De Loecker: “Detecting Learning by Exporting”

This abstract caught my eye:

Learning by exporting refers to the mechanism whereby firms improve their performance (productivity) after entering export markets. Although this mech- anism is often mentioned in policy documents, a significant share of econometric studies has not found evidence for this hypothesis. This has lead to a view that the correlation between firm-level export status and productivity is a result of a self-selection process of more productive firms becoming exporters. This paper shows that the methods used to come to the latter conclusion suffer from a large internal inconsistency: they rely on an exogenous evolving productivity process. I show how recent proxy estimators can easily be accommodated to incorporate the endogenous process of learning by exporting and can detect sig- nificant productivity gains upon export entry. I apply my empirical model to plant-level data and find substantial additional productivity gains (upon export entry) ranging from 4 to 27 percent.

Krzysztof Pelc: “Why Do We Not See More Efficient Breach at the WTO?”

Krzysztof Pelc:

While models of “optimal compensation” grow in sophistication, the institutions concerned are evolving progressively further away from the recommendations of efficient breach advocates. Indeed, voluntary export restraints were forcefully banned during the Uruguay Round, and there is no sign of their being brought back into use; the WTO Agreement on Safeguards has drastically reduced the possibility of compensation, by explicitly ruling it out in the first three years of any safeguard measure; retaliation, far from becoming an automatic response to continued violations, is exercised in about one percent of all WTO disputes; monetary compensation has been offered only once in WTO history…

If efficient breach at the WTO would make all parties better off, then why do we see so little of it?…

The argument presented in this paper brings back the question of the purpose of the WTO as an institution. Focusing on domestic politics, I demonstrate how the possibility of efficient breach defies the purpose for which countries join the institution in the first place…

while individual instances of efficient breach would indeed make trading partners better off, its sheer possibility empowers domestic interest groups, by raising payoffs from lobbying for protection, and thus acts to slow down trade liberalization. It is little wonder that the countries that would seem to benefit most from the possibility of efficient breach have consistently opposed it. Over and above its normative implications, and the net transaction costs it may generate, efficient breach goes against the very purpose of international trade agreements.

Hat tip to IELP.

What is China’s trade governance failure?

Susan Aaronson accuses China of poor governance to the degree that its behavior is a threat to the global trading system. I do not understand her argument, so I will quote her at length before I complain that she hasn’t explained her case:

But China’s competitive advantage is to some degree based on its inadequate governance; its failure to enforce its own laws in a transparent, even-handed manner. As part of its accession to the WTO, however, China was required to enforce the rule of law throughout all of its territories…
Inadequate Chinese governance is a trade problem because of the country’s dominance in global markets. Its failure to enforce the rule of law threatens the concept of mutual benefit that underpins the trade regime. China is broken, and a broken China could break the WTO…
it has yet to meet many of the obligations delineated in its protocol of accession. European and American business groups investing in China believe that the country is becoming more interventionist and protectionist (European Business in China 2009 and US China Business Council 2009)…
The rule of law was a key element of China’s accession agreement because trade policymakers understood that how China was governed could distort trade.
In recent years, China has become infamous for its failure to enforce its own laws, whether those laws related to intellectual property, product or food safety, human rights, or employment.
In both its 2006 and 2008 Trade Policy Review at the WTO, member states lauded Chinese trade diplomats for their export prowess but also complained that China was not transparent, accountable, or sufficiently even-handed (WTO 2006, 2008). Nor could they trust Chinese statistics or assertions on enforcement related to key trade issues such as product and food safety or intellectual property protection. Meanwhile, Chinese leaders argued that they are a developing country and thus deserve patience as they learn to govern effectively.
What can the WTO do?
WTO members have the ability to encourage China to address its inadequate governance. They could begin by using the trade policy process more effectively to discuss the rule of law and how it distorts trade. And they could threaten a trade dispute on some aspect of inadequate governance. Under GATT Article XXIII, any country in the WTO is entitled to a “right of redress” for changes in domestic policy that systematically erode market access commitments even if no explicit GATT rule has been violated.

I am familiar with complaints that weak intellectual property enforcement hurts sales of American and European IP products in China. But how does that undermine the world trading system? And while Mattel had to recall toys tainted with lead paint, is there a systematic problem with product safety for Chinese exports? No one is suggesting that Japan’s rule of law is inadequate after a few safety problems with one of its most notable exporters. I understand complaints about China’s rule of law, but how could China “break the WTO”?

Is the US likely to double its exports?

In last week’s State of the Union, President Obama said:

Third, we need to export more of our goods. Because the more products we make and sell to other countries, the more jobs we support right here in America. So…

So tonight, we set a new goal: We will double our exports over the next five years, an increase that will support 2 million jobs in America.

To help meet this goal, we’re launching a National Export Initiative that will help farmers and small businesses increase their exports and reform export controls consistent with national security. We have to seek new markets aggressively, just as our competitors are. If America sits on the sidelines while other nations sign trade deals, we will lose the chance to create jobs on our shores.

But realizing those benefits also means enforcing those agreements so our trading partners play by the rules. And that’s why we’ll continue to shape a Doha trade agreement that opens global markets and why we will strengthen our trade relations in Asia and with key partners like South Korea, and Panama, and Colombia.

Dan Griswold:

U.S. exports have not doubled in dollar terms during a five-year period since the inflation-plagued 1970s, not exactly a golden era for the U.S. economy. In real terms, according to the U.S. Bureau of Economic Analysis, exports have not come close to doubling during any five-year stretch in the past 40 years. The fastest growth in inflation-adjusted exports came in the second half of the 1980s, when they grew by two-thirds from 1985 to 1990.

Addendum: Menzie Chinn focuses on nominal exports in a long post that concludes:

So, if you didn’t know it already, achieving the goal of doubling nominal exports depends upon exchange rate pass through, the extent of exchange rate depreciation, the rate of rest-of-world GDP growth, and the evolution of export supply (of both goods and services).

Discriminatory MFN tariffs: Specific tariffs in agriculture

Sohini Chowdhury, on the job market this year from Purdue University, on the “The Discriminatory Nature of Specific Tariffs“:

This paper evaluates the distortions from specific tariffs levied on agricultural imports by rich countries. Through their non-MFN ad valorem equivalents (AVEs), specific tariffs discriminate against exports from poor countries because of the lower price of their exports. So the MFN specific tariffs levied by rich WTO member countries essentially translate into higher tariff barriers for the exporters of low price goods, suggesting that the benefits of preferential tariffs that poor countries enjoy might be offset by the specific tariffs they face. Our results show that specific tariffs levied by rich countries on their agricultural imports wash away 80% of the welfare benefits and 73% of the market access benefits enjoyed by poor countries from preferential tariffs. A policy implication of this paper is that the WTO should intensify efforts to eliminate specific tariffs.

Bill Watterson on steel protectionism

Bill Watterson, creator of the beloved Calvin and Hobbes comic strip, also did some editorial cartoons for Sun Newspapers in the early 1980s. This appeared in the Brunswick Sun Times on 2 Feb 1984:

watterson

Economists frequently compare trade to technology to explain how trade expands a country’s consumption possibility set (David Friedman’s The Iowa Car Crop, Greg Mankiw’s Isoland inventer) and argue that tariffs are akin to taxes on using a more efficient production technology. Perhaps Bill Watterson’s comic will appear in textbooks soon.

From the Cleveland Sun (via Radley Balko).

“The Role of Intermediaries in Facilitating Trade”

JaeBin Ahn, Amit Khandelwal & Shang-Jin Wei:

We provide systematic evidence that intermediaries play an important role in facilitating trade using a firm-level the census of China’s exports. Intermediaries account for around 20% of China’s exports in 2005. This implies that many firms engage in trade without directly exporting products. We modify a heterogeneous firm model so that firms endogenously select their mode of export – either directly or indirectly through an intermediary. The model predicts that intermediaries will be relatively more important in markets that are more difficult to penetrate. We provide empirical confirmation for this prediction, and generate new facts regarding the activity of intermediaries.

NBER WP 15706.

The Place Premium: Haiti

Michael Clemens in the Washington Post on Haiti and immigration:

In research I conducted with economists Claudio Montenegro and Lant Pritchett,we compared how much Haitians earn in the United States vs. Haiti. A moderately educated adult male, born and schooled in Haiti, typically enjoys a standard of living more than six times greater in the United States than in his homeland. In other words, U.S. policy wipes out more than 80 percent of a Haitian’s earning power when it keeps him from coming to the United States. This affects everything from the food he can buy to the construction materials he can afford. The difference has nothing to do with his ability or effort; it results purely from where he is.

HT: MR.