Trade and Development Working Papers

Permanent URI for this collectionhttps://hdl.handle.net/1885/733738386

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Costing global trade barriers, 1900 to 2050
(Crawford School of Public Policy, The Australian National University, 2012-02) Anderson, Kym
By how much did the cost of governmental barriers to trade change over the 20th century, and how might they change by the middle of the 21st century? This paper addresses that question by first reviewing evidence on the changing extent of global trade restrictions since 1900, particularly for agricultural and manufactured goods. It then assesses prospects for trade policy changes over the coming four decades by drawing on current political economy theory and evidence. The paper then provides crude estimates of the annual cost, in terms of economic welfare foregone in high-income and developing countries, of those trade-restricting policies.
Open Access
Estimating effects of price-distorting policies using alternative distortions databases
(Crawford School of Public Policy, The Australian National University, 2012-02) Anderson, Kym; Martin, Will; van der Mensbrugghe, Dominique
This paper addresses three questions relating to the very extensive use of the GTAP global trade protection database: Are there additional price-distorting policy instruments worthy of inclusion in the base year? What is the appropriate counterfactual set of price distortions in the year of concern (such as when a proposed reform is expected to be fully implemented, as distinct from the base year)? And how are the price distortions (e.g. tariff rates) on individual products aggregated to the GTAP product groups? We show the estimated welfare effects of policies can change substantially when more-appropriate measures of distortions are used.
Open Access
Policy responses to changing perceptions of the role of agriculture in development
(Crawford School of Public Policy, The Australian National University, 2012-02) Anderson, Kym
Traditionally, development economists had a dim view of the contribution that farmers made to modern economic growth, compared with manufacturers. Hence agricultural exports and manufacturing imports were often taxed. This view changed over time though, as first economists and then policy makers came to understand the high cost of an anti-agricultural, import-substituting industrialization strategy. This paper outlines how this change came about and the resulting economic policy reforms that occurred in developing countries from the 1980s. It then considers the kinds of distortions that remain within agricultural markets, their cost to the global economy, and alternatives to these price-distorting measures.
Open Access
The Dutch Disease in Australia policy options for a three-speed economy
(Crawford School of Public Policy, The Australian National University, 2012-02) Corden, W. Max
This paper expounds the concept of Dutch Disease as it applies currently to Australia, noting the various gains and losses resulting from the Australian mining boom. 'Dutch Disease' refers to the adverse effects through real exchange rate appreciation that such a boom can have on various export and import-competing industries. Particular firms or industries may be both gainers and losers. The distinction is made between the Booming Sector (mining), the Lagging Sector (exports not part of the Booming Sector, and import-competing goods and services), and the Non-tradable Sector.
Open Access
Global production sharing and the FDI-Trade Nexus: New evidence from the Japanese automabile industry
(Crawford School of Public Policy, The Australian National University, 2012-03) Nishitateno, Shuhei
The growing importance of global production sharing makes the nexus between outward foreign direct investment (FDI) and trade in parts and components ever more important. This paper examines the impact of overseas operation of upstream firms (parts and components suppliers) on parts and components exports from the home country through a case study of the Japanese automobile industry. The empirical analysis is based on a newly-constructed product-level dataset covering 32 products and 49 host countries over the period 1993 to 2008. It is found that overseas operation of upstream firm lead to additional exports of intermediate goods from the home country. This finding runs counter to the the popular view that the growing overseas activity of multinational enterprises could replace intermediate exports from a home country, thereby depriving the home country of job opportunities.
Open Access
Sri Lanka's trade policy: reverting to dirigisme?
(Crawford School of Public Policy, The Australian National University, 2012-03) Athukorala, Prema-chandra
This paper surveys recent development in Sri Lankan trade policy, with an emphasis on emerging protectionist tendencies, using Sri Lanka's Trade Policy Review (2010) by the World Trade Organization as a reference point. The Sri Lankan experience for over the three decades following the liberalization reforms started in 1977 has clearly demonstrated that an outward-oriented policy regime can yield a superior development outcome compared to a closed-economy regime, even under severe strains of a protracted ethnic conflict and macroeconomic instability. Viewed against this back drop, recent developments in the Sri Lankan policy scene do not seem to augur well for the future of the Sri Lankan economy.
Open Access
Global production sharing and South-South trade
(Crawford School of Public Policy, The Australian National University, 2012-03) Athukorala, Prema-chandra; Nasir, Shahbaz
This paper examines patterns and determinants of trade among developing countries (South-South trade), with emphasis on the role of production sharing in global economic integration of the Southern economies. It begins with an analytical narrative of the emerging trends and patterns of South-South trade using a classification system that helps delineating trade based on global production sharing (network trade) from total recorded trade. Then it undertakes a comparative econometric analysis of the determinants of South-South and South-North trade using the standard gravity model. There is evidence that the share of South-South trade in world trade has increased significantly over the past two decades. However, this increase has predominantly come from the dynamic East Asian countries, reflecting their growing engagement in global production sharing. The growth dynamism of East-Asia centered production networks depends heavily on demand for final (assembled) goods in the Northern markets South-South trade is largely complementary to, rather than competing with, South-North trade. While regional trading agreements (RTAs) could play a role at the margin, natural economic forces associated with growth and structural change in the economy and the overall macroeconomic climate as reflected in the real exchange rate, and the quality of trade related logistics are far more important in the expansion of South-South network trade.
Open Access
Economic policy shifts in Sri Lanka: The post-conflict development challenge
(Crawford School of Public Policy, The Australian National University, 2012-03) Athukorala, Prema-chandra; Jayasuriya, Sisira
The end of the long civil war in Sri Lanka in 2009 generated widespread expectations of a peace dividend that would enable Sri Lanka to embark on a period of sustained economic growth, but recent developments have dampened that optimism, rekindling fears that Sri Lanka's tale of missed opportunities may continue. After showing remarkable resilience during decades of war and conflict the Sri Lankan economy has failed to capitalise on the window of opportunity presented by the end of the military conflict. In the aftermath of military victory, there has been a sharp reversal of trade liberalisation and a marked shift back towards nationalist-populist state-centred economic policies, reflecting the pressures of resurgent nationalism, an unprecedented concentration of political power in a small ruling group, and the influence of some powerful vested interests. Unfortunately a return to the failed past policies of inward oriented development strategies offers no viable solutions for the problems confronting small, capital and resource poor countries in today's globalised world. Sri Lanka must change both its political practices and economic policies drastically and urgently to cope with the huge development challenges facing it in an environment of global economic turbulence.
Open Access
Financial safety nets in Asia: genesis, evolution, adequacy, and way forward
(Crawford School of Public Policy, The Australian National University, 2012-03) Hill, Hal; Menon, Jayant
Financial safety nets in Asia have come a long way since the Asian Financial Crisis (AFC) of 1997/98. Not wanting to rely solely on the International Monetary Fund (IMF) again, the Chiang Mai Initiative (CMI) was created in 2000. When the CMI also proved inadequate following the Global Financial Crisis (GFC), it was first multilateralized (CMIM), and then doubled in size to US$240 billion, while the IMF de-linked portion was increased to 30% of the available country quotas. A surveillance unit, the Association of Southeast Asian Nations (ASEAN)+3 Macroeconomic Research Office (AMRO), was set-up in 2011. These are impressive developments, but are they enough to make the CMIM workable? Without clear and rapid-response procedures to handle a fast-developing financial emergency, we argue it is unlikely that the CMIM will be used even as a complement to the IMF. To serve as a stand-alone option, however, its size or the IMF de-linked portion of funds needs to be further increased, as does its membership to add diversity. Only if AMRO can develop into an independent and credible surveillance authority, would it then perhaps be in a position to lead the next rescue.
Open Access
Political economy of public policies: Insights from distortions to agricultural and food markets
(Crawford School of Public Policy, The Australian National University, 2012-04) Anderson, Kym; Rausser, Gordon; Swinnen, Johan
The agricultural and food sector is an ideal case for investigating the political economy of public policies. Many of the policy developments in this sector since the 1950s have been sudden and transformational, while others have been gradual but persistent. This article reviews and synthesizes the literature on trends and fluctuations in market distortions and the political-economy explanations that have been advanced. Based on a rich global data set covering a half-century of evidence on commodities, countries, and policy instruments, we identify hypotheses that have been explored in the literature on the extent of market distortions and the conditions under which reform may be feasible.
Open Access
Export performance in transition: the case of Georgia
(Crawford School of Public Policy, The Australian National University, 2013-01) Athukorala, Prema-chandra; Wagle, Swarnim
This paper examines export performance in Georgia in the process of transition from central planning to market oriented economy. Policy reforms undertaken with the support of the Bretton Woods institutions since the mid- 1990s have made Georgia one of the most market-friendly economies among the Commonwealth of Independent States. However, the reforms have so far failed to transform the lopsided export structure inherited from the Soviet era in line with emerging opportunities for global economic integration. We conclude that orthodox liberalisation reforms are unlikely to improve export performance unless accompanied by concrete measures to redress supply constraints faced by export producers and to sustain their international competitiveness.
Open Access
Agricultural price distortions: trends and volatility, past and prospective
(Crawford School of Public Policy, The Australian National University, 2013-01) Anderson, Kym
Historically, earnings from farming in many developing countries have been depressed by a pro-urban bias in own-country policies, as well as by governments of richer countries favouring their farmers with import barriers and subsidies. Both sets of policies reduced global economic welfare and agricultural trade, and added to global inequality and poverty. Over the past three decades, much progress has been made in reducing agricultural protection in high-income countries and agricultural disincentives in developing countries. However, plenty of price distortions remain. As well, the propensity of governments to insulate their domestic food market from fluctuations in international prices has not waned. Such insulation contributes to the amplification of international food price fluctuations, yet it does little to advance national food security when food-importing and food-exporting countries equally engage in insulating behaviour. Thus there is still much scope to improve global economic welfare via multilateral agreement not only to remove remaining trade distortions but also to desist from varying trade barriers when international food prices gyrate. This paper summarizes indicators of trends and fluctuations in farm trade barriers before examining unilateral or multilateral trade arrangements, together with complementary domestic measures, that could lead to better global food security outcomes.
Open Access
Can FTAs support the growth or spread of international production networks in Asia?
(Crawford School of Public Policy, The Australian National University, 2013-02) Menon, Jayant
Free trade agreements (FTAs) have been proliferating in Asia for more than a decade. International fragmentation of production and the resultant cross-border production networks have been growing for a much longer period. Although FTAs are not necessary for the formation of production networks, can they support their further growth or spread? Empirical studies have produced mixed results, presumably because the causality can run either way. Therefore, this paper employs a qualitative approach that carefully examines the characteristics of both product fragmentation trade and FTAs in Asia to ascertain possible linkages. We find the relationship to be tenuous for a number of reasons. First, most product fragmentation trade already takes place at zero or low tariffs because of the International Technology Agreement, various duty-drawback schemes, and the location of most multinationals in duty-exempt export processing zones. Second, much of fragmentation trade is unlikely to benefit from FTA tariff concessions given the inability to satisfy rules of origin because of limited value-addition. Third, almost all FTAs involving Asian countries are relatively shallow, and there are still some non-tariff barriers that affect this trade. For these reasons, national liberalization actions that deal with incumbency issues would be the best way forward.
Open Access
Fertilizer subsidies and food self-sufficiency in Indonesia
(Crawford School of Public Policy, The Australian National University, 2013-02) Warr, Peter; Yusuf, Arief Anshory
Indonesia is a net importer of almost all of its staple foods. National selfsufficiency in food, especially the main staple, rice, is a core objective of economic policy. Poverty reduction is also a core policy objective. Since the 1970s, Indonesia has used agricultural input subsidies, especially on fertilizer, to stimulate agricultural production, largely in pursuit of its selfsufficiency goals. Recently, it has also used output protection, especially in rice, for the same purpose. This paper utilizes a multi-sectoral, multihousehold general equilibrium model of the Indonesian economy to study the trade-offs between the goals of self-sufficiency and poverty reduction when two alternative means are used to achieve them: a fertilizer subsidy, on the one hand, and output protection, on the other. It does this by analyzing the aggregate and distributional effects of these two sets of policies and by comparing their effects with non-intervention. The analysis shows that, in terms of its effects on poverty, a fertilizer subsidy can be a more effective instrument for achieving the goal of rice self-sufficiency than final product import restrictions.
Open Access
The consequences of urban air pollution for child health: What does self reporting data in the Jakarta metropolitan area reveal?
(Crawford School of Public Policy, The Australian National University, 2013-02) Amalia, Mia; Resosudarmo, Budy P.; Bennett, Jeff
Since the early 1990s, the air pollution level in the Jakarta Metropolitan Area (JMA) has arguably been one of the highest among mega cities in developing countries. This paper utilises the self-reporting data on illnesses available in the 2004 National Socio-Economic Household Survey (Survei Sosial Ekonomi Nasional, or SUSENAS) to test the hypothesis that air pollution impacts human health, particularly among children, in JMA. Test results confirm that air pollution, represented by the PM10 level in a sub-district, does significantly correlate with the level of human health problems, represented by the number of restricted activity days (RAD) in the previous month. The results also show that a given level of PM10 concentration is more hazardous for children.
Open Access
Fiscal federalism and competitive bidding for foreign investment as a multistage game
(Crawford School of Public Policy, The Australian National University, 2013-02) Jha, Raghbendra; Nagarajan, Hari K; Nagarajan, Kolumum R.
This paper models the behavior of states in a federal country wising to attract foreign firms to locate within their own individual jurisdictions. The essential intertemporal character of this decision is modeled as a multi-stage game to attract such foreign investment in these states. It is found that, when states with unequal political or economic infrastructure compete, the resulting Nash equilibrium profiles are inefficient. Under certain conditions, states that have won once, can 'allow' a rival to win in a subsequent stage. The resulting Nash Equilibrium is more efficient. If the option of 'allowing' a rival to win is not available, then states may resort to 'suicide' strategies defined as outcomes created by history of losses.
Open Access
Are government-linked corporations crowding out private investment in Malaysia?
(Crawford School of Public Policy, The Australian National University, 2013-02) Menon, Jayant; Ng, Thiam Hee
Private investment in Malaysia has been sluggish since the Asian financial crisis. One explanation is that the growing presence of government-linked corporations (GLCs) has been crowding out private investment. For the first time, we provide empirical evidence on the relationship between GLC presence and private investment. We find that when GLCs are dominant in an industry, investment by private firms is significantly negatively impacted. Conversely, when GLCs do not dominate an industry, the impact on private investment is not seen. Sensitivity tests associated with varying the level of the threshold used to determine dominance confirm the robustness of the results. To revive private investment in Malaysia, government must not only redress its growing fiscal deficit, but also expedite its program of divestment.
Open Access
Intra-regional FDI and economic integration in South Asia: trends, patterns and prospects
(Crawford School of Public Policy, The Australian National University, 2013-02) Athukorala, Prema-chandra
This paper examines trends and patterns of intra-regional FDI in South Asia, with a focus on the potential for integrating production processes among countries in the region through further trade and investment policy reforms. The empirical evidence pieced together from scattered sources suggests that horizontal (market seeking) FDI has continued to dominate South Asian intra-regional FDI, with a significant shift in recent years in favour of services sector activities. Vertical (efficiency seeking) FDI in the region has remained confined to a few product lines, predominately garments, and also a few industries in which the availability of specific natural resources plays an important role in the site selection decisions of firms. In other industries, including electronics and electrical goods in which global production sharing is heavily concentrated, there is no evidence of notable cross-border operations by regional firms. The limited achievement so far in fostering cross-border production sharing through vertical FDI has been the outcome of unilateral, rather than region-wide, trade and investment policy reforms.
Open Access
Global production sharing and trade patterns in East Asia
(Crawford School of Public Policy, The Australian National University, 2013-03) Athukorala, Prema-chandra
This paper analyzes trade patterns in East Asia, with special reference to the implications of the development of global production sharing. It examines the nature and extent of global production sharing and the role of East Asian countries within global production networks. It also highlights the rise of China and it's positioning within these production networks, explores the implications of engagement in global production sharing for growth patterns, and analyzes the pattern of trade contraction across countries and types of goods during the global financial crisis (2008-2009).
Open Access
Growth, growth accelerations and the poor: lessons from Indonesia
(Crawford School of Public Policy, The Australian National University, 2013-03) Bhattacharyya, Sambit; Resosudarmo, Budy P.
We study the impact of growth and growth accelerations on poverty and inequality in Indonesia using a new panel dataset covering 26 provinces over the period 1977-2010. This dataset allows us to distinguish between mining and non-mining sectors of the economy. We find that growth in non-mining significantly reduces poverty and inequality. In contrast, overall growth and growth in mining appears to have no effect on poverty and inequality. We also identify growth acceleration episodes defined by at least four consecutive years of positive growth in GDP per capita. Growth acceleration in non-mining reduces poverty and inequality whereas growth acceleration in mining increases poverty. We expect that the degree of forward and backward linkages of mining and non-mining sectors explain the asymmetric result. Our results are robust to state and year fixed effects, state specific trends, and instrumental variable estimation with rainfall and humidity as instruments.

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