Transcript Trading Blocs and Developing - UNU-WIDER : UNU

Trade, Regionalism, and Development:
Integration, Externalities, and
Productivity
Sherman Robinson
Peter Holmes, David Evans
Leo Iacovone, and Karen Jackson
University of Sussex
October 2005
Outline
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Evolution of trade blocs: 1960s-1990s
Historical typology of RTAs
Composition of trade
Shallow versus deep integration
Deep integration and externalities
Externalities and productivity
Role of RTAs
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World Bank Study
• Global Economic Prospects: 2005
– Historical analysis of trade shares and
trends in formation of trade blocs
• Methodology of finding trade blocs
– Definition of a bloc: Countries trade more
within the bloc than with outside countries
– Bloc membership: Country increases
within-bloc average trade share
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Trade Blocs: 1960s
World Countries and Regions
1960s
Europe + (70)
(41)
US +
Asia-UK (56)
(6)
Asia-US
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Export Shares 1960s
Europe +
N America +
Asia-UK
Asia-US
Europe +
75.4
37.5
48.8
23.0
N America +
14.2
44.5
12.7
37.3
Asia-UK
8.2
8.3
20.6
19.5
Asia-US
2.3
9.7
18.0
20.2
Total
100
100
100
100
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Total Shares of World Trade
1960s
Europe +
N America +
Asia-UK
Asia-US
Total
Europe +
39.7
11.2
5.0
1.6
57.6
N America +
7.5
13.3
1.3
2.6
24.7
Asia-UK
4.3
2.5
2.1
1.4
10.3
Asia-US
1.2
2.9
1.9
1.4
7.4
Total
52.7
29.9
10.3
7.1
100
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Trade Blocs: 1970s
World Countries and Regions
1970s
Europe +
N America +
E&SE Asia
S America
Rest
(21)
(30)
(23)
(11)
(90)
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Trade Blocs: 1980s
World Countries and Regions
1980s
Europe +
(25)
N America + (30)
E&SE Asia (44)
S America (11)
Rest
(65)
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Trade Blocs: 1990s
World Countries and Regions
1990s
Europe +
N America +
E&SE Asia
MERCOSUR
Rest
Andean
S Africa +
(42)
(31)
(43)
(6)
(61)
(4)
(4)
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Implications of Trends
• The formation of blocs pre-dated any
explicit RTA.
• Three kinds of RTA:
– Bloc creation
– Bloc expansion
– Market access
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Composition of Trade
• Increased trade as share of GDP
– Largest increase in trade among OECD countries
• Increased trade in intermediate inputs
– Import content of exports increased
– International segmentation of production
• Increased trade in new products
• Trends challenge standard trade theory and
analysis of gains from trade
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Analysis of RTAs and Global
Trade Liberalization
• Standard analysis of RTAs:
– Trade diversion versus trade creation
– International prices: terms of trade
– Rules of origin—spaghetti networks
• Trade liberalization
– Increased efficiency and welfare triangles
– Actual gains seem to be much larger than
can be explained by standard trade theory
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Shallow and Deep Integration
• Early RTAs and GATT rounds facilitated
shallow integration:
– Reduction of border trade barriers
– PTA/EPA/RTA/FTA
– Customs Union
• New RTAs all involve elements of “deep
integration”.
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Deep Integration
• Factor mobility
– Financial and FDI flows
– Labor
• Regulatory harmonization
– Standards and rules
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Domestic tax and subsidy policies
Harmonize macro policies
Institutions to manage and facilitate integration
Legal and institutional harmonization
– Commercial law
– Dispute resolution
• Monetary union
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Negative and Positive Integration
• Negative integration: removal of barriers
to cross-border flows of commodities
– Role of multilateral liberalization: WTO
– Role of RTAs
• Positive integration: fostering trade
through deep integration
– Often involves exploiting externalities and
correcting for market failures.
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Deep Integration & Externalities
• Types of externalities
– External to firm, internal to industry
– External to industry, internal to country
– External to country, internal to world
• Public good externalities
– Institutions, etc. that affect economic
environment in which firms operate
– Sectoral, national, and international
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Trade and Productivity
• Link from RTA → deep integration →
externalities → increased productivity
• Classify RTAs by potential for
generating externalities through
different forms of deep integration
• Case studies and anecdotal evidence
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Externalities and Productivity
• Technology transfer
– Through trade and FDI
• Dynamic comparative advantage
• Productivity and production dispersion
– Ricardian gains and factor proportions
– Smithian gains from local economies of
scale and finer division of labor
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Ricardian vs Smithian gains
• Inter-industry trade
creation
• Factor endowments
determinants
• Constant returns
• Exogenous
technology
• Homogenous goods
• Intra-industry trade creation
– No role for standards
– Standards and harmonisation
– NOT “ship and forget”
– Horizontal quality differentiation
– Vertical specialization
• Productivity, specialization,
technology determinants
• Increasing returns
• Endogenous technology
• Heterogeneous goods
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Smithian gains and market
integration
• Integration in global value-chains
– Fragmentation of production
• Higher profitability from niche products
– Quality and health standards harmonisation
lead to increased productivity
• Cross-border market failures: externalities
• Inter-firm and intra-firm coordination
• Economies of scale and technology
transfers
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Externalities and Positive
Integration
• Intra-firm arrangements (e.g. FDI)
• Inter-firm (e.g., private standards:
Eurepgap)
• national adoption of export related
norms
• regional/bilateral agreements
• multilateral arrangements
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Potential Role for RTAs
• Support private sector initiatives
– Institutional capacity building related to
specific export flows
• Standards
• Investment and pecuniary externalities
– Infrastructure and technology
– Intra-industry trade via vertical value-chain
specialization
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Potential Role for RTAs
• Public sector
– Nature of externalities and market failure
– Externalities: to industry and/or country
• Infrastructure: physical and institutional
• Public goods
– Legal and institutional harmonisation
• “Rules of the game”: more than a level
playing field
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New regulatory frameworks
• May raise productivity for some/all
producers
• May raise costs for some/all producers
• Create/enhance market access
– Wider and deeper markets
• Have differential effects on groups of
consumers/producers
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Diagnostic Tests
• Are there trade-related externalities and
market failures?
– Potential for positive integration
• Does the RTA address them?
• Is there scope for productivity gains?
• Will gains cover the costs (to producers
and local consumers)?
• What groups will profit most/least?
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Example: Egyptian Potatoes
• Major export (25% tot. agric exports)
• 90s: EU reg’s hit Egypt ( “brown rot” ban)
• Barrier created new opportunity for Egypt:
– Adopting process standards key to exporting
• EU-Egypt Agreement: institutional cooperation
• Crucial role of governments
– Positive externalities
• Institutional/country level (in EU and Egypt)
– Product standardisation
– Expanded markets
• Producer level: productivity increases
• Distributional impacts: large vs small farms
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Conclusions
• Historical analysis leads to a different
view of RTAs: bloc creation, bloc
expansion, market access
– Bloc formation precedes formal RTAs
• Need to re-visit theory of “natural”
trading partners
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Conclusions
• RTAs and deep integration may lead to
externalities and productivity gains
– Different types of RTAs have different
implications for these links
– Different types of externalities
• Such gains, if present, are likely to be
much larger than efficiency-gain
triangles in standard trade analysis
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Conclusion
• Need to use tools of “new trade theory”
and “new regionalism” to examine these
links
• Detailed institutional analysis
– Nature of externalities
– Links to productivity
• Sectoral/firm/process case studies
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Conclusions
• New typologies of RTAs based on their
potential role in internalizing externalities
and achieving productivity growth
• Indicators of “good” versus “bad” RTAs
– Externalities and TFP links
– Gainers and losers: distributional implications
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