Trade Policy and Performance...–Importance of difference in sea distance and air distance becomes...
Transcript of Trade Policy and Performance...–Importance of difference in sea distance and air distance becomes...
Trade Policy, Economic
Performance and Poverty
L Alan Winters Professor of Economics, University of Sussex
Director of UK Trade Policy Observatory
Core readings
• Winters, L .A. (2004) Trade Liberalisation and Economic Performance: An
Overview. The Economic Journal, Vol. 114 (February), pp. F4-F21.
• Winters, L. Alan, Neil McCulloch and Andrew McKay, 2004. Trade
Liberalization and Poverty: The Evidence So Far. Journal of Economic
Literature, Vol. XLII (March), pp. 72-115.
• Winters L A and A Masters (2014) ‘Openness And Growth: Still An Open
Question?’. Journal of International Development, 25(8), 1061-1070, 2014.
• Martuscelli, Antonio and Winters L Alan (2014) ‘Trade Liberalisation and
Poverty: What have we learned in a decade?’, Annual Review of Resource
Economics, vol 6, 2014, DOI: 10.1146/annurev-resource-110713-105054;
also CEPR Discussion Paper No. 9947
http://arjournals.annualreviews.org/eprint/acSwkIAYZ4tni3hWZxPx/full
/10.1146/annurev-resource-110713-105054
• Goldberg, Pinelopi Koujianou; Pavcnik, Nina ‘Distributional Effects of
Globalization in Developing Countries ‘, Journal of Economic Literature,
Volume 45(1) March 2007, pp. 39-82
• Porto, G (2006), "Using Survey Data to Assess the Distributional Effects of
Trade Policy", Journal of International Economics, 70(1): 140-- 2
What is the issue?
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Trade and Growth: Levels vs. Changes
• Income
– Higher vs. growing more rapidly
– Permanent vs. transitory growth effects
Y”
Event
Y
Y’
time
Lo
g (
y)
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Empirical challenges
1. Defining and measuring openness
Binary (Sachs/Warner); (X=M)/GDP
Averages – weights, Anderson-Neary
2. Establishing causation
Liberalisation → growth or vice versa?
3. Separating openness from other policies
the attribution problem
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What have we learned (I) Case studies
• No closed economy has developed post WW2
– Nineteenth century and 1930s low relevance
• Five common features of successful growers:
– Macro stability
– High savings and investment
– Use markets to allocate resources
– Committed, credible, capable government
– Fully exploited world economyGrowth Commission (2008)
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What have we learned?
(II) Instruments
• Frankel and Romer (AER, 1999) gravity
– Many followers; not always successful
• Noguer and Siscart (2005, JIE)
– More countries in gravity instruments → clarity
• But see Bazzi and Clemens (AEJ-MAC, 2013)
– Strong critique of weak instruments
– Country size is treacherous - little time variance
– Be serious about the exclusion restriction
– This includes GMM and system GMM too!
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Exclusion
• Deaton (2010, JEL)
– instrumentation requires a narrative
• Bazzi and Clemens
– Many studies take the form:
growth = f(x, W); x=g(Z)
– If you estimate: growth = h(y, W*); y=m(Z)
– You strictly have to reject every one of them!
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Other instruments
• Feyrer (2009, NBER WP)
– Time varying instrument for trade
– Importance of difference in sea distance and air distance becomes more significant as air travel cheapens
• Romalis (2007, NBER WP)
– US tariffs (also time varying), but
• Commodity structure;
• Relates trade policy level to output growth
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What have we learned (III) time series
• Mixed results
• Gries, Kraft & Meierrieks (2009, WD)
– GMM
– Individual African economies
– Granger-Hsaio causation
• Wacziarg & Welch (2008, WBER)
– 13 country statistical case studies
• Kneller, Morgan & Kanchanahatakij (‘08, WE)
– Panel of event studies
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What have we learned (IV) Conditions
• Heterogeneity of country studies
• E.g. Chang, Kaltani & Loayza (2009, JDE)
and Bolaky and Freund (JDE, 2008)
– Interactions of openness with
Property
Rights
Financial
Depth
Lab. market
flexibility
Rule of law Education Firm entry
Governance Telecoms Firm exit
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Income, Openness and Regulation(Bolaky-Freund; JDE 2008)
Less regulated half More regulated half
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What have we learned (V) Productivity
• Selectivity
• Imported inputs (Amiti & Koenings (2007,
AER) and AER P&P 2009
• Learning by Exporting (Fernandes & Isgut,
2005, WB; Blalock & Gertler, 2004, JDE)
• Learning to Export (Iacovone, 2009, WB)
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What does this mean for policy?
• Vast majority of growth policy is not trade policy; try to make trade policy simple and unobtrusive
• Treat as decision, not a hypothesis test
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Poverty
Shares in Long-run Poverty Reduction(Kraay, JDE 2006, cross-section)
0% 20% 40% 60% 80% 100%
FGT 0
FGT 1
FGT 2
Watts
Share of poverty reduction
growth sensitivity distribution
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Trade Policy and Poverty – Causal Connections
Trading Domain
Tradables
Pass through, competition
National
Taxes, regulation, distributors, procurement
Regional
Distribution, taxes, regulation, co-ops
Co-operatives, technology, random shocks
Subsis-
tence
World Prices and Quantities
Border Price
Wholesale Price
Tariffs, QRs
Retail Price
Tariff Revenue
Welfare
)
Exchange
Rate
elderly
Household
Welfare Prices, Wages
Endowments,
Profits, Other Income
elderly
young
males
females
Enterprises
Profits Wages
Employment
Tariff Revenue
Taxes
Spending
Conceptual Framework
Winters World Economy (2002)1717
• Do border price shocks get transmitted to poor
households?
• Are markets created or destroyed?
• How well do households respond?
• Do the spillovers benefit the poor?
• Does trade liberalisation increase
vulnerability?
Winters, McCulloch and McKay JEL (2004)
Households and Markets
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Wages and Employment
• Does liberalisation raise wages or employment?
• Is transitional unemployment concentrated on the poor?
Government Revenue and Spending
• Does liberalisation actually cut government revenue?
• Do falling tariff revenues hurt the poor?
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Common price vector,
Separability :
– labour-leisure
– labour-use
h h h h
i h i i
u v v
p x p p
Households and Markets
pmvpxvu hhhhhh ,,
2020
, Shepard, Hotellinghhi
i
uq
p
Roy's Indentityh hhi
i h
v vc
p x
log log
net benefit
i hi hih h
i h h
p q cu v
p x x
ve
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𝜋ℎ
21
-(q-c)
idp
p
dW
ii ii pcqW )(first order approximation of the welfare effect
2222
The Transmission of Border-Price
Shocks
mmw
m trPP )1(int
Pw is the world price
r the exchange rate
tm the proportional tariff or tax and
γm the transaction costs on importables
xxw
x trPP )1(int
2323
• Uses the framework on Mercosur
– Welfare = f(prices, incomes);
– SOE
– traded prices changed by tariffs etc
– Non-traded prices and wages = f(traded prices)
• Estimates based on theory, then simulates
Porto (JIE, 2006)
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Empirical Use of the Framework
• Identity, definition; LHS unobservable
• Observable equivalent Δ(real consumption)
Δrcj = ….. β (Σi wji dlnτi )+ uj
– Second order effects – Omitted variables
– Parameter heterogeneity – Errors of observation
Δrcj = ….. β (exposure) + uj
• Partial studies: pass-through; wage effects, ε25
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Topalova (AEJ-AE, 2010)
• India, 1990s reforms
• Real consumption or poverty rate by region (77)
and district (450)
• Regressed on employment-weighted tariffs and
fixed effects; hence,
– Import-based
– D-i-D – only relative effects
• Greater exposure → worse poverty outcomes
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Refinements
• Standard robustness tests
• Agricultural wages/returns main channel
• Harm is associated with lack of mobility –
regional and sectoral = big issue for the poor
– i.e alternatives to agriculture weakened
• Inflexible labour laws are a key factor
• Export exposure → liberalisation reduces
poverty (Topalova, 2007)
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Some Additional Slides follow
Thank you
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The Widening Skills Gap
When trade may increase the skills premium:
• Initial pattern of protection (Lat Am)
• China has pinned the unskilled wage at very low levels
• Tasks that relocate are relatively unskilled in the North and relatively skilled in the South (Feenstra and Hanson, 1996)
– Outsourcing but not exclusively so
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Complementarity
• Skills and natural resources or capital are complementary
• Liberalisation increases imports of equipment that need skilled labor to work
• Defensive innovation is skill biased –innovation related to size of shock
• Export penetration requires skills (quality higher)
• Intra-sectoral re-allocation – unskilled tasks outsourced (Grossman and Rossi-Hansberg)
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Segmented Labour Markets: Space
• Segmentation seems pretty dominant
• Geographical segmentation – across regions
– Especially for multi-island economies
– Large economies
– Ethnically diverse countries
• Repeats integrated-economy results on smaller
scale
– e.g central highlands of Vietnam and coffee
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• Arguably still more plausible
• Recent boom in research
• Labour as the specific factor
• Workers may share sectoral/firm rents influenced by trade policy; ‘fair wage’ models
• Variation with regional ‘exposure’ to globe:
– Import-competing sectors lose from liberalisation, especially if it reduces regulatory rents
– Export sectors gain
Segmented Labour Markets: Sectors and Firms
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• Heterogeneous firms (Melitz, 2003)
• Exporters more efficient;
– May correlate with use of intermediates (Amiti)
– Liberalisation may increase the gap if it boosts exports
• Heterogeneous workers (within groups)
– Exporters get better workers (Helpman et al)
– Pay better, better at selecting?
• Helps to explain significant inequality withinsectors and occupations
Heterogeneity
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• Egger, Egger, Kreickmeier (Europe)
– exporting firms pay higher wages
• Amiti, Cameron (Indonesia)
– Liberalising imports of intermediates narrows skills premium
• Juhn et al (Mexico in NAFTA)
– Improved market access boosts technology level and so increases relative demand for female workers (brain vs.brawn)
Examples
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Employment
• Sectoral re-allocation vs. unemployment
• Sometimes moves into informality
– especially if labour regulation strict (Goldberg and Pavcnik)
– But informality is not the same as poverty
• Nicita – simulates Madagascar textiles boom
– Identifies workers called to new jobs (out of
informal sector)
– Not always the poor – skills, location,
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