Transcript Aucun titre de diapositive - Organization of American States

SESSION III:
THE ECONOMICS OF PTAs: II
(non-traditional effects)
JAIME DE MELO
This version, March 2004
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OUTLINE: SESSION III
 Evaluating the welfare effects of RTAs (ex-ante)
using simulation models
 Non-traditional effects of RTAs (anything but TD and TC)
 Location & agglomeration effects, and growth
 Deep integration
 Investment
 Regionalism and Services
Annex: welfare effects of trade policy under imperfect
competition
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 Evaluating the welfare effects of RTAs (ex-ante)
Simulation models are typically calibrated to include
some sectors with CRTS and others with IRTS.
Implies imperfect competitionPAC But P.O.
requires P=MC. Calibrated equilibrium under FT will
not be Pareto optimal!!!!
Complicates greatly assessment of trade policy
reform effects, especially if one adds the complication
of discriminatory reduction in protection
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In simulation models W (=welfare effect of trade policy
change)
Under perfect competition: WC = PS + CS+ TOT
 Under imperfect competition: W = WC + effects below
(see mechanisms and channels in annex)
Exploitation of economies of scale (SE) if protection of
sectors producing differentiated products
 Pro-competitive (anti-competitive) effect if demand curve
more (less) elastic
 Entry (SE) or exit (SE)
Change in number of varieties of intermediates and
consumer goods (costs )
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Two examples of simulation model results from SW chp. 2
(but see box 2.1 on difficulties with simulation models)
Example 1. Mercosur: Flores (97) estimates (%of GDP in parenthesisArgentina (1.8), Uruguay (2.1), Brazil (1.3)Two examples from SW chp. 2 .
Below decomposition of gains for imperfectly competitive sectors
Lower Lower
Trade markups
Costs
Diversity
Diversion
Export
Prices
Import
Prices
Total
Steel
45.2
71.2
-9.2
-3.1
-5.0
0.9
100
Machines
28.5
82.2
-1.2
-0.4
-9.4
0.3
100
Cars
48.5
69.5
0.0
-11.3
-7.2
0.5
100
Other vehicles
50.5
78.1
-2.3
-8.8
-18.0
0.5
100
Chemicals
37.5
73.2
-1.0
-4.4
-6.8
1.5
100
..but these results while easy to trace if model is well-formulated (=not a
black box) lack robustness to most parameter and closure rule changes
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Welfare estimates from ex-ante simulation exercices (end)
Example 2. Effect of UEMOA implementation for Senegal (Dissou 2002)
Table 2.2 Welfare Effect of Regional Integration and Unilateral Liberalization
(percentage deviation from base run)
(1)
Customs
Union
0.57
(2)
Freereg
-0.18
(3)
Market
Access
0.15
(4)
CET-ROW
(5)
UNILIB
0.49
1.26
Note: Customs Union: full implementation of customs union reform; Freereg: elimination of
tariffs on regional imports; Market Access: improved access to regional markets only; CETROW: CET on nonregional imports only; UNILIB: full unilateral liberalization.
Source: Y. Dissou (2002).
Here CU has positive effect but FTA only is negative (TD), while CET which
is lower than Senegal’s tariff is positive. . Note that ULT is greatest gain
here! (and likely to be always the case for small countries)
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 NON TRADITIONAL EFFECTS OF RIAs
1. Domino effect: join RIAs to avoid “being left in the
cold”. Has played an important role in the case of the
Europe Agreements between the EU and Central and East
European Countries (See the analyis in PTA2_ECON1).
2. Deeper integration: regionalism allows to go beyond
the scope of multilateral agreements. Illustration in the
case of European integration:
•“four liberties” of the common market (goods, services,
labor and capital).
•single market: elimination of technical barriers to trade
(administrative procedures, recognition of standards);
can be shown that in this case regional integration is
necessarily welfare improving.
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3. Credibility and signaling: use of an RIA to send a signal to
private and public agents that there will be no recidivism
(=helps to lock in reforms as in the case of WTO accession).
Would this effect be strong with EPAs?
This may  uncertainty and  investment, in particular
foreign direct investment, as in the case of Mexico:
Launch of
NAFTA
negotiations
12'000
10'000
8'000
6'000
NAFTA put
into force
4'000
2'000
0
1985
1987
1989
1991
1993
1995
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4 Growth; Location & agglomeration effects
Convergence of real income per capita?
European integration was accompanied by income
convergence (see below). So could South-South RIAs
lead to the same outcome?
Unfortunately no, just the opposite: RIAs among poor
countries probably leads to income divergence. Why?
Following provides one illustration of why this might
be the case (but see discussion in SW chp. 5 )
Assume that countries can be ranked by comparative
advantage in agricultural (vs. manufacturing) goods,
which mimics the ordering by decreasing level of
income (and capital) per capita:
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 Growth effects and divergence in S-S RIAs
Real Income
France
Hungary
world average
capital/labor ratio
Armenia
Azerbaidjan
N-N RIA: Hungary steps in
between France and ROW for
agricultural products = France
(the richest) suffers trade
diversion  income convergence
S-S RIA: Armenia steps in
between Azerbaïdjan and ROW
for manufactured products =
Azerbaïdjan (the poorest) suffers
trade diversion  income
divergence
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MEASURING CONVERGENCE IN INCOME PER CAPITA
AVERAGE INITIAL y
OF SAMPLE
RELATIVE TO RICHEST
II
2.1%


I
SAMPLE AVERAGE
GROWTH (2.1%)

0.0%

III
IV CONVERGENCE
CURVE
0.3
OBSERVATIONS CONTRIBUTE TO:
DIVERGENCE:   (I & III)
CONVERGENCE:   (II & IV)
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INCOME PER CAPITA IN 48 US STATES: 1929-60
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DISPERSION IN INCOME PER CAPITA IN 48 US STATES
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DISPERSION IN INCOME PER CAPITA IN THE EC
Convergence during reduction in trade barriers
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 Agglomeration effects (II)
Agglomeration is the result of the balance between
Marshallian centripetal and centrifugal effects
Centripetal forces:
Knowledge spillovers
Labor pooling effects
 Linkage effects: backward (= demand); forward
(=supply)possibility for process of cumulative causation
leading to agglomeration
Centrifugal forces:
Congestion, pollution
 high price of land
Other negative externalities
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 Agglomeration effects (II)
How does trade liberal. affect balance between two forces?
• Reduction in trade barriers improves market access
• Increased competition reduces profitability
•Cheaper intermediate imports raises profitability
Any difference among modes of trade liberalization
(I.e. between UTL, MTL, and PTA)?
 UTL less likely to lead to industry moving South (if it is
to move South since UTL can also make Southern firms
less competitive) than MTL
PTA increases locational attractiveness of members at
the expense of excluded countries, but many S-S PTAs
may involve economies that are too small for this effect to
be significant (markets too small).
See SW box 5.1 summary of simulations where N-S better
than S-S for the South (gets lower intermediates from
North + market access).
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 Deep integration
Goes beyond what is negotiated at the WTO
W..but it takes a very, very long time!
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 Deep integration (II)
Example of EC integration and difficulty to get partial
movement of people (mode IV) in the next agenda for
multilateral negotiations, suggest modest hopes for
‘deep integration’ in N-S and S-S agreement
Mutual Recognition Agreements (MRA) for technical
standards could give large efficiency gains.
TBTs do not create rents (which are just resource
transfers) but use resources
 See (again) next slide for the extra welfare gains from
removing TBTs.
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 Deep integration (III)
DWL= dead weight (or efficiency) loss
p
S
p1
A
B
C
D
p0
D
Q0
C0
Q,C
1) A tariff (that raises the price from p0 to p1) gives rise to
gov’t revenue (area C) which is a rent. DWL=B+D
2) A quota (like a tariff) gives rise to a rent that is captured
by domestic residents (area C), DWL=B+D
3) Technical barriers to trade (TBT) : DWL= B+C+D
(see more detailed 3 country similar set-up in Matoo-Fink Annex)
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 Investment (I)
Bilateral investment treaties (BITs) are usually
agreements that are shallow or “negative”, i.e. that
remove some of uncertainty that affects investment.
Exceptions are:
SMP in the EU with single market for investment and
capital
 NAFTA where MFN treatment in establishment and
operation. Also extensive dispute settlement provisions
that allow for private action against gov’ts.
… but failure of OECD to get the Multilateral Agreement on
Investment (MAI) signed (which would have given binding
dispute settlement procedures suggest that perhaps in
some cases the regional route might work…but will take
time.
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 Investment (II)
 An RIA can also help lock in good policies (see
above)
An RIA can also attract FDI (see Mexican case above
but also MERCOSUR in S-W tab. 4.1)
 An RIA can also signal gov’ts reform intentions--- but
not always as the comparison of Greece with Spain and
Portugal shows
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 Regionalism and Services
The GATS Article V
1. This Agreement shall not prevent any of its Members from
being a party to or entering into an agreement liberalizing
trade in services between or among the parties to such an
agreement, provided that such an agreement:
(a) has substantial sectoral coverage [1] and
(b) provides for the absence or elimination of substantially
all discrimination, in the sense of Article XVII, between or
among the parties, in the sectors covered under subparagraph (a),…
 Quite similar to article XXIV with exceptions for
developing countries
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 Regionalism and Services (from Matoo-Fink)
Now a Services dimension to most RIAs.
Main conclusions:
Efficiency effects
Barriers being often prohibitive and not rentgenerating, likely to have gain (no TD problem)
 Also scope for increased competition and other effects
+ knowledge spillovers.
As usual non-preferential liberalization would be better
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 Regionalism and Services (II)
Plurilateral vs- multilateral approach
Plurilateral approach to cooperation may dominate
multilateral because:
Possibility of TOT gains at the expense of the ROW
(this also applies to trade in goods
 More efficient bargaining at regional level
 Cooperation may be more desirable among a subset
of countries than globally.
….but there are potential exceptions to these arguments
(sunk costs can lead to ‘history matters’ type of situation
so sequencing may be important (regional before or after
multilateral; etc…)
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Annex
welfare effects of trade policy under
imperfect competition
Following slide decomposes the effects of a an
increase in protection on welfare in an industry
producing a differentiated good under IRTS
 See on comments on last slide
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Trade policy to protect oligopoly (or
monopolistic competition) industry
Increase in
Protection
Demand 
Less product variety Less elastic demand
‘anti-competitive’ effect
SE  (for existing firms)
Consumer
Producer costs
satisfaction 
Welfare 
Profits 
SE ??
Welfare

Welfare 
Welfare 
Firm entry  SE 
SE= ‘Scale Efficiency’
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Comments
Most simulation models include all effects on
previous slide except variety (only a few
determine the number of varieties of products
in equilibrium)
In GE what is most important is if on average, sectors
with IRTS see their incentives (protection) rise with
change in trade policy. If so, then SE effects will be
determined by interaction of entry/exit (movements along
AC curves) and shifts in AC curves).
Properly executed, each of identified effects can be
isolated by calibrating model to same initial solution
But where do elasticities come from? Is economy in
equilibrium?
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