Protectionism: An analysis from project LINK

The LINK system of world trade is used to examine present tendencies toward protectionism. In protectionist scenarios we increase the prices of manufactured imports into 13 LINK-OECD countries by 5, 10, and 20 percent respectively, for 1978–1979. If a country's import equations do not depend significantly on relative price, we impose corresponding quantitative import restrictions of 5, 10, and 20 percent. Smaller OECD countries, developing countries, and socialist countries are assumed to be nonprotectionist in these scenarios. The discrepancies between the values of leading variables in the protectionist scenarios and in a baseline case show the effects of the different degrees of protectionism assumed. The results describe and validate Adam Smith's principles of the gains from free trade.     

Asset markets and foreign exchange intervention: A model of the Belgo-Luxemburg economic union

In this article a general formulation of government intervention policies in the foreign exchange market is integrated in the framework of an asset market model. The policy reaction function is based on a trade off between exchange rate and reserve stock fluctuations; constant exchange rates and a pure float are derived as limiting cases of the intervention schedule. An exchange rate equation is derived from the short run portfolio equilibrium of the model and is successfully tested using data for the Belgo-Luxemburg Economic Union (1967–1979). Our policy conclusions contrast the European Snake constraints for the Belgian Franc with Artus's findings (IMF Staff Papers XXIII(2), July 1976) for the leading DM.     

International Impacts of protection: model structure and results for FC agricultural policy

A dynamic international commodity trade model is introduced that combines stochastic production with three features: multimarket dynamics, endogenous trade policy behavior, and endogenous stock-holding behavior. The significance of these features is illustrated using versions of the model with each excluded in turn. Their role in policy analysis is examined by using each version to measure the impacts of the grain-meat components of the European Community's Common Agricultural Policy. The absence of each is found to alter significantly the estimated terms of trade, trade volume, and welfare effects. Endogenous stock holding is found to be especially important when insulating trade policies are reprented in the model.     

What accounts for China''s trade balance dynamics?

This paper proposes a structural VAR model which extends the frameworks of Hoffmaister and Roldós [Hoffmaister, A. W., & Roldós, J. E. (2001). The sources of macroeconomic fluctuations in developing countries: Brazil and Korea. Journal of Macroeconomics, 23, 213–239] and Prasad [Prasad, E. S. (1999). International trade and the business cycle. Economic Journal, 109, 588–606]. The model is then used to analyse the sources of China's trade balance fluctuations in the period of 1985–2000. Efforts are made to distinguish the forces which underlie the long-run trend in trade balance from those with transitory impacts. The effects of four types of shock are examined—the foreign supply shock, the domestic supply shock, the relative demand shock and the nominal shock. Among other findings, two emerge as important. First, the movements in China's trade balance are largely the result of real shocks. Second, the Renminbi is undervalued, yet changes in the exchange rate bear little on the trade balance. Therefore, monetary measures would not suffice to redress China's trade ‘imbalance’.     

The demand for protection against exports of newly industrializing countries

Exports of manufacturers from newly industrializing countries have increased dramatically in recent years. Yet, in the importing countries—largely the highly developed, “old” industrial countries—the NICs' exports constitute even now an almost insignificant proportion of total imports of manufacturers. Is there, then, some particular reason why the exports concerned seem to be strongly resented by the importing countries, and particularly likely to be faced with trade barriers? The paper examines this issue, and identifies four possible sources of demand for such protection: (1) the factor content of the NICs' exports—specifically, their relative intensity in unskilled and semiskilled labor; (2) the nature of the exported goods, which consist largely of final consumer goods rather than of machinery and equipment; (3) the NICs' lack of retaliatory power; and (4) the context of a relatively stagnant world economy, suffering from high unemployment, which the expansion of manufactured exports from the NICs has had to face.     

Should trade barriers be phased-out slowly? A case study of North America

A dynamic computable general is developed to analyze the effects of different phase-in rates of the Canada–US and North American Free Trade Agreements on their member countries, as well as the impact on the rest of their trading partners. The model is based on intertemporal optimization behavior of households and firms with fully specified countries/regions in which all prices and quantities are endogenously determined. I show that the size and the distribution of the welfare gains from these trade agreements are quite sensitive to the speed of trade liberalization. In particular, I find as a general rule that smaller member countries are better off under a more rapid phase-out of trade barriers, while larger member countries/regions are better off under a slower phase-out.     

Multilateralism under threat: Causes,impact, and the policy debate on government intervention in trade

Several forces fostered trade liberalization since the end of World War II. Production and trade interacted quite favorably during the period. In the past quarter century real income in the OECD economies grew at almost 4% yearly, while the volume of export increased by almost 7 percent. However, in the first half of the 1980s, the chemistry of the situation seems to have changed as protectionist tendencies developed almost everywhere in the world. The very same multilateral nature of the world trading system is under threat, as illiberal discriminatory practices are being implemented bilaterally and, even more often, unilaterally. What are the forces at play to increase the pressure towards government intervention in trade? The paper reviews (i) macroeconomic issues and policy situations, as well as (ii) structural issues concerning the working of the economic systems of industrial countries. The pressure for trade intervention in the U.S. is addressed separately with respect to Europe, given the structural and cyclical differences between the two economies The case of Japan is dealt with with reference to the alleged interrelation between Japan's international competitiveness and its macroeconomic policies. Matters of more direct concern to the LDCs are covered at the end of the paper, with emphasis placed on the restructuring process under way in response to, and as a consequence of, the external debt. The paper ends with a recommendation to all countries to make efforts to preserve and strengthen the multilateral and liberal foundations of the international trading system.     

The determinants of international creditworthiness and their policy implications

The present paper utilizes an empirical measure of creditworthiness based on bankers' perceptions to estimate the effect of various variables hypothesized to influence assessments of countries' debt-servicing capacity. The data pertain to a cross section of countries within the period 1979–1983. Such estimates necessarily employ a ceteris paribus assumption, which prevents a realistic assessment of the effects generated by policy changes. The second part of the paper develops, therefore, a dynamic simulation model of a hypothetical average economy. The simulations allow analysis of changes in macroeconomic variables and creditworthiness over time within a system that maintains accounting identities and behavioral constraints. Several changes in policy variables are considered that highlight the importance of export expansion. The latter is, of course, an often suggested policy objective, but the present paper demonstrates its effectiveness in terms of a somewhat nonstandard criterion.     

Latin America's recovery from debt problems: An assessment of model-based projections

This paper examines economic assumptions used in assessing prospective economic adjustment of Latin America in response to its debt problems. The analysis compares forecasts obtained by combining parameter estimates from different researchers' trade models with the authors' macroeconomic models for Brazil. Chile, and Mexico. The influence of econometric procedure on simulation results is discussed. Then, by simulation analysis, the following issues are addressed: (1) likelihood of high domestic growth rates for Latin America in the late 1980s; (2) whether OECD growth or interest rates have a larger impact on developing-country economies; (3) effects of dollar depreciation and high interest rates on Latin America's debt problems.     

Productivity growth,external shocks,and capital inflows in Chile: A general equilibrium analysis

This paper uses a computable general equilibrium model to analyze the growth path of the Chilean economy during 1977–1981. During that period a comprehensive package of reforms liberalized international trade and removed restrictive labor legislation. As a result of the reforms, there were large changes in relative prices and in the structure of production and demand, and the economy enjoyed unprecedented growth with declining inflation. But large macroeconomic imbalance become evident toward the end of the period and in 1982 Chile experienced an abrupt and severe recession. Taking the real exchange rate as an exogenous policy variable, and using the observed levels of employment growth and foreign capital inflows, this paper compares model-generated growth paths with those of the economy. First, the benchmark simulation path is used to estimate the magnitude and pattern of growth and productivity change during the 1971–1981 period. Next, counter-factual simulations are used to assess how Chile's economic performance would have differed if (a) external events had been different; and (b) foreign capital inflows had been different. The analysis suggests that the macroeconomic imbalances that led to the crisis in 1982 were exacerbated by the large capital inflows and real exchange rate appreciation that resulted from the use of the exchange rate as a stabilization device.     

Commodity prices and the world distribution of income

Some advocates of a new international economic order recommend raising prices of commodities exported by developing countries as a means of reducing the inequality of world income distribution. A simulation model using commodity trade data and income distribution data for 68 industrial and developing countries examines this policy alternative. Initial data compilation reveals that internal inequality is as important as international: The world income share of the poorest 40% of people would be twice as high in the absence of intracountry inequality. Calculations using actual price experience in the “great inflation” of 1972–1975 show that despite the large relative price changes for some commodities (especially oil), these changes left the world size distribution of income virtually unchanged. Separate policy simulations show that even a quadrupling of the price of ali “equalizing” commodities (those mainly exported by LDCs) would leave the size distribution of world income practically unaltered (even under optimistic assumptions about intracountry distributional incidence), although some individual LDCs would gain. Increasing commodity prices therefore appears to be an ineffective means of increasing international equity, quite apart from questions about the feasibility of cartels or commodity agreements.     

Input-output technologies and the effects of tariff reductions

Using input-output (IO) tables from several developed countries (United States, EEC, and Japan) and one developing country (Brazil), we calculate the effects of tariff removal using various combinations of these tables to represent technologies for the countries included in the Michigan Computational Model of World Production and Trade. Among the IO tables, Brazil's reflected unusually high shares of value added, low labor shares, and small supply elasticities. Supply elasticities for the developed countries were somewhat lower than for the United States. Using the Michigan model, our calculated effects of tariff reductions are overstated using the U.S. IO table to represent technologies for other developed countries. Further, for developing countries that use import licensing, the model shows considerable sensitivity to IO table specification. It is especially important, therefore, for computational purposes to obtain the most accurate information possible about IO structures of developing countries.     

A disaggregated model of world production and trade: An estimate of the impact of the Tokyo Round

We present in this paper a computational model of world production, trade, and employment that is disaggregated by country and sector and report on the application of the model to the changes in tariffs and quantifiable nontariff barriers negotiated in the Tokyo Round that was concluded in 1979. The model incorporates supply and demand functions and market-clearing conditions for 22 tradable industries, plus markets for 7 nontradable industries, in each of the 18 major industrialized countries and 16 major developing countries. The equations of the model are presented in the text and the explicit functional forms in an appendix. The implementation of the model is discussed briefly.Application of the model to the Tokyo Round suggested that there will be small but beneficial effects on trade, domestic prices, and economic welfare in practically all the major industrialized countries and in some of the major developing countries. Because many of the NTB codes negotiated in the Tokyo Round were stated in advisory terms, their impact cannot be evaluated unambiguously at present. Further, many existing NTBs of importance were exempted altogether from the negotiations. The Tokyò Round must be viewed accordingly as having dealt with a somewhat limited part of all interferences with trade.     

The experience of the EEC Eurolink Project in modeling bilateral trade linkage equations

Following the basic philosophical approach of the LINK Project, which links various national econometric models built in different countries, the Commission of the European Communities has succeeded in linking the full-size quarterly econometric models of the four major European countries. The Eurolink Project is being extended to cover the other EEC countries as well as the United States, Canada, and Japan. The results reported in this paper are part of this larger project which attempts to link the EEC member economies in a trade and capital flows econometric model and explain the transmission of interdependent economic fluctuations from country to country. In the present study, the interconnection between the various economies is represented by bilateral trade flows only. Flows of invisibles and of financial capital are not completely studied and are not yet ready to be included in this report.The theoretical structural model with its bilateral trade supply and demand functions and the technique employed for the construction of bilateral import and export price indices are presented. Estimation results are shown and discussed with emphasis on their use for the analysis of international trade and for policy decision making.     

Fruit safety regulations in the transatlantic region: How are Africa’s exports faring with the regulations?

The regulations of fruit trade for safe consumption are taken seriously in the EU and US markets to protect the health of the consumers, animals, plants and environmental safety, and thereby reduce health expenditures. The fruit safety regulations as trade policy measures could be either trade-promoting or -impeding. The extensiveness and intensiveness of fruit safety regulations in these markets often have consequences for exporters from Africa and their desire to attain sustainable economic development. The effects of fruit safety regulations are heterogeneous across economic agents. To this end, many stakeholders in Africa’s food system have perceived compliance with these food regulatory measures as necessary conditions to access the developed countries’ markets, particularly in the EU and US. Besides, the competitiveness of Africa’s fruit exports has been impacted by the preponderance of the measures despite its comparative advantages in the fruits sub-sector. Therefore, this study aims to investigate the impact of the EU and US sanitary and phytosanitary measures on Africa’s fruit exports. The empirical strategy involves the use of an augmented gravity model which explore the disentangling of these impact at the extensive and intensive margins of exports. Given the nature of trade data and specifically for this study, the zero trade flows are considered at both margins of exports for 45 African countries from 1995 to 2017. This study finds that the US market is more trade-impeding to Africa’s fruit exports than the EU market. Thus, Africa needs policies tweaking in the fruit value chain quality infrastructure, fruits’ quality and standards enforcement, capacity development, continuous update and modernisation of the fruits’ safety laws, directives and/or regulations. This will enhance the fruits’ quality to propel their access to the transatlantic markets.     

Trade options for a small open economy: The different impact of Taiwan exports to China and to other countries

This study aims to explore advantageous trade arrangements for a small open economy. To discover the arrangement, the fundamental question to ask is how trade affects a small economy. Due to the differential factor mobility, the two main streams of trade theory—new economic geography and comparative advantage—make divergent predictions of trade effects. This study identifies the differences in factor mobility and distinguishes the differential impacts of exports to China and other countries on Taiwan’s manufacturing clusters. Using Taiwan’s 2006 and 2011 census data and trade statistics, this study applies the two-stage least squares method to test the differential impacts. The findings reveal that the growth in Taiwan’s exports to other countries significantly increased the employment level of manufacturing clusters in Taiwan. However, such effects have not been found for exports to China. The lack of response in Taiwan’s local employment to exports to China can be inferred as a short-term exhibition of the long-run core-periphery effect. The policy implication of this study is that trade involving low factor mobility is more beneficial than that involving high factor mobility for a small open economy. Thus, for a small economy, trade liberalization that will ‘not’ attract large factor outflows from the small economy is more desirable.     

The implications of the Lima target: Explorations with a world industrialization model

The Second General Conference of the UNIDO held in Lima in 1975 declared that the share of developing countries in total world industrial production should reach 25% by the year 2000. The model presented in this article has been constructed in order to investigate whether this target is consistent with other more generally accepted goals of development and is feasible within the area of production and trade possibilities.The model is a dynamic, multisectoral, multiregional input-output model. It focuses on the impacts and mutual consistency of targets of growth, regional income distribution, industrialization, consumption levels, and trade. In the empirical application three periods, three regions, and nine sectors have been distinguished to produce intersectorally, interregionally, and intertemporally consistent accounts for the main variables. Since the study is concerned with the maximum possible growth of industrial output of the developing countries, a linear programming approach has been used.The report is organized as follows. After an introduction, the second section describes the mathematical model. The third section contains a detailed explanation of the data basis and of the assumptions made to stimulate the model. The numerical results of the model are discussed in the fourth section, and the main conclusions are given in the fifth.     

The Trade Liberalization Evaluation (TLE) Methodology

This research paper proposes a new trade analysis model to evaluate the trend and stages of trade liberalization of any country. This new trade analysis model is entitled “The Trade Liberalization Evaluation (TLE) Methodology.” The TLE Methodology will introduce new indexes and graphs.There are four basic phases in the implementation of TLE Methodology. The first phase is the design of the multi-input tariff database table by production sector (agriculture, heavy industry,¹ light industry² and services). The second is the measuring of the Trade Liberalization Index by Production Sector (Xi), it is divided by the Agriculture Trade Liberalization Index (X1), Heavy Industry Trade Liberalization Index (X2), Light Industry Trade Liberalization Index (X3), and Services Trade Liberalization Index (X4). The third phase is the measurement of the Area of Coverage of the Trade Liberalization (ACTL) index. The last phase is the measuring of the Trade Liberalization Stage (LTS) index.The general objective of TLE Methodology is to offer policy-makers and researchers a new analytical tool to study the trade liberalization trend and stages of any country from a global perspective—based on a group of indexes and graphs. The TLE Methodology is not intended to be a forecasting model in any case. However, its application is not limited to the study of a special group of countries or regions. It is not constrained by issues about the region or the development stages of any country in a region that is interested in integrating into a Free Trade Area. TLE Methodology, in effect, is a simple and flexible scheme, which can be applied to any case of trade liberalization.     

The cost of war: Impact of sanctions on Russia following the invasion of Ukraine

We use a computable general equilibrium model of world trade to quantify the possible impact of economic sanctions imposed by Western and other countries in response to Russia’s invasion of Ukraine. If sender countries chose 100 % import tariffs and export taxes on trade with Russia, Russia’s GDP would decline by 3–7 % due to the resulting significant reduction in exports. By contrast, the GDP loss for those countries would be 0.2 % for the European economies, but only about 0.05 % for Japan. Although unlikely, the effect of China’s participation in the sanctions would be more significant than that of India. There are concerns about food and energy crises due to economic sanctions against Russia, but the effect on food supplies would not be a serious problem for either senders or third parties. The impact on energy supplies would affect all senders to some extent; for example, there would be a 3% reduction of energy consumption and a 3–4 % rise in electricity and town gas prices in Japan.     

Developments in and prospects for external debt position and burden of developing countries: The case of Korea

The delay of strong economic recovery by industrialized nations, slowed world export growth, and higher interest rates have worsened the financial situation of a number of developing countries which have relied on external borrowings to sustain current account deficits and protect economic development. Recently, well-publicized concerns over the ability to these countries to repay their considerable debt burden have been raised. To shed light on these concerns, the paper focuses on Korea—one of the heavier debt-holding countries. It describes the process through which Korea has acquired its external debt over the past decade, assesses the trends in its debt burden, and presents prospects for the period 1982–1986. Using the Korean experience, the paper shows that the most common indicators used for evaluating foreign debt burden, such as the long-term service ratio, need to be supplemented by other measurements. In a world economy characterized by short-term debts with variable interest rates, the paper suggests that an important tool in analyzing the external debt burden should be the short-term debt burden.