Economic Research Papers on Trade
Evaluating the Impact of Trade on Development
& Oni Oviri
, World Economics, March 2018
The main conclusions of the theory of comparative advantage is powerful and inescapable – restrictions on trade harm economic welfare. The principle of comparative advantage shows that trade enables one-off welfare gains, but the impact of international trade on prosperity and on economic growth and development are empirical questions. The balance of evidence suggests that opening economies to trade is associated with higher growth, improved welfare, lower corruption and better working conditions. Restrictions on trade damage the development prospects of poorer countries which require assistance with infrastructure to enable them to realise the benefits from integration into the world economy.
Will ‘America First’ Trump International Cooperation and Coordination?
Stuart P.M. Mackintosh
, World Economics, December 2017
Seventy years of American leadership of the international system has ended abruptly shaking the foundations of the post-World War II international architecture. The International Monetary Fund and the World Bank, twin pillars of the post-World War II system, will be adversely impacted by an America First policy since the US has the largest share of votes, the loudest voice, and greatest influence in both institutions. The WTO dispute settlement system needs a minimum of four judges to function, but the U.S. Administration may opt to stymie the operation of this key pillar in global free trade with wilful neglect. It remains essential, therefore, that the Financial Stability Board created in 2009 is not impacted by the Trump Administration’s sceptical view of international regulatory coordination.
India and China: Tracking their WTO Journeys with Trade Data
Siddhartha K. Rastogi
, World Economics, December 2017
Trade data are used to examine the roles played by India and China in the World Trade Organization (WTO) and the implications for their share of global trade. India was a founding members of the WTO whereas China joined in 2001 after much deliberation, negotiation and caution. India has been one of the Organization’s most active members, a key negotiator for the developing world during Uruguay and a main source of obstacles in the Doha rounds of trade liberalisation. India contributes about 2.3% to world trade and is a services trade powerhouse, while China controls 11% of world trade as the world’s factory and as an emergent technology giant.
Trade Data: Use with Care
, World Economics, December 2017
Politicians focus on trade deficits and surpluses between countries and threaten trade wars and retaliatory actions, but the conventional international trade statistics used by many commentators are inaccurate. World exports and imports do not balance, but asymmetries are also found in the balance of trade statistics between countries and regions and these discrepancies can be very large in emerging markets. The ‘Rotterdam effect’ distorts the measurement of trade flows and balances where goods are recorded as imports into one country, which subsequently re-exports them to third countries without taking note of the country of origin. The Apple ‘Made in China’ question, or the existence of global value chains where much trade is in intermediate inputs, indicates that conventional trade statistics involve double-counting and misallocated trade balances.
De-Risking Impact Investing
, World Economics, June 2016
Despite great investor interest in impact investing, actual investment flows have remained modest. This is largely due to insufficient investment opportunities which offer a financially sustainable risk-return balance. A focus on de-risking impact investments can enable investors to find more assets which offer commercial returns on a risk-adjusted basis, without sacrificing impact. By cutting off the lower tail of the risk distribution, impact investments can offer comparable returns to other investments, as has been the International Finance Corporation’s (IFC’s) experience. Successful impact investing involves selecting assets and structuring investments differently to realize their potential to deliver both financial and social returns. We segment the supply and demand of impact investing funds, and identify the causes of elevated risks in prevalent approaches to impact investing. Drawing on IFC’s investment experience, we identify seven ways to reduce these risks. With these approaches, we provide evidence that investment opportunities can be generated that meet the requirements of investors seeking both commercial financial returns and social impact without trading one off for the other.
Can Intra-Regional Trade Act as a Global Shock Absorber in Africa?
, Qingwei Meng
& Mthuli Ncube
, World Economics, September 2015
The global financial crisis and the subsequent uneven recovery have underscored the need for Africa’s resilience to output and other shocks originated in the rest of the world. A comparison of two regional economic communities – the East African Community (EAC) and the Southern Africa Customs Union (SACU) – suggests that deeper intra-regional, and in particular intra-industry, trade ties have contributed to the EAC’s resilience to external output shocks. More broadly, intra-regional and intra-African trade with fast-growing economies, together with geographically diversified trade links, can strengthen the capacity of African countries to absorb global output shocks. Besides helping shield countries from external shocks, intra-regional trade also supports economic diversification and participation in regional value chains.
The Link Between Money and Nominal Spending: A Look at Historical UK Data Through the Lens of Quantity Theory
, World Economics, June 2014
The recent financial crisis has reignited interest in the role of money and credit in driving economic activity. This article takes a broad overview of the historical data available for assessing the link between money, credit and activity, using the quantity theory of money as an organising framework. The article shows that when trying to apply this theory to historical data, a complicated interaction between money and nominal spending emerges. And a deeper understanding of the forces driving money demand and supply is required to interpret the information contained in money about the level of activity and inflation.
Flowing Together or Flowing Apart: The relation between FDI and ODA flows to Argentina and Brazil
José María Larrú Ramos
& Martha Carro Fernández
, World Economics, March 2014
At a time when international institutions and governments rethink the structure of development financing, the analysis of the relationship between different capital flows becomes significant. Given the relevance assigned by international institutions to the potential complementarities between foreign direct investment (FDI) and official development assistance (ODA), our study examines the relation between these flows for two countries that have attracted large amounts of the former: Argentina and Brazil. We analyse ODA and FDI time-series by donors and sectors, paying special attention to ODA allocated to economic infrastructure. In light of the frequent turbulences experienced by international financial markets, we also study the volatility of both flows, as well as the relation between FDI and ODA shocks. With the exception of Japanese flows to Brazil, we find no systematic relation between FDI and ODA flows even when the main foreign direct investors are also the main donors.
Why India is Vulnerable to Portfolio Investment Movements: Analysis of capital flows between India and the United States
, World Economics, December 2013
This paper analyses the trend of capital flows between India and the US during 2000–2012. The US is a major source of foreign capital in India, through both direct and portfolio investment. During this period, portfolio investment from the US to India dominated over direct investment. A large part of India’s outward FDI is towards the US, although in terms of total FDI in the US, India’s share is not very large. Internationally active Indian banks have the largest foreign claims towards the US, however this amounts to less than 1% of the Indian banking sector.
The Value of Value Added: Measuring global engagement with gross and value-added trade
, World Economics, December 2012
As production has become more globally integrated, imported components account for a rising share of the value of exports. Many countries may contribute inputs to a good, and the final assembler may capture only a small share of the product’s value. Official trade statistics, which attribute all value to the final exporter, can be uninformative or misleading about a country’s global engagement and its participation in global supply chains. New measures are required that incorporate both production and trade, and track the flow of inputs, and their value, through industries and across national borders. This paper examines the construction and use of value-added measures that incorporate the necessary production and trade data, and evaluates their performance against similar measures based on gross trade. The value-added measures provide a more revealing look into global integration that is consistent across different measures and analytical approaches.
Global Value Chains, International Trade Statistics and Policymaking in a Flattening World
& Hubert Escaith
, World Economics, December 2012
The raise of global production networks since the 1980s changed the way we understand international trade and has profound repercussions on development policies and the conduct of global governance. New comparative advantages allow large developing countries to leap-frog through their industrialization process while smaller economies without large internal market or mining resources are now able to build an industrial base. Offshoring also gave the possibility to firms from industrialised countries to remain competitive in front of fast-expanding firms from emerging countries. But in the process, the relative demand for low and medium skilled workers in industrialised countries contracted, and this employment and income effect became a political issue and fuelled demand for protectionism. Unfortunately, the debate lacks accurate data as traditional statistics give only a blurred picture of what is known as ‘trade in tasks’. Before revising the trade and governance implications, the article calls for a new measurement of international trade based on its value-added content in order to have a better understanding of the actual issues.
Global Financial Crisis, Protectionism and Current Account Deficit: South Africa on the brink?
, Andreas Freytag
& Sebastian Voll
, World Economics, June 2011
The recent financial and economic crisis, and the resurgence in the popularity of emerging markets has raised fears in these economies of a resumption in capital flight or a sudden stop of capital inflows. The latter, in particular, is intensively discussed in South Africa. We try to evaluate this danger by focusing on the sustainability of South Africa’s current account deficit during the recent past, and on longterm economic policy developments in the country. We argue that the macroeconomic as well as the relevant microeconomic policy variables do not suggest a sudden stop. However, to lower this risk further, the microeconomic environment has to be improved considerably in the future. This includes mainly reforms in the areas of infrastructure, competition and trade policy.
Keywords: Accession, Africa, Capital controls, Current account, Development, Education, Emerging markets, EU, Exchange rates, Free trade, Global financial crisis, Governance, Great recession, Imbalances, Industrial policy, Infrastructure, Institutions, Macroeconomics, Political economy, Regulation, Saving, South Africa, Trade, Transition, UK, Volatility
Sub-Saharan Africa: Outlook and challenges
, World Economics, June 2011
Sub Saharan Africa’s (SSA’s) growth bounced back to 5% in 2010 following a slowdown to 2.8% in 2009 because of the GFC. Moreover, SSA’s 5-plus growth rate is sustainable. Improvements in domestic fundamentals due to better economic management and improved political stability have been mainly responsible for the turnaround in the past decade. The impact of high commodity prices, reorientation of trade to fast growing Asian countries, advances in new technology, especially mobile telephony, will continue to be growth drivers. SSA’s good growth prospects will be underpinned by domestic demand and a surge in Asian demand for some time. However, growth could be higher still, more durable and job-creating if some of the region’s key constraints – infrastructure, governance and skills – were addressed.
Keywords: Africa, Commodities, Credit rating, Debt relief, Energy, Governance, Infrastructure, Nigeria, South Africa, Sub-saharan Africa, Trade, Transport, Uganda
The European Union’s Trade Policies and Africa’s Exports
Olayinka Idowu Kareem
, World Economics, June 2011
An important determinant of the sustainability of growth in Africa is the extent to which the continent can exploit the opportunities available from trade. Trade barriers exist to key African exports, which make it difficult for the continent to take advantage of the growth-enhancing benefits of trade or to follow an export-orientated development plan, leaving Africa dependent on the world price of natural resources and minerals such as oil, copper and diamonds. This study evaluates the impact of trade policies in the European Union (EU) and other large trading blocs on a range of African exports. We found that, contrary to many pronouncements, trade policies in the EU, especially tariff barriers, have not significantly hindered Africa’s exports. Furthermore, it was discovered that the export performance of African exports is hampered more by non-tariff barriers to African exports and by capacity constraints within African countries.
Keywords: Africa, Canada, China, Commodities, Comparative advantage, Development, EU, Exports, Free trade, India, Japan, Preferential trading agreements, South Africa, Sub-saharan Africa, Trade, US, World bank, WTO
Trade Out of Poverty
, Clare Short
, Sir Menzies Campbell
& Michael Hastings
, World Economics, June 2011
Integration into the world economy has proven a powerful means for countries to promote economic growth, development, and poverty reduction, and therefore governments need to have a renewed focus on trade policy towards developing countries to help improve the lives of the world’s poorest. The world’s richest countries should open their markets unconditionally to all Least Developed and low-income countries. The EU and US and other developed countries’ Rules of Origin requirements should be aligned so that developing countries have only one set of rules to adhere to, as the existing complex rules frequently result in countries paying tariffs or being excluded by bureaucracy. Rich countries must end their export and domestic subsidies that undermine the livelihoods of millions. Tariffs between the poorest countries be reduced and customs duties replaced with other sources of revenue. There needs to be a significant increase in emphasis on infrastructure, roads, ports and administrative structures that make trade possible.
Keywords: Aid, Brazil, China, Debt relief, Development, Development strategy, Doha, EU, Exports, Free trade, GATT, Imports, India, Infrastructure, Japan, Kenya, Korea, Preferential trading agreements, South Korea, Tariffs, Trade, Trade surplus, US, Vietnam, World bank, Zimbabwe
Towards New Thinking in Economics: Terry Barker on structural macroeconomics, climate change mitigation, the relevance of empirical evidence and the need for a revised economics discipline
, World Economics, March 2011
Terry Barker is a leading British economist in macroeconomics, climate economics and empirical analysis. For over 45 years, he has been involved in research at Cambridge on economic theory and applied economics, in areas such as: trade theory and space and time economics; structural macroeconomics; and the macroeconometric modelling of energy-environment-economy interactions. This has included trade theory, space-time economics, climate mitigation economics, and macro-econometric modelling. Though he can be considered a ‘descendant’ of Keynes, Barker defies any categorisation of belonging to a particular school of economic thought. A notable contribution has been his empirical modelling work showing how tougher climate mitigation policies may actually bring long-term socioeconomic benefits. Whilst at the conference on new economics as ‘mainstream’ economics that he initiated in January 2010 in Cambridge, we discussed at length his extremely interesting viewpoints and research. This interview takes the reader through the intellectual history and work of a determined man, who has never ceased encouraging new ideas and pushing forward fresh economic thinking for the benefit of societal progress.
Keywords: Climate change, Economic theory, Economics, Ecosystems, Emissions, Energy, Environment, Environmental sustainability, Forest management, General equilibrium, Justice, Keynesian, Macroeconomics, Mitigation, Modelling, Morality, Stern, Transport
Communist China’s Capitalism: The highest stage of capitalist imperialism
, World Economics, March 2011
This article explains the contemporary Chinese–American economic relationship as an ironic variant of the classical theory of capitalist imperialism. Communist China is the modern world’s great imperial power (exporter of surplus savings). China exports its savings by undervaluing its own currency and acquiring foreign exchange reserves. As the supplier of foreign exchange reserves, the United States is not merely the colony, but the crown jewel of China’s empire. It absorbs China’s savings and consumes the corresponding surplus Chinese goods. However, unlike the old imperialist system, this relationship can be ended without military rebellion. The US, by controlling access to its financial markets, owns the ‘off switch’ for the Chinese export machine.
Keywords: China, Communism, Currency reserves, Data, Dollar, Exchange rates, Foreign exchange reserves, Global imbalances, Imbalances, Inequality, Keynes, Political economy, Reserve accumulation, Reserve currency, Trade surplus, US, USA
Trade and Growth in the Post-Crisis World
Ronald U. Mendoza
, World Economics, December 2010
Countries that have most successfully used trade as part of a high growth strategy tend to exhibit a distinct trading pattern that maximises learning. The evidence points to three main strategies: first, trading itself matters, as firms learn from a larger market; second, with whom you trade matters, as richer and more technologically advanced trading partners offer more scope for learning; and, third, what products you trade matters, as more sophisticated tradables are linked to more intensive learning and greater discovery of new economic opportunities. The recent global crisis may create forces that could accentuate the need for learning, as well as opportunities for it. Trade-induced learning of a more South–South flavour is likely to prove critical for future success.
Keywords: Brazil, China, Development, Globalisation, Growth, Hong Kong, India, Indonesia, Malaysia, Pakistan, Philippines, Technology, Thailand, Trade, Vietnam
The Collapse of Global Trade: What a tangled web we weave
, World Economics, September 2010
A unique feature of the financial crisis is the unprecedented collapse in global world trade. The objective of this paper is to explain some of that collapse as a move towards protectionism triggered not by nationalistic interests but by ‘competing’ objectives among trading partners from the Mundell-Fleming Trilemma. Even with the best of intentions, efforts towards internal rebalancing necessarily imply harming your trading partner unintentionally if they should be using conflicting policy objectives of the Trilemma. National interests are at odds between two such countries, and their policy prescriptions counteract and paralyse rebalancing and coordination efforts between nations. Policymakers may be forced into protectionist stances in an effort to counteract the internal rebalancing efforts of their neighbours.
The Temptation for Protectionism and American Trade Policy
& Tyler Prante
, World Economics, September 2010
The Great Recession of 2007–2009 originated in the United States and quickly spread throughout the economies of Canada and Europe. Soon these countries imported fewer goods produced by emerging countries and the crisis became global. International trade collapsed at a pace unseen since the Great Depression of the 1930s. As trade declined, countries increasingly faced the temptation to impose restrictions on imports so as to protect sales and jobs of domestic firms and workers. This paper examines the pressures for protectionism that have occurred during the Great Recession and its aftermath. It also examines the lessons from the escalation of protectionism during the 1930s and applies these to the current situation. Several cases of recent protectionist policies are examined to illustrate these points.
Vietnam: From Transitional State to Asian Tiger?: Issues of the Vietnamese economic transformation experience
F. Gerard Adams
& Anh Le Tran
, World Economics, June 2010
Putting aside the legacy of its unique history, Vietnam has achieved an excellent growth record. But it is still far behind the leading East Asian economies. We consider the Vietnamese growth strategy in light of the controversies about ‘accumulation vs assimilation’ and ‘non-intervention vs governing the market’. We discuss the changes that are occurring as a result of the actions of the still large state-owned sector, and as a result of growing private domestic and FDI-led entrepreneurship. Policy options for directing economic development are today influenced by Vietnam’s participation in AFTA and WTO. Trade links with China, Japan and the US also influence the direction of Vietnamese development.
Weapons Exports: The bogus moral dilemma
, World Economics, June 2003
The commonly held view that an ethical approach to arms sales is desirable but
‘unaffordable’ because jobs and exports are at stake is challenged by Samuel
Brittan. He argues that it arises from a failure to understand the circular flow of
income, the fallacy of a ‘lump of labour’ and a long discredited mercantilist view
of trade. The author contends that on moral and economic grounds, arms sales
should not be subsidised or officially promoted in any way, and governments
should be much stricter in enforcing bans on sales to dubious regimes.
Can Africa Catch Up?
, World Economics, June 2002
The trend towards globalization of the last few decades has been manifested in
the sustained growth of world trade and flows of investment and technology. For
most regions this growing integration has led to rapidly growing per capita
incomes, while Africa has stagnated at the income level achieved about three
decades ago. This paper shows that Africa is marginal to the world economy, but
that the world economy is very important for Africa. In terms of openness to trade
Africa closed up during the 1960s and 1970s, while it has been trying to open up
since then. So far the results in terms of growth have been modest. The question
posed here is whether Africa can effectively link up with the rest of the world
and start a catch-up process, or whether marginalisation is inevitable.
Keywords: Angola, Botswana, Competitiveness, Convergence, Development, Growth, Kenya, Mauritius, Mozambique, Nigeria, Openness, Poverty, Productivity, South Africa, Tanzania, Trade, Uganda, Zambia, Zimbabwe
The Black Economy - Benefit frauds or tax evaders?
, World Economics, March 2000
One answer to the question "How Rich are We?" is to compare levels of National Income either across countries or for a single country over time. However, the relevance of this approach depends on how accurately National Income measures the output of goods and services of a country. While it is difficult to measure, the Black Economy represents the output of goods and services that is not generally captured in the National Income Accounts. This article discusses the problems of measuring the size of the Black Economy and speculates on the questions of who is involved and how. The relative importance of Tax Evasion versus Benefit Fraud is discussed.