Author Archives: jdingel

Chinese exports and American inequality

A new working paper pdf on Christian Broda’s website, joint with John Romalis:

Over the past three decades there has been a spectacular rise in income inequality as measured by
official statistics. In this paper we revisit the distributional consequences of increased imports
from China by looking at the compositional differences in the basket of goods consumed by the
poor and the rich in America. Using household data on non-durable consumption between 1994
and 2005 we document that much of the rise of income inequality has been offset by a relative
decline in the price index of the poor. By relaxing the standard assumptions underlying the
representative agent framework we find that inflation for households in the lowest tenth
percentile of income has been 6 percentage points smaller than inflation for the upper tenth
percentile over this period. The lower inflation at low income levels can be explained by three
factors: 1) The poor consume a higher share of non-durable goods —whose prices have fallen
relative to services over this period; 2) the prices of the set of non-durable goods consumed by
the poor has fallen relative to that of the rich; and 3) a higher proportion of the new goods are
purchased by the poor. We examine the role played by Chinese exports in explaining the lower
inflation of the poor. Since Chinese exports are concentrated in low-quality non-durable products
that are heavily purchased by poorer Americans, we find that about one third of the relative price
drops faced by the poor are associated with rising Chinese imports.

Erm, but that’s “preliminary and incomplete,” so “please don’t circulate” it. (The internet is a funny place.)

[HT: MR]

Uncollected anti-dumping duties

GAO reports:

U.S. Customs and Border Protection (CBP) has been unable to collect hundreds of millions of dollars in antidumping (AD) and countervailing (CV) duties. The Department of Commerce imposes these duties to remedy injurious unfair foreign trade practices (unfairly low prices or subsidies). The noncollection of AD/CV duties means that the U.S. government has not fully remedied the unfair trade practices and bears a substantial loss of revenue…

While over $600 million in AD/CV duties dating back to 2001 remain uncollected, they are highly concentrated among a few products, countries of origin, and importers… [A] relatively small number of importers owe the vast majority of these uncollected duties… According to CBP officials, prospects for collecting a sizeable portion of these bills are slim, because many of the importers have disappeared, have no assets, or have declared bankruptcy…

Four key factors contribute to uncollected AD/CV duties… First, because the U.S. AD/CV duty system involves the retrospective assessment of duties, the final amount of AD/CV duties an importer owes can significantly exceed the initial amount paid when the goods entered the country. Second, companies that did not previously export products subject to AD/CV duties, i.e., “new shippers,” pose two types of risks for collections. For example, new shippers can be assigned an AD/CV duty rate based on as few as one shipment, which can significantly underestimate the final duty rate… Third, all importers must provide a general bond to secure the payment of all types of duties, but CBP’s standard practice for setting the amount of this bond inadequately protects AD/CV duty revenue… Fourth, CBP collects minimal information regarding importers and does not conduct background or financial checks, which creates challenges to locating importers and collecting AD/CV duties.

What should we be paying more for? “Approximately 84 percent of the total amount of uncollected AD/CV duties is associated with four products, all from China: crawfish tail meat, garlic, honey, and mushrooms.”

I can’t say I’m too upset.

[HT: H&R]

What are Colombia’s potential economic gains from a PTA?

Will making US trade preferences for Colombia permanent attract new investment? That’s the White House line, echoed by Nick Kristof. I’m skeptical of the magnitude of the effect.

Jeff Schott at the Peterson Institute of International Economics edited a volume on US-Colombian trade relations a few years ago. He wrote:

An FTA would provide contractual guarantees regarding the permanency of the trade preferences, in stark contrast to the uncertainty that surrounds whether the US Congress will reauthorize the ATPA [Andean Trade Preferences Act] before it expires at the end of 2006. Such uncertainty imposes costs on bilateral trade and investment and has contributed to the lackluster FDI in Colombia by US firms… To be sure, other factors — including Colombia’s macroeconomic policies, security environment, and domestic regulatory policies — may be of equal or greater importance in investment decisions.

Oh, that nasty uncertainty.

Reuters – Feb 14 – Expiring U.S. trade benefits for Colombia, Peru, Ecuador and Bolivia would be renewed through the end of this year… The 10-month extension is a compromise between Democrats who had favored renewing the program for two years and Republicans, who wanted a much shorter renewal to keep pressure on Congress to approve a free trade pact with Colombia.

So Republicans are injecting uncertainty into Colombia’s export opportunities in order to use uncertainty as an argument for the PTA! Sick.

Back to Schott:

To an important extent, attracting investment is the key objective of the FTA. If implemented in conjunction with domestic policies that promote macroeconomic stability and enhance productivity, an FTA could make Colombia a much more attractive host for new investment not only by foreign companies but by Colombians as well…

In sum, the FTA should be seen as part of Colombia’s overall development strategy. Many of the reforms that will likely be required by FTA obligations may well parallel changes in domestic economic policies that were sought by the government but were blocked or diluted because there has been insufficient political support to gain legislative approval.

So the impact of the PTA will be largely contingent on domestic reforms in Colombia. And those reforms face political opposition. How is Colombia doing on those reforms?

Schott and Paul Grieco wrote:

In summary, 10 years ago, Colombia was the clear frontrunner in readiness for a free trade agreement, but today that is no longer the case. While Colombia has come through a turbulent decade without a huge decline in readiness, it has not moved up its readiness score to the levels of current US FTA partners such as Mexico and Chile. As is often the case, the political and economic domestic reforms that are essential to development are also required to leverage the benefits of a free trade agreement with the United States. While the indicators show that Colombia needs to increase gross savings and further reduce its external debt, promoting reforms that strengthen the political sustainability indicator will make the most important contribution to raising Colombia’s readiness score.

Political sustainability, huh? How is it going this week?

A political scandal that has engulfed Colombia’s political class came a step closer to the president, Alvaro Uribe, after his cousin and close political companion was arrested on charges of colluding with rightwing paramilitary groups.

I doubt this pleases investors:

Uribe’s allies are eager to see him serve a third four-year term, even though that is prohibited by the constitution. In 2005, the Constitutional Court approved an amendment that allowed him a single re-election in 2006. Many analysts here believe it is impractical for a tarnished Congress to try to amend the constitution or find other ways to spearhead another reelection effort…

Most of the politicians implicated in the scandal have had close ties to Uribe, and many of them supported the constitutional change that permitted him to run for reelection. Still, the “para-politics” scandal has touched politicians from nearly every party, including the opposition Liberal Party, which has more members linked to the paramilitary groups than any other.

I remain skeptical that this PTA will do much for Colombia in the near future.

What are Colombia's potential economic gains from a PTA?

Will making US trade preferences for Colombia permanent attract new investment? That’s the White House line, echoed by Nick Kristof. I’m skeptical of the magnitude of the effect.

Jeff Schott at the Peterson Institute of International Economics edited a volume on US-Colombian trade relations a few years ago. He wrote:

An FTA would provide contractual guarantees regarding the permanency of the trade preferences, in stark contrast to the uncertainty that surrounds whether the US Congress will reauthorize the ATPA [Andean Trade Preferences Act] before it expires at the end of 2006. Such uncertainty imposes costs on bilateral trade and investment and has contributed to the lackluster FDI in Colombia by US firms… To be sure, other factors — including Colombia’s macroeconomic policies, security environment, and domestic regulatory policies — may be of equal or greater importance in investment decisions.

Oh, that nasty uncertainty.

Reuters – Feb 14 – Expiring U.S. trade benefits for Colombia, Peru, Ecuador and Bolivia would be renewed through the end of this year… The 10-month extension is a compromise between Democrats who had favored renewing the program for two years and Republicans, who wanted a much shorter renewal to keep pressure on Congress to approve a free trade pact with Colombia.

So Republicans are injecting uncertainty into Colombia’s export opportunities in order to use uncertainty as an argument for the PTA! Sick.

Back to Schott:

To an important extent, attracting investment is the key objective of the FTA. If implemented in conjunction with domestic policies that promote macroeconomic stability and enhance productivity, an FTA could make Colombia a much more attractive host for new investment not only by foreign companies but by Colombians as well…

In sum, the FTA should be seen as part of Colombia’s overall development strategy. Many of the reforms that will likely be required by FTA obligations may well parallel changes in domestic economic policies that were sought by the government but were blocked or diluted because there has been insufficient political support to gain legislative approval.

So the impact of the PTA will be largely contingent on domestic reforms in Colombia. And those reforms face political opposition. How is Colombia doing on those reforms?

Schott and Paul Grieco wrote:

In summary, 10 years ago, Colombia was the clear frontrunner in readiness for a free trade agreement, but today that is no longer the case. While Colombia has come through a turbulent decade without a huge decline in readiness, it has not moved up its readiness score to the levels of current US FTA partners such as Mexico and Chile. As is often the case, the political and economic domestic reforms that are essential to development are also required to leverage the benefits of a free trade agreement with the United States. While the indicators show that Colombia needs to increase gross savings and further reduce its external debt, promoting reforms that strengthen the political sustainability indicator will make the most important contribution to raising Colombia’s readiness score.

Political sustainability, huh? How is it going this week?

A political scandal that has engulfed Colombia’s political class came a step closer to the president, Alvaro Uribe, after his cousin and close political companion was arrested on charges of colluding with rightwing paramilitary groups.

I doubt this pleases investors:

Uribe’s allies are eager to see him serve a third four-year term, even though that is prohibited by the constitution. In 2005, the Constitutional Court approved an amendment that allowed him a single re-election in 2006. Many analysts here believe it is impractical for a tarnished Congress to try to amend the constitution or find other ways to spearhead another reelection effort…

Most of the politicians implicated in the scandal have had close ties to Uribe, and many of them supported the constitutional change that permitted him to run for reelection. Still, the “para-politics” scandal has touched politicians from nearly every party, including the opposition Liberal Party, which has more members linked to the paramilitary groups than any other.

I remain skeptical that this PTA will do much for Colombia in the near future.

What are Colombia's potential economic gains from a PTA?

Will making US trade preferences for Colombia permanent attract new investment? That’s the White House line, echoed by Nick Kristof. I’m skeptical of the magnitude of the effect.

Jeff Schott at the Peterson Institute of International Economics edited a volume on US-Colombian trade relations a few years ago. He wrote:

An FTA would provide contractual guarantees regarding the permanency of the trade preferences, in stark contrast to the uncertainty that surrounds whether the US Congress will reauthorize the ATPA [Andean Trade Preferences Act] before it expires at the end of 2006. Such uncertainty imposes costs on bilateral trade and investment and has contributed to the lackluster FDI in Colombia by US firms… To be sure, other factors — including Colombia’s macroeconomic policies, security environment, and domestic regulatory policies — may be of equal or greater importance in investment decisions.

Oh, that nasty uncertainty.

Reuters – Feb 14 – Expiring U.S. trade benefits for Colombia, Peru, Ecuador and Bolivia would be renewed through the end of this year… The 10-month extension is a compromise between Democrats who had favored renewing the program for two years and Republicans, who wanted a much shorter renewal to keep pressure on Congress to approve a free trade pact with Colombia.

So Republicans are injecting uncertainty into Colombia’s export opportunities in order to use uncertainty as an argument for the PTA! Sick.

Back to Schott:

To an important extent, attracting investment is the key objective of the FTA. If implemented in conjunction with domestic policies that promote macroeconomic stability and enhance productivity, an FTA could make Colombia a much more attractive host for new investment not only by foreign companies but by Colombians as well…

In sum, the FTA should be seen as part of Colombia’s overall development strategy. Many of the reforms that will likely be required by FTA obligations may well parallel changes in domestic economic policies that were sought by the government but were blocked or diluted because there has been insufficient political support to gain legislative approval.

So the impact of the PTA will be largely contingent on domestic reforms in Colombia. And those reforms face political opposition. How is Colombia doing on those reforms?

Schott and Paul Grieco wrote:

In summary, 10 years ago, Colombia was the clear frontrunner in readiness for a free trade agreement, but today that is no longer the case. While Colombia has come through a turbulent decade without a huge decline in readiness, it has not moved up its readiness score to the levels of current US FTA partners such as Mexico and Chile. As is often the case, the political and economic domestic reforms that are essential to development are also required to leverage the benefits of a free trade agreement with the United States. While the indicators show that Colombia needs to increase gross savings and further reduce its external debt, promoting reforms that strengthen the political sustainability indicator will make the most important contribution to raising Colombia’s readiness score.

Political sustainability, huh? How is it going this week?

A political scandal that has engulfed Colombia’s political class came a step closer to the president, Alvaro Uribe, after his cousin and close political companion was arrested on charges of colluding with rightwing paramilitary groups.

I doubt this pleases investors:

Uribe’s allies are eager to see him serve a third four-year term, even though that is prohibited by the constitution. In 2005, the Constitutional Court approved an amendment that allowed him a single re-election in 2006. Many analysts here believe it is impractical for a tarnished Congress to try to amend the constitution or find other ways to spearhead another reelection effort…

Most of the politicians implicated in the scandal have had close ties to Uribe, and many of them supported the constitutional change that permitted him to run for reelection. Still, the “para-politics” scandal has touched politicians from nearly every party, including the opposition Liberal Party, which has more members linked to the paramilitary groups than any other.

I remain skeptical that this PTA will do much for Colombia in the near future.

Kristof on US-Colombia PTA

Nick Kristof tries to sell the US-Colombia PTA:

Critics of the free-trade pact worry that it would hurt American workers. But Colombian goods already enter the U.S. duty-free; what would change is that American exporters would get access to the Colombian market.

(Colombia is pushing hard for the pact not because of any immediate trade benefit but because its duty-free access to the U.S. must be regularly renewed. Businesses are reluctant to invest in flower farms or garment factories unless they know that they will be able to export to the U.S. for many years to come.)

So US workers shouldn’t worry because the PTA won’t increase Colombian exports, but Colombia wants the PTA because it’ll attract investments dedicated to exporting for many years? You can’t have it both ways, Mr Kristof.

Albouy vs AJR bleg

David Albouy recently posted a new (Feb ’08) version of his critique of Acemoglu, Johnson, and Robinson’s 2001 AER paper that used European settler mortality rates as an instrument for modern institutional quality.

I haven’t had time to read through the back-and-forth exchanges to form my own judgment. Has any third party summarised the dispute and commented? Albouy is revising and resubmitting at AER, so at least some of his claims must be plausible, huh?

Why export-led development?

Simon Johnson on development strategies:

Michael Spence is in favor of an manufactured export-led strategy. Larry Summers points out that it would be hard for all countries in the world to do this at the same time. And Robert Rubin emphasizes good governance.

Here’s a potential way to put it all together. If your governance is good, you can sustain rapid growth even based on primary commodities — Botswana would be the leading example (but if you want to go back in time, I would suggest Norway and Sweden were mostly commodity producers at key early phases of their development). But if your governance is problematic, then commodities may be more tricky for political reasons; it’s just too tempting to try to grab power and get all those “rents”.

If your governance is an issue, then a strategy based on manufactured exports may make more sense. Why? After all, manufacturing is more footloose than mining (which is obviously tied to mineral deposits). It’s the footloose nature of manufacturing that makes this approach work. If you expropriate some factories, the rest will leave. So you can build an equilibrium in which entrepreneurs believe they will have reasonably good protection for their property rights, even though the laws on the books or the courts or something else about the political environment is not ideal.

And it is striking that almost all countries that have grown fast for the past 30 or so years have done so with manufactured exports as a major focus. It’s also encouraging that exporters of commodities more recently have moved to diversify their exports — this is a key point from chapter 5 of the WEO.