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.

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.

The IHT is giving you a chance to ask Jagdish Bhagwati a question about foreign aid.

See two good posts over at Reason on American farm subsidies and barriers to genetically modified rice.

Brad Setser reports that Chinese exports to India grew by 67.5% in the first three quarters of 2007:

The impact of the RMB’s depreciation (yes, depreciation – the RMB hasn’t appreciated enough v the dollar to offset the dollar’s depreciation against many other currencies) on a host of other emerging economies has been an under-reported story.

Brad Setser reports that Chinese exports to India grew by 67.5% in the first three quarters of 2007:

The impact of the RMB’s depreciation (yes, depreciation – the RMB hasn’t appreciated enough v the dollar to offset the dollar’s depreciation against many other currencies) on a host of other emerging economies has been an under-reported story.

Brad Setser reports that Chinese exports to India grew by 67.5% in the first three quarters of 2007:

The impact of the RMB’s depreciation (yes, depreciation – the RMB hasn’t appreciated enough v the dollar to offset the dollar’s depreciation against many other currencies) on a host of other emerging economies has been an under-reported story.

Preferential trade played a bigger role in history than I knew. From a new book chapter (pdf) by Douglas A. Irwin, Petros C. Mavroidis & Alan O. Sykes:

Continue reading →

Clive Crook reports on the IMF’s World Economic Outlook:

The IMF splits globalisation into two components of economic openness: trade and foreign investment. Trade openness actually tends to reduce inequality and financial openness tends to increase it, the report finds. For the developing countries, the two roughly cancel out: their net effect is slightly pro-equality. For the rich countries, the balance is anti-equality: the disequalising influence of cross-border investment outweighs the equalising influence of trade. So although these numbers do provide a rationale of sorts for curbing cross-border flows of investment – harmful as that would be for growth – they offer no support for trade barriers. There is nothing here for the anti-trade lobby. Trade barriers inhibit growth and worsen inequality, in rich countries and in poor countries, says this report.

Read the full column, titled “End global inequality: become a Luddite,” to learn of Crook’s frustration with coverage of reactions to the report.

The dollar is falling. Everyone knows it needs to fall even further. But there are worries that it could suffer a sudden plunge when currency traders realize it’s not falling fast enough. In a comment in the FT, Jeffrey Garten says betting on a weaker dollar is “nearly a risk-free proposition.” And that makes him unhappy:

At an opportune moment, they [central bankers] could make a sharp and powerful co-ordinated intervention in the currency markets to buy dollars. This surprise move would not change long-term trends, but it would show speculators that shorting the dollar is not always without consequence. The intervention could therefore bolster prospects for an orderly dollar decline and demonstrate that the US and the European Union are capable of jointly using powerful policy levers.

What? How would that help?