Amit Khandelwal, Pete Schott, and Shang-Jin Wei have a nice VoxEU column describing their forthcoming AER article on Chinese textile exports under the Multifibre Arrangementquotas. In short, inefficiently implemented policy can substantially amplify the economic distortions introduced by trade barriers:
If trade barriers are managed by inefficient institutions, trade liberalization can lead to greater-than-expected gains. We examine Chinese textile and clothing exports before and after the elimination of externally imposed export quotas. Both the surge in export volume and the decline in export prices following quota removal are driven by net entry. This outcome is inconsistent with a model in which quotas are allocated based on firm productivity, implying misallocation of resources. Removing this misallocation accounts for a substantial share of the overall gain in productivity associated with quota removal.
Alan Beattie and Joshua Chaffin in the FT:
This month, a working group led by EU trade commissioner Karel De Gucht and US trade representative Ron Kirk is likely to suggest starting formal negotiations…
“The stars are almost aligned,” says Greg Slater, director of global trade policy at Intel, the chipmaker. The US and EU “have the opportunity to try to set the gold standard” in areas such as intellectual property protection, he says, which emerging markets like China and India would then have to respect.
Yet the deal faces complex challenges. Trade policy has moved from focusing on simple import tariffs on goods – already low for most transatlantic commerce – to often complicated “behind-the-border” domestic regulation. Technical standards, not tariffs, are the biggest barriers to integrating fast-growing US and European markets such as pharmaceuticals, medical services and advanced electronics…
“The aim in many instances is not to drive immediately for full regulatory convergence but to try to make sure that regulators on both sides of the Atlantic are making decisions with their eyes wide open,” says Sean Heather, vice-president of the [US Chamber of Commerce] chamber’s centre for global regulation. “The idea that negotiators are going to sit down with a big list and say: ‘We’ll give you that if you give us this,’ is probably not going to work for most regulations.”
Yet even agreeing an approach on convergence confronts bureaucratic and philosophical barriers. Regulation in both economies is frequently divided among different agencies, some jealous of their independence and unused to considering international implications.
A U.S.-EU trade deal is essentially a way to ignore countries like Brazil and India while crafting rules that will govern some of the high-tech industries and information-based services that play a growing role in US-EU trade. Once those rules are set, the BRICs will be hard pressed to avoid signing onto them later on down the road.
Two things have changed. First, the traditional method of multilateral trade liberalization has died. Second, while both the US and EU are major trading states, they’re not quite as pivotal as they used to be. Ironically, it’s their declining (though still appreciable) importance in global trade that makes a US-EU agreement feasible now. The BRIC economies are now sufficiently large that a transatlantic trade deal doesn’t seem like an existential threat.
And here’s Richard Baldwin, “Regulatory Protectionism, Developing Nations, and a Two-Tier World Trade System ,” Brookings Trade Forum: 2000.
I haven’t seen the inside of John McLaren’s new international trade textbook, but I really like the cover:
Some recent VoxEU columns:
- In Belgian firm-level data, a smaller percentage of services-producing firms export than goods-producing firms. Exporting entry and exit rates are higher in services than goods.
- Richard Baldwin says that vertical specialization requires global trade governance sufficiently distinct from existing WTO practices that it requires a new organization.
- An optimistic take on the Trans-Pacific Partnership and proposed EU-US trade deal.
Who’s on the job market this year with a paper on international trade? As usual, I focus on trade papers, thereby neglecting international finance and open-economy macro papers and trade economists working in other fields. I’m a bit late this year, so please help me by identifying more candidates in the comments section. [Update: Thanks to Rm and Bernardo for their comments.]
- Assaf Zimring (Stanford) – Gains from Trade: Lessons from The 2007-2010 Gaza Blockade
- Qi Zhang (LSE) – Income Distribution and the Price Level: The Balassa-Samuelson Relationship Re-considered
- Hongsong Zhang (PSU) - Static and Dynamic Gains from Importing Intermediate Inputs: Theory and Evidence
- Christopher Tonetti (NYU) – Equilibrium Technology Diffusion, Trade, and Growth
- Felix Tintelnot (PSU) – Global Production with Export Platforms
- Tomasz Swiecki (Princeton) – Intersectoral Distortions, Structural Change and the Welfare Gains from Trade
- Joseph Shapiro (MIT) – Trade, CO₂, and the Environment
- Fernando Perez Cervantes (Chicago) – Railroads and Economic Growth: A Trade Policy Approach
- Dan Murphy (Michigan) – Why are Goods and Services more Expensive in Rich Countries? Demand Complementarities and Cross-Country Price Differences
- Julien Martin (Louvain) - The Few Leading the Many: Foreign Affiliates and Business Cycle Comovement
- Yanping Liu (PSU) – Capital Adjustment Costs: Implications for Domestic and Export Sales Dynamics
- Fernando Leibovici (NYU) – Financial Development and International Trade
- Attakrit Leckcivilize (LSE) – The Impact of Supply Chain Disruptions: Evidence from the Japanese Tsunami
- Sarah Kroeger (BU) – The Contribution of Offshoring to the Convexification of the U.S. Wage Distribution
- James Key (PSU) – Priors and Posteriors: Implications for Exporters
- Leo Karasik (U Toronto) – The Role of Regional Portfolios in the Affiliate Location Decision of Multinational Firms
- Fadi Hassan (LSE) – The Price of Development
- John Feddersen (Oxford) – Pollution Havens: Does Third Country Environmental Policy Matter?
- Benjamin Faber (LSE) – Trade Liberalization, the Price of Quality, and Inequality: Evidence from Mexican Store Prices
- Javier Cravino (UCLA) – Exchange Rates, Aggregate Productivity and the Currency of Invoicing of International Trade
- Bo-Young Choi (UC Davis) – The Differential Effect of Trade Liberalization When Buyer Power is Present
- Samuel Bazzi (UCSD) – Wealth Heterogeneity, Income Shocks, and International Migration: Theory and Evidence from Indonesia
- Jose Asturias (Minnesota) – Endogenous Transportation Costs
Here’s an analytic framework that’s almost surely wrong:
What do market economies have to do with cities?
Well, obviously cities are economic entities. To survive, a city or a region has to make money; it has to export more than it imports, in dollar terms. Cities that decline are on the losing side of this equation. So if you care about cities, which I do, it leads you to think about how they function as economic entities.
Alex Marshall’s new book doesn’t mention exports in the context of cities, so I don’t have a way to follow up on the logic underlying this claim. But trade surpluses are not at the heart of urban growth in any urban economics literature I’ve read.
[HT: Aaron Brown]
This blog has a long history of covering preferential trade, as the title suggests. But I don’t follow proposed trade deals very much these days, largely because serious trade proposals haven’t been forthcoming in recent years.
If I had been paying attention, I would have noticed “a slow and steady effort to generate support for a U.S.-EU free trade agreement” “over the past year or so”, as noted by Simon Lester. At the WaPo, David Ignatius reports/opines:
But a big idea is taking shape that could revitalize the U.S.-European partnership for the 21st century. It was the talk of Berlin and Hamburg when I was there a week ago, and there’s a similar buzz in Washington. The idea is free trade — specifically, a trans-Atlantic free-trade agreement — which I’ll optimistically call “TAFTA.”
Secretary of State Hillary Clinton tipped the U.S. hand on Nov. 29 when she said at the Brookings Institution, “We are discussing possible negotiations with the European Union for a comprehensive agreement that would increase trade and spur growth on both sides of the Atlantic.”…
Curious as to whether Clinton’s speech was just window dressing from a departing secretary, I asked the White House this week whether the TAFTA talk is real. The answer was yes: Obama is considering making a trans-Atlantic trade initiative an important part of his second-term agenda. Combined with the North American Free Trade Agreement in Latin America and the Trans-Pacific Partnership in Asia, this could create a global trading system that might be an enduring part of Obama’s legacy.
See Simon Lester for one set of reasons to be skeptical.
Given (my uninformed impression of) current trade politics in the US, I see little reason to take TAFTA seriously at this stage. The Trans-Pacific Partnership negotiations have been going for about five years (with 15 rounds of formal negotiations over the last three years), so I’d be shocked if there were any accelerated action on the TAFTA front.
I don’t understand the piece’s opening, though it has little to do with what follows. It begins:
AMERICA is full of vast, empty spaces. Europe, by contrast, seems chock-a-block with humanity, its history shaped by a lack of continental elbowroom. Ironically, Europe’s congestion partly reflects the fact that its large cities suck up relatively few people.
Moving people across cities wouldn’t change the (unweighted) average population density of the US or EU, so what does this comparison mean? Europe is going to be full of humanity because the land area of the EU is roughly half that of the continguous US (1.7m vs 3.1m square miles). Since larger cities are generally denser, the population-weighted density of Europe would rise if its large cities had higher population shares.
Never mind the elbowroom. The Economist continues:
Although America and the euro zone have similar total populations, America’s 50 largest metropolitan areas are home to 164m people, compared with just 102m in the euro area. This striking disparity has big consequences.
Differences in metropolitan populations may help explain gaps in productivity and incomes. Western Europe’s per-person GDP is 72% of America’s, on a purchasing-power-parity basis. A recent study by the McKinsey Global Institute, the consultancy’s research arm, reckons that some three-quarters of this gap can be chalked up to Europe’s relatively diminutive cities. More Americans than Europeans live in big cities: there is a particular divergence in the size of each region’s “middleweight” cities, those that teem just a little less than the likes of New York and Paris (see chart). And the premium earned by Americans in large cities relative to those in the countryside is larger than that earned by urban Europeans.
The gap in per capita GDP between the US and Europe is about 35%, according to the MGI figures in Exhibit 2. The “large city” premia in the United States and Europe of 34% and 30% are virtually the same. That means that the difference in per capita income attributable to the difference in “large city” population shares is the large city premium (~30pp) times the difference in large city population shares (22pp). The six to seven percentage points explained by this difference in population shares is at best one-fifth of the 35% gap between US and EU incomes. You can confirm this quick calculation by studying the decomposition in MGI’s Exhibit 2. Moving more people into large cities wouldn’t meaningfully reduce the US-EU per capita income gap.
Look at Exhibit 2 for yourself:
The Economist mentions the big-city population share and big-city premium components. They neglect that 53 of those 74 percentage points are strictly attributable to the difference in average income. Differences in metropolitan populations are not at the heart of the story.
After citing all the advantages of cities, the Economist considers two reasons why European cities aren’t as large as US cities: regulatory barriers and incomplete integration. While the former might matter, I put a lot of stock in the latter. As I explained in my prior post, Zipf’s law holds at the country level. Since no European state has a population close to 300 million, we should not expect any European city to approach the size of NYC or LA. Until intra-European mobility looks anything like intra-US mobility, I think we should expect Zipf’s law to hold at the country level. And since MGI used a common cutoff of population > 150,000 for defining a “large city”, it’s not at all surprising that a larger share of the US population lives in its large cities. I wrote before:
Given the UK population, increasing the fraction of UK residents who live in “large cities” with populations greater than 150,000 would require the emptying out of smaller metropolitan areas. While such migration is entirely possible, it would violate the expected city size distribution… If you know the populations of New York and London and are familiar with Zipf’s law, then it’s not at all surprising that a greater fraction of the US population is found in metropolitan areas above some common population threshold. I don’t think that tells us much about the economic mechanisms determining the role of US cities in the global economy.