Andrew Rose describes his new paper with Mark Spiegel:

Trade is around 30% higher for countries that have hosted the Olympics… It turns out that unsuccessful bids to host the Olympics also have an impact on trade, one every bit as big as the effect of actually hosting the games. That is, the Olympic effect on trade is attributable to the signal a country sends when bidding to host the games, rather than the act of actually holding a mega-event. A country that wishes to liberalise its trade may want to signal this by bidding to host a mega-event…

Rome was awarded the 1960 games in 1955, the same year that Italy started to move towards currency convertibility, joined the UN, and, most importantly, began the negotiations that lead two years later to the Treaty of Rome and the creation of the European Economic Community. The Tokyo games of 1964 coincided with Japanese entry into the IMF and the OECD. Barcelona was awarded the 1992 games in 1986, the same year Spain joined the EEC…

Our empirical findings suggest that bidding for the Olympics is a costly policy signal that is followed by future liberalisation. For a country pursuing a trade-oriented development strategy, such an outcome would clearly be attractive.

So they are saying that trade liberalization signaled by an Olympic bid is more effective than regular liberalization?

At first glance, I don’t buy it. Their strategy is to measure the permanent effect of bidding for the Olympics by a dummy variable. So, for example, the Olympics dummy is turned on for all British observations from 1948 (when London hosted) through the end of the sample. Why should I believe that there is a causal signaling effect rather than mere correlation?

I turn to the robustness checks section of the paper and find this (p.18):

We next use a treatment methodology, comparing exports for either hosts or candidate countries with exports for matched counterparts. This allows us to better handle the problem that candidate and host countries for the Olympic games are not randomly selected from our sample. We match observations using a stratification technique. Our variables used for matching country-pair*year observations include the logs of: distance, exporter and importer populations, exporter and importer real GDPs per capita; and dummy variables for sharing a common language or border.

As best I can tell, this approach controls for some characteristics that result in bidding for the Olympics, but potentially important variables — like trade policy — are not included. In fact, the only variable in the entire paper that describes trade policy is a regional trade agreement dummy that appears in the gravity regressions. As Spiegel and Rose explain in footnote 3:

We focus our attention on the effects of mega-events on trade rather than trade policy since the latter is difficult to measure. We have experimented with the Wacziarg-Welch measure of trade liberalization, and find that it is significantly and positively correlated with past Olympic hosting or candidacy, taking into account time- and country-effects and controlling for country size and income. This result is quite consistent with the model we develop below. However, we do not consider this avenue of research to be worth pursuing until we have better empirical measures and models of trade liberalization.

If I read this right, while it’s true that their signaling model makes the prediction that trade liberalization and past Olympic hosting will be correlated, it also suggests to me that you ought to control for trade policy before evaluating the Olympics’ effect on trade. If their story is that bidding for such an event makes forthcoming trade liberalization more credible and causes it to have a greater effect, then shouldn’t we use something like a measure of trade policy plus the interaction of the Olympics dummy and the policy variable?

The authors have clearly put a fair amount of work into this paper, but I hold my prior fairly strongly – I suspect that, while bidding to host the Olympics may often coincide with major trade liberalization episodes, Olympic bids have no meaningful causal impact on trade flows. At present, I don’t understand how their identification strategy would produce evidence that shows otherwise. What am I missing?

Gary Hufbauer and Matthew Adler attribute 25% of US merchandise trade growth since 1980 to policy liberalisation. More surprisingly, they attribute only 3% to falling transportation costs. The rest? “The general expansion of the world economy,” a.k.a. the residual.

Their paper isn’t up on the web yet; I’ll have more comments once I see their methodology.

This big paper by Angus Deaton on “instruments of development” is really good. In short,

• Lots of people are using instruments that are unlikely to satisfy the exogeneity assumption required for identification.
• Randomized controlled trials are not nearly as informative as we think, and when we push trial results to be more informative, we’re back in the world of instruments and econometrics.
• Economic theory needs to make a lot of progress too – in most cases, we need theory to do decent empirics.

Francisco Rodríguez has a skeptic’s brief on growth regressions, noting that endogeneity, proxy/measurement, and robustness problems abound. He’s also critical of linearity assumption.

Rodríguez suggests two avenues for potentially more fruitful investigation: growth diagnostics and non-parametric regression.

Want to find your place in the world income distribution? Enter your annual income at globalrichlist.com to learn your percentile.

Of course, it’s not a perfect exercise. Their numbers are from Branko Milanovic’s 2000 World Bank working paper (later published in the Economic Journal in 2002). The distribution is for 1988 or 1993. Lots of work has been done on this topic since 2000 (notably by Milanovic himself). For example, Xavier Sala-i-Mation’s 2006 QJE paper on income inequality has a cumulative distribution function for world income in 2000.

Nonetheless, it’s a good exercise to help people think about the global economy and poverty.

Hat tip to Sabrina.

John McCain tonight:

America is still the greatest producer, exporter and importer.

Oh?

“Greatest” is rather meaningless, and producing a larger share of world exports isn’t closely tied to a nation’s economic well-being, but John McCain is wrong nonetheless.

The World Bank’s new poverty line is $1.25 a day in 2005 prices. That makes about 400 million more poor people than under previous estimates, which used 1993 prices.

Update: Owen Barder catches the media bungling the numbers.

The United States and Europe are in a high-tech dispute. Their conflict lies in determining the difference between a LCD computer monitor and a flat screen television, and a WTO decision may wind up turning on the meaning of “for.”

But first, some background. The 1996 Information Technology Agreement (ITA), a plurilateral agreement adopted under the auspices of the WTO by the world’s major IT-producing nations, lowered those members’ MFN tariffs on information technology products to zero by 2000. Since 1996, another 42 WTO members have joined the original 29 signatories.

Yesterday, the United States, Japan, and Taiwan filed a request for a WTO dispute settlement panel to review the European Union’s compliance with the ITA. In the USTR’s words:

The EU in the past several years has adopted a series of measures that resulted in new duties on imports of specific high-tech products – cable boxes that can access the internet, flat panel computer monitors, and certain computer printers that can also scan, fax and/or copy… These products were included in the ITA… However, the EU claims it can now charge duties on these products simply because they incorporate technologies or features that did not exist when the ITA was concluded.

Of course, the European Commission sees it differently:

The EU, as required by WTO law, bases its customs classification exclusively on the objective characteristics of the products. Where changes in technology have given a product multiple functions – for example, a digital photo camera that also records large amounts of high-quality video – then these products in many cases are objectively different products falling outside of the original product categories covered by the ITA and are classified as such by the EU and others. The US claims this is a violation of the ITA. But both the spirit and explicit provisions in the ITA make it clear that extension to new products to reflect technological change would not be automatic, but based on periodic review by signatories…

Is it a LCD monitor or a flat screen TV? The ITA gives duty-free treatment to computer monitors, not to monitors for consumer electronics such as TV or DVD players. What the US claims are LCD computer monitors are in fact screens equipped with a Digital Visual Interface to allow use with consumer electronics such as DVD players. They are therefore properly classified as video monitors and not covered by the ITA. Incidentally, the classification of such products by US customs is similar to EU practice.

It’s a little unusual to see a WTO dispute about product classifications – usually conflicts revolve around how to calculate duties, the eligibility of safeguard mechanisms’ application, etc. Why can’t we just match a Harmonized System code from the text of the ITA to the EU tariff schedule and make sure the the latter number lies below the former?

First, the Information Technology Agreement was negotiated under the HS1996 product classification scheme. High-tech products have certainly evolved by leaps and bounds since then (should we just say an iPod is a CD player for tariff purposes?) and the HS2007 revisions were dedicated to information technology and communication products. Unfortunately, it is difficult to translate HS1996 tariff agreements into HS2007 tariff schedules:

The WCO Members agreed as a primary goal of the third HS review to conduct an overhaul of the provisions in the technology area in the HS2007 amendment…

In order to assess the impact of HS2007, and to serve as guidelines in transposing the schedules of concessions, the ITA participants asked the Secretariat to prepare a model list in HS2007 through a technical transposition which, like the methodology used for schedules of concessions, maintains the actual product coverage of the new list strictly identical to the original one. However, it goes without saying that several of the above-mentioned divergences in classification would not be solved through this technical exercise.

If ITA participants decide to strictly adhere to the original product coverage, the list in HS2007 cannot take advantage of the improved HS structure on IT products. In many cases, the new HS2007 subheading cannot be directly included in ITA lists because these subheadings normally combine previous “ITA” with some “non-ITA” subheadings. In order to exclude these non-ITA parts, many ex-outs and complicated descriptions need to be introduced by the Secretariat in the HS2007 model list, even though those non-ITA parts sometimes consist of only a minor part of the subheading and represent a very small amount of trade.

But more importantly, the Information Technology Agreement didn’t even use HS1996 codes in many cases!

[P]roducts were specified in two attachments of the Ministerial Declaration: Attachment A and Attachment B. Attachment A consists of two lists of categories of products legally defined by their HS1996 codes. Attachment B is a list of legal product descriptions without reference to their HS codes; restrictions on these products shall be liberalized “wherever they are classified”. Although these lists have provided a good guidance in terms of product coverage, there are still some ambiguities due to the lack of clear HS classifications…

[F]or the products listed in Attachment B and a number of items in Section 2 of Attachment A, consensus was reached only on the textual description of the products, but not on the corresponding HS codes. The ITA participants need to designate national codes based on their own interpretations and classifications.

A WTO committee that was supposed to add new products to the original coverage never reached any agreements.

Flat panel displays fall into Attachment B, which also specifically excludes TVs:

Flat panel displays (including LCD, Electro Luminescence, Plasma and other technologies) for products falling within this agreement, and parts thereof… The agreement does not, therefore, cover televisions, including high definition televisions.

So the LCD monitor needs to be for an automatic data processing machine, as computers are known under the ITA. And the European Commission’s description of the US tariff schedule seems to be right. LCD computer monitors entering the US under tariff line 8528.61 are duty-free, as they are projectors “of a kind solely or principally used in an automatic data processing system of heading 8471.” But tariff line 8528.69.50, for “other projectors, color, with a flat panel screen, display diagonal exceeding 34.29cm” applies a tariff of 5%. Flat panel televisions (8528.72.72) also face a 5% duty.

How will the WTO dispute panel evaluate the difference between a LCD monitor and a flat panel TV? Will the panel have to think hard about the meaning of “for”? I leave any further analysis to the good folks at the International Economic Law and Policy Blog, who may actually be qualified to predict where this case is going.

It seems unavoidable that product innovations will outpace their regulatory classification, especially in trade agreements that must be negotiated between governments. Are trade conflicts resulting from that lag equally unavoidable?

The United States and Europe are in a high-tech dispute. Their conflict lies in determining the difference between a LCD computer monitor and a flat screen television, and a WTO decision may wind up turning on the meaning of “for.”

But first, some background. The 1996 Information Technology Agreement (ITA), a plurilateral agreement adopted under the auspices of the WTO by the world’s major IT-producing nations, lowered those members’ MFN tariffs on information technology products to zero by 2000. Since 1996, another 42 WTO members have joined the original 29 signatories.

Yesterday, the United States, Japan, and Taiwan filed a request for a WTO dispute settlement panel to review the European Union’s compliance with the ITA. In the USTR’s words:

The EU in the past several years has adopted a series of measures that resulted in new duties on imports of specific high-tech products – cable boxes that can access the internet, flat panel computer monitors, and certain computer printers that can also scan, fax and/or copy… These products were included in the ITA… However, the EU claims it can now charge duties on these products simply because they incorporate technologies or features that did not exist when the ITA was concluded.

Of course, the European Commission sees it differently:

The EU, as required by WTO law, bases its customs classification exclusively on the objective characteristics of the products. Where changes in technology have given a product multiple functions – for example, a digital photo camera that also records large amounts of high-quality video – then these products in many cases are objectively different products falling outside of the original product categories covered by the ITA and are classified as such by the EU and others. The US claims this is a violation of the ITA. But both the spirit and explicit provisions in the ITA make it clear that extension to new products to reflect technological change would not be automatic, but based on periodic review by signatories…

Is it a LCD monitor or a flat screen TV? The ITA gives duty-free treatment to computer monitors, not to monitors for consumer electronics such as TV or DVD players. What the US claims are LCD computer monitors are in fact screens equipped with a Digital Visual Interface to allow use with consumer electronics such as DVD players. They are therefore properly classified as video monitors and not covered by the ITA. Incidentally, the classification of such products by US customs is similar to EU practice.

It’s a little unusual to see a WTO dispute about product classifications – usually conflicts revolve around how to calculate duties, the eligibility of safeguard mechanisms’ application, etc. Why can’t we just match a Harmonized System code from the text of the ITA to the EU tariff schedule and make sure the the latter number lies below the former?

First, the Information Technology Agreement was negotiated under the HS1996 product classification scheme. High-tech products have certainly evolved by leaps and bounds since then (should we just say an iPod is a CD player for tariff purposes?) and the HS2007 revisions were dedicated to information technology and communication products. Unfortunately, it is difficult to translate HS1996 tariff agreements into HS2007 tariff schedules:

The WCO Members agreed as a primary goal of the third HS review to conduct an overhaul of the provisions in the technology area in the HS2007 amendment…

In order to assess the impact of HS2007, and to serve as guidelines in transposing the schedules of concessions, the ITA participants asked the Secretariat to prepare a model list in HS2007 through a technical transposition which, like the methodology used for schedules of concessions, maintains the actual product coverage of the new list strictly identical to the original one. However, it goes without saying that several of the above-mentioned divergences in classification would not be solved through this technical exercise.

If ITA participants decide to strictly adhere to the original product coverage, the list in HS2007 cannot take advantage of the improved HS structure on IT products. In many cases, the new HS2007 subheading cannot be directly included in ITA lists because these subheadings normally combine previous “ITA” with some “non-ITA” subheadings. In order to exclude these non-ITA parts, many ex-outs and complicated descriptions need to be introduced by the Secretariat in the HS2007 model list, even though those non-ITA parts sometimes consist of only a minor part of the subheading and represent a very small amount of trade.

But more importantly, the Information Technology Agreement didn’t even use HS1996 codes in many cases!

[P]roducts were specified in two attachments of the Ministerial Declaration: Attachment A and Attachment B. Attachment A consists of two lists of categories of products legally defined by their HS1996 codes. Attachment B is a list of legal product descriptions without reference to their HS codes; restrictions on these products shall be liberalized “wherever they are classified”. Although these lists have provided a good guidance in terms of product coverage, there are still some ambiguities due to the lack of clear HS classifications…

[F]or the products listed in Attachment B and a number of items in Section 2 of Attachment A, consensus was reached only on the textual description of the products, but not on the corresponding HS codes. The ITA participants need to designate national codes based on their own interpretations and classifications.

A WTO committee that was supposed to add new products to the original coverage never reached any agreements.

Flat panel displays fall into Attachment B, which also specifically excludes TVs:

Flat panel displays (including LCD, Electro Luminescence, Plasma and other technologies) for products falling within this agreement, and parts thereof… The agreement does not, therefore, cover televisions, including high definition televisions.

So the LCD monitor needs to be for an automatic data processing machine, as computers are known under the ITA. And the European Commission’s description of the US tariff schedule seems to be right. LCD computer monitors entering the US under tariff line 8528.61 are duty-free, as they are projectors “of a kind solely or principally used in an automatic data processing system of heading 8471.” But tariff line 8528.69.50, for “other projectors, color, with a flat panel screen, display diagonal exceeding 34.29cm” applies a tariff of 5%. Flat panel televisions (8528.72.72) also face a 5% duty.

How will the WTO dispute panel evaluate the difference between a LCD monitor and a flat panel TV? Will the panel have to think hard about the meaning of “for”? I leave any further analysis to the good folks at the International Economic Law and Policy Blog, who may actually be qualified to predict where this case is going.

It seems unavoidable that product innovations will outpace their regulatory classification, especially in trade agreements that must be negotiated between governments. Are trade conflicts resulting from that lag equally unavoidable?