Unilateral Trade Liberalization Research Articles

Regional integration and economic performance: evidence from the Eurasian Economic Union

ABSTRACT There is a strong relationship between regional integration and economic performance. This paper investigates the impact of regional integration on macroeconomic indicators in the Eurasian Economic Union (EAEU) – a trade block created by the former Soviet republics in 2014. This study compares two types of regional collaboration strategies: first, unilateral trade liberalization with the one-sided opening of market access that does not imply any mutual concessions, and second, reciprocal regional liberalization evaluated as the degree of regional economic integration between the countries. We apply a random effect panel data analysis with the dataset over 25 years since 1995 covering five countries (Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia). We find that, under the current stage, the EAEU positively affects trade flows, negatively affects the level of employment, and has no impact on other economic performance indicators. We also conclude that despite the declared level of economic integration – customs union – Eurasian block functions mainly as a free trade area facilitating mutual trade, which is different from the broader objectives that regional integration aims to achieve.

Systematic literature review on trade liberalization and sustainable development

This paper compiles a systematic review of research papers that identify the effect of international trade and trade liberalization policies on socio-economic targets linked to the sustainable development goals (SDGs). A comprehensive overview of the existing literature is provided, focusing on papers that identify causality and covering topics that have not been systematically analyzed previously. While existing literature reviews have focused on the effects of trade openness on economic growth, its consequences for other social- and sustainable-related goals have received much less attention. We restrict the review to social- and sustainability-related SDGs and classify the empirical findings in four categories. First, we analyze the extent to which trade affects poverty (SDGs-1, 2, 8). The findings indicate that trade increases average incomes in most cases and that trade reforms that include the agricultural sector generally reduce poverty. Second, we examine labor market outcomes and analyze how international trade affects wages, unemployment, and informality (SDGs-1, 5, 8). We find that with more trade, employment and wages increase in the most dynamic sectors, but decrease in others with increases in informality in some developing countries. The third bloc documents papers that evaluate whether trade is good or bad for environmental quality, evaluating how trade reforms and increases in openness affect the environment at the macro and micro level (SDGs-3, 7, 11, 12, 15). The reviewed research indicates that the effects of trade on environmental quality are complex and depend on the sectors that liberalize and the existence of environmental standards linked to trade agreements. The fourth category concerns the effect of trade flows on food security, hence questioning whether opening the economies could contribute to better performance in SDG-2 and SDG-9. In this area, the literature is still incipient and deals mainly with correlations. More research is needed to better define the concept of food security and related indicators and to collect better data. In summary, this systematic review should guide policymakers in developing countries in the decision-making process related to trade and industrial policies. The main recommendation is to consider the main findings when designing new trade policy strategies concerning both unilateral trade liberalization and free trade agreements negotiations.

The Political Economy of Trade Barriers in Peru

This paper analyzes the political economy factors and actors that may have influenced trade instruments in Peru during the liberalization period of 2001-2015 (which started in 1990 under Fujimori’s administration). The evidence supports the hypothesis that Peruvian trade barriers liberalization in period 2000-2015 was led by the powerful “Ministry of Economy and Finance (MEF)”, accompanied by traditional and diversified exporters (that consolidated the unilateral trade liberalization) and by import substitution firms that influenced to some degree, and slowed down the rate of liberalization of unilateral trade barriers. In addition, the unilateral trade liberalization was facilitated by the weak role of the formal labor force and liberal-oriented consumer interest groups.

The elusive impacts of tariff reduction on firm selection

AbstractThe multi‐sector Melitz model predicts that unilateral trade liberalization leads to stronger selection effect and hence more pronounced industrial productivity growth in the non‐liberalized sectors, which is contrary to the empirical evidence that industrial productivity increases more in the liberalized sectors. This phenomenon is referred to as the ‘Melitz‐Trefler puzzle’. In this paper, we exploit the unique episode of China's entry into WTO and unpack the sources of the relative productivity growth in the liberalized sectors. More specifically, we show that the aggregate industrial productivity growth can be driven by either the ‘selection effect’ or the ‘shift effect’. Our empirical results suggest that the aggregate industrial productivity growth following tariff reduction is mainly driven by the ‘shift effect’ rather than the ‘selection effect’; further, the impacts of tariff reduction on the firm selection exhibit sharp industry heterogeneity, with the effect positive for industries far away from the technology frontier, and those with low technology and low R&D intensity, while negative for otherwise.

Enforcement of Labour Regulation and the Labour Market Effects of Trade: Evidence from Brazil

Abstract How does enforcement of labour regulations shape the labour market effects of trade? We combine local economic shocks generated by the unilateral trade liberalisation in Brazil and enforcement variation across regions to show that regions with stricter enforcement observed: (i) lower informality; (ii) larger losses in overall employment; (iii) greater reductions in the number of formal plants. Regions with weaker enforcement experienced opposite effects. All these effects are concentrated on low-skill workers. Our results indicate that greater flexibility introduced by informality allows both formal firms and low-skill workers to cope better with adverse labour market shocks.

The Latest Generation of SEZs: Consumer-Oriented Unilateralism in China’s E-Commerce Trade

ABSTRACT World Trade Organization multilateralism is driven by manufacturers. However, in China, Cross-border E-commerce Retail Import has spurred a new, consumer-oriented trade unilateralism. Cross-border E-commerce Retail Import prospers within China’s National Cross-Border E-commerce Pilot Cities, which are special economic zones aimed at using unilateral trade liberalization to meet consumers’ growing demands for high-quality foreign products. Cross-border E-commerce Retail Import enhances consumer benefits beyond reducing customer formalities and tax rates and lowering product prices. It re-conceptualizes consumer protection by treating consumers as diverse individuals rather than as a homothetic group. It also empowers consumers by making them ‘importers’ to minimize behind-the-border trade barriers. Cross-border E-commerce Retail Import warrants a rethinking of World Trade Organization multilateralism from its initial focus on corporations and capital owners to a revised focus on consumers.

A CGE Analysis of Indonesia's Free Trade Agreements

Using the Global Trade Analysis Project (GTAP) CGE model of the global economy, this essay analyses how much trade agreements between Indonesia and its top three trading partners – China, Japan, and the USA – could benefit Indonesia and those trading partners. In addition, an analysis of unilateral trade liberalization in Indonesia is included to provide a comparison of alternative trade liberalization policy strategies. The study conducts experiments by simulating the potential effect of the removal tariffs on imported merchandise under each liberalization scenario. The result suggests that the impact of trade liberalization is variable between strategies, but the greatest economic benefit is from the unilateral scenario. However, the restrictiveness of preferential RoO and other regulations in bilateral agreements would limit the scope for achieving the full benefit projected for the bilateral liberalization scenarios – discount rates of around 25 percent have been suggested.

A Fresh Start for US Trade Policy: Unilateral Trade Liberalization through a Tariff Reform Commission

The US tariff code stands as a barrier to reviving the US economy as it begins to recover from the coronavirus shutdown. Mounting evidence shows that statutory tariffs and the tariffs imposed by the Trump administration since 2018 are compounding the economic damage caused by the COVID-19 virus and are complicating the efforts of consumers and healthcare providers to access medical supplies. Executive action can mitigate some of the harm, but the US Constitution and the scope of the problem require congressional action. Such action should be taken unilaterally by the US government in its own national interest regardless of what actions other nations pursue. This paper recommends the establishment of a Tariff Reform Commission to enable Congress to overcome special-interest opposition to trade liberalization. The commission would be patterned after the successful Base Realignment and Closure process and Miscellaneous Tariff Bill process. It would follow the proven path taken by other nations that have unilaterally liberalized their trade policies.

Does Abolishing Tariffs in Bilateral Trade Matter for a Country’s Economic Growth? The Impact of the EU–Ukraine DCFTA

In the present study, a GTAP CGE model is used to assess three proposed scenarios for the DCFTA between the EU and Ukraine, one for unilateral trade liberalisation, another for bilateral trade liberalisation with exemptions from free trade and a third for bilateral trade liberalisation without exemptions from free trade. The main point of distinction of this study is the inclusion of exemptions from free trade in the first two simulated scenarios and the possibility of a quantitative evaluation of exemptions from free trade through the differences between scenarios 3 and 2.

The Case for and Against a Policy of Unilateral Trade Liberalization

The Case for and Against a Policy of Unilateral Trade Liberalization

Free Trade Agreements in the World Trade System: Substance and Semantics

Over the past three decades, free trade agreements (FTAs) have become an integral and enduring part of the global trading system. The number of FTAs notified to the World Trade Organization increased from 19 in 1990 to 292 by January 2019.1 However, debate on the economic case for following the FTA path as an alternative to multilateral and unilateral trade liberalisation is far from settled. The purpose of this note is to assess key themes of this policy debate. The focus is solely on the economic rationale of FTAs, even though political considerations play a key role in the proliferation of FTAs. JEL Codes: F13, F15, F55

A lab-equipment model of growth with heterogeneous firms and asymmetric countries

By extending the Rivera-Batiz–Romer lab-equipment model of growth with expanding input varieties to include both heterogeneous firms and asymmetric countries, we show that even unilateral trade liberalization always raises both countries’ long-run growth and welfare.

UK Unilateral: Post-Brexit Liberalization Potential

This study assesses the potential gains from unilateral trade liberalization for the UK, against the background of a hard Brexit in which a hard border and tariff wall is erected between the UK and the European Union. Unilateral trade liberalization would allow the UK to expeditiously offset at least some of the trade costs incurred in leaving the EU Single Market without a deal as it does not depend on negotiation with third parties, and hence is not limited by trade negotiating capacity in the UK or its prospective free trade partners. At the same time, unilateral liberalization faces the political economy challenge of removing protection in the most sensitive sectors, which is where most of the liberalization gains come from, while also giving up leverage to conclude future trade agreements. A highly ambitious unilateral liberalization scenario represents, in terms of trade structure and costs, a substantial gain but falls short of offsetting a hard Brexit (when both the unilateral scenario and the hard Brexit scenario are modelled on a common set of modelling assumptions and protocols). Based on the modelling results, the main political economy challenge to unilateral liberalization for the UK in a post-EU trade policy context would be the deep negative impacts on UK agriculture.

The Effects of Unilateral Trade Liberalization on Marriage and Fertility Choices: Evidence from Brazil

This paper investigates the effect of a large economic shock on marriage and fertility choices. I exploit the 1990's trade liberalization in Brazil which created exogenous negative labor market shocks to regions most exposed to foreign competition. While trade liberalization had a positive impact on reducing the price of consumer goods in Brazil, it also generated a negative impact on employment in previously protected industries, with larger impacts for men than women. I find that young women living in regions more exposed to international competition are less likely to have children. Most effects persist 20 years after trade liberalization. I use causal mediation analysis to show that declines in the employment of young men is an important driver of changes in fertility outcomes of young women. Changes in women's employment opportunities is not a mediator for the e ect of trade exposure on fertility. There is no evidence of changes in marriage rates across regions more or less exposed to trade liberalization.

‘Deal’ or ‘No Deal’? Impacts of Alternative Post‐Brexit Trade Agreements on UK Agriculture

SummaryBrexit will have important implications for UK agricultural commodity markets due to potentially significant changes to trade flows. We quantify the sectoral impacts on UK agriculture of three illustrative scenarios, which capture a broad range of potential trade arrangements: Bespoke Free Trade Deal, WTO Default and Unilateral Trade Liberalisation. It is estimated that the projected market impacts are relatively small if the UK negotiates a Bespoke Free Trade Agreement with the EU. The projected impacts are much greater under the two other scenarios, which capture potential trade arrangements if ‘no deal’ is reached. The high tariffs imposed under the WTO default scenario lead to significant adjustments in trade between the UK and EU‐27, with the impact on the domestic UK market depending on whether the UK is a net importer or a net exporter of the relevant commodity. All sectors experience price and production declines under the trade liberalisation scenario in which the UK unilaterally sets tariffs on imports from both the EU‐27 and the rest of the world to zero; the impacts are particularly severe in the beef and sheep sectors where international competition is very strong.

Growth and welfare effects of unilateral trade liberalization with heterogeneous firms and asymmetric countries

How do reallocations across heterogeneous firms induced by unilateral trade liberalization affect long-run growth and welfare? To answer this question, we formulate a two-country model of endogenous growth, heterogeneous firms, and asymmetric countries. The relative wage and number of domestic varieties are endogenously determined. We show that even unilateral trade liberalization can raise the balanced growth rate. Although growth-enhancing trade liberalization is always welfare-enhancing in the symmetric country case, it does not generally ensure higher long-run welfare for at most one country because of asymmetric real wage effects caused by a change in the relative number of varieties.

Boeing-Bombardier Trade Dispute: An Indication of the Growing Importance of Regional Agreements?

“………in the long run, the lack of commitment to multilateral trade that sank the Doha round this week, will also start to corrode the trading system as a whole……. America, the animating spirit behind earlier trade rounds, declared that a bad deal was worse than no deal at all – and meant it…. The underlying rationale of unilateral trade liberalization had been buried and forgotten long ago.” (The Economist, 2006a). The Uruguay and Doha trade rounds of agreements, do not only accentuate the difficulties of multilateral trade agreements, but also highlight the growing importance of regional agreements. In a phase where new territory is being experienced – particularly with the need for the United States to address its current account deficit, will it be willing to compromise in any deals involving America’s interest – in favor of diplomatic relations or will it stick to the widely held principle in Washington that “no deal at all is better than a bad deal”? Or will the United Kingdom’s involvement in the present trade dispute involving Bombardier and Boeing bring about an unprecedented and unexpected turn in events?

Trade policies, firm heterogeneity, and variable markups

We study unilateral trade liberalization in a model of monopolistic competition with heterogeneous firms, endogenous wages, and non-separable and non-homothetic quadratic preferences that generate variable markups. We show that the optimal level of the revenue-generating import tariff is strictly positive so that protection is always desirable, whether the liberalizing economy is large or small. Yet, reductions in cost-shifting trade barriers are welfare-improving, making free trade optimal. Finally, we show that in both cases, variable markups result in negative pro-competitive effects, reducing gains from trade.

An asymmetric Melitz model of trade and growth

In an asymmetric two-country Melitz model, compared with the old balanced growth path, unilateral trade liberalization increases the masses and revenue shares of exported varieties and the growth rates of all countries for all periods, and welfare of all countries.

Protectionism, how stupid is this? The causal effect of free trade for the world’s poorest countries: Evidence from a quasi-experiment in Switzerland

Against the background of a possible revival of protectionism, we study a quasi-experimental situation in Switzerland to estimate the causal effect of free market access on agro-food exports of least-developed countries. We show that due to this setup our study is not suffering from selection and attrition issues plaguing existing studies. To estimate the causal effect of a unilateral trade liberalization we implement a difference-in-differences model based on synthetic control methods. We find that on average agro-food exports of least-developed countries to Switzerland were about 80% higher due to the introduction of free market access. In other words, if Switzerland had followed the path of protectionism, least-developed countries’ agro-food exports would have been almost half of what they are under free trade.