Author Archives: jdingel

The shortcomings of African ports

Michael Baker in Foreign Affairs on African maritime problems:

Africa has the least efficient ports in the world. Dwell times — the amount of time a ship must stay in port — for the loading and unloading of cargo exceed global averages by several days and are nearly quadruple those of Asian ports, thus driving up shipping costs through delays. No African port can be found on the list of the top 70 most productive in the world. As a result, shipping companies send smaller, older, and cheaper ships to Africa in an effort to reduce their losses.

A number of factors are to blame: poor harbor maintenance, bureaucratic red tape, inadequate maritime law enforcement, and lax security. Additionally, Sam Bateman, a maritime security expert at the S. Rajaratnam School of International Studies, in Singapore, has demonstrated that pirates and other maritime criminals tend to prey on old, slow, decrepit ships — the types of ships that inefficient and unsecured African ports and waterways attract — because they are easy targets. Half of the ships successfully hijacked by Somali pirates in 2009 fell into the category of the smallest merchant ships.

Moreover, many African ports cannot handle ships of median size due to infrastructure limitations. Meanwhile, the global shipping industry has been modernizing its fleets, scrapping obsolete vessels for newer mega-carriers. This means that shipping companies will continue deploying their remaining smaller and slower ships for transport to and from Africa, increasing the number of easy targets for pirates and further impeding Africa’s ability to export products efficiently. In this environment, companies producing goods in Africa cannot reliably or efficiently get their wares to market. This plays a large role in explaining why Africa garners only 2.7 percent of global trade despite its cheap labor force, cheap commodities, and proximity to major markets.

What drives unilateral liberalization? Evidence from Asia

Unilateral trade liberalization is quite underdiscussed, perhaps for both institutional and political reasons. There is little reason for multilateral institutions like the WTO to discuss unilateral liberalization, since it is outside their purview and does little to hurt their missions, and policymakers pursuing trade agreements for political reasons have little interest in lowering their own trade barriers.

But unilateral liberalization is big. The World Bank attributes two-thirds of developing-country liberalization during 1983-2003 to unilateral actions.

In a recent working paper, Pierre-Louis Vezina analyses the case of East Asia, where he says countries unilaterally cut tariffs to attract Japanese FDI, as Japanese firms sought to establish affiliates that would process imported components.

Focusing my analysis on seven Asian emerging economies, and using tools from spatial econometrics, I show that tariffs on parts and components followed those of competing countries if the latter were lower, if FDI jealousy was high, and if competing countries were at a similar level of development, hence competing more intensively at the tariff level… I show that these results do not hold when using tariffs on finished products nor when estimating the model for countries that are not part of the sliced-up supply chain, such as Australia.

The one tome devoted to the topic that I know is Going Alone, edited by Jagdish Bhagwati.

Escalating the US-China currency dispute without tariffs

Daniel Gros and Fred Bergsten are proposing that the US use policy instruments other than tariffs to pressure China to appreciate the renminbi.

Gros:

But there is another way. The US (and Japan) could easily prevent the Chinese Central Bank from continuing its intervention policy without breaking any international commitment. The US and Japan only need to invoke the principle of reciprocity and declare that they will limit sales of their public debt henceforth to only include official institutions from countries in which they themselves are allowed to buy and hold public debt. Instead of the “moral suasion”, tried in vain by the Japanese, the Chinese authorities would just be told that they can buy more US T-bills and Japanese bonds only if they allow foreigners to buy domestic Chinese debt.

Imposing such a “reciprocity” requirement on capital flows would be perfectly legal – although the US (and Japan and all EU member countries) have notified the IMF that they have liberalised capital movements under Article VIII of the IMF. Yet, in contrast to the area of trade, there are no legal constraints on the impositions of capital controls.

Bergsten:

This gap can be filled, however, by the introduction of a new policy instrument: countervailing currency intervention. When China or Japan buy dollars to keep their currency substantially undervalued, the US should sell an equivalent amount of dollars to push back. The IMF should authorise such intervention when necessary, to discipline countries that are violating their obligations by engaging in deliberate undervaluation.

Setting aside the desirability of the move, there would seem to be a number of practical challenges in implementation.

How will the EU grant Pakistan temporary trade preferences?

I blogged previously that the EU might liberalize its MFN tariffs to assist Pakistan in the wake of its massive flooding. Now it looks that the tariffs cut will be temporary and discriminatory. The EU has pledged to adopt WTO-consistent measures, but it also promises “exclusively to Pakistan increased market access to the EU”. How it can do both is not clear.

Trade vs aid: Gross value vs value added

Bono and Ali Hewson: If Africa increased its share of world trade by one percentage point, that gain would dwarf all the aid it receives.

Shorter Owen Barder: We care about value added, but trade flows are measured in gross terms. The net benefit of exports is not equal to export revenue; it’s the value added that is some fraction (say, 10%) of the export revenue. The sum of development assistance to Africa will dwarf that number.

Me: Development assistance flows, as reported by their donors, are measured at gross value as well, so we’d need to estimate the value added of development aid before we really made any comparisons.

Previous editions of gross value vs value added.

Trade theory and the Nobel Prize

Trade theory won another Nobel Prize this week… on The Simpsons. On Sunday’s season premiere, Jagdish Bhagwati picked up the prize, while the betting pool also included Avinash Dixit and Elhanan Helpman.

I suspect this is the first time that a trade theorist has appeared in prime-time cartoon form. It’s the opening scene:

http://www.hulu.com/embed/dun6KAqX7rnSIEzbaRb5QQ

You’ll have to wait until October 11 for the real thing.

House votes 348-79 to authorize punishing renminbi undervaluation

WSJ:

The measure would allow, but not require, the U.S. to levy tariffs on countries that undervalue their currencies. The bipartisan support highlights lawmakers’ long-simmering frustration with Chinese trade practices as well as their sensitivity to the faltering economic recovery with elections looming. It’s the strongest trade measure aimed at China to make it through a body of Congress after more than a decade of legislative threats by U.S. lawmakers…

Under the measure, the U.S. Department of Commerce would be directed to consider whether Chinese currency practices amount to an unfair subsidy in cases brought by industries competing with Beijing. If Commerce made such a determination, it could assess levies on goods imported from China or other countries with undervalued currencies.

But the measure, which was revised in a Ways and Means committee vote earlier this month, doesn’t require Commerce to make such a determination. The change in language, said Scott Lincicome, a trade lawyer at White & Case, gives the administration “a way to say no” to U.S. industries and could signal to China that the U.S. isn’t looking to declare a trade war over currency practices…

Despite the wide support the currency bill received in the House, it will be difficult for the measure to become law this year. China critics in the Senate plan to press for legislation when lawmakers return to Washington after the elections, but that would involve a separate proposal and the window for legislation to move before year-end is expected to be narrow.

Business Insider profiles the 10 states that export the most to China (“The 10 States About To Get Crushed In A US-China Trade War”), but because they use exports rather than exports per worker, California is #1, unsurprisingly.

The distribution of Chinese city sizes

The Economist‘s Economics Focus column looks at Chinese cities and manages to discuss the distribution of city sizes while avoiding the phrase “Zipf’s law”.

China makes a habit of bending the rules of economics. Do its cities obey the rank-size rule? The fit is not perfect. China’s small cities are too dispersed and its big cities are too even in size…

Messrs Xu and Zhu show that China’s cities became more equal during the 1990s, especially in the first half of the decade…

China’s small cities exploded in number. But its biggest metropolises conspicuously failed to explode in size. As BCG notes, only 27m Chinese live in cities of more than 10m, compared with 58m Indians and 32m Brazilians. Shanghai may have sprouted dozens of skyscrapers and Beijing may boast half a dozen ring roads, but China’s big cities are still surprisingly small.

This partly reflects a conscious policy. Although China’s rulers have embraced urbanisation, they still seem wary of mega-cities…

China’s economy would benefit from a stretching out of the distribution of its cities, argue Ting Jiang of Hong Kong University of Science and Technology and co-authors. But how might such a divergence come about? It might, they speculate, happen as an unintended consequence of the government’s push to expand higher education. Since the bigger cities have the most universities, their expansion will draw youngsters from the hinterland to the metropolis. And with a degree (and a job), their graduates should win permission to stay.

Xu and Zhu, “Urban Growth Determinants in China“, Chinese Economy, 2008.

[HT: Alejo]

Do IPAs improve export sophistication?

Torfinn Harding and Beata Javorcik on FDI and export unit values:

This study presents evidence suggesting that attracting inflows of FDI offers potential for upgrading a country’s export basket. The empirical analysis relates unit values of exports measured at the 4-digit SITC level to data on sectors treated by investment promotion agencies as priority in their efforts to attract FDI. The sample covers 116 countries over the period 1984-2000. The findings are consistent with a positive effect of FDI on unit values of exports in developing countries. However, such a relationship is less evident in developed countries. These results suggest that FDI can help bridge gaps in production and marketing techniques between developing and high income economies.

House schedules vote on renminbi bill

If you want some humorous updates regarding world trade, you should follow Alan Beattie on Twitter. In a single update, you get a Doug Palmer story and a comedy video.

U.S. lawmakers may vote next week on legislation that would penalize China for keeping its currency artificially low, a touchy issue that has gained broader political support as congressional elections approach.

The decision to move a bill to pressure China to let its yuan currency appreciate against the U.S. dollar comes a day before President Barack Obama is due to meet with Chinese Premier Wen Jiabao in New York.

A House of Representatives committee scheduled a vote for Friday on a China currency bill, and a Democratic aide said the full House was expected to vote on the measure next week.