China's Potential Future Growth and Gains from Trade Policy Bargaining: Some Numerical Simulation Results

Numerical simulation analysis of bargaining solutions is little developed in existing literature. Here we use a multi country, single period numerical general equilibrium model which captures China and her major trading partners and examine the outcomes of trade policy bargaining solutions (bargaining over tariffs and financial transfers) over time as China grows more rapidly than her trade partners. We compute gains relative to non-cooperative Nash equilibria for a range of model parameterizations. This yields a measure of both absolute and relative gain to China from bargaining. We calibrate our model to base case data for 2008 and use a model formulation where there are heterogeneous goods across countries. The gains from trade bargaining accrue more heavily to other countries when we use 2008 data rather than later year data. We then consider the impacts out into the future of different country growth rates which sharply increases China’s relative size. Our objective is to assess how China’s gains from bargaining change over time; whether they grow at a faster rate than GDP growth and for which parameterizations. Our simulation results indicate that China’s welfare gain from trade bargaining will increase over time if countries keep their present GDP growth rates for several decades, but there are major difference when using different bargaining solution concepts. These differences have not been noted in existing literature but have an intuitive explanation. Our results also indicate that if China jointly bargains along with India, Brazil and other developing countries with the OECD, China’s gain will further increase. Bargaining gains are also sensitive to country size. When we use PPP to adjust China’s relative GDP size; China’s trade bargaining welfare gain increases by about 37%.

Rebalancing and the Chinese VAT: Some Numerical Simulation Results

This paper presents numerical simulation results that suggest that China can both reduce its trade imbalance and receive welfare benefits by switching the value added tax (VAT) regime from the current destination principle to an origin principle. With the tax on exports exceeding that no longer collected on imports, revenues rise and exports fall. VAT regime switching is thus a possibility for China to receive a double benefit, rebalancing trade with a welfare gain. This has implications for present G20 discussions on finding ways to adjust global trade imbalances. Under a destination principle, imports are taxed but input taxes are rebated on exports (as currently). Under an origin basis imports are not taxed, but no export rebates are given. Previous VAT literature stresses the neutrality of tax basis switches, which simply reflect moving between consumption and production taxes, but neutrality only holds when trade is balanced. In the unbalanced trade case for countries with a trade surplus, such as China, an origin basis offers a lower tax rate on an equal yield basis and reduced exports. We use a two country endogenous trade imbalance general equilibrium global trade model with endogenous factor supply, a fixed exchange rate and a non-accommodative monetary policy structure which supports the Chinese trade imbalance. We calibrate model parameters to 2008 data and simulate counterfactual equilibria for VAT tax basis switches in which the trade imbalance changes. Our results suggest that given China’s trade surplus VAT regime switching to an origin can decrease China’s trade surplus by over 50%, and additionally increase Chinese and world welfare. The rest of the world’s production and welfare improves simultaneously.

Chinese Firm and Industry Reactions to Antidumping Initiations and Measures

Because of large and rapid growing export volumes and its formal status as a non-market economy; China has been the subject of large numbers of both antidumping initiations and measures. Current estimates are that around 40% of such actions are against China; India, in turn, is the largest source of initiation against China by number of actions. Here we explore the reactions of Chinese firms and industries to these actions. No other papers to our knowledge explore these reactions empirically. We use industrial panel data on all Chinese firms in the industry, foreign firms operating within China and state owned enterprises (SOE) for aggregated firms group between 1997 and 2007. This provides information on sales, profits, firm numbers, labor productivity, and employment. We are able to link this data with a World Bank dataset on antidumping actions by industry by country (both by and against) for the same period. We then use a dynamic system GMM estimator to explore the importance of different forms of Chinese firms’ overall response to both initiations and measures. We also separately analyze antidumping actions against China from developed and developing countries, US and EU to compare their different effects. We find that antidumping actions by developed and developing countries negatively impact industrial profits and employee and firm numbers and also exports. Output impacts are the smallest. Labor productivity is improved by antidumping actions. We also find that different kinds of firms show different responses. All firms together in an industry react to antidumping the most, and foreign and SOE firms show a much smaller response. Also, developed countries’ antidumping actions have more negative impact than developing countries’ actions for all firms and SOEs, but foreign firms’ impacts are the opposite. Chinese industry reactions to antidumping actions by the US and EU are the same as for other developed countries, but the effects of US actions are larger. US antidumping actions have more impact than EU’s on firm numbers, employees and exports, and EU antidumping has more influence than US on output, profit and labor productivity. Finally, comparing Chinese, foreign, and SOE firm’s reactions to US and EU antidumping actions, our results show foreign firms to be hurt more by antidumping from EU. We discuss policy implications in a concluding section.

Foreign Affiliate Sales and Trade in Both Goods and Services

Because of the differing forms that international agreements on trade in goods and trade in services take in the GATT (1994) and the GATS there is an incompatibility between measures of world trade in goods and services. Measures of goods trade reflecting GATT (1994) are restricted to trade that crosses borders. Service trade, however, under GATS mode 3 (commercial presence) includes both cross border delivery and foreign affiliate sales within borders. As a result, present comparisons of services and goods trade, as in WTO (2007), are unsatisfactory. One can further argue that our perceptions of the degree of integration in the global economy are likely ill formed, and for comparability the trade component of affiliate sales in goods should be included in goods trade or affiliate sales should be removed from service trade data. Here, we make modifications to reported goods and services trade for specific countries where this is possible by using data on affiliate sales in both goods and services to produce more consistently measured cross country estimates of trade flows. This allows us to compare combined total goods and services trade both over time and across countries, as well as growth rates of trade, trade imbalances and the relative size of trade in goods and services. We use three different statistical bases for measures. One of them is the present mixed GATT and GATS basis; another is trade including foreign affiliate sales, and a final one excludes foreign affiliate sales. Perceptions both on the combined size of country goods and services trade as well as their relative size change a lot using these three measures. We finally draw conclusions and offer policy implications.

Urbanization, Disasters, and Tourism Development: Evidence from RCEP Countries

This study analyzes urbanization, disasters, and their impact on tourism development for RCEP (Regional Comprehensive Economic Partnership) countries. We use ADF (Augmented Dickey-Fuller) and PP (Phillips-Perron) tests, causality tests, quantile regression, and fixed-effect panel models on data from 1995-2018. Empirical results show that urbanization does not help tourism development in the low quantiles but does help in the high quantiles. Disaster-preventive measures and post-disaster reconstruction help the development of tourism. However, in developed countries, disasters are not conducive to the development of tourism. Urbanization is the Granger cause of tourism and carbon emissions. The increase in temperature, rainfall, and carbon emissions caused by urbanization do not contribute to the development of tourism. Based on this, we have proposed a series of urbanization development and disaster defense measures to promote the sustainable development of tourism in RCEP countries