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Research Highlights 2009: Trade and International Integration

Themes |  Highlights |  Team |  Notes |  Current Research Program  | 2009 Publications

After a sharp decline in 2008, developing country trade began to rebound in 2009. The trade policy fallout from the global economic crisis was limited and there were no major reversals of past liberalization. However, there were some signs in 2009 of new protectionist barriers affecting developing country trade, and multilateral progress on trade reform efforts continued to stall. In these tumultuous economic times, the trade research program expanded its ongoing efforts to better understand the development role of international trade in goods and services, foreign direct investment, and migration, and to also examine crisis-related issues in global economic integration.

2009 Annual Research Highlights Report Cover

 Full Report 

 

 

 

 

Highlight 4

 Themes

The research program consists primarily of empirical studies—country-specific and cross-country comparisons—of the causes and impact of international integration, and how it can be managed to promote development. The program focuses on national policies and international agreements that affect international goods and services trade and hence firm productivity and performance, as well as income distribution.

In the midst of the global economic crisis, the team also initiated a new monthly Trade Watch on the latest developments in international trade flows.1 The team also provided rapid-response monitoring of any increase in trade barriers through high frequency updates and an expansion of the Global Antidumping Database.2 Finally, a preliminary version of the World Bank’s Migration Database was featured at a fall conference.3 This new database presents matrices of bilateral migrant stocks spanning the period 1960-2000, disaggregated by gender, and is the most complete migration database constructed to date. A full version will be publicly available later this year.

Highlights

The global economic crisis had a significant impact on international trade and
a more limited impact on trade policy

What lessons for the contemporary crisis can be derived from history, what is likely to happen in the coming years, and which regions and industries suffer most heavily? First, the elasticity of global trade volumes to world gross domestic product (GDP) has increased gradually from around 2 in the 1960s to above 3 now and trade is more responsive to GDP during global downturns than in tranquil times.4 Second, trade tends to rebound rapidly when the outlook brightens. Third, there is significant variation across industries, with food and beverages the least affected and crude materials and fuels the most affected. Interestingly, some types of services trade weathered the early part of the crisis much better than goods trade.5 Therefore, developing countries like India, which are relatively specialized in business process outsourcing and information technology services, suffered much smaller declines in total exports than countries like Brazil and regions like Africa, which are specialized in exports of goods, transport services, or tourism services.

There was concern that the spread of the global recession would provoke a global increase in protectionism. Data from the World Bank Global Antidumping Database did reveal an increase in the number of import-restricting policies. Several developing country importers initiated and imposed new protectionist measures primarily affecting other developing country exporters, especially China. But early estimates suggest the likely trade impact is small: less than one-half per cent of the G-20 economies’ total imports was likely to be affected by the early-crisis use of such barriers.6 

Other research on non-tariff barriers (NTBs) conducted prior to the global crisis indicates they can become a serious impediment to trade. A study of 78 developing and developed countries, which developed indicators of trade restrictiveness that are well grounded in trade theory, revealed that, on average, NTBs contribute an additional 87 percent to the restrictiveness imposed by tariffs. Overall, poor countries tend to restrict trade more, but they also face higher trade barriers on their exports.7 

Whither international cooperation?

While the global economic crisis fermented in 2009, trade-related negotiations continued with little sign of reaching an agreement anytime soon. New research finds that the WTO’s Doha Round must be concluded not because it will produce dramatic liberalization but because it will create greater security of market access. What is on the table would constrain the scope for tariff protection in all goods, ban agricultural export subsidies in the industrial countries and sharply reduce the scope for distorting domestic support—by 70 per cent in the European Union and 60 per cent in the United States.8 

As climate change negotiations enter a post-Copenhagen phase, new research examines the consequences of mitigation actions. While manufacturing output and exports in low carbon intensity countries such as Brazil are unlikely to be adversely affected, in high carbon intensity countries, such as China and India, even a modest agreement could significantly depress manufacturing output and exports. The increase in the carbon prices induced by emissions tradability hurts manufacturing output most while the Dutch disease effects of transfers hurt exports most. If the growth costs of these structural changes are judged to be substantial, the current policy consensus, which favors emissions tradability (on efficiency grounds) supplemented with financial transfers (on equity grounds), needs re-consideration.9 

Export promotion policies and trade facilitation efforts can boost developing country trade

National policies must look beyond the crisis and their reform need not wait for the conclusion of international negotiations. For example, the number of national export promotion agencies (EPAs) has tripled over the past two decades. Many EPAs were retooled, partly in response to these critiques of their efficacy in developing countries. New survey data covering 103 developing and developed countries, suggest that today’s EPAs and their strategies have a statistically significant effect on exports. EPA services help overcome foreign trade barriers and address information problems associated with exports of heterogeneous goods. There are also strong diminishing returns, suggesting that as far as EPAs are concerned, small is beautiful.10 

Trade costs are higher in Africa than in other regions, and trade facilitation could have a powerful effect on trade. Ad-valorem equivalents of improvements in trade indicators for a sample of African countries suggest that the gains for African exporters from cutting trade costs half-way to the level of Mauritius would have a greater effect on trade flows than a substantial cut in tariff barriers. For example, improved logistics in Ethiopia that reduced its costs of trading a standardized container of goods half-way to the level in Mauritius would be roughly equivalent to a 7.6 percent cut in tariffs faced by Ethiopian exporters.11 

The impact of international integration on the activities of firms in developing countries

Over the past two decades, globalization, and more specifically the increased exposure to competition from low-price producers in China and India, has created a new economic environment for other emerging economies. Manufacturing firms in those economies have sought to position themselves in domestic and international markets by offering upgraded and differentiated rather than “mundane” labor-intensive products. A rich dataset of Chilean manufacturing plants reveals a positive and robust effect of import competition on product quality. The effect is particularly strong for non-exporting plants suggesting that increased import competition from less-advanced economies can induce innovation and quality upgrading.12 

Ann E. Harrison, Research Manager, Sep.-Dec. 2009
Aaditya Mattoo, Acting Manager, Jun.-Aug. 2009
William J. Martin, Acting Manager, Sep. 2008-May 2009

Chad Bown

Daniel Lederman

Ileana Cristina Constantinescu

Aaditya Mattoo

Ana Margarida Fernandes

Francis K. T. Ng

Caroline Freund

Çaglar Özden

Hiau Looi Kee

John S. Wilson
 

 

 

 

 


 

Notes

1.Freund, Caroline, and Matias David Horenstein. 2009 “Trade Watch.” World Bank, Washington, DC. Monthly notes available at http://go.worldbank.org/PPOQADSA70
2.
Bown, Chad P. 2009. “Global Antidumping Database.” [Current version 5.1] Quarterly updates available on line at http://people.brandeis.edu/~cbown/global_ad/.
3.The Second Conference on International Migration and Development, World Bank, Washington, DC, September 10 - 11, 2009.
Agenda and Papers
For a description of Migration Database, see Özden, Çaglar, Christopher Parsons, Maurice Schiff, and Terrie Walmsley. 2009. “The Evolution of Global Bilateral Migration 1960-2000.” Development Research Group, World Bank, Washington, DC, processed.
Powerpoint Presentation.
4.Freund, Caroline. 2009. “The Trade Response to Global Downturns: Historical Evidence.” Policy Research Working Paper 5015, World Bank, Washington, DC.
5.Borchert, Ingo, and Aaditya Mattoo. 2009. “The Crisis-resilience of Services Trade.” The Service Industries Journal 30(14): 1–20.
6.Bown, Chad P. 2009. “The Global Resort to Antidumping, Safeguards, and other Trade Remedies amidst the Economic Crisis.” In Effective Crisis Response and Openness: Implications for the Trading System, ed. Simon J. Evenett, Bernard Hoekman, and Olivier Cattaneo. London, UK: World Bank and Center for Economic and Policy Research.
7.Kee, Hiau Looi, Alessandro Nicita, and Marcelo Olarreaga. 2009. “Estimating Trade Restrictiveness Indices.” The Economic Journal 119(153): 172-99.
8.Hoekman, Bernard M., William J. Martin, and Aaditya Mattoo. 2009. “Conclude Doha: It Matters!” Policy Research Working Paper 5135, World Bank, Washington, DC.
9.Mattoo, Aaditya, Arvind Subramanian, Dominique van der Mensbrugghe, and Jianwu He. 2009. “Can Global De-carbonization Inhibit Developing Country Industrialization?” Policy Research Working Paper 5121, World Bank, Washington, DC.
10.Lederman, Daniel, Marcelo Olarreaga, and Lucy Payton. 2009. “Export Promotion Agencies Revisited.” Policy Research Working Paper 5125, World Bank, Washington, DC.
11.Portugal Perez, Alberto, and John S. Wilson. 2009. “Trade Facilitation in Africa: Why Reform Matters?” World Trade Review 8(3): 379–416.
12.Fernandes, Ana Margarida, and Caroline Paunov. 2009. “Does Tougher Import Competition Foster Product Quality Upgrading?” Policy Research Working Paper 4894, World Bank, Washington, DC.
 

 




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