political implication is that the proliferation of free trade agreements can have a positive impact on international trade.

Analyzing the role of Imports in Economic Growth of Pakistan; Evidence from ARDL Bound Testing Approach

Imports were considered to be expenditure of an economy's budget in post liberalization era but soon world economies has realized the importance and value of imports in accomplishing requirements of growing economic development. Thus protectionist's policies were sidelined in the interest of economy and promote acknowledgement of technical and resource diffusion from developed economies. Pakistan is a developing country and with many problems it also experiencing deficit in balance of trade since independence. That is why this study attempted to endeavor the role of imports and its determinants in economic growth in Pakistan applying ARDL Bound testing approach. The study found optimistic and noteworthy effect of imports and its determinants in economic growth of Pakistan supportive of world income and other trade policy variables too.

Foreign Debt in EU Periphery, Roots and Remedies: A New Strategy

This paper investigates the determinants of external debt in EU periphery. The goal is to contribute to the ongoing debate on the determinants of external debt and to subdue it by adopting the right policy reform. To answer this question the study implements a quantitative research methodology using econometric techniques with monetary, financial, fiscal, trade, and labor market policy variables with time-series data over the period of 1980 to 2013. The estimated econometric results with OLS technique suggest that while fiscal policy variables such as budget deficit and corporate tax rate are the most important factors in shaping external debt in Italy and Spain; monetary, financial, and trade policy variables are more important for Greece and Portugal. Interestingly, none of the labor market variables have a statistically significant impact on the foreign debt of EU peripheral countries. The policy implication is straight forward; contrary to what has been proposed by international institutions to reform the labor market, Greece and Portugal need to focus on trade and monetary policy reforms, while Italy and Spain should put more emphasis on fiscal policy reforms, particularly tax reform.

When Education Explains Strong Institutions: Trade Policy also Matters

This paper empirically examines the contribution of trade liberalisation to differences in the level of prosperity across nations. We compare this with the relative contribution of institutional capacity to prosperity, as well as the role of human capital accumulation in that respect. We employ several concepts of institutional quality, trade policy and openness variables following various definitions prevalent in the literature. Unlike in the comparable study by Rodrik et al. (2004) we have (a) included a role for human capital, (b) employed six institutional variables compared to one only in Rodrik et al. (rule of law), (c) included trade policy variables, and not just openness indicators and (d) expanded the set of openness measures employed. We discover that opening up domestic markets to foreign competition by removing trade restrictions and barriers may promote economic performance. Furthermore, developing human capital is as important as superior institutional functioning for economic wellbeing. We find that openness counts for little per se in explaining income differences across countries. This is because it is an outcome and not a cause. Trade policies, and liberalisation, on the other hand, are not insignificant in explaining cross-country per-capita income variation. With regard to trade policies, export taxes are the most important in explaining cross-country per-capita income differences.

Euro and Trade Flows in Central Europe

In this paper we estimate the trade effects of the euro adoption in Central European countries using a modified gravity model. In particular, we analyze the ex post implications of accession of Slovenia and Slovakia to the Eurozone. We employ a gravity model that controls for an extended set of trade theory and policy variables. Trade theory variables include both the country size and factor proportion variables. Trade policy variables include the membership in GATT/WTO, CEFTA, OECD, EU and Europe Agreements. The gravity model is estimated using the panel data approach on a sample of CEE countries trading with the rest of the world during the period 1992-2009 using the fixed effects, random effects and Hausman-Taylor estimators. It seems that elimination of exchange rate volatility resulted in trade expansion for the CEE countries but the accession to the Eurozone did not have any significant effects on exports of Slovakia and Slovenia.

Consequences of the Euro Adoption by Central and Eastern European (CEE) Countries for Their Trade Flows

In this paper we estimate the trade effects of the euro adoption in Central European countries using a modified gravity model. In particular, we analyze the ex post implications of accession of Slovenia and Slovakia to the Eurozone. We employ a gravity model that controls for an extended set of trade theory and policy variables. Trade theory variables include both the country size and factor proportion variables. Trade policy variables include the membership in GATT/WTO, CEFTA, OECD, EU and Europe Agreements. The gravity model is estimated using the panel data approach on a sample of CEE countries trading with the rest of the world during the period 1992-2010 using the fixed effects, random effects and Hausman-Taylor estimators. It seems that elimination of exchange rate volatility resulted in trade expansion for the CEE countries but the accession to the Eurozone did not have any significant effects on exports of Slovakia and Slovenia.

International Trade and Unemployment: Theory and Cross-National Evidence

In this paper, we present two alternative models of trade and unemployment, in which unemployment is generated through a search mechanism. The basic framework of the first model is Ricardian in that the only factor of production is labor and trade is based on relative technological differences. The second model has a Heckscher-Ohlin (H-O) framework with two factors of production, namely labor and capital that are intersectorally mobile. Using cross-country data on various measures of trade policy, unemployment and a variety of controls, we find strong evidence for the Ricardian prediction that unemployment and trade openness are negatively related (protection and unemployment are positively related). We do not find any support for the H-O prediction that this relation between trade openness and unemployment changes from negative to positive as we move from labor-abundant to capital-abundant countries. Our results are robust to the inclusion of controls for labor market institutions and macroeconomic distortions. They hold for both ordinary least squares and instrumental-variables approaches, where the latter accounts for the endogeneity of trade policy to unemployment and possible measurement errors in trade policy variables.

Trade Liberalisation, Financial Development and Economic Growth

This paper empirically investigates the impact of trade and financial liberalisation on economic growth in Pakistan using annual observations over the period 1961-2005. The analysis is based on the bound testing approach of cointegration advanced by Pesaran, et al. (2001). The empirical findings suggest that both trade and financial policies play an important role in enhancing economic growth in Pakistan in the long-run. However, the short-run responses of the real deposit rate and trade policy variables are very low, suggesting further acceleration of the reform process. The feedback coefficient suggests a very slow rate of adjustment towards long-run equilibrium. The estimated equation remains stable over the period of study as indicated by CUSUM and CUSUMQ stability tests.

Nonlinearities and Robustness in Growth Regressions

Much economic growth research has been devoted to determining the explanatory variables that explain cross-country variation in growth rates. A frequently cited problem with this literature is that the number of potential growth regressors is vast, potentially exceeding the number of countries available for study. Thus, researchers are faced with the task of arbitrarily specifying which explanatory variables to include in their growth regressions, raising concerns about how confident we can be in their results. These concerns were magnified by the influential paper of Ross Levine and David Renelt (1992), in which they employ a variation of Edward E. Leamer’s (1983) extreme bounds analysis to test the robustness of conventional growth regression coefficients to changes in the set of conditioning variables. They conclude that the results of this literature are extremely fragile, with the only robust determinants of growth being physical capital investment, initial income, and secondary school enrollment. In contrast, they demonstrate the fragility of a host of fiscal, monetary, and trade policy variables, as well as measures of political and economic stability and economic distortions. There have been two main responses to their findings. The pessimistic response has been to conclude, given the lack of a reliable statistical relationship between conventional macroeconomic indicators and growth, that cross-country growth regressions cannot tell us anything about growth. The more optimistic response has been to argue that the extreme bounds analysis Growth, Education, and invEstmEnt in childrEn †

Are Institutions More Important than Integration

The purpose of this paper is to empirically examine the contribution of trade liberalisation upon poverty via its impact on per-capita income levels. In addition we compare this with the relative contribution of institutional capacity to prosperity, as well as the role of human capital accumulation in that respect. We employ several concepts of institutional quality, trade policy and openness variables following various definitions prevalent in the literature. For example, we take into account the six different classifications of institutions identified by Kaufman et al (2002), namely rule of law, political stability, regulatory quality, government effectiveness, voice and accountability and control of corruption. On the international economic integration front, we have carefully chosen three specific measures of openness. The ratio of nominal imports plus exports to GDP is the conventional openness indicator, we use two others: overall trade penetration and overall import penetration. Neither of these measures are direct indicators of trade policy of a country, pointing only towards the level of its participation in international trade. There are indicators of trade restrictiveness acting as measures of trade policy, including import tariffs as percentage of imports, tariffs on intermediate inputs and capital goods, trade taxes as a ratio of overall trade and total import charges can all be considered as good proxies of trade restrictiveness and have also been employed in this study. Other measures which capture restrictions in overall trade are non-tariff barriers. Additionally, we have also used composite measures of the overall trade policy stance to examine how openness influences per-capita income. Our study employs 6 institutional and 11 openness variables in an attempt to undertake a comprehensive analysis of how institutional quality and exposure to increased international trade affects the economic performance of a country. Unlike in the comparable study by Rodrik et al (2004) we have (a) included a role for human capital, (b) employed six institutional variables compared to one only in Rodrik et al (rule of law), (c) included trade policy variables and not just openness indicators and (d) expanded the set of openness measures employed. To summarise our findings, we discover that opening up domestic markets to foreign competition by revoking trade restrictions and trade barriers can be good for economic performance. Secondly, developing human capital is as important as superior institutional functioning for economic wellbeing. Indeed, the accumulation of human capital stocks via increased education might lead to improved institutional functioning, and the utilisation of policies like trade liberalisation. Policies aimed at educational improvement yield a double dividend: they improve institutions in the longer-run and in the shorter-run they will allow for greater gains to the economy from trade liberalisation. With regard to the role of international integration versus institutions we have found that openness counts for little per se in explaining income differences across countries. This is because it is an outcome and not a cause. Trade policies, and liberalisation, on the other hand, are not insignificant in explaining cross-country per-capita income variation. With regard to trade policies we can safely say that the overall policy stance, particularly those associated with black market premia in foreign exchange markets and export taxes, are most important in explaining differences in income across countries. The presence of these two phenomena are also closely related to poor institutional performance. Tariffs and quotas on imports, however, are of secondary importance, indicating that they are less growth retarding.