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Research Highlights 2010: Trade and International Integration

Themes |  Highlights |  Team |  Notes |  Current Research Program  | 2010 Publications 

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Our understanding of conventional trade—cross-border transactions in complete goods, and conventional trade policy—tariffs and quotas,has improved. But other dimensions of international integration and of policies affecting international integration, such as trade facilitation and export promotion, are still not well understood. New research is beginning to remedy gaps in our knowledge and facilitate informed policy-making


The focus of research by the team is on the implications of international economic integration for developing countries and on how it can be managed to promote economic development. Research covers national policies and interna-tional agreements that affect international trade in goods and services, as well as foreign investment and migration.

The specific policy research questions are in many cases defined by demand from Bank operations and client countries, addressed by collecting new data which are rigorously analyzed and widely disseminated, studied in collaboration with researchers from developing countries and other development institutions, and the results implemented in cooperation with staff from Bank operations and client countries.


Trade has recovered after the crisis in part because protection remained dormant

New estimates of the overall trade restrictiveness indices (OTRIs) developed by the World Bank for a wide range of countries, revealed no evidence that the crisis lead to a widespread increase in protectionism via tariff policies.[1] Only a handful of countries, such as Argentina, China, Malawi, Russia, and Turkey imposed higher tariffs on products with significant trade flows.

But the crisis did accentuate a longer-term trend across countries of increasing recourse to antidumping, safeguard, and countervailing duty policies—that is, temporary trade barriers. These barriers are increasingly a “South-South” phenomenon, with China, in particular, a victim of actions by other developing countries.[2] The rise in tariffs and antidumping duties is estimated to have jointly caused trade to drop by about US$43 billion, which explains less than 2 percent of the global trade collapse.

Trade policy is taking newer pro-active forms which need to be informed by better evidence

In developing countries and the World Bank’s work, there is a shift away from economy-wide reforms of tariffs and trade restrictions toward focused interventions to facilitate trade and promote exports. But there is limited evidence on whether and how such interventions work. A workshop on the Impact Evaluation of Trade-Related Policy Interventions took the first steps toward more rigorous evaluation of trade-related interventions, drawing upon experience in other areas (labor, education, health).[3

In preparation for the 4th United Nations Conference on the Least Developed Countries in 2011, the World Bank initiated a research partnership on aid-for-trade effectiveness with the least developed countries and other international organizations to identify priorities in trade facilitation and competitiveness.[4]

Trade facilitation efforts must target infrastructure and delay

As tariffs have declined, it has become evident that protection is not the only impediment to trade. Weakness in infrastructure—both hard (e.g., ports and roads) and “soft” (e.g., customs and other regulations)—also hurt trade. Trade facilitating reforms can have a significant impact on export performance. For example, improving the quality of physical infrastructure so that Egypt’s indicator increases half-way to the level of Tunisia would increase its exports by more than 10 percent, roughly equal in impact to a 7.5 percent cut in tariffs faced by Egyptian exporters in destination markets.[5

Apart from explicit trade costs, “trade delayed is trade lost.” Using newly collected data on the days it takes to move standard cargo from the factory gate to the ship in 98 countries, it was estimated that each additional day that a product is delayed prior to being shipped reduces trade by more than one percent.[6

Firm-level insights on exporting, technology adoption, and productivity gain

Understanding what drives and sustains success in exporting has proved elusive, but new data are helping. For example, firm-level data on the nontraditional agriculture sector in Peru, which grew seven-fold from 1994 to 2007, reveals new products are typically discovered by large experienced exporters. Discovery provokes tremendous firm entry and exit in the export sector especially among firms that start small. The results imply that high sunk costs of entry are more a concern for product discovery than subsequent entry.[7]

The link between market incentives and technology adoption is also more nuanced. Survey data for 7,000 firms in 28 countries in Eastern Europe and Central Asia reveal that while stronger consumer pressure is significantly associated with technology adoption, competitor pressure is not, suggesting that it is primarily firms with rents that are able to adopt new technologies. Foreign-owned firms exhibit significantly better technology adoption outcomes, but privatized firms with domestic owners do not.[8

Productivity gains need not come only from openness in the sector itself. Conventional explanations for the post-1991 growth of India’s manufacturing sector focus on goods trade liberalization and industrial de-licensing. Panel data for about 4,000 Indian firms for the period 1993-2005 show that banking, telecommuni-cations, insurance and transport reforms also had significant positive effects on the productivity of manufacturing firms.[9

Foreign investment has unexpected determinants and differing impact 

The importance of ethnic networks for international trade has been recognized, but their impact on foreign direct investment (FDI) has not.  The presence of migrants can stimulate FDI by promoting information flows across international borders and by serving as a contract enforcement mechanism. New research reveals that U.S. FDI abroad is positively correlated with the presence of migrants from the host country, especially those with tertiary education.[10]

Even though China is one of the major recipients of FDI, its impact on domestic output is dwarfed by the large impact of domestic Chinese investment. Among foreign sources, foreign direct investment from the United States has the largest impact, followed by Hong Kong, China; Japan; Taiwan, China; and Korea.[11]

Returns to labor are strongly influenced by both trade and migration

The impact of international integration on the labor market is a central concern for policy makers. New research suggests that the impact of exports depends on their destination. One reason is that exporting to high-income countries requires skill-intensive quality upgrades. A study of Argentine manufacturing firms for the period 1998-2000 reveals that firms induced by the Brazilian currency devaluation of 1999 to shift from the Brazilian to high-income markets hired a higher proportion of skilled workers and paid higher average wages than other exporters (to non high-income countries) and domestic firms.[12]

Immigrants in Rome or Paris are more visible to the public eye than the Italian or French engineers in Silicon Valley.  Nevertheless, public fears that immigration worsens income distribution may be misplaced, especially in European countries.  A new dataset on migration flows by education levels for the period 1990-2000, reveals that both emigrants and immigrants are more skilled than non-migrants. Therefore, immigration generally improved the income distribution of European countries while emigration worsened it by increasing the wage gap between the high- and low-skilled natives.[13]

Aaditya Mattoo Research Manager

Ingo Borchert
Chad Bown
Martha Denisse Pierola Castro
Ileana Cristina Constantinescu
Ana Margarida Fernandes
Caroline Freund

Hiau Looi Kee

Alberto Portugal Perez

Daniel Lederman
Francis K. T. Ng
Çaglar Özden
John S. Wilson

1.Kee, Hiau Looi, Cristina Ileana Neagu, and Alessandro Nicita. 2010. “Is Protectionism on the Rise? Assessing National Trade Policies during the Crisis of 2008.” Policy Research Working Paper 5274, World Bank, Washington, DC.
2.Bown, Chap P. 2010. “Taking Stock of Antidumping, Safeguards, and Countervailing Duties, 1990–2009.” Policy Research Working Paper 5436, World Bank, Washington, DC.
3.Workshop on “Impact Evaluation of Trade-Related Policy Interventions: Paving the Way,” December 7, 2010, Washington, DC.
Presentations | Video 
4.Pre-conference on “Aid for Trade and the Least Developed Countries: Opportunities and Challenges in a Post-Crisis World,” December 13, 2010, Geneva, Switzerland.
Agenda | Papers 
5.Portugal Perez, Alberto, and John S. Wilson. 2010. “Export Performance and Trade Facilitation Reform: Hard and Soft Infrastructure.” Policy Research Working Paper 5261, World Bank, Washington, DC.
6.Djankov, Simeon, Caroline Freund, and Cong S. Pham. 2010.  “Trading on Time.” Review of Economics and Statistics 92(1): 166–73. 
7.Freund, Caroline, and Martha Denisse Pierola. 2010. “Export Entrepreneurs: Evidence from Peru.” Policy Research Working Paper 5407, World Bank, Washington, DC.
8.Correa, Paulo G., Ana M. Fernandes, and Chris J. Uregian. 2010. “Technology Adoption and the Investment Climate: Firm-Level Evidence for Eastern Europe and Central Asia.” World Bank Economic Review 24(1): 121–47.
9.Mattoo, Aaditya, Jen Arnold, Beata Javorcik, and Molly Lipscomb. 2010. “Services Reform and Manufacturing Performance: Evidence from India.” Centre for Economic Policy Research Discussion Paper 8011. London, United Kingdom.
10.Özden, Çağlar, Beata Javorcik, Cristina Ileana Neagu, and Mariana Spatareanu. 2010. “Migrant Networks and Foreign Direct Investment.” Journal of Development Economics 94(2): 231–41.
11.Chantasasawat, Busakorn, Kwok-Chiu Fung, Francis K. T. Ng, and Alan Siu. 2010. “Domestic Investment, Alternative Sources of Foreign Direct Investment and Economic Growth in China.” In The Future of Asian Trade and Growth: Economic Development with the Emergence of China, ed. Linda Yueh. London: Routledge Press.
12.Brambilla, Irene, Daniel Lederman, and Guido Porto. 2010. “Exports, Export Destinations and Skills.” NBER Working Paper 15995, National Bureau of Economic Research, Cambridge, Mass.

Docquier, Frédéric, Çağlar Özden, and Giovanni Peri. 2010. “The Wage Effects of Immigration and Emigration.”  NBER Working Paper 16646, National Bureau of Economic Research, Cambridge, Mass.


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