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81. Changes in Trade and Investment Policies in Thailand and the Implications for Medium-term Growth

Author:
Archanun Kohpaiboon and Juthatip Jongwanich
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
his paper addresses the noticeable changes in trade and investment policies in Thailand in the new millennium and assesses their impact. These changes began with trade policy changes from the World Trade Organization to free trade agreement (FTA)-induced liberalisation, followed by changes in investment policies, all of which are to boost firms’ productivity and medium-term growth. Our results suggest that the policy changes are yet to produce the output the government expects. The signed FTAs’ impact on trade has been limited so far and has occurred selectively on certain product lines, as did the FTA-induced direct investment. Similarly, changes in investment policies had the impact of enticing direct investment but this varied across investors’ nationalities. The impact on firm productivity is also limited and found only for investment promotion policies. Our analysis highlights the role of traditional tools, i.e. trade openness, research and development, and skills upgrading, in fostering firm productivity. Whilst FTAs and investment promotion could be used as a catalyst for firms to enhance productivity, other supporting factors are also needed.
Topic:
International Trade and Finance, Regional Cooperation, Investment, Free Trade, and Economic Cooperation
Political Geography:
Asia and ASEAN

82. FDI Spillover Effects: Evidence from the Philippines

Author:
Rafaelita Aldaba and Angel Derrickvhel Quejada
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Using firm-level data in manufacturing, this chapter examines the impact of foreign direct investment (FDI) spillover effects on domestic firm performance. Through knowledge spillovers, FDI inflows affect the performance of domestic firms. Overall, there is some evidence to show that horizontal and forward spillovers from FDI have a significant positive impact on the performance of domestic firms. However, in terms of backward spillovers, the impact of FDI on the performance of domestic firms is negative and significant. The diffusion of backward spillover effects to domestic firms has remained limited due to the weak competitiveness of domestic firms and their inability to absorb the technology or knowledge being transferred. To strengthen the absorptive capacity and productivity of domestic firms, the chapter suggests a more comprehensive approach that would combine industrial policy to improve and develop domestic parts and supplier firms with measures to create an environment conducive to the creation and expansion of FDI backward spillovers. These include upgrading industry participation towards higher segments of global value chains, innovation, human resource development, upskilling and reskilling the workforce, and liberalising ecozone regulations affecting the transactions between multinational corporations and companies outside the economic zones.
Topic:
Economics, International Trade and Finance, Foreign Direct Investment, and Investment
Political Geography:
Philippines and Oceania

83. What Determines Interfirm Trade Credit? Empirical Evidence from the ASEAN

Author:
Sasidaran Gopalan and Ketan Reddy
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This paper empirically examines the link between the heterogeneity of firms and their probability of obtaining interfirm trade credit in Asia, with a specific focus on the Association of Southeast Asian Nations (ASEAN) bloc of economies. In doing so, the paper investigates the following three issues: to what extent firm size plays a role in obtaining trade credit, to what degree a firm’s integration into global value chains affects its probability of obtaining trade credit, and the impact of agglomeration on firms’ likelihood of obtaining trade credit.
Topic:
International Trade and Finance, Trade, Global Value Chains, and Credit
Political Geography:
Asia and ASEAN

84. EU in Search of a WTO-Compatible Carbon Border Adjustment Mechanism

Author:
Cecilia Bellora and Lionel Fontagné
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
To meet the targets of the EU’s ”Fit for 55” package, the European Commission proposes to implement a Carbon Border Adjustment Mechanism (CBAM). The CBAM is firstly intended to avoid carbon leakages, but it also deals with the thorny issue of the compliance by European producers in carbon-intensive industries. In addition, its design, as voted by the European Council on March 15, 2022, questions the compatibility of the CBAM with World Trade Organization (WTO) rules. The CBAM puts a price on carbon contained in imported products whose production-related emissions have not been taxed (or not at the same level as in the European Union) by the exporter country, in order to offset the difference in carbon prices at the border. This paper aims to quantify the economic and environmental impacts of different CBAM design choices with the aim of complying with WTO rules. Different from the previous literature, we evaluate the various options with a dynamic general equilibrium model featuring imperfect competition, global value chains, green-house gas emissions and endogenous price of emission quotas. We show that CBAM is effective in reducing carbon leakages. But its design leads to an increase in the price of carbon quotas in the European Emission Trading System (ETS) market. Losses in competitiveness on export markets are expected, also for downstream sectors not covered by the EU ETS nor the CBAM. Eventually, offsetting the difference in carbon prices at the border comes at a cost to the enforcing jurisdiction, suggesting that the CBAM was not designed as a beggar-thy-neighbour policy.
Topic:
Energy Policy, International Trade and Finance, Regional Cooperation, European Union, Carbon Emissions, WTO, and Green Transition
Political Geography:
Europe

85. The Role of Storage in Commodity Markets: Indirect Inference Based on Grains Data

Author:
Christophe Gouel and Nicolas Legrand
Publication Date:
07-2022
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
Understanding commodity prices dynamics is of crucial importance for assessing the persistence of cost-push costs or for countries dependent on commodity exports. Unfortunately, despite decades of research, the workhorse theoretical model in the field, the rational expectations storage model, is yet to be empirically validated. This paper provides the first full empirical test of the storage model. We first build a new storage model featuring a supply response, long-run demand and cost trends, and four structural shocks. We then develop a flexible empirical approach which relies on the indirect inference method and exploits the joint dynamics of prices and quantities unlike previous estimations which only use price information. The information contained in quantities is essential to relax restrictive identifying assumptions and empirically assess the overall consistency of the model's new features. Finally, we carry out a structural estimation on the aggregate index of the world most important staple food products: maize, rice, soybeans, and wheat. The results show that our extended storage model is consistent with most of the moments in the data, including the high price autocorrelation of which up to 42% can be explained by the transfer of inventories over time. They also show that, although for these commodities supply shocks are the main drivers of market dynamics, over the past 60 years all price spikes have been associated with large positive demand shocks.
Topic:
Agriculture, International Trade and Finance, Commodities, and Price
Political Geography:
Global Focus

86. The Culture-Promotion Effect of Multinationals on Trade: the IKEA case

Author:
Dylan Bourny, Daniel Mirza, and Jamel Saadaoui
Publication Date:
07-2022
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
In this paper, we investigate how some MNEs which spread their home culture over time and space to the rest of the world are affecting, in turn, trade flows from home. By selling products embodying cultural information related to their country of origin, those MNEs embrace the role of ambassadors of their home country. We argue that IKEA offers an ideal case to identify a multinational's culture-promotion effect on trade. We build a dataset on IKEA's presence in foreign markets between 1995 and 2015 and merge it with disaggregated product level trade between pairs of countries. We find solid evidence of an externality linked to IKEA: a setting of an IKEA new store in a destination increases trade flows by around 2% from Sweden for products that resemble to what the multinational offers (despite being completely unrelated to that multinational). This result is driven primarily by the products identified to encompass a high-cultural content. Other robustness checks and tests seem to be very much consistent with the hypothesis of IKEA promoting the Swedish culture to the world.
Topic:
Globalization, International Trade and Finance, Culture, and Multinational Corporations
Political Geography:
Global Focus

87. Regional Diffusion of Foreign Demand Shocks Through Trade and Ownership Networks

Author:
Lionel Fontagné and Gianluca Santoni
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
International demand shocks are transmitted within the trade and ownership firms' networks and impact directly or indirectly domestic firm productivity and labor misallocation. Considering manufacturing firms for Italy, Spain and France over the period 2009-2017, we quantify these transmission channels from the global economy to the domestic firms, and within the domestic economy across locations, sectors and firms. We compute in a shift share fashion international demand shock at the district-sector-year level as plausibly exogenous to individual firms. Our results confirm that global shocks are transmitted through trade networks and that this transmission is largely mediated by firms' ownership networks both across and within the borders of the three countries.
Topic:
Economics, International Trade and Finance, Demand, and Productivity
Political Geography:
Europe, France, Spain, and Italy

88. Analysis of Cameroon – Nigeria Trade and Prospects for the African Continental Free Trade Area

Author:
Henri Kouam and Vera Kum
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
Free trade between Cameroon and Nigeria is about reducing barriers to cross-border trade between the two countries by allowing traders on both sides of the spectrum to explore a larger market and private sector producers to expand their business. This policy brief examines the nature of Cameroon and Nigeria’s trade whilst illustrating the benefits of free trade on living standards, employment, and income inequality. It recommends that Cameroon and Nigeria cooperate on trade facilitation measures to increase the benefits of the African Continental Free Trade Area.
Topic:
Economics, International Trade and Finance, Regional Cooperation, Bilateral Relations, and Free Trade
Political Geography:
Africa, Nigeria, and Cameroon

89. Biden, Israel, and China: Making a Difficult Threesome Work

Author:
Steven R. David
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Jerusalem Institute for Strategy and Security (JISS)
Abstract:
It is wrong to expect Israel, a middle-level economy, to decouple from China when far wealthier countries (including the United States) show no signs of following suit. Israeli companies should not be subject to restrictions not placed on companies elsewhere, including the United States itself.
Topic:
Diplomacy, International Trade and Finance, Hegemony, and Conflict
Political Geography:
China, Middle East, Israel, Asia, North America, and United States of America

90. Regulating the International Digital Economy, with Trade and Innovation in Mind

Author:
Douglas Lippoldt
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
The international digital economy is growing rapidly, and the fragmented governance framework is struggling to keep pace. Global entities such as the World Trade Organization and regional trade agreements offer a patchwork approach to governance. This paper illustrates the importance of governance in relation to private-sector innovation and recommends next steps to enhance governance, close gaps and promote further innovation. Better definition and international alignment of the framework for governance of digital trade and data could lead to greater privacy, trust and security.
Topic:
International Cooperation, International Trade and Finance, Regulation, Digital Economy, and Innovation
Political Geography:
Global Focus

91. Have trade agreements been bad for America?

Author:
Alan Wm. Wolff, Robert Z. Lawrence, and Gary Clyde Hufbauer
Publication Date:
12-2022
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Many Americans are persuaded that trade agreements of the last 40 years have been a costly mistake. To be sure, open markets leave some people behind, and promises to help those hurt were broken. But on balance, expanding trade has greatly benefited the US economy, and policy approaches taken need to be built on rather than abandoned. Alan Wm. Wolff, Gary Clyde Hufbauer, and Robert Z. Lawrence say more must be done to help those harmed, but protectionism is not the solution. The international trading system needs more outspoken US support and leadership if it is to be maintained and improved.
Topic:
International Trade and Finance, Treaties and Agreements, Economy, and Trade
Political Geography:
Global Focus and United States of America

92. How to save the WTO with more flexible trading rules

Author:
Robert Z. Lawrence
Publication Date:
12-2022
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The clash between the Western and Chinese economic systems is threatening the world trading system, with countries increasingly using trade as a tool to coerce other countries. It is imperative to return to an inclusive, rules-based international trading order before the problems in trade spill over into the other geopolitical frictions that plague the world. This Policy Brief argues for a system that steers between two extremes that have emerged: “deep integration,” a single undertaking in which all members of the World Trade Organization (WTO) are expected to adhere to all rules regardless of their preferences and circumstances, and “decoupling,” in which groups of countries centered on the United States or China limit trade with each other. Instead, Lawrence says, the world trading system should have a “variable geometry” that allows open plurilateral agreements among self-selected members that desire deeper integration on particular issues while allowing members that prefer to implement distinctive domestic policies to remain outside some of these agreements and follow a set of more limited rules. The universal rules would permit diversity but still promote trade between all countries through measures such as safeguards that would deal mainly with the most harmful systemic frictions. If the multilateral system is not up to the task of creating such an approach, it is likely to lose its relevance as differentiated regional or topic groupings become increasingly dominant.
Topic:
Economics, International Trade and Finance, World Trade Organization, Reform, and Trade
Political Geography:
Global Focus

93. EU carbon border adjustment mechanism faces many challenges

Author:
Gary Clyde Hufbauer, Jeffrey J. Schott, Megan Hogan, and Jisun Kim
Publication Date:
10-2022
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
This Policy Brief assesses the evolving EU Emissions Trading System and EU carbon border adjustment mechanism (CBAM) and explains objections within Europe and from major trading countries likely to be affected by the proposed CBAM import levies. While EU officials have sought to ensure that the CBAM is consistent with obligations under the World Trade Organization (WTO), key aspects of the CBAM could violate WTO rules and are likely to be contested, taking years to play out. Meanwhile, several other countries will adopt new carbon-inspired border restrictions, adding to global trade frictions. Major carbon-emitting countries, therefore, need to act cooperatively instead of unilaterally to both advance the fight against climate change and update the rules-based global trading system. Two-thirds of greenhouse gas emissions result from nontraded activities, such as road transport, electricity generation, and home and office heating. Countries can curb emissions in these activities, while developing guidelines for carbon abatement in traded sectors.
Topic:
Climate Change, Economics, International Trade and Finance, World Trade Organization, European Union, and Carbon Emissions
Political Geography:
Europe

94. Is South Korea vulnerable to EU and US carbon border restrictions?

Author:
Jeffrey J. Schott and Megan Hogan
Publication Date:
07-2022
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
South Korean exports, especially carbon-intensive products like steel, are increasingly vulnerable to both the European Union’s proposed carbon border adjustment mechanism (CBAM)—set to begin on January 1, 2023—and the proposed Clean Competition Act (CCA) before the US Congress. Schott and Hogan caution that Korean exporters should not count on Korea’s decade-old EU and US free trade agreements (FTAs), nor on the multilateral trading rules of the World Trade Organization (WTO), to protect them from new carbon-based import barriers in key foreign markets. The WTO and the FTAs have broad and loosely defined exemptions for environmental protection. Nor is Korea likely to be shielded by its own cap-and-trade emissions trading system (the K-ETS), because of extensive use of free allowances and large differences between EU and Korean carbon prices. While the threat the EU CBAM poses to Korean exports is imminent, passage of the CCA faces major legislative obstacles. But US imports of Korean steel and other carbon-intensive goods are still subject to climate-related duties at the US border under US unfair trade statutes. The US Department of Commerce has ruled that free allowances issued under the K-ETS (and EU ETS) are implicit subsidies that can be offset by countervailing duties. These charges are in addition to the harsh tariff-rate quotas on imported Korean steel applied under the “national security” authority of Section 232 of US trade law, which are more restrictive than measures imposed against European and other steel exporters. The authors suggest relaxing these US barriers, as they have been for shipments from Europe, in return for Korean participation in the nascent US-EU talks to establish a “Global Arrangement on Sustainable Steel and Aluminum.”
Topic:
Economics, International Trade and Finance, European Union, Exports, and Carbon Emissions
Political Geography:
Europe, Asia, South Korea, and United States of America

95. China's CPTPP bid spurs South Korea to act on Asia-Pacific trade pacts

Author:
Jeffrey J. Schott
Publication Date:
06-2022
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
China’s sudden application to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in September 2021 has broad implications for South Korea’s economic relations with China, Japan, and the United States. In the past, Korea frequently debated but invariably postponed deciding whether to participate in negotiations on the CPTPP, despite the substantial benefits to be gained from doing so. However, China’s application has prompted Korean officials to get off the fence and apply as well. As China moves to deepen its ties to regional partners, Korea needs to follow suit, complementing the ongoing implementation of the Regional Comprehensive Economic Partnership (RCEP) with expedited negotiations to join the CPTPP and participation in the US-led Indo-Pacific Economic Framework for Prosperity (IPEF). Korean participation in the RCEP, CPTPP, and IPEF is desirable and mutually reinforcing and should allow Korea to sustain its strong commercial interests in both the US and Chinese markets.
Topic:
Economics, International Trade and Finance, Treaties and Agreements, and Trade
Political Geography:
China, South Korea, and Asia-Pacific

96. Public responses to foreign protectionism: Evidence from the US-China trade war

Author:
David Steinberg and Yeling Tan
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
America's recent turn toward protectionism has raised concerns about the future viability of the liberal international trading system. This study examines how and why public attitudes toward international trade change when one's country is targeted by protectionist measures from abroad. To address this question, the authors fielded three original survey experiments in the country most affected by US protectionism: China. First, they find consistent evidence that US protectionism reduces Chinese citizens' support for trade. This finding is replicated in parallel experiments on technology cooperation, and further validated outside of the China context with a survey experiment in Argentina. Second, they show that responses to US protectionism reflect both a "direct reciprocity" logic—citizens want to retaliate against the United States specifically—and a "generalized reciprocity" logic that reduces support for trade on a broader, systemic basis.
Topic:
Economics, International Trade and Finance, Protectionism, and Competition
Political Geography:
China, Asia, North America, and United States of America

97. The IMF should enhance the role of SDRs to strengthen the international monetary system

Author:
Edwin M. Truman
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The special drawing right (SDR), issued by the International Monetary Fund (IMF), has the potential to strengthen dramatically the international monetary system. Established in 1969 and allocated twice during its first decade, the SDR was in the institutional closet from 1980 until 2009, when $250 billion in SDRs was allocated to members of the IMF to help address the global financial crisis. In 2021 another $650 billion in SDRs was allocated to help address the coronavirus pandemic. The SDR has proved itself as a crisis instrument. This paper addresses critically the arguments against SDR allocations. It proposes regular annual SDR allocations, along with measures to make the SDR more attractive to critics and measures to build out the SDR system in support of the international monetary system. The paper includes an appendix on the history of the SDR. A second appendix analyzes SDR use following the 2009 and 2021 allocations and finds that contrary to the popular myth, many countries other than low-income members of the IMF benefited directly in multiple ways from those allocations.
Topic:
International Trade and Finance, Financial Crisis, Finance, and IMF
Political Geography:
Global Focus

98. The WTO and vaccine supply chain resilience during a pandemic

Author:
Chad P. Bown
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Cross-border supply chains and international trade enabled the manufacturing and delivery of billions of vaccine doses to inoculate the world against COVID-19. At the same time, the pandemic revealed how the World Trade Organization (WTO) must change to become more useful in the face of a public health emergency. This paper describes the market failures—especially on the supply side—justifying the domestic subsidies and contracting arrangements used to accelerate vaccine research and development and to increase the scale of vaccine production to save lives, livelihoods, and economic activity during a pandemic. It highlights tradeoffs associated with the US subsidies and the priority-rated contracts written through the Defense Production Act under Operation Warp Speed. This case study reveals a rich environment in which cross-border supply chains exacerbate input shortages in ways that constrain vaccine production, highlighting the need for the WTO to embrace new forms of international policy coordination for pandemic preparedness and response. As part of a pandemic treaty, the paper proposes a plurilateral agreement on vaccine supply chain resilience that would include novel and enforceable disciplines for export restrictions, provisions to trigger coordinated subsidies across countries to jointly scale up vaccine output- and input-production capacity, and market surveillance initiatives on supply chain transparency.
Topic:
International Trade and Finance, Vaccine, COVID-19, WTO, and Supply Chains
Political Geography:
Global Focus

99. Has Globalisation Really Peaked for Europe?

Author:
Lucian Cernat
Publication Date:
11-2022
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
This paper builds on the recent arguments put forward by Richard Baldwin and others debunking the myth that we enter a period of de-globalisation. The paper argues that globalisation is a complex phenomenon that requires detailed, firm-level indicators going beyond simple aggregate metrics. When using such indicators, the picture is much more nuanced and, in the case of Europe, the role of global trade is as important as ever for hundreds of thousands of companies and millions of jobs supported by global trade flows. A strong participation in the “new globalisation” is also key for the future EU competitiveness in technology-driven sectors.
Topic:
Globalization, International Trade and Finance, Science and Technology, European Union, and Trade
Political Geography:
Europe

100. The impact of the Ukraine crisis on international trade

Author:
Zsolt Darvas and Catarina Martins
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
We study the economic implications of Russia’s invasion of Ukraine, by scrutinising global trade volumes and commodity prices, trade balances and bilateral trade flows between major economic powers and Russia. We find that energy prices increased more in 2021 than in 2022, suggesting that the war and the sanctions were not the most important drivers. Nevertheless, International Monetary Fund forecast revisions from October 2021 to October 2022 suggest that the volume of global trade in goods and services declined by 3.4 percent, energy prices increased by about 100 percent, and the prices of non-energy commodities by 8 percent. The war could be an important driver of these forecast revisions, though other factors were also at play. While forecasts for important industrial production input costs were not revised, soaring energy prices deteriorated the trade balance of countries importing energy. Only half of the increase in Russia’s trade surplus was related to soaring energy prices. The other half resulted from the collapse of Russian imports, which will likely undermine the Russian economy’s productive capacity over time. Falling Russian exports of goods other than mineral fuels suggest Russia’s productive capacity has already weakened. Russia’s trade has been reoriented from advanced economies to China, India and Turkey, but this has only partially compensated for the decline in trade with advanced countries. We find that sanctions had an impact on trade. There is no evidence of European and US companies circumventing sanctions by re-routing sanctioned goods to Russia via China and Turkey. The UK and the US have already stopped importing fossil fuels from Russia, and such imports by the EU have declined. With the EU’s Russian seaborne crude petroleum import ban taking effect in December 2022 and the refined petroleum ban coming to effect in February 2023, Russia’s revenues from fossil fuel exports to the EU are set to shrink significantly, with limited options for redirecting exports to other countries. The three main policy-relevant implications from our research are: The war and the sanctions are not the most important drivers of energy price; The direct aim of sanctions seems to have been achieved; The capacity of the Russian state to finance the war from fossil fuel revenues is bound to shrink. The dataset used for most charts of this working paper is regularly updated and is available in the Russian foreign trade tracker
Topic:
International Trade and Finance, Sanctions, Fossil Fuels, and Russia-Ukraine War
Political Geography:
Russia, Europe, and Ukraine