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Research Highlights 2007: Trade and International Integration

Themes
Highlights
Trade logistics and domestic regulation increasingly determine trade performance and the benefits of open trade policies
Trade liberalization has reduced the trade restrictiveness of national policies since 2000, but nontariff measures remain significant
Liberalization of trade and investment in services can enhance economic performance but will require complementary regulation
Migration and remittances affect education and health expenditures on children, fertility, and female labor market behavior
Team
Notes

Most developing economies have undertaken significant liberalization of trade and investment policy regimes in recent years. Many countries have benefited from increasing trade volumes, but others have not. The research program seeks to better understand the role of international trade in goods and services, foreign direct investment (FDI) and migration in economic development, and to analyze and devise policies to increase the gains from integration.

Themes

The research program has three broad themes: (1) empirical studies, both country-specific and cross-country, of the relationships between policies affecting international trade in goods, services, and people (temporary and longer-term migration) and economic development (productivity impacts and distributional consequences); (2) analysis of complementary “behind the border” factors that affect the size and distribution of the costs and benefits of trade, such as service sector performance, logistics costs, labor market or competition policies) and (3) positive and normative analysis of international trade agreements, both multilateral (WTO) and bilateral or regional.

New trade-related databases in 2007 include updates to a global database on safeguards and antidumping, and a database on 377,000 import demand elasticities for 4,900 products across 117 countries.[37]



Highlights

Trade logistics and domestic regulation increasingly determine trade performance and the benefits of open trade policies

Despite advances in transport technologies, a recent study finds that geographic distance has become a more important determinant of relative trade volumes, especially homogeneous and bulky goods and those subject to high tariffs. The increase in the importance of distance over time is related to the substitutability of goods and the level of trade costs. Small reductions in trade costs are unlikely to be effective in expanding trade for countries that are located far from major markets.[38]

A study presented at the September 2007 Asia Pacific Economic Cooperation (APEC) meeting in Sydney found that the gains from improving transparency of trade-related regulations are substantial: approximately $148 billion or 7.5 percent of baseline 2004 trade in APEC.[39]

In related research using data from 126 countries, it was found that the benefits of trade are conditional on flexible and limited business regulation, especially on firm entry: a one percentage increase in trade is associated with more than a one-half percentage rise in per capita income in economies that facilitate firm entry but has no positive income effects in more rigid economies. This highlights the importance of a business environment in which new entry is easy for trade openness to have a significant positive impact on per capita incomes.[40]



Trade liberalization has reduced the trade restrictiveness of national policies since 2000, but nontariff measures remain significant

How restrictive are the set of trade-related policies applied by countries? Unlike widely used average tariff measures, which do not take into account nontariff measures or the responsiveness of imports to changes in tariffs, a new trade restrictiveness index captures the effects of all trade policies in a uniform tariff equivalent that is a theoretically consistent measure of the distortions caused by policies on either aggregate welfare or the total import volume of a country.

Calculation of the indices involves estimating import demand elasticities and the ad valorem equivalent of nontariff barriers for up to 4,900 imported goods for each country. The results show that widely used trade-weighted average tariff measures tend to underestimate trade restrictiveness of a country by as much as 60 percent.[41]

Moreover, on average, nontariff measures increase the trade restrictiveness of a country by 80 percent. These measures are particularly important for policies affecting agricultural imports into high-income countries: the overall trade restrictiveness of such policies is equivalent to a 45 percent uniform tariff.[42]



Liberalization of trade and investment in services can enhance economic performance but will require complementary regulation

International trade in services is an increasingly important part of global commerce and is the subject of intense negotiation in multilateral, regional, and bilateral negotiations. The provision of efficient services—ranging from backbone services like telecommunications, finance, and transport to health and education—has become pivotal to growth and poverty reduction.[43]

A major study of services in Zambia demonstrates that benefits of services liberalization are not automatic: in weak and inappropriate regulatory contexts, it can lead to negative results and undermine the case for reform. Flaws in reform programs typically include failing to recognize the importance of sound and appropriate prudential regulation, of increased competition, and of policies to ensure greater services access for the poor.[44]

Access to services such as transportation, marketing, and distribution can greatly increase the benefits of trade opportunities for poor households.[45] For example, a study of export cropping in Uganda shows that “market availability” increases household participation in export crops (coffee, tea, cotton, fruits) and that households engaged in export cropping are less likely to be poor than households that are subsistence-based.[46]



Migration and remittances affect education and health expenditures on children, fertility, and female labor market behavior

Remittances to developing countries are estimated to exceed $200 billion, larger than overseas development assistance. If informal transfers are included, this number could double.[47]

Relative to nonmigrant households, girls benefit more than boys from remittances. Pakistani girls in migrant households in 2002 had a 54 percent higher school enrollment rate, versus 7 percent for boys. In terms of health outcomes, child growth measures are higher in migrant households and the relative gain is larger for girls than for boys. Similar findings were found for El Salvador and Nicaragua. Migration also affects fertility patterns in sending countries. A new study shows a close association between migration and fertility. Morocco and Turkey, where migration has been directed to European countries with low fertility rates, experienced a decline in fertility. Conversely, Egypt, where migration has been directed toward high-fertility countries of the Persian Gulf, experienced an increase.[48]

Related research based on a new global bilateral database shows that women represent an increasing share of the OECD immigrant stock and are experiencing higher brain-drain rates relative to men. Increasing women’s access to education and reducing labor market discrimination in source countries should reduce this gender gap in brain-drain effects.[49]

Team

Notes

 37. Global Antidumping Database, Version 3.0 (June 2007).
Web site: http://people.brandeis.edu/~cbown/global_ad/

Global Monitoring Report 2008 - Overall Trade Restrictiveness Indices.
Web site: http://go.worldbank.org/C5VQJIV3H0

 38. Freund, Caroline, and Matias Berthelon. Forthcoming. "On the Conservation of Distance in International Trade." Journal of International Economics.

 39. Helble, Matthias, Ben Shepherd, and John S. Wilson. 2007. "Transparency, Trade Costs, and Regional Integration in the Asia-Pacific: Estimating the Gains from Reform." The Department of Foreign Affairs and Trade, Australia, Report for the Asia Pacific Economic Cooperation (APEC).

 40. Freund, Caroline, and Bineswaree Bolaky. Forthcoming. "Trade, Regulations, and Income." Journal of Development Economics.

 41. Kee, Hiau Looi, Alessandro Nicita, and Marcelo Olarreaga. Forthcoming. "Estimating Trade Restrictiveness Indexes." The Economic Journal.

 42. Kee, Hiau Looi, Alessandro Nicita, and Marcelo Olarreaga. Forthcoming. "Import-Demand Elasticities and Trade Distortions." Review of Economics and Statistics.

 43. Mattoo, Aaditya, Robert M. Stern, and Gianni Zannini, ed. 2007. A Handbook of International Trade in Services. New York: Oxford University Press.

 44. Mattoo, Aaditya, and Lucy Payton, ed. 2007. Services Trade and Development: The Experience of Zambia. Washington, DC: World Bank and Palgrave Macmillan. Order book

 45. Hoekman, Bernard, and Marcelo Olarreaga, ed. 2007. Global Trade and Poor Nations: The Poverty Impacts and Policy Implications of Liberalization. Washington DC: Brookings Institution.

 46. Balat, Jorge, Irene Brambilla, and Guido Porto. 2007. "Realizing the Gains from Trade: Export Crops, Marketing Costs, and Poverty in Uganda." Policy Research Working Paper 4488, World Bank, Washington, DC.

 47. Freund, Caroline, and Nikola Spatafora. Forthcoming. "Remittances, Transaction Costs, and Informality." Journal of Development Economics.

 48. Özden, Çaglar, and Maurice Schiff, ed. 2007. International Migration, Economic Development and Policy. Washington, DC: World Bank and Palgrave Macmillan. Order book

 49. Morrison, Andrew R, Maurice Schiff, and Mirja Sjoblom, ed. 2007. The International Migration of Women. Washington, DC: World Bank and Palgrave Macmillan. Order book




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