Author Archives: jdingel

Life on the US-Mexico border

US Border Patrol Agent Elizier Vasquez:

We’re fortunate enough to live in a country where there are lots of opportunities. And most of the people who we run into out here want to make that dream happen. Unfortunately, it’s our job to stop that dream. That’s what we do on an everyday basis.

Read Malia Politzer’s Reason piece on the US-Mexico border experience.

Measuring NAFTA’s impact

Dominick Salvatore – “Economic Effects of NAFTA on Mexico”

[M]easuring the economic effects of NAFTA on Mexico based on the net number of jobs created or destroyed or by comparing Mexican growth before and after NAFTA is not appropriate… The correct way to measure the effects of a FTA on member nations, instead, is by counterfactual simulation of its effect on intra-FTA trade and growth. That is, by how much intra-FTA trade and growth is higher with the FTA as compared with the situation without the FTA. Performing valid counterfactual simulations are fraught with difficulties, however…

I will begin, however, with a more down-to-earth and less elegant but still legitimate method of estimating the economic effects of NAFTA on Mexico by comparing (1) the growth of intra-Mexico-US trade, on the one hand, to the growth of total Mexican trade, on the other, during the past dozen years of NAFTA’s operation and (2) by comparing the flow foreign direct investment (FDI) from the United States to Mexico to total FDI to Mexico. I will then present the results of a counterfactual simulation of the effect of NAFTA on trade, FDI, growth, inflation, and other economic and financial variables…

[T]he benefits flowing to Mexico seem to have resulted more from the general liberalization of trade and investments than directly from NAFTA, as such. That is, the general liberalization of trade and investments that accompanied NAFTA led to a general increase in Mexican exports and inflows of FDI, which increased specialization, competition, productivity and efficiency in Mexico. But the increase in total Mexican exports and FDI inflows from the rest of the world was as large or larger than that from the United States. Furthermore, most of the (indirect) benefits that Mexico received from NAFTA occurred in the years immediately preceding the creation of NAFTA rather than in the years soon after its creation.

Will the Doha Round Lead to Preference Erosion?

Mary Amiti & John Romalis:

This paper assesses the likely gains in market access for LDCs and developing countries
following proposals for tariff cuts under the Doha Round. This was analyzed by simulating changes in import demand by the United States and the European Union, following cuts in the MFN tariff rates of around 40 percent. In contrast to other studies, our model incorporates preference utilization rates rather than assuming that preferences are fully utilized. Since preference utilization rates are as low as 50 percent for some countries, this is an important contribution in order to avoid over-estimating losses from preference erosion. We take into account all available tariff, trade, and utilization information for all products.

The results show that a cut in MFN tariffs by the United States and the European Union leads
to improved access to their markets for many developing countries that more than offsets losses due to preference erosion. The small numbers of developing countries that are likely to lose market access as a result of multilateral tariff cuts are the ones that receive very large benefits under existing preference schemes. This result can be explained by noting that currently many developing countries actually have inferior market access to developed countries: average tariffs on non-African LDCs’ exports to the United States are higher than those on developed countries (13.1 percent compared with 1.2 percent).

Aid & Institutions

A pair of CGD papers on aid and institutions recently caught my eye:

In “Do No Harm: Aid, Weak Institutions, and the Missing Middle in Africa,” Nancy Birdsall argues that Africa is better characterized as being in an institutional trap than a poverty trap, and that aid donors need to consider their impact upon recipients’ aid dependency, fiscal management, and government hiring of skilled personnel.

In “An Aid-Institutions Paradox? A Review Essay on Aid Dependency and State Building in Sub-Saharan Africa,” Todd Moss, Gunilla Pettersson, and Nicolas van de Walle summarize literature describing the negative impact of foreign assistance upon long-term institutional development and recommend that donors avoid directly funding poor governments so as to preserve their incentives to build more effective public institutions. Development assistance could instead fund the eradication of endemic diseases, peacekeeping activities, and global public goods.

Labor standards threaten trade deals

Gerard Greenfield, Core Labor Standards in the WTO, Working USA, Summer 2001:

The U.S. government has signed only one of the five core labor standards proposed under the social clause. It signed the Abolition of Forced Labor Convention in 1991 (thirty-four years after the convention was introduced) and has still not signed the ILO conventions on freedom of association, the right to organize and bargain collectively, equal pay for equal work, and minimum wages.

Even this core ILO convention on forced labor is constantly violated in the United States. The U.S. prison system has been privatized and commercialized so that prisoners are a cheap source of labor, making products for the consumer market, and a growing source of corporate profit. But since these prison-made goods are not exported, this practice will never be challenged by a social clause in the WTO. The clause is concerned only with goods that are traded internationally.

Since core labor standards haven’t been incorporated into the WTO and are unlikely to be any time soon, why does this matter? Democrats’ demands in renewing trade promotion authority raise the same thorny issues, write Gary Hufbauer and Theodore Moran in the FT:

An inconvenient truth poses a huge obstacle to the proposed “bargain”: US labour laws are either openly inconsistent with core ILO standards, or they could be challenged by lawyers if ILO standards trumped established statutes and long-standing interpretations. A trade agreement that enthroned ILO standards would not only alter federal labour law, it would also override state laws – triggering a constitutional howl from Sacramento to Albany. The practical effect would be to stop US trade negotiations. Few legislators would want to subordinate huge swaths of labour law to broad principles enunciated in trade agreements.

Joel Trachtman seems to agree, while Henry Farrell isn’t impressed.

Todd Moss on Africa

Voice on America posted excerpts from an interview with CGD fellow Todd Moss yesterday:

“Single solutions (to poverty in Africa) are tempting: more aid, more democracy, eradicate corruption, get prices right, get better leadership. But inevitably, these single answers leave true believers disheartened. In the book I call Africa ‘the graveyard of silver bullets’,” quips Todd Moss, a respected international economist and author of the recently-released book, ‘African Development: Making Sense of the Issues and Actors’…

“The saintly reputation in some circles of NGO’s is sometimes underserved. Many NGO’s loudly demand to be heard and claim to speak for the people, but are themselves often accountable to nobody.”…

Moss labels the aid industry in Africa a “mess of confused ideas” and “dysfunctional agencies” that is in itself part of Africa’s problem.

Much of the data on which efforts at development in Africa are based is of “pretty bad quality”, says Moss.

“Even very basic information such as GDP, exports, number of children in school, or how much a particular country spends on hospitals, is little more than an educated guess. Sometimes formal surveys are done – through a census or other formal agencies – but these are a lot more infrequent than you would think,” he warns…

“As a whole there is still no clear way to turn Africa around. Even if its recognized that external efforts can only do so much, and that change must come from within, the development community still really does not know how to encourage that process. In short, we simply do not know how to make Chad more like South Korea.”

It’s not all bad news. Read more. Unfortunately, the audio link is broken at the moment.

TPA: Responsible for America’s troubles since 1974

Non-sequitars from the Minnesota Fair Trade Coalition:

The damage of the NAFTA-WTO model hits all of us, not workers whose job was sent to a low-wage nation: U.S. productivity jumped 80% and GDP rose over 160% since Fast Track was established, but U.S. workers’ wages rose less than 10%! The average worker’s hourly wage has only gone up a nickel from 1973 to 2006! Since 2001, the U.S. economy grew 15% and productivity 16%, while wages have only gone up one percent.

And trade explains all of those facts, huh?

Before Fast Track, the U.S. enjoyed balanced trade. In every year but one since we have had deficits. NAFTA and WTO boosters said the deals would fix the deficit. Instead NAFTA turned our trade surplus with Mexico into a massive deficit and a small deficit with Canada jumped. And everyone knows our China trade deficit exploded with that nation’s entry into WTO.

And everyone knows that the United States didn’t make many new trade concessions to China when it joined the WTO, so it’s strange to imply that the trade deficit is a function of China’s WTO membership rather than China’s economic growth and global integration.

If you are able to distinguish between correlation and causation, this press release falls apart quickly.