Regionalism and Developing Countries: A Primer

The paper discusses regionalism from the standpoint of developing countries surveying the more significant recent contributions surrounding the contentious debate about identifying resulting benefits for Southern partners in the recent wave of North-South Preferential Trading Agreements (PTAs).regional integration, Trade creation, Trade diversion, political economy

FDI, the Brain Drain and Trade: Channels and Evidence

This paper explores the links between the patterns of migration (high vs. low-skill), trade policy, and foreign direct investment (FDI) from the standpoint of sending countries. A skeleton general equilibrium model with a non-traded good and sector-specific labour is used to explore the effects of the skill-composition of exports on FDI. The model suggests that if exports are low-skill intensive, emigration of high- skill labour leads to positive FDI, suggesting that migration and FDI are complements. Cross-sectional analysis using FDI and emigration data for 103 migration-sending countries over the period 1990-2000 finds some support for this conjecture.brain drain, FDI, migration, trade

Notes on Detecting the Effects of Non Tariff Measures

Alternative approaches to estimating the effects of non-tariff measures (NTMs) on trade flows are discussed and evaluated critically. Recent econometric studies point to three results: (i) NTM restrictiveness measures based on an aggregate of ‘core’ NTMs are more restrictive than existing tariffs and, because of export composition towards agricultural products, in the aggregate, these ‘core’ NTMs limit market-access most for low-income countries; (ii) Proxies for individual NTMs, have a negative effect on the volume of bilateral trade for the detailed product under scrutiny; (iii) harmonization of standards is trade enhancing. Case studies confirm several of these patterns, and also that perceived severity of NTMs varies across products and across destinations for a given product. Across broadly-defined imports at the section level, NTMs are more restrictive than the corresponding tariffs with two-thirds of the AVE estimates in the 25%-50% range. Technical regulations and non-automatic licensing are the most used single-NTM measures and the restrictiveness of technical regulations increases with income per capita.Latin America, international trade, Export diversification

Industrial organization implications of QR trade regimes : evidence and welfare costs

Quantitative restrictions (QRs) are the most common form of protection in many developing countries. Often this type of protection emerges during balance of payments crises but, once in place, is not removed. Students of developing countries'foreign exchange regimes have long noted that QRs have deleterious effects beyond those that would emerge from calculations relying strictly on the"tariff equivalent"of quotas. So far most analysis has concentrated on quantifying the cost of rent-seeking activities which allegedly accompany QRs. The purpose of this paper is to extend this analysis by parametrizing two stylized observations that have often been noted about the manufacturing sector of QR-riddenforeign trade regimes: (a) unrealized economies of scale; and (2) lack of competition among domestic firms. The first arises because of the small size of the domestic market; the second arises because of the made-to-measure protection of QR trade regimes. This paper reviews evidence on linkages between firm behaviour, firm size and restrictiveness of the trade regime in semi-industrial developing countries and reports on simulations from a three sector model that explores the sensitivity of numerical estimates to the parameters describing foreign trade and firm behavior under increasing returns of scale.Economic Theory&Research,Environmental Economics&Policies,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Trade Policy,Access to Markets

Adjustment, investment, and the real exchange rate in developing countries

At the center of the controversy about effectiveness of"adjustment with growth"loan packages from the IMF and the World Bank has been the heavy emphasis on real exchange rate depreciation as a way to restore external balance and elicit a positive supply response. The authors find that adjustment has been far more successful for countries exporting manufactured goods than for countries exporting primary goods. Devaluation of the exchange rate in countries exporting primary goods appears to be ineffective. Most of their adjustment has taken the form of reduced spending rather than increased supply. As a result, they have not resumed sustainable growth. The longer term prospects for exporters of manufactured goods are much brighter. They show more signs of improving efficiency and less decline in investment than do exporters of primary goods.Economic Theory&Research,Environmental Economics&Policies,Economic Stabilization,Macroeconomic Management,Achieving Shared Growth

Lessons of trade liberalization in Latin America for economies in transition

After four decades as prime examples of inward-looking trade policies and import-substituting industrialization, several Latin American countries undertook comprehensive trade liberalization and macroeconomic adjustment in the 1980s. The authors contend that the experiences in those countries are relevant for the economies in Eastern Europe and the former Soviet Union in transition from socialism to market economies. In all of these Latin American countries, the move toward an outward orientation occurred: when the economy was facing a large negative external shock because of falling terms of trade and rising debt payments; after several decades of protectionism; and under severe macroeconomic imbalances. The authors study the reform package of trade liberalization, stabilization, and supporting policies in Argentina, Bolivia, Chile, Mexico, and Uruguay. They conclude that for the economies in transition: Rationalizing the foreign trade regime is crucial for the success of stabilization measures. Rapid, far-reaching reform is possible in sectors that were subject to prolonged periods of heavy protection. Sustained growth requires a comprehensive reform package, with supporting policies for labor, capital, and domestic product markets. Liberalization of the financial sector requires investigating the links between commercial banks and private sector firms. If trade liberalization is to succeed in the long run, it is important to study the evolution of the real exchange rate and measures to stabilize it. In the final section of the paper, the authors study the recent impetus toward trade liberalization through regional arrangements in Latin America. The issue is relevant to countries in Eastern Europe and the former Soviet Union because they belonged to the CMEA, a regional trading arrangement, and because such arrangements are evolving anew among countries in the former Soviet Union.Economic Theory&Research,Environmental Economics&Policies,Economic Stabilization,TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT,Macroeconomic Management

Are Different Rules of Origin Equally Costly? Estimates from NAFTA

Preferential market access, either in the recent OECD initiatives or in the North-South FTAs require the use of rules of origin (RoO). Recent studies have questioned the extent of market access provided by these preferences. Using data on Mexican exports to the US in 2001, this paper estimates the likely costs of different RoO for final and intermediate goods, and compares these results with those obtained from a synthetic index. Econometric results are plausible (they satisfy the revealed preference criterion that estimated costs of RoO should be less than preference rates when utilization rates of NAFTA preference are significantly positive), and they indicate that changes in tariff classification are more costly for final goods than for intermediate goods. For activities subject to regional value content minima, we carry out illustrative simulations indicating what tariff preference margin would be necessary to compensate for the import content minima. Overall, our cost estimates suggest, that at least in the case of NAFTA, preferential market access was quite small, leading us to speculate that these conclusions may carry over to other North-South preferential schemes.NAFTA., costs, Rules of Origin