Economic research and trade policy analysis
Deep Integration and Production Networks
In this paper the two way relationship between deep integration and production networks trade is investigated. Deep integration is captured by a set of indices constructed in terms of policy areas covered in preferential trade agreements. An augmented gravity equation is estimated to investigate the impact of deep integration on production networks. The results show that on average signing deeper agreements increases production networks trade between member countries by almost 35 percentage points. In addition the impact of deep integration is higher for trade in automobile parts and information and technology products compared with textiles products. To analyse whether higher levels of network trade increase the likelihood of signing deeper agreements the literature on the determinants of preferential trade agreements is followed. The estimation results show that after taking into account other PTAs determinants a ten per cent increase in the share of production network trade over total trade increases the depth of an agreement by approximately 6 percentage points. In addition the probability of signing deeper agreements is higher for country pairs involved in North-South production sharing and for countries belonging to the Asia region.
How do natural disasters affect services trade?
This paper is the first in the literature to examine the impact of natural disasters on trade in services. We measure the magnitude of natural disasters using two distinct sets of variables and quantify the effect of natural disasters on trade in services using a structural gravity model.
Endowments, Power, and Democracy
In spite of their growing importance in international trade as well as in bilateral and multilateral trade negotiations services have only attracted limited attention from researchers interested in determinants of trade policies and trade cooperation. This paper seeks to account for countries' varying levels of market access commitments under the multilateral General Agreement on Trade in Services (GATS). I develop an argument suggesting how levels of democracy and factor endowments are associated with more commitments. The empirical analysis supports these propositions and also suggests that relative size as well as regulatory capacity are positively linked to GATS commitments.
The “China Shock” Revisited
We exploit a decomposition of gross trade flows into their value added components to reassess the relationship between increased imports from China and manufacturing jobs in US local labour markets following the seminal paper of Autor Dorn and Hanson (2013 ADH).
The Relationship Between Exchange Rates and International Trade
This paper surveys a wide body of economic literature on the relationship between currencies and trade. Two main issues are investigated: the impact on international trade of exchange rate volatility and of currency misalignments. On average exchange rate volatility has a negative (even if not large) impact on trade flows. The extent of this effect depends on a number of factors including the existence of hedging instruments the structure of production and the degree of economic integration across countries. Exchange rate misalignments are predicted to have short-run effects in models with price rigidities but the exact impact depends on a number of features such as the pricing strategy of firms engaging in international trade and the importance of global production networks. This effect is predicted to disappear in the long-run unless some other distortion characterizes the economy. Empirical results confirm that short-run effects can exist but their size and persistence over time are not consistent across different studies.
Liberalizing Financial Services Trade in Africa
This paper analyses the possible gains from regional and multilateral liberalization of financial services trade for African countries taking into account the implications of such liberalization for financial regulation and capital account liberalization. It also describes existing efforts to integrate financial markets within four African regions (WAEMU CEMAC SADC and COMESA) and discusses the existing GATS commitments of the relevant countries with respect to financial services. Although the regions differ significantly there is scope for further regional integration in all of them. Significant scope also exists for further multilateral liberalization of financial services in particular with respect to Mode 3.
Least-Developed Countries, Transfer of Technology and the Trips Agreement
This paper examines the background of Article 66.2 of the TRIPS Agreement the nature of this obligation on developed country Members that pertains to the promotion of technology transfer to LDC Members and how it is being implemented and how such implementation is being monitored in the TRIPS Council.
Footloose Global Value Chains
The geography of global value chains (GVCs) depends crucially on trade costs between countries hosting various stages of production. Some stages might be more sensitive to trade costs than others. In this paper we exploit a value-added decomposition of bilateral trade flows to distinguish low value-added GVC trade typically associated with production stages such as assembly from high value-added GVC trade associated with stages such as R&D and design. We test the hypothesis that low value-added stages will more easily reroute given changes in trade costs between importing and exporting countries than high value-added stages.
Preferential and Non-Preferential Trade Flows in World Trade
This paper quantifies the extent of preferential trade as a share of total world trade in different regions of the world and for two periods. Results show that: i) preferential trade represented 40% of world trade in the period 1988-1992 and it slightly increased to 42% during the period 1993-1997; ii) during the second period agricultural products generally benefited more from the existence of preferential trade agreements than industrial products (maybe due to GATT-exemption); iii) the regional distribution of preferential trade is relatively uneven with a significant share of preferential trade in Western Europe (around 70 per cent) relatively low values in the Western Hemisphere (around 25 per cent) very low shares in Asia and Oceania (around 4 per cent) and average values in the rest-of-the-world (Eastern Europe and Africa); iv) the largest increase in shares of preferential trade between the two periods has occurred in the Western Hemisphere and in Eastern-Europe and Africa; v) at the country level there is an inverted-u-shape relationship between the share of preferential trade and the size and GDP per capita of individual countries; vi) countries which are highly open to trade tend to have a larger share of preferential trade on total trade in the period 1993-1997 suggesting that preferential and non-preferential trade can be seen as complements.
Mapping the Tariff Waters
Tariff water –the difference between bound and applied duties– provides relevant information on domestic trade policy and WTO trade negotiations. This paper examines the general and sectoral tariff structure of 120 economies using exploratory data analysis.
The Development of Trade Policies in the Asia and Pacific Region Over the Past 30 Years Since 1989
This paper reviews the main developments of trade and related policies and measures in the Asia and Pacific region during the 30 years since establishment in 1989 of the Trade Policy Review Mechanism (TPRM). The objectives of the TPRM include facilitating the smooth functioning of the multilateral trading system by enhancing the transparency of WTO Members' trade policies.
Use of Currencies in International Trade
The paper reviews a number of issues related to the use of currencies in international trade more than one decade after the introduction of the euro and shortly after steps taken by the Chinese authorities to liberalize the use of the RMB in off-shore markets. Trade is an important factor in establishing a currency as an international currency notably by fulfilling the transaction/medium of exchange and unit of account motives of currency demand. A well prepared liberalization of currency use for international trade and foreign direct investment transactions can even be helpful in achieving the international investment and reserve currency status. While in the distant past the later was also linked to preponderance of a country in trade markets it is now linked to the prevalence of the currency in international financial transactions which supposes that the country in question engages at least partly in some liberalization of capital account transactions. This paper shows theoretical and practical reasons explaining the current dominance of the US dollar and the euro in the invoicing of international trade. There is little doubt though that in the medium-to-long term the RMB will become a major currency of settlement in international trade. This is not only the current direction of government policy but also that of markets as evidenced by the rapid expansion of off-shore trade payments in that currency. In the meantime though the US dollar and the euro are enjoying a nearduopoly as settlement and invoicing currencies in international trade. The stability of this duopoly is enhanced by a number of factors recently highlighted by economic analysis: coalescing "thick externalities" and scarcity of international currencies are useful to explain that until such time that RMB payments match at least the share of China in global trade the US dollar and of the euro will remain the main currencies in the invoicing and payment of international trade. Section 1 looks at the factors that determine the use of currencies in the invoicing and settlement of international trade. Section 2 looks at the actual reality of currency use for international trade flows and short-term prospects for the development of a possible alternative to the use of the US dollar and the euro (in particular in Asia) the RMB.
Competition Agency Guidelines and Policy Initiatives Regarding the Application of Competition Law Vis-À-Vis Intellectual Property
Competition agency guidelines policy statements and related advocacy are an important vehicle for policy expression and the guidance of firms across the full spectrum of anti-competitive practices and market conduct.
Fog in GATS Commitments
The creation of the General Agreement on Trade in Services (GATS) in the Uruguay Round and its entry into force in 1995 marked a new stage in the history of the multilateral system. It was motivated essentially by the rapid expansion of international services trade within an increasingly open environment in many countries. Given the peculiarities of services trade including the intangible nature of the products concerned and the need for direct contact between supplier and user in many cases the Agreement contains a variety of conceptual innovations including its extension to modes of supply beyond conventional cross-border trade (consumption abroad commercial presence and presence of natural persons) and its coverage and legitimization of various types of non-tariff restrictions. In turn the new concepts needed time to be absorbed by the ministries and agencies involved in services trade. Further the positive-list or bottom-up approach to scheduling trade commitments under the GATS meant that great flexibility was given to Members in selecting the sectors concerned and specifying the levels of access provided under individual modes. Thus not surprisingly the schedules that emerged from the Uruguay Round which still account for the majority of current commitments contain a variety of unclear or superfluous entries that may cause interpretation problems. Their solution could contribute significantly to the clarity and comparability of access obligations across sectors and WTO Members. The scheduling conventions agreed for the Doha Round thus provide specifically for the possibility of technical refinements that leave the substance of commitments unchanged. However not only was this possibility used more sparingly to date than might have been expected but additional flaws would be introduced if some current offers were to enter into effect. The following discussion with a focus on a particular group of entries (market access via commercial presence) tries to explain the scope for such refinements and develop a clearer picture of the areas where further action might be needed.
Joint Indicative List of Critical COVID-19 Vaccine Inputs for Consultation
The WTO Secretariat has published an indicative list compiling information on the critical inputs for the manufacturing distributing and administering of COVID-19 vaccines. The list was jointly produced with the Asian Development Bank the Organisation for Economic Cooperation and Development the World Customs Organization some COVID-19 vaccine manufacturers researchers Chad Bown and Chris Rogers the Coalition for Epidemic Preparedness Innovations and DHL.
Risk Assessment in the International Food Safety Policy Arena
Two institutions provide multilateral venues for countries to discuss food safety measures at the international level: the Codex Alimentarius Commission (Codex) and the World Trade Organization. Both institutions encourage their members to base food safety standards on scientific evidence. In this paper we provide a description of how food safety related scientific evidence is generated and how it is used in the context of risk assessment for international standard-setting at CODEX and in WTO trade disputes. In particular we discuss the processes leading to policy conclusions on the basis of scientific evidence with a focus on the interactions involved between private and public sector actors and those between “scientific experts” and others. We identify weaknesses in the current institutional set-up and provide suggestions on how to improve the interaction between different players at the national and international level so as to strengthen the existing system and increase its cost efficiency.
Fiscal Policy Cycles and the Public Expenditure in Developing Countries
The paper studies empirically the fiscal policy instruments by which governments try to influence election outcomes in 24 developing countries for the 1973-1992 period. The study finds that the main vehicle for expansionary fiscal policies around elections is increasing public expenditure rather than lowering taxes and public investment cycles seem particularly prominent. Institutional mechanisms which constrain discretionary expenditure policies and which strengthen fiscal control are therefore worthwhile considering to prevent opportunistic policy making around elections.
More Stringent BITs, Less Ambiguous Effects on FDI? Not a Bit!
We focus on investor-state dispute settlement provisions contained in various though far from all bilateral investment treaties as a possible determinant of BIT-related effects on bilateral FDI flows. Our estimation results prove to be sensitive to the specification of these provisions as well as the inclusion of transition countries in the sample. Stricter dispute settlement provisions do not necessarily result in higher FDI inflows so that the effectiveness of BITs as a credible commitment device remains elusive.
Covered or not Covered: That is the Question
The GATS does not offer a definition of "services" but services need to be identified and classified for the operation of the Agreement especially for the scheduling of specific commitments on market access and national treatment. There is no obligation on WTO Members to use any particular classification system in undertaking commitments. Nevertheless an informal document produced for the services negotiation during the Uruguay Round the Services Sectoral Classification List (W/120) was used and continues to be used as the principal guiding classification system not only in the WTO but also in bilateral and plurilateral services trade negotiations outside of the WTO. WTO jurisprudence has also noted the role of W/120 in the determination of sectoral coverage of GATS commitments. However services classification does not receive enough attention it deserves. This paper attempts to make contribution by providing an overview of services classification and highlighting its relevance to both trade negotiations and WTO dispute settlement. It consists of four sections. Section I reviews how a services classification system was introduced into the multilateral trading system and describes the main features of W120. Section II takes a closer look at some aspects of the classification system drawing attention to challenges in its application which arise from inter alia services with multiple end-uses overlaps between sectors and the issue of "new services". Section III considers the implications of classification on GATS commitments by examining a number of WTO dispute settlement cases. Section IV concludes. In conclusion the paper underlines the importance of services classification in assisting governments in clearly and accurately undertaking commitments. It also notes that WTO Members have taken or suggested various pragmatic approaches to addressing challenges in the application of the current services classification system. The proposed approaches again highlight the role of classification in ensuring the clarity certainty and predictability of specific commitments in services.
Knowledge Spillovers through International Supply Chains
Using industry-level R&D and patent data for a sample of 29 countries for the period 2000-2008 we study the importance of international supply linkages for knowledge spillovers. We find a statistically significant effect of supply chains on international knowledge spillovers. We show that knowledge spillovers increase with the intensity of supply chains linkages between countries. We also show that the evidence that knowledge spillovers flow along the supply chains is more robust than the traditional finding that knowledge spillovers depend on geographical distance or trade flows. Our findings support policies that favour participation in supply chains to foster economic development but also show that potential gains depend on the type of participation.