Author Archives: jdingel

European firms and international markets

If you’re in Brussels, you might want to attend the Wednesday launch of a report by CEPR and Bruegel on firms in international trade.

The Happy Few: The Internationalisation of European Firms

New Facts Based on Firm-level Evidence


Report Launch, Hotel Silken Berlaymont, 11-19 Boulevard Charlemagne, Brussels

November 7th, 2007, 13:30 – 15:00

The panel includes report authors Gianmarco Ottaviano and Thierry Mayer, plus Stefano Scarpetta (OECD) and Gert-Jan Koopman (DG Enterprise, European Commission).

UPDATE: Ottaviano and Mayer briefly summarize the report over at VoxEU.

DeLong on global imbalances

Brad DeLong brings good news:

As long as imbalances of world trade and capital flows unwind slowly and smoothly, the magnitude of any global economic distress should be relatively small… The prospect of a truly hard landing — one where global investors wake up one morning, suddenly realize the US current accounts cannot be sustained, dump dollars and crash the global economy — is becoming less likely with each passing day.

And warnings:

Under two scenarios — both concerning China — the unwinding of global imbalances could cause regional if not global depression… Today, the principal source of international economic disorder is made in China, owing to factions inside its government that hope to avoid a more rapid appreciation of the yuan’s value.

Via Thoma.

How to construct your PTA

Michael G. Plummer has an article titled “‘Best Practices’ in Regional Trading Agreements: An Application to Asia” in the latest issue of The World Economy:

Given that regionalism in Asia and, indeed, the entire world is a ‘fact on the ground’, the main objective of this paper is to go beyond the traditional ‘building blocs versus stumbling blocs’ debate by underscoring the potential benefits of bilateral and regional agreements under the condition that they follow ‘best practices’, which we develop in Section 3. As an application of these ‘best practices’, we analyse existing regional accords between Asian countries and their regional and extra-regional partners in Section 4…

In fact, the economics literature, as well as the GATT/WTO rounds themselves, have placed far too much emphasis on tariffs. It is true that they are easiest to analyse (for economic models) and negotiate (for policy makers) but they are no longer the most important obstacles to international trade. In fact they have become increasingly irrelevant, and with them much of the standard ‘trade creation and trade diversion’ approach to estimating the worthiness of a regional trading agreement. According to the World Bank (2005, p. 66), the average tariff of NAFTA countries comes to approximately three per cent and that of AFTA slightly less than five per cent. Obviously, the effects of these FTAs, for better or worse, will ultimately not be decided by the usual net efficiency calculations. The economics of FTAs have become far too complicated, and generally speaking economic analysis and negotiators have often failed to keep pace.

In any event, the regionalism trend is here to stay. Regardless of the argumentative merits of the pro- and anti-regionalism camp, it is a ‘fact on the ground’ that preferential trading agreements, in particular FTAs, have been flourishing. There are myriad reasons behind this movement, with convincing economic, political-economy and strictly political arguments. But this does not mean that evaluating regionalism is the economic equivalent of counting how many angels can dance on the head of a pin. An inward-approach to regional economic cooperation could pose serious risks to the countries espousing them as well as to the international marketplace. Given that all major countries now subscribe to regional trading accords to various degrees, this suggests a threat that must be evaluated with continued vigilance.

A successful conclusion to the Doha Development Agenda would be very favourable to the global economy. With respect to the regionalism movement, not only would it, perhaps, strengthen openness rules on Article XXIV beyond the 1994 GATT Understanding, but it would also mitigate the effects of discrimination inherent in regionalism. However, not even a successful Doha will likely turn back the clock on bilateral and regional FTAs. Even if we leave aside the diplomatic and political-economy aspects of regionalism that tend to support the movement, there will remain salient economic influences that will continue to make bilateral, regional and plurilateral FTAs and other forms of regional economic cooperation attractive. Hence, it behoves economists to accept regionalism as a reality, and proscribe means to ensure that the trend be consistent with global market integration as well as being as efficient as possible in terms of minimising costs associated with this second-best commercial policy.

Does the WTO promote trade? Specification matters

Reviving the debate started by Andrew Rose, Xuepeng Liu says the WTO promotes trade strongly (pdf):

Abstract: Some recent research papers challenge the conventional view on the impact of the GATT/WTO on trade. This paper investigates the sample selection bias and the gravity model specification issues in the existing studies and provides strong evidence that the GATT/WTO has been very effective in trade creation. First, the GATT/WTO not only makes existing trading partners trade more (intensive margin), but also creates new trading relationships (extensive margin). Some existing
studies exclude zero trade observations from their analyses and hence ignore the extensive margin. Secondly, the violation of some maintained assumptions in the traditional log-linear gravity regression accounts for the failure to uncover the role of the GATT/WTO even at the intensive margin. Using a large bilateral panel dataset including zero trade flows and a more appropriate econometric method, this paper finds that the GATT/WTO has been very effective in promoting the world trade at both the intensive and the extensive margins.

Asymmetric trade costs

Iowa’s Michael Waugh says trade costs are very asymmetric (pdf):

Poor countries import a larger volume of goods from rich countries, than rich countries
import from poor countries. Furthermore, there is little difference in comparable price indices
for tradable goods between rich and poor countries. Standard empirical implementation of the
gravity model with distance and other symmetric relationships for trade costs cannot account for
both of these facts. To account for these facts, I argue that trade costs must be systematically
asymmetric with poor countries facing higher costs to export relative to rich countries. I then
demonstrate that asymmetry is quantitatively important accounting for at least a third of the
variation in bilateral trade—on par or more important than distance and other symmetric
relationships.

Eichengreen and Mundell on China

Bloomberg’s Tom Keene interviews Barry Eichengreen (mp3) about his recent article “A Blueprint for IMF Reform” (pdf), which appeared in International Finance, as well as China’s possible future revaluation of the renminbi, the post-Bretton Woods era, and “strong dollar” rhetoric.

Keene also interviewed Robert Mundell last week (mp3), discussing the origins of the Mundell-Fleming model, China’s domestic macroeconomic reasons for pegging the renminbi to the dollar, Chinese portfolio choices with regard to US assets, and other topics.