Latest NBER Papers

Trade and development enthusiasts will find plenty of reading material in the NBER’s latest batch of working papers. David Hummels, Volodymyr Lugovskyy & Alexandre Skiba argue that price discrimination in the shipping industry reduces developing country trade flows. Elhanan Helpman, Marc Melitz & Yona Rubinstein present a model of heterogeneous firms that results in a generalized gravity equation that accounts for the self-selection of firms into export markets and their impact on trade volumes (older version here). Eric V. Edmonds summarizes empirical work on child labor (ungated pdf here).

TPA legislative debate heats up

There’s been legislative action on the renewal of trade promotion authority… in Montana!

The Montana State Senate fired a shot across the bow of current U.S. trade policy today, overwhelmingly passing (45 to 5) a resolution calling on Congress not renew the President’s “Fast Track” trade promotion authority.

Here’s the bill.

I’m not sure how often state legislatures express opinions regarding trade policy, which is obviously handled by the federal government, but this isn’t the first time. Utah’s legislature opposed the FTAA in 2005.

IMF told to get out of development

I doubt that these suggestions will be implemented soon, but they are interesting nonetheless:

The International Monetary Fund should stop offering long-term finance to developing countries, leaving the World Bank to be the global development agency, a high-level independent committee reported on Tuesday…

It should “clarify its ongoing financing activities in low-income countries and gradually withdraw from providing base line financing… over long periods in the context of a ‘development programme’,” said the report.

In particular, the IMF should stop meddling in microeconomic policies of poor countries, where the bank had specialist knowledge. “The fund should rely on the bank for sectoral assessments,” it concluded.

Progressives’ trade issues

James Galbraith calls for a shift in progressive trade policy focus:

The facts are clear: NAFTA is a done deal, and China is a success story we have to live with. Progressives need a trade narrative that moves past these two issues. Broadly, this means accepting manufactured imports and dropping the idea that we can control–or that it matters much–who assembles television sets or stitches shirts. Standards to guard against flagrant abuses such as child and prison labor are fine, but it’s an illusion to think they will, or should, dent the flow of goods from China. A progressive trade agenda should focus, instead, on building stronger world markets for our exports, and in ways that do not trample on the needs and rights of poor people in poor countries. That should provide plenty of room for future fights with free-trade absolutists.

Is Galbraith advocating that progressives oppose agricultural liberalization and TRIPS implementation by developing countries because he thinks those are poor policy choices or because he is just looking for a fight?

[HT: Mankiw]

Estimating TRIPS welfare loss: an Indian counterfactual

Shubham Chaudhuri, Pinelopi K. Goldberg, and Panle Jia:

Under the TRIPS agreement, WTO members are required to enforce product patents for pharmaceuticals. The debate about the merits of this requirement has been extremely contentious. Many low-income economies claim that patent protection for pharmaceuticals will result in substantially higher prices for medicines, with adverse consequences for the health and well-being of their citizens. On the other hand, research-based global pharmaceutical companies argue that prices are unlikely to rise significantly because most patented products have therapeutic substitutes. In this paper we empirically investigate the basis of these claims. Central to the ongoing debate is the structure of demand for pharmaceuticals in poor economies where, because health insurance coverage is so rare, almost all medical expenses are met out-of-pocket. Using a detailed product-level data set from India, we estimate key price and expenditure elasticities and supply-side parameters for the fluoroquinolones sub-segment of the systemic anti-bacterials (i.e., antibiotics) segment of the Indian pharmaceuticals market. We then use these estimates to carry out counterfactual simulations of what prices, profits, and consumer welfare would have been, had the fluoroquinolone molecules we study been under patent in India as they were in the U.S. at the time. Our results suggest that concerns about the potential adverse welfare effects of TRIPS may have some basis. We estimate that in the presence of price regulation the total annual welfare losses to the Indian economy from the withdrawal of the four domestic product groups in the fluoroquinolone sub-segment would be on the order of U.S. $305 million, or about 50% of the sales of the entire systemic anti-bacterials segment in 2000. Of this amount, foregone profits of domestic producers constitute roughly $50 million. The overwhelming portion of the total welfare loss therefore derives from the loss of consumer welfare. In contrast, the profit gains to foreign producers in the presence of price regulation are estimated to be only around $19.6 million per year.

Suggested background reading on TRIPS:
Arvind Panagariya – TRIPs and the WTO: An Uneasy Marriage (pdf)
Razeen Sally – Whither the WTO? A Progress Report on the Doha Round (pdf, pp. 5-6, 21-2)
T.N. Srinivasan – Developing Countries and the Multilateral Trading System after Doha (pdf, pp. 9-12, 22-4)
Keith Maskus – Intellectual Property Rights in the Global Economy

[HT: David K. Levine]

Congressional attitudes towards trade

Representative Barney Frank (D-MA) says

My own view is that if they were in fact to come to an agreement in the Doha round that the resulting agreement – if they reach it as they are currently talking about – would not pass the House of Representatives… We are at a very sensitive moment in the making of economic policy in our country.