Stephen Yeaple’s “Firm Heterogeneity and the Structure of U.S. Multinational Activity”, which has been around for a bit as a working paper, is now forthcoming in the Journal of International Economics. He does a bunch of empirical work to assess the predictions of Helpman, Melitz & Yeaple (AER, 2004).

“There is no evidence [trade finance] is a real bottleneck to trade.” – Simeon Djankov

The OECD sees the WTO’s 9% and raises it to a 13% drop in global trade in 2009. I haven’t had a chance to look at the analysis and identify the forces causing their predictions to differ.

I’m seeing a flurry of last-minute publications telling the G20 leaders what they should do on Thursday. Isn’t publishing a new report just five days before the summit a little late to shape the agenda? Presumably bureaucrats do a lot of background work,  and the real achievements are made during the preparation for the summit rather than the single day itself.

This Vox column by Paolo Epifani and  Gino Gancia on the relationship between trade openness and size of government is interesting because it both dismisses the received wisdom (of Dani Rodrik) and offers a new hypothesis:

More open countries have bigger governments…

Rodrik… argues that, in more open countries, firms and workers are more exposed to external risk and therefore demand more public insurance. Although plausible, this explanation fails to convince. In particular, if trade openness increases the demand for public insurance, this should show up in a surge of public transfers for social security and welfare. Our evidence shows however that, unlike government consumption, this kind of expenditure is uncorrelated with trade openness. Moreover, terms-of-trade volatility, which has been suggested as a measure of external risk, does not seem to (robustly) affect any kind of government expenditure…

We propose a different explanation. More open countries have larger public sectors because the cost of providing public goods is lower the higher a country’s involvement in foreign trade. The basic idea is that an expansion of the public sector crowds out private production, thereby reducing the domestic supply of exports. As long as the world demand for domestic products is downward sloping, a fall in domestic exports brings about a terms-of-trade improvement that partly compensate the increase in public expenditures. In other words, the rise in export prices shifts some of the costs of the public sector onto foreign consumers. This effect is stronger in more open economies, because the real-income effect of terms-of-trade movements is proportional to the volume of trade.

David Roodman isn’t happy with Dead Aid: “The book is sporadically footnoted, selective in its use of facts, sloppy, simplistic, illogical, and stunningly naive.”

I don’t follow the logic of Andreas Freytag and Sebastian Voll’s proposal that developing countries capitalize on the current crisis by unilaterally liberalizing their trade policies so as to pressure developed countries.

To get back on track after resolving the financial crisis, we will need new growth and investment opportunities. Economic development driven mainly by exports to the “Western World” will thus no longer be successful. Therefore, maintaining the old export-oriented industry structures and protecting home markets at all costs is not expedient. For future economic growth, another strong and global strategy is needed – impulses like those proposed in the Doha-round negotiations will be necessary.

The crisis offers an ideal window of opportunity. The emerging countries could now, for the first time, take the position in international trade policy to which they are entitled, given their increased economic weight, by putting the industrialised countries’ own reforms and global initiatives under pressure (Dhar et al. 2009). Unilateral reforms could be an alternative to revitalising the Doha round, which admittedly has a highly uncertain outcome. For example, emerging markets could open national services, public procurements, and contracts in infrastructure sectors, as has been frequently advised for South Africa for instance (OECD 2008; Draper and Freytag 2008)…

[W]e see a great opportunity for emerging economies to stand up against protectionism and use their new economic power to increase their political weight in international economic policymaking. By bringing global trade back on the agenda and taking steps to conclude successfully the Doha round, these countries can put pressure on the OECD. The economic and political impetus generated by such efforts to overcome the economic crisis and restore confidence in future growth should not be disregarded.

Perhaps unilateral reforms would spur economic growth, but that would make them a good idea any time, crisis or not. What about the current international policymaking environment means that unilateral reforms will “increase their political weight in international economic policymaking”? And how does unilateral liberalization put pressure on developed countries? Moreover, what does additional pressure produce? There are theories of trade policymaking in which unilateral reform alters foreign political economy considerations so as to spur sequential reciprocity, but they are neither familiar to the casual reader nor necessarily applicable to the current circumstances. Freytag and Voll fail to explain the causal mechanism that is the crux of their argument – how does unilateral reform generate political pressure?

We all want to avoid protectionism during the crisis and would be delighted to see growth-promoting reforms, but that doesn’t mean such liberalization is politically logical.

In case I have not already mentioned, global trade is way down: “Collapsing global demand will send the volume of world goods trade plunging by 9 per cent this year, the largest drop since the second world war, the World Trade Organisation predicted on Monday.”

Marylin Johnson Raisch, Associate Law Librarian for International and Foreign Law at Georgetown, annually surveys the web for the Journal of International Economic Law. She included a list of “substantive web logs with postings often relevant to international economic law”:

• International Economic Law and Policy Blog
• The Custom House
• Customs Law
• ECJ Blog
• EU Law Blog
• European Customs & Trade Law & Practice
• Export Law Blog
• India in the WTO
• International Trade Law News
• Trade Diversion
• UNCTAD Ideas for Development Blog
• WTO and China

Does exporting raise productivity? Dean Yang et al. use export demand shocks from the Asian financial crisis to instrument for increased exporting and find a big effect:

Between 1995 and 1998, the Japanese, Thai, and Korean currencies depreciated in real terms against the US dollar by 31%, 32%, and 43%, respectively. At the other extreme, the British pound and the US dollar experienced real appreciations against the yuan, by 14% and 7%. Because the exchange rate changes varied so widely, two observationally equivalent firms faced very different export demand shocks if one happened to export its goods to Korea and the other exported to the UK…

For each firm, we construct an exchange rate shock measure specific to that firm, which is the average exchange rate change of a firm’s export partners weighted by the firm’s export destinations in 1995 (prior to the Asian financial crisis). We focus on changes in exports driven by these exchange rate shocks.

Using this approach, we ask whether and how instrumented changes in exports affect measures of firm performance. We find that increases in exports are associated with improvements in total factor productivity, as well as improvements in other measures of firm performance such as total sales and return on assets. Our estimates indicate that a 10% increase in exports causes productivity improvements of 11% to 13%, nearly one-eighth of the mean productivity improvement from 1995 to 2000 in our sample.