Effect of multilateral trade liberalization on services export diversification

PurposeThis study investigates the effect of multilateral trade liberalization on services export diversification with a view to complementing the recently published work on the effect of multilateral trade liberalization on export product diversification.Design/methodology/approachThe empirical exercise been performed using a panel dataset of 133 countries over the period 1995–2014.FindingsThe findings show that multilateral trade liberalization is associated with greater services export diversification in both developed and developing countries alike. This is particularly the case in countries with a high reliance on manufactured goods exports or those that enjoy greater export product diversification. Interestingly, multilateral trade liberalization enhances services export diversification in countries that experience higher foreign direct investment inflows.Research limitations/implicationsThese findings highlight the importance of multilateral trade liberalization for services export diversification. The study has considered explicitly supply-side factors that could affect services export diversification. This is because the indicator of multilateral trade liberalization is highly correlated with some demand-side factors, such as the world demand for services exports. Therefore, another avenue for future research could involve looking at the demand side factors that could influence services export diversification, and whether the degree of multilateral trade liberalization matters for the influence of these demand factors on services export diversification.Practical implicationsThe current study through its positive effect on both export product diversification and services export diversification, greater cooperation among World Trade Organization (WTO) Members on trade matters could help revive economic growth, particularly in the current COVID-19 pandemic that has significantly plummeted it.Originality/valueTo the best of our knowledge, this is first study that has investigated this issue.

Multilateral Trade Liberalization and Democracy: Does Export Product Diversification Matter?

This paper explores the effect of multilateral trade liberalization (MTP) on democracy, using a set of 148 countries over the period 1996–2016. In particular, it investigates whether this effect depends on countries’ level of export product concentration. The analysis shows that MTP promotes democracy only when it reaches a certain threshold. Furthermore, MTP promotes democracy in countries that enjoy a high degree of export product diversification, including away from primary products, or in those with low dependence on natural resource rents. These findings have important policy implications.

Effects of Regional Trade Agreement to Local and Global Trade Purity Relationships

In contrast to the rapid integration of the world economy, many regional trade agreements (RTAs) have also emerged since the early 1990s. This contradiction has encouraged scholars and policymakers to explore the true effects of RTAs, including both regional and global trade relationships. This paper defines synthesized trade resistance and decomposes it into natural and artificial factors. Here, we separate the influence of geographical distance, economic volume, and overall increase in transportation and labor costs and use the expectation maximization algorithm to optimize the parameters and quantify the trade purity indicator, which describes the true global trade environment and relationships among countries. This indicates that although global and most regional trade relations gradually deteriorated during the period 2007–2017, RTAs generate trade relations among members, especially contributing to the relative prosperity of European Union (EU) and North American Free Trade Agreement (NAFTA) countries. In addition, we apply the network to reflect the purity of the trade relations among countries. The effects of RTAs can be analyzed by comparing typical trade unions and trade communities, which are presented using an empirical network structure. This analysis shows that the community structure is quite consistent with some trade unions, and the representative RTAs constitute the core structure of international trade network. However, the role of trade unions has weakened, and multilateral trade liberalization has accelerated in the past decade. This means that more countries have recently tended to expand their trading partners outside of these unions rather than limit their trading activities to RTAs.

Preferential Trade Agreements: Recent Theoretical and Empirical Developments

In recent decades, there has been a dramatic proliferation of preferential trade agreements (PTAs) between countries that, while legal, contradict the non-discrimination principle of the world trade system. This raises various issues, both theoretical and empirical, regarding the evolution of trade policy within the world trade system and the welfare implications for PTA members and non-members. The survey starts with the Kemp-Wan-Ohyama and Panagariya-Krishna analyses in the literature that theoretically show PTAs can always be constructed so that they (weakly) increase the welfare of members and non-members. Considerable attention is then devoted to recent developments on the interaction between PTAs and multilateral trade liberalization, focusing on two key incentives: an “exclusion incentive” of PTA members and a “free riding incentive” of PTA non-members. While the baseline presumption one should have in mind is that these incentives lead PTAs to inhibit the ultimate degree of global trade liberalization, this presumption can be overturned when dynamic considerations are taken into account or when countries can negotiate the degree of multilateral liberalization rather than facing a binary choice over global free trade. Promising areas for pushing this theoretical literature forward include the growing use of quantitative trade models, incorporating rules of origin and global value chains, modeling the issues surrounding “mega-regional” agreements, and modelling the possibility of exit from PTAs. Empirical evidence in the literature is mixed regarding whether PTAs lead to trade diversion or trade creation, whether PTAs have significant adverse effects on non-member terms-of-trade, whether PTAs lead members to lower external tariffs on non-members, and the role of PTAs in facilitating deep integration among members.

Effect of multilateral trade liberalization on export performance in developing countries

PurposeThe purpose of this study is to examine empirically whether the impact of multilateral trade liberalization on export performance and export performance convergence in developing countries depends on the amount of Aid for Trade (AfT) flows that accrue to these countries. Export performance is measured by export of goods and services to gross domestic product ratio, whereas export performance convergence refers to the process whereby a developing country’s export performance catches up with the world’s average export performance.Design/methodology/approachThe analysis has used an unbalanced panel data set covering a sample of 97 developing countries, over the period 2002 to 2015. The two-step system generalized methods of moments has been used to address the question empirically.FindingsEmpirical results show that multilateral trade liberalization generates higher export performance and convergence in export performance in developing countries only when it is accompanied by higher AfT flows to developing countries, with a view of helping these countries enhance their trade capacity and reap the opportunities offered by multilateral trade liberalization in the international trade market.Research limitations/implicationsThese findings indicate that greater access to the international trade market is not sufficient to promote developing countries’ export performance and convergence in export performance. Such a promotion could materialize if multilateral trade liberalization is accompanied by higher AfT flows (to enhance these countries’ capacity to trade). The findings therefore indicate that the current context of escalation of trade tensions would likely result in lower degree of multilateral trade liberalization, and eventually lower AfT flows to recipient-countries, and ultimately hamper developing countries’ export performance and convergence in export performance.Practical implicationsThe findings therefore indicate that the current context of escalation of trade tensions would likely result in lower degree of multilateral trade liberalization, and eventually lower AfT flows to recipient-countries, and ultimately hamper developing countries’ export performance and convergence in export performance. An avenue for future research could be to perform the same analysis when data would be available over a longer time period. Future studies on the matter could also investigate whether the findings obtained apply to components of export performance, including for example manufactured exports and non-manufactured exports.Originality/valueMany papers related to the AfT effectiveness have looked at the effect of AfT inflows on recipient-countries’ export performance. However, little attention has been paid to the effect of multilateral trade liberalization on developing countries’ export performance and export performance convergence and particularly to whether this effect would depend on the amounts of AfT that would accrue to developing countries to help them develop their trade capacity. To the best of our knowledge, no previous paper has addressed this issue.

Multilateral trade liberalization and developing countries’ economic exposure to shocks

Purpose The purpose of this paper is to examine the impact of multilateral trade policy (MTP) liberalization on developing countries’ economic exposure to shocks. Design/methodology/approach The analysis is conducted on a panel data set comprising 120 countries over the period 1996–2013 and uses the within fixed effects estimator. Findings The empirical results suggest that over the entire sample as well as sub-samples of least developed countries (LDCs) and non-LDCs, multilateral trade liberalization have a negative and significant impact on economic exposure to shocks. Interestingly, LDCs appear to experience the highest magnitude of the reducing impact of multilateral trade liberalization on countries’ economic exposure to shocks. Research limitations/implications These findings suggest that a greater cooperation among countries in the world, including among WTO members to further liberalize trade would surely contribute to reducing developing countries’ economic exposure to shocks. Practical implications The current study shows that the current backlash against trade and the consequent strong appeal for domestic trade protectionist measures would likely to undermine the likelihood of further multilateral trade liberalization. One implication of this could be a rise in countries’ economic exposure to shocks. Originality/value To the best of the author’s knowledge, this is first the study on this matter.

Some Common Lessons from Uncommon FTAs

The present study endeavours to observe the trade creation and trade diversion effects of three free trade agreements (FTAs) in Asia, namely, India–Japan CEPA (IJCEPA), India–Sri Lanka FTA (ISFTA), and India–Bhutan FTA (IBFTA). The article aims to evaluate three uncommon FTAs that include developing–developed, developing–developing and developing–least developed countries. The objective is to evaluate the effects of these FTAs on exports and draw lessons for both the contracting parties and for other economies to commence FTAs that promote trade liberalization. This paper also aims to debunk the myth that FTAs between developing-least developed countries is not beneficial for the developing or least developed counterpart. The study applies augmented gravity model to capture the trade creation and trade diversion effects. The results confirm that ISFTA and IBFTA have trade creation effect, while in case of IJCEPA, there is trade diversion. These bilateral agreements can open the ways for multilateral trade liberalization in the long-run. JEL : F10, F13, F14