Category Archives: Non-Tariff Barriers

Fixed export costs and international product standards

Empirical evidence that mutual recognition agreements better reduce the fixed cost of exporting associated with product standards than aligning domestic regulations with international standards from Galina An and Keith Maskus:

Complying with global standards and technical norms can be costly, making them potential impediments to trade, but it can also expand export opportunities. Two policies available to governments are alignment of domestic technical regulations with international standards and entry into mutual recognition agreements (MRAs). We study the effects of such decisions on the volume of exports to developed markets by firms in developing countries, using data from a World Bank firm-level survey of awareness of global product norms. Both standards alignment and MRAs are associated with more exports to developed countries, but only MRAs significantly promote exports. This finding is consistent with theoretical predictions that MRAs should reduce the fixed costs of exporting more than standards alignment, permitting more firms to enter export markets in higher volumes. Governments in developing countries hoping to encourage exports may wish to favour the negotiation of mutual recognition of testing and certification procedures with major trading partners as a more affirmative avenue to expanding international sales.

[“The Impacts of Alignment with Global Product Standards on Exports of Firms in Developing Countries,” The World Economy, 32(4): 552-574. DOI: 10.1111/j.1467-9701.2008.01150.x]

Tidbits

  • Language as a trade barrier – “[I]f knowledge of English in all European countries increased by ten percentage points, European trade would rise by up to 15% on average. Bringing all European countries up to the level of English proficiency enjoyed by the Dutch could increase European trade by up to 70%.”
  • The third edition of Doug Irwin‘s Free Trade Under Fire will be out in a few months.
  • Foreign athletes can now play in the US for more than ten years.
  • Robert Baldwin criticizes the botched special safeguard mechanism that caused so much trouble for the Doha negotiations back in July.
  • The benefits of highly skilled immigration: “If immigrants were merely displacing natives, increases in the H-1B quota should not have led to increases in innovation. But Messrs Kerr and Lincoln found that when the federal government increased the number of people allowed in under the programme by 10%, total patenting increased by around 2% in the short run. This was driven mainly by more patenting by immigrant scientists. But even patenting by native scientists increased slightly, rather than decreasing as proponents of crowding out would have predicted.”

Fixed export costs: Bilateral or multilateral?

Gordon H. Hanson & Chong Xiang suggest that fixed export costs are multilateral rather than bilateral, meaning that it’s costly for businesses to “go global” but not particularly costly to enter particular countries:

In this paper, we develop a simple empirical method to test two alternative versions of the Melitz (2003) model, one with global fixed export costs and one with bilateral fixed export costs. With global costs, import sales per product variety (relative to domestic sales per variety) are decreasing in variable trade barriers, as a result of adjustment occurring along the intensive margin of trade. With bilateral costs, imports per product variety are increasing in fixed trade costs, due to adjustment occurring along the extensive margin. We apply our approach to data on imports of U.S. motion pictures in 46 countries over 1995-2006. Imports per product variety are decreasing in geographic distance, linguistic distance, and other measures of trade costs, consistent with adjustment to these costs occurring along the intensive margin. There is relatively little variation in the number of U.S. movies that countries import but wide variation in the box-office revenues per movie. The data thus appear to reject the bilateral-fixed-export-cost model in favor of the global-fixed-export-cost model.

On the other hand, motion pictures are not exactly the typical manufacturing product, so I would hesitate to extrapolate from these results to other sectors.

Clinton vs Collier on the food crisis

While Bill Clinton recently criticized US buy-American food assistance programs and ethanol subsidies, he also promoted food autarky:

Clinton criticized decades of policymaking by the World Bank, the International Monetary Fund and others, encouraged by the U.S., that pressured Africans in particular into dropping government subsidies for fertilizer, improved seed and other farm inputs as a requirement to get aid. Africa’s food self-sufficiency declined and food imports rose…

“Food is not a commodity like others,” Clinton said. “We should go back to a policy of maximum food self-sufficiency. It is crazy for us to think we can develop countries around the world without increasing their ability to feed themselves.”

Paul Collier in Foreign Affairs:

Politicians and policymakers do, in fact, have it in their power to bring food prices down. But so far, their responses have been less than encouraging: beggar-thy-neighbor restrictions, pressure for yet larger farm subsidies, and a retreat into romanticism…

The real challenge is not the technical difficulty of returning the world to cheap food but the political difficulty of confronting the lobbying interests and illusions on which current policies rest. Feeding the world will involve three politically challenging steps. First, contrary to the romantics, the world needs more commercial agriculture, not less. The Brazilian model of high-productivity large farms could readily be extended to areas where land is underused. Second, and again contrary to the romantics, the world needs more science: the European ban and the consequential African ban on genetically modified (GM) crops are slowing the pace of agricultural productivity growth in the face of accelerating growth in demand. Ending such restrictions could be part of a deal, a mutual de-escalation of folly, that would achieve the third step: in return for Europe’s lifting its self-damaging ban on GM products, the United States should lift its self-damaging subsidies supporting domestic biofuel…

Typically, in trying to find a solution to a problem, people look to its causes — or, yet more fatuously, to its “root” cause. But there need be no logical connection between the cause of a problem and appropriate or even just feasible solutions to it. Such is the case with the food crisis. The root cause of high food prices is the spectacular economic growth of Asia. Asia accounts for half the world’s population, and because its people are still poor, they devote much of their budgets to food. As Asian incomes rise, the world demand for food increases… There is nothing to be done about the root cause of the crisis — the increasing demand for food. The solution must come from dramatically increasing world food supply.

Collier’s essay provides many arguments for greater global integration and commercialization of agriculture. Where’s the evidence favoring food autarky as a means of increasing supply?