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Research Highlights 2008: Trade and International Integration

Themes  |  Highlights  |  Team  |  Notes  |  Current Research Program  | 2008 Publications

Research Highlights 2008 for main highlights larger for team highlights pages

 Full Report

The outlook for developing countries’ trade deteriorated sharply in 2008, with important shocks in food, energy, and financial sectors. From late 2008, trade declined sharply and progress on trade reform decelerated or even went backwards. In this challenging context, the trade 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 policies to increase the benefits to poor people.

Themes

The trade research program has four broad themes: (1) empirical studies of relationships between policies affecting international trade in goods, services, and people, and economic development outcomes; (2) analysis of "behind the border" factors affecting the costs and benefits of trade, such as service sector performance, logistics costs, labor market or competition policies; (3) analysis of international trade agreements, both multilateral (WTO) and bilateral or regional; and (4) dealing with the implications of crises for the poor.

Highlights

Trade liberalization can occur in many ways, and be politically difficult

Two new books on agricultural trade distortions point to major changes in developing countries' agricultural trade policies. The direct taxation of export-oriented agriculture that was a key feature of developing country trade policies has almost disappeared in the past twenty years, while indirect taxation through support to non-agriculture has been sharply reduced. Protection to import-competing agriculture has risen, leaving average protection to agriculture close to zero, but with substantial variations in protection between sectors.1

Many argue that Free Trade Areas (FTAs) reduce the trade opportunities of non-members. A new study of 10 Latin American countries finds that preferential tariff reduction leads to reductions in external tariffs. External liberalization is greater if preferential access is granted to important suppliers. These "complementarity effects" of preferential liberalization do not arise in customs unions, suggesting an important reason to prefer FTAs over Customs Unions.2

If successfully completed, the Doha Development agenda would substantially strengthen disciplines on protection. Current proposals would reduce average tariff bindings (ceilings) for agricultural products from 40 to 30 percent, and for non-agricultural goods from 8 to 5 percent. Proposals for trade in services would reduce the average gap between offers and actual policies by almost half-from 84 percent to 43 percent. The average applied tariffs facing developing country agricultural exporters would fall from 14.2 to 11.5 per cent; and those facing exports of manufactures from 2.9 to 2.1 per cent. Agricultural export subsidies would be banned.3

Many trade problems require international cooperation

In many poor countries, sharp increases in prices of staple foods in the first half of 2008 raised the real incomes of those selling food while hurting net food consumers. Results using household data for nine low-income countries show that the short-run impacts of higher staple food prices on poverty differ considerably by commodity and by country, but, that poverty increases are much more frequent, and larger, than poverty reductions. Increases in food prices appeared likely to raise overall poverty in low-income countries substantially without urgent international assistance.4

The difficulties involved in completing the Doha Development Agenda raise important questions about whether fundamental reform of the WTO system is required. Some argue that the traditional negotiating dynamic of the multilateral system, driven by private sector interests, is running out of steam. If a new global approach is required, what elements should it include? Might it include concerns about food, energy and economic security, or issues such as currency undervaluation and the role of sovereign wealth funds?5

Trade policies require careful explanation, measurement, and analysis

It is well-known that declining industries are more likely to receive trade protection, yet standard economic approaches suggest that protection should be given to expanding sectors. To explain this anomaly, a new study introduces concepts of loss aversion from behavioral economics to better explain actual policy choices. A clear prediction emerges when an industry first begins to decline significant protection is provided to isolate it from world price declines. However, if the industry continues to decline, policy approaches free trade.6

A new study uses three measures of trade distortions to summarize policies. The trade restrictiveness index (TRI) summarizes the effects of a country's own trade policy on its welfare; the Overall Trade Restrictiveness index (OTRI) summarizes effects on its import volume, and the Market Access OTRI (MA-OTRI) summarizes the effects of partner countries' distortions on its exports. Poor countries are found to be more restrictive, but to face higher trade barriers on their exports. Considering non-tariff barriers as well as tariffs close to doubles measured trade restrictiveness.7

A study for the International Study Group on Exports and Productivity finds that exporters have higher productivity than domestic firms, which provides opportunities for raising overall productivity. These premiums are found to vary considerably across countries, being higher in countries with lower export participation rates, with more restrictive trade policies, and with lower GDP per capita, and in countries exporting to relatively more distant markets.8 

Trade costs and product standards matter hugely in developing countries

Trade costs are higher for African countries than for other developing countries. A new study concludes that the gains for African exporters from improving the trade logistics half-way to the level in South Africa are equivalent to large cuts in tariff barriers. As an example, improving logistics in Ethiopia half-way to the level in South Africa would be roughly equivalent to a 7.5 percent cut in tariffs faced by Ethiopian exporters.9 

Countries in Southeast Asia appear to perform well in terms of costs to import and export, with costs more or less in line with the OECD average. However, much scope for progress remains in ASEAN in the time and paperwork it taken complete cross-border transactions. New analysis suggests reform in port facilities and the Internet services sector could expand ASEAN trade by up to 7.5 percent ($22 billion) and 5.7 percent ($17 billion), respectively.10

Migration can have major development impacts

The determinants of women's migration, the impacts on households back home and their performance in the U.S. labor market are examined in a new book. Key findings include the following: the share of female migrants has risen to half the total; schooling raises migration from rural Mexico to the United States for women but not for men; and diaspora networks have a significant impact on migration while macroeconomic and U.S. policy variables do not, except for expenditures on border barriers which deter female migration.11

A new study finds striking differences among highly educated immigrants in the United States, even after controlling for age, experience and level of education. Educated immigrants from Latin American and Eastern Europe are more likely to end up in unskilled jobs than those from Asia and industrial countries. The study concludes that "underplaced" migrants suffer primarily from low (or poorly transferable) skills and many problems might be reduced with better sharing of information on labor market conditions and recognition of workers'qualifications.12

Acting Research Manager:William J. Martin (since September 2008)
Research Manager: Bernard M. Hoekman (through August 2008)

Kym Anderson
Ana Margarida Fernandes
Caroline Freund
Hiau Looi Kee
Daniel Lederman
Aaditya Mattoo 

Francis K. T. Ng
Çaglar Özden
Guido Porto

Notes

1.  Anderson, Kym, and Alberto Valdes. 2008. Distortions to Agricultural Incentives in Latin America. Washington, DC: World Bank.
Anderson, Kym, and Johan Swinnen. 2008. Distortions to Agricultural Incentives in Europe’s Transition Economies. Washington, DC: World Bank.

2.  Freund, Caroline, Estevedordael Antoni, and Emanuel Ornelas. 2008. “Does Regionalism Promote External Trade Liberalization Toward Nonmembers?” Quarterly Journal of Economics 123(4): 1531–75. (Based on CEP Discussion Paper 868, May 2008.)

3. Martin, Will, and Aaditya Mattoo. 2008. “The Doha Development Agenda: What's on the Table.” Policy Research Working Paper 4672, World Bank, Washington, DC.

4. Ivanic, Maros, and Will Martin. 2008. Implications of Higher Global food Prices for Poverty in Low-Income Countries."  Agricultural Economics 39(1):405-16.

5. Mattoo, Aaditya. 2008. “Multilateralism beyond Doha.” Policy Research Working Paper 4735, World Bank, Washington, DC
Mattoo, Aaditya, and Arvind Subramanian. 2008. “Currency Undervaluation and Sovereign Wealth Funds: A New Role for the World Trade Organization.” Policy Research Working Paper 4668, World Bank, Washington, DC.

6. Freund, Caroline, and Çağlar Özden. 2008. “Trade Policy and Loss Aversion.” American Economic Review 98(4): 1675–91.

7. Kee, Hiau Looi, Alessandro Nicita, and Marcelo Olarreaga. 2008. “Import Demand Elasticities and Trade Distortions.” Review of Economics and Statistics 90(4): 666–82.

8. Fernandes, Ana Margarida. 2008. "Understanding Cross-Country Differences in Exporter Premia - Comparable Evidence for 14 Countries." Review of World Economics 144(4):596–635.

9. Wilson, John S., and Alberto Portugal Perez. 2008. “Trade Costs in Africa: Barriers and Opportunities for Reform.” Policy Research Working Paper 4719, World Bank, Washington, DC.

10.  Taylor, B. and John S. Wilson. 2008. “Deeper Integration in ASEAN: Why Transport and Technology Matter for Trade.” World Bank Trade Issue Brief, July.

11. Schiff, Maurice, Andrew R. Morrison, and Mirja Channa Sjoblom, ed. 2007. The International Migration of Women. New York: Palgrave MacMillan.

12.  Mattoo, Aaditya, Ileana Cristina Constantinescu, and Çağlar Özden. 2008. “Brain Waste? Educated Immigrants in the US Labor Market.” Journal of Development Economics 87(2): 255–69.


Last updated: 2009-03-20




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