Estimates of trade-related adjustment costs in Syria

The scope and complexity of international trading arrangements in the Middle East, as well as their spotty historical record of success, underscores the urgent need for an adequate understanding of the relative costs and benefits of participation in preferential trading arrangements and, more generally, of changes in domestic import regimes. This paper seeks to address this problem by providing estimates of the adjustment costs associated with two broad classes of hypothetical trade policy scenarios for Syria: participation in preferential trading arrangements, and changes in the domestic import regime. The authors find that the revenue consequences of the first scenario may be substantial. Their analysis of the second scenario suggests that the number of tariff bands can be reduced, while ensuring revenue neutrality, via the introduction of a value added tax of sufficient but reasonable size.Trade Policy,Debt Markets,Free Trade,International Trade and Trade Rules,Economic Theory&Research

Estimates of Trade-Related Adjustment Costs in Syria

The scope and complexity of international trading arrangements in the Middle East, as well as their spotty historical record of success, underscores the urgent need for an adequate understanding of the relative costs and benefits of participation in preferential trading arrangements and, more generally, of changes in the domestic import regimes. This paper seeks to address this problem by providing estimates of the adjustment costs associated with two broad classes of hypothetical trade policy scenarios scenarios for Syria: Participation in preferential trading arrangements, and changes in the domestic import regime. We find that the revenue consequences of the first scenario may be substantial, while our analysis of the second scenario suggests that the number of tariff bands can be reduced to a lower number, while ensuring revenue neutrality, via the introduction of a VAT of sufficient but reasonable size.Trade policy; trade adjustment costs; tariff reform; Syria

What explains the low survival rate of developing country export flows ?

Successful export growth and diversification require not only entry into new export products and markets, but also the survival and growth of export flows. This paper uses a detailed, cross-country dataset of product level bilateral export flows to illustrate that exporting is an extremely perilous activity and especially so in low-income countries. The authors find that unobserved individual heterogeneity in product-level export flow data prevails despite controlling for a wide range of observed country and product characteristics. This questions previous studies that have used the Cox proportional hazards model to model export survival. The authors estimate a Prentice-Gloeckler model, amended with a gamma mixture distribution summarizing unobserved individual heterogeneity. The empirical results confirm the significance of a range of products as well as country-specific factors in determining the survival of export flows. From a policy perspective, an interesting finding is the importance of learning-by-doing for export survival: experience with exporting the same product to other markets or different products to the same market are found to strongly increase the chance of export survival. A better understanding of such learning effects could substantially improve the effectiveness of export promotion strategies.Economic Theory&Research,Free Trade,Trade Policy,Emerging Markets,Markets and Market Access

Managing Openness and Volatility: The Role of Export Diversification

As developing countries look to embrace an outward-oriented growth strategy, some may be concerned about the possibility that increased openness will be accompanied by increased volatility. However, although a more open economy may face increased volatility in its terms of trade, openness confers diversification benefits. In this note, we argue that export diversification is a key mitigating factor for the total effect of openness on volatility. More specifically, we show that most developing countries fall on the “good” side of a diversification threshold, where they are likely to experience less volatility as they pursue a strategy of greater openness.trade, openness, volatility, export, diversification, developing countries, trade policy, imports, terms of trade, development

Inflation targeting as a means of achieving disinflation

In this paper, we take an analytical approach to examine possible adverse effects of the use of inflation targeting as a disinflation regime. The idea is that a strict interpretation of an inflation target may preserve inflationary distortions after price stability is attained. We show that such a policy not only creates a slump in output but may increase macroeconomic volatility substantially in a model in which wages are subject to a Taylor staggering structure

Essays in international monetary economics

Chapter 2 of this thesis employs a dynamic general equilibrium with Taylor wage contracts to show that the use of strict inflation targeting as a disinflation policy may result in a slump in production and a considerable increase in macroeconomic volatility. Important determinants of the magnitude of the macroeconomic oscillations in the post-disinflation state of the economy turn out to be the size of the reduction in the inflation rate and the degree of returns to labor in the production function. In the special case of constant returns, the oscillations are large and permanent. Chapter 3 of this thesis extends the above analysis to an open-economy setting demonstrating that the exchange rate can act as a stabilizer by effectively relieving wages from part of the burden of reducing the inflation rate. The more the economy is open, the smaller the magnitude of the macroeconomic oscillations will be after the disinflation policy is applied. The policy is shown to be infeasible for all practical purposes in a closed economy with constant returns to scale when the full nonlinear model is considered. Chapter 4 of this thesis employs a Markov switching framework to allow for an interesting alternative characterization of macroeconomic news effects on the foreign exchange market. The chapter finds strong evidence for the presence of nonlinear regime switching between a high-volatility and a low volatility state driven by monetary policy announcements that come as a surprise to the market. It also uncovers significant market positioning prior to the announcements, indicating a limiting of risk exposure by market participants who are unsure about the precise outcome of the policy decisions. Chapter 5 of this thesis investigates the impact of monetary shocks on the direction and the composition of international capital flows. It identifies monetary policy shocks in a structural VAR via the pure sign restrictions approach. There are two key findings. First, a US monetary easing causes net capital inflows and a worsening of the US trade balance. Second, monetary policy shocks induce a negative conditional correlation between capital flows in bonds and equity securities. Intriguingly, they cause a negative conditional correlation between equity flows and equity returns but a positive conditional correlation between bond flows and bond returns

Inflation Targeting as a Means of Achieving Disinflation

In this paper, we take an analytical approach to examine possible adverse effects of the use of inflation targeting as a disinflation regime. The idea is that a strict interpretation of an inflation target may preserve inflationary distortions after price stability is attained. We show that such a policy not only creates a slump in output but may increase macroeconomic volatility substantially in a model in which wages are subject to a Taylor staggering structure.Disinflation ; Inflation Targeting ; Wage Staggering

Trade finance in crisis : should developing countries establish export credit agencies ?

New data on export insurance and guarantees suggest that publicly backed export credit agencies have played a role to prevent a complete drying up of trade finance markets during the current financial crisis. Given that export credit agencies are mainly located in advanced and emerging economies, the question arises whether developing countries that are not equipped with these agencies should establish their own agencies to support exporting firms and avoid trade finance shortages in times of crisis. This paper highlights a number of issues requiring attention in the decision whether to establish such specialized financial institutions. It concludes that developing countries should consider export credit agencies only when certain pre-requirements in terms of financial capacity, institutional capability, and governance are met.Debt Markets,Emerging Markets,Access to Finance,Banks&Banking Reform,Financial Intermediation

Trade openness reduces growth volatility when countries are well diversified

This paper addresses the mechanisms by which trade openness affects growth volatility. Using a diverse set of export diversification indicators, it presents strong evidence pointing to an important role for export diversification in reducing the effect of trade openness on growth volatility. The authors also identify positive thresholds for product diversification at which the effect of openness on volatility changes sign. The effect is shown to be positive only for a minority of countries with highly concentrated export baskets. This result is shown to be robust to both explicit accounting for endogeneity as well as the inclusion of a host of additional controls.Economic Conditions and Volatility,Achieving Shared Growth,Markets and Market Access,Free Trade,Emerging Markets