Mitigating information frictions in trade:Evidence from export credit guarantees

Information frictions make foreign trade risky. In particular, the risk of buyer default deters firms from selling abroad. To address this issue, many countries offer export credit guarantees to provide insurance to exporters. In this paper, we investigate the causal effects of guarantees by exploiting a quasi-natural experiment in Sweden and rich register data on guarantees, firms and trade. Estimates from a fuzzy regression discontinuity design show large positive effects on the probability of exporting and the value of exports to the destination for which the guarantees are issued. These results are robust to an alternative approach using a difference-in-differences matching estimator. Further findings suggest that guarantees impact firms heterogeneously and play an important role in resolving buyer default risk and easing liquidity constraints. Larger impacts are observed in non-OECD countries, on smaller, liquidity constrained exporters and for firms selling products that face a relatively high cost of buyer default.</p

Economic implications of the Doha round

In this study the key elements of the WTO Doha round are simulated and the main implications for international trade and national income are analysed. Based on negotiation positions at the recent Hong Kong ministerial conference, a number of Doha scenarios are carefully designed and implemented. All scenarios encompass goods, services and agricultural liberalisation as well as trade facilitation. For goods liberalisation, a socalled Swiss formula with two coefficients is used to cut bound tariff rates. Agricultural tariffs are cut according to a tiered linear formula with four bands. Considerable attention has been given to the modelling of trade facilitation. Indirect as well as direct trade transaction costs are modelled, using detailed cross-country data. For simulation of the services liberalisation we use quantitative estimates of the indirect trade barriers for each region and sector. The simulation results show that all regions in the aggregation gain in the simulated Doha scenarios, with a particularly strong result for developing countries. In this respect, the Doha round can be called a development round. A conservative estimate is that global income increases with 0.2-0.7 percent of initial GDP per year, depending on the level of liberalisation. Trade facilitation contributes the most to these results, with increased market access for non-agricultural goods coming in second place. However, services reforms contribute the least, as small real market openings are expected. Overall, simulations indicate the importance of countries’ own liberalisation for their national income gains. Therefore, a “round for free” does not seem to be a valid concept. Furthermore, the importance of a broad-based round is underlined. Excluding some elements of liberalisation from the round may turn potential gains into losses, for some countries

A Global Baltic - Potential Gains from Trade Liberalisation in the Baltic Sea States

What would a “Global Baltic”, liberalised to the rest of the world, mean for national income and trade patterns of the Baltic Sea region? Although the countries have displayed substantial economic growth and relatively high trading activity over the last decade, facilitated by politicoeconomic reforms, significant trade barriers still exist in the region. Their removal might further boost the economies of the region. The aim of this study is to analyse the potential effects from unilateral trade liberalisation, using a CGE-model with monopolistic competition in most aggregate sectors. Besides addressing the “usual suspects” (tariffs, subsidies and tariffequivalents for restrictions to services trade) as well as trade facilitation in the main simulation, we also address some core non-tariff-measures (NTM) in a separate simulation. The NTMsimulation is based on recently released data. The effect of a “Global Baltic” would be a substantial boost to national income and trade of the region: a 1 and 0.9 percent increase in regional income, in the main and the NTM-scenario, respectively. In other words, liberalisation would sustain growth in the area. Particularly strong results are found for the group of emerging market economies of the region. The largest income gains stem from a country’s own liberalisation. With respect to the different simulation elements, trade facilitation and reductions in NTMs bring the major sources of gains. In the main as well as the NTM scenario, effects on national income are primarily due to elimination of dead-weight losses caused by rules and regulations at, or behind the border and more efficient allocation of resources. The income effects from scale economies are slightly negative in both scenarios on an aggregate level. On a country level, the results show that different reforms create different incentives for production, and that the net-effect on a country’s national income will to a large extent be related to which sectors are expanding/contracting. Structurally, the expected joint effect of the two simulation scenarios is a move towards services and industrial production and export

A Global Baltic - Potential Gains from Trade Liberalisation in the Baltic Sea States

What would a “Global Baltic”, liberalised to the rest of the world, mean for national income and trade patterns of the Baltic Sea region? Although the countries have displayed substantial economic growth and relatively high trading activity over the last decade, facilitated by politicoeconomic reforms, significant trade barriers still exist in the region. Their removal might further boost the economies of the region. The aim of this study is to analyse the potential effects from unilateral trade liberalisation, using a CGE-model with monopolistic competition in most aggregate sectors. Besides addressing the “usual suspects” (tariffs, subsidies and tariffequivalents for restrictions to services trade) as well as trade facilitation in the main simulation, we also address some core non-tariff-measures (NTM) in a separate simulation. The NTMsimulation is based on recently released data. The effect of a “Global Baltic” would be a substantial boost to national income and trade of the region: a 1 and 0.9 percent increase in regional income, in the main and the NTM-scenario, respectively. In other words, liberalisation would sustain growth in the area. Particularly strong results are found for the group of emerging market economies of the region. The largest income gains stem from a country’s own liberalisation. With respect to the different simulation elements, trade facilitation and reductions in NTMs bring the major sources of gains. In the main as well as the NTM scenario, effects on national income are primarily due to elimination of dead-weight losses caused by rules and regulations at, or behind the border and more efficient allocation of resources. The income effects from scale economies are slightly negative in both scenarios on an aggregate level. On a country level, the results show that different reforms create different incentives for production, and that the net-effect on a country’s national income will to a large extent be related to which sectors are expanding/contracting. Structurally, the expected joint effect of the two simulation scenarios is a move towards services and industrial production and export