Top PDF Trade Liberalization, Quality, and Export Prices

Trade Liberalization, Quality, and Export Prices

Trade Liberalization, Quality, and Export Prices

So far our empirical results are based on the merged data built upon the NBSC manufacturing survey database and the Customs database. However, the NBSC manufacturing survey only includes above- scale firms, which may lead to sample selection bias. Therefore, to further verify that our results are not biased towards big firms, we replicate baseline regressions with both firm-specific tariff reductions and industry input tariff reductions in Table 13 , where Panels A and B present results of export prices at HS6-country level and at HS6 product level, respectively. In each of the six columns, the first five columns correspond to firm-specific measures of tariff reductions and the last one corresponds to industry input tariff reduction measure. Among the five columns of using firm-specific measures of tariff reductions, the first one adopts our main tariff reduction measure, and the rest four employ the four alternative measures of tariff reductions as described in order in Section 5.2 . In Table 13 , all coefficients on the interaction terms (∆Duty× HOM OGEN EOU S) are significantly positive and most coefficients on ∆Duty are significantly negative. This fully supports the main predictions of our model that firms increase export prices with tariff reductions when the scope for quality differentiation is large but may decrease prices when the scope for quality differentiation is small.
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Imported Intermediate Inputs, Export Prices, and Trade Liberalization

Imported Intermediate Inputs, Export Prices, and Trade Liberalization

So far our empirical results are based on the merged data built upon the NBSC manufacturing survey database and the Customs database. However, the NBSC manufacturing survey only includes above- scale firms, which may lead to sample selection bias. Therefore, to further verify that our results are not biased towards big firms, we replicate baseline regressions with both firm-specific tariff reductions and industry input tariff reductions in Table 13 , where Panels A and B present results of export prices at HS6-country level and at HS6 product level, respectively. In each of the six columns, the first five columns correspond to firm-specific measures of tariff reductions and the last one corresponds to industry input tariff reduction measure. Among the five columns of using firm-specific measures of tariff reductions, the first one adopts our main tariff reduction measure, and the rest four employ the four alternative measures of tariff reductions as described in order in Section 5.2 . In Table 13 , all coefficients on the interaction terms (∆Duty× HOM OGEN EOU S) are significantly positive and most coefficients on ∆Duty are significantly negative. This fully supports the main predictions of our model that firms increase export prices with tariff reductions when the scope for quality differentiation is large but may decrease prices when the scope for quality differentiation is small.
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Trade liberalization and institutional quality: evidence from Vietnam

Trade liberalization and institutional quality: evidence from Vietnam

We expect coefficient of trade openness policy to be positive and statistically significant. However it is not straightforward to interpret it as a causal effect. There are challenges of endogeneity and omitted variable bias that we need to address to interpret  1 as a causal effect. First, endogeneity or reverse causality can lead to bias in our estimates. We argue that trade liberalization improves institutional quality. However it is also possible that causality runs in the opposite direction. For instance, foreign capital is more likely to flow to province with good business environment. Therefore, the direction of causality is likely to go from institutional changes to higher foreign direct investment. Second, some unobserved factors may affect both the decisions of investors and governance quality, resulting in correlation between the two but nothing to do with a direct causal relationship. We are arguing here that trade liberalization improves institutional quality. However it is also possible that province specific unobservable factors such as history, culture, ethnic makeup, religion and geography or other local policies may influence both institutions and foreign direct investment. This will also bias our estimates. Measurement error is another concern and can lead to bias and inconsistency in our estimates.
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Credit Constraints, Quality, and Export Prices: Theory and Evidence from China

Credit Constraints, Quality, and Export Prices: Theory and Evidence from China

There is a growing body of literature on the effects of credit constraints on international trade, especially after the financial crisis of 2008. Most prior studies have focused on either explaining the mechanism of why exporters need more credit than domestic producers (e.g., Amiti and We- instein, 2009; Feenstra, Li, and Yu, 2011), or the consequences of different credit conditions on exporting behavior, multinational activities, or aggregate trade volumes (Manova, 2011; Manova, Wei, and Zhang, 2011; Chor and Manova, 2012; Minetti and Zhu, 2011, among others). However, to the best of our knowledge, the impacts of credit constraints on a firm’s choice of optimal prices have not been explored. This paper fills a gap in the literature by linking credit constraints to firm attributes and action such as its productivity and its choice of product quality and optimal prices. Understanding the mechanism through which credit constraints affect export prices helps us better understand how they affect a firm’s exporting behavior. In particular, it helps to explain the differential impacts of credit constraints on the intensive margin of trade across products through their effects on the unit value prices of different products. As the intensive margin of a product is measured by the total value of export, the change in the intensive margin is affected by two factors: the change in the quantity exported, and the change in the unit value price of the exported good. Therefore, a thorough analysis on the effect of credit constraints on unit value prices can help us better understand their effect on the intensive margin of trade. Moreover, credit constraints affect bank loans to firms, which are used to cover upfront costs. Tighter credit constraints would affect upfront costs and therefore distort a firm’s choice of optimal price more. As noted in the literature on financial distress, binding credit constraints may cause firms to act in ways that would be sub- optimal in normal times, which may lead them to produce lower-quality products, which in turn lowers the unit value price of the product (Phillips and Sertsios, 2011). However, how and why credit constraints affect the export prices of different products differently has not been studied thoroughly. Our paper tries to fill this gap in the literature.
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Trade Liberalization and Institutional Quality: Evidence from Vietnam

Trade Liberalization and Institutional Quality: Evidence from Vietnam

Recent cross-country research shows that there is a causal relationship between foreign direct investment and quality of institutions. The literature on cross-country studies has been criticized because differences in legal systems and other institutions across countries are difficult to control for. An in-depth case study of a particular country‟s experience can provide a useful complement to cross-country regressions. Using the unique dataset from provincial competitiveness survey and a rising foreign direct investment from joining the World Trade Organization, I find that variations in economic institutions across provinces in Vietnam can be explained by the flow of foreign investment. To overcome endogeneity problems, I use minimum distance from each province to main economic centres as an instrument for proxy of trade liberalization agreement. The instrumental variable approach shows that the direction of influence is from greater foreign investment to better institutions. The results hold after controlling for various additional covariates. It is also robust to various alternative measures of institutions. I also find that trade liberalisation agreement has greater short term impacts on institutional quality in the Northern provinces.
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Input-Trade Liberalization, Export Prices and Quality Upgrading

Input-Trade Liberalization, Export Prices and Quality Upgrading

Kluger and Verhoogen’s (2012) paper is of particular interest for our analysis as they model the link between the quality of intermediate inputs and the quality of final goods. The authors derive two functional forms for quality in a model where output quality is endogenous and firms optimize their quality choice. In the first case, they assume that firm capability and input quality are complements in the production of output quality. In the second case, output quality depends on input quality and also implies a fixed cost for quality investment. In the intermediate input sector, producing higher quality inputs is more costly in terms of labor. Consequently, for the final goods producers, the quality of intermediate inputs and the price of that input are positively correlated. In both variants of their model, in equilibrium, higher capability firms use high-quality inputs to produce high-quality outputs. Higher-quality inputs have a higher price, which raises marginal costs. If the scope for quality differentiation is large (a long quality ladder in Khandelwal’s terms), Kugler and Verhoogen’s (2012) model predicts a positive relationship between output price, input prices and plant size. Recent working papers theoretically examine the impact of trade liberalization on exported product quality. Fan and Li (2013) endogeneize firms’ choice of the number and quality of imported inputs in period of tariffs reduction and find that firms increase both the number and quality of inputs, leading to an increase in export quality. 3 Similarly, in a theoretical North-South model of heterogeneous firms and quality upgrading, Demir (2012) extends the framework of Kugler and Verhoogen
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Credit Constraints, Quality, and Export Prices: Theory and Evidence from China

Credit Constraints, Quality, and Export Prices: Theory and Evidence from China

Next, we test our model using a matched Chinese firm-product level dataset, based on Chinese firm-level production data from the National Bureau of Statistics of China (NBSC) and Chinese customs data at the transaction-product level. The unique advantage of this matched database is that it contains information on unit value prices of exports at the product-firm level as well as the information needed to measure credit constraints and firm productivity. To measure the severity of credit constraints via credit needs faced by firms, we first follow Manova et al. (2011) to employ four different measures at the industry level: external finance dependence, R&D intensity, inventory-to- sales ratio, and asset tangibility. We use US data for those measures in our main regressions because the US financial markets are mature and they could reflect true credit needs by industry. Also the measures based on US data have been widely used in cross-country studies in the literature. For robustness, we also follow Rajan and Zingales (1998) and Manova (2013) to calculate external finance dependence using Chinese firm-level data. To proxy for credit access, we collect balances of bank credits, long-term bank loans and short-term bank loans by province (normalized by province GDP) in China to reflect the credit access by firms located in different regions. In addition, we compare different types of firm ownership in China as each type is expected to be associated with a different level of credit access. Finally, to compute productivity, we use the augmented Olley and Pakes’s (1996) approach, which alleviates simultaneity bias and selection bias, to estimate a firm’s total factor productivity. In the robustness checks, we also report results with labor productivity measured by the value added per employee and the results with the TFP computed by the augmented Ackerberg et al.’s (2006) approaches.
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Credit Constraints, Quality, and Export Prices: Theory and Evidence from China

Credit Constraints, Quality, and Export Prices: Theory and Evidence from China

Another measure we use to proxy for credit access is firm ownership. We compare state-owned enterprises (SOE) with domestic private enterprises (DPE) and multinational corporation (MNC) with joint venture (JV). We compare different types of firms in China because the literature clearly suggests that given the underdevelopment of Chinese financial markets, the Chinese DPE face less credit access than SOE do, because SOE can finance a larger share of their investments through external financing from bank loans provided by state-owned banks. For example, Boyreau-Debray and Wei (2005) point out that the Chinese banks–mostly state owned–tend to offer easier credit to SOE. Dollar and Wei (2007) and Riedel et al. (2007) report that private firms rely significantly less on bank loans and significantly more on retained earnings as well as family and friends to finance investments. Song et al. (2011) also show that SOE finance more than 30 percent of their investments through bank loans compared to less than 10 percent for domestic private firms, and other forms of official market financing (through bank loans) are marginal for private firms in China as private firms rely more on internal or informal financing. Therefore, it is safe to conclude that SOE in China face more credit access, compared to DPE. At the same time, the literature also indicates that multinational companies have better credit access than joint ventures as multinational companies are able to reallocate resources on a global scale and finance their subsidiaries from headquarters or other affiliates. Therefore, according to the theory presented above, when the scope for quality differentiation is large, we expect that, ceteris paribus, the optimal prices set by SOE to be higher than those by DPE and the optimal prices set by MNC higher than those by JV, respectively.
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Trade Liberalization and Export Variety: A Comparison of Mexico and China

Trade Liberalization and Export Variety: A Comparison of Mexico and China

The hallmark of the endogenous growth models (Romer 1990, Grossman and Helpman, 1991) is their focus on the creation of new or higher quality products, and the effects of such innovations on productivity and economic growth. Opening a country to trade opportunities due to tariff reductions will typically increase the product variety of imports available, and may also increase the variety of exports, both of which contribute to growth. Despite the microeconomic focus of these models, the link between trade and growth is usually assessed at a more aggregate level, in which case the causality between the two is unclear (Frankel and Romer, 1999, Dollar and Kraay, 2001, Rodriguez and Rodrik, 2000). To move beyond these aggregate statistics, we need more detailed information on the product variety of traded goods, and on the link between tariff reductions and product variety.
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Trade Effects of Services Trade Liberalization in the EU

Trade Effects of Services Trade Liberalization in the EU

Many studies confirm that the main positive effects of trade liberalization in services are to be expected through increased efficiency and competitiveness of the domestic economy rather than through increases in exports (Nielson and Taglioni, 2003). Also Mattoo et al. (2006) find a growth-enhancing effect from openness to trade in services in the long run. Robinson et al. (2002) also stress the indirect effects from services sector trade liberalization on the efficiency and output of other sectors in the economy working through inter-industry input-output relations induced by imports of high-quality services. The few papers that attempt to assess the overall welfare effects of the current WTO Round of trade liberalization (the so-called Doha Round) often ascribe the largest welfare gains to services trade liberalization. For instance, Dee and Hanslow (2001) estimate a total effect of USD 260 billion from full liberalization, with USD 130 billion estimated to come from liberalization in the services sector (USD 50 and 80 billion arise from liberalizing trade in agricultural goods and manufactured goods respectively). Also Francois et al. (2005) note that services trade liberalization is likely to augment the gains from the Doha Round.
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The foreign trade liberalization and export of agri-food products of Serbia

The foreign trade liberalization and export of agri-food products of Serbia

Numerous researches showed a positive impact of the achieved agreements on the foreign trade ex- change of agri-food products. However, the ques- tion is whether the exporting potentials of Serbian agri-food sector are sufficiently used, i.e. whether there are possibilities for an additional increase of export. The authors Gajic and Zekic (2013), analys- ing the relation between the value of the export of agri-food products and basic production resources – labour and land, concluded that Serbia does not achieve impressive results, even within the region, and the situation is even worse in comparison to the EU countries, which is the consequence of the extensiveness of Serbian agriculture concentrated on the crop production. Such production structure also causes the structure of the agri-food export of Serbia, in which the crop products of the lower pro- cessing phase are the dominant one, respectively the products with the low added value, while the share of livestock products, as well as the value of the final products, is extremely low. Analysing the level of the intra-industry trade specialization, the authors Bozic and Nikolic (2013a) point out the necessity of a further development of standards in terms of the development of quality, quantity and stability of the supply of agri-food export, especially in the case of products with a low level of competitiveness, such as meat and meat products, milk and milk products.
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Aid for trade and the political economy of trade liberalization

Aid for trade and the political economy of trade liberalization

In addition to its role as domestic trade facilitator, Aid for Trade needs to bear the challenges at the international and regional levels. The aid scene has experienced a multiplication of actors and an unprecedented expansion in the number of donors and their fragmentation in recent decades, and the AfT initiative is by no means excluded from this process. The trend is reinforced by the growing number of recipient countries that are no longer only aid recipients, but also aid donors (South-south co-operation). Apart from bilateral and multilateral development actors, the emergence of other governance forms contributes to the growing complexity of the development finance system. For instance, the number of regional trade agreements (RTAs) has increased manifold, putting the regional dimension into the focus of trade and development. Regional development banks, research networks, NGOs or common policies all can be considered institutionalized regional governance forms. The pan-African initiative NEPAD 24 is one example of this new multidimensional form of region-to-region integration (de Lombaerde and Mavrotas 2009). Although many developing countries perceive potential benefits of regional integration – trade within the same geographical area can indeed better promote diversification and structural change than overall trade (UNCTAD 2007) –, institutions and policies at regional level are still country-led and rather weak. Policy competences are diffused across levels and among actors. Regional institutions’ absorptive capacities of aid can be considered low in many cases due to a non-existent or thin budget, the lack of ownership and institutional weaknesses of regional bodies implying a low quality of regional policies (de Lombaerde and Mavrotas 2009). For instance, African regional integration is characterized by a multitude of arrangements and overlapping membership in the same region, 25
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Trade Revenue Implications of Trade Liberalization in Pakistan

Trade Revenue Implications of Trade Liberalization in Pakistan

In case of Pakistan, the major share of total revenue was generated through indirect taxes during 1990s. Import duties or trade tax produced forty percent of total government revenue. After the structural reforms, tax revenue as a percent of GDP started declining and contributing only fifteen percent of total government revenue in Pakistan (Zaidi, 2005). Further reduction in tariff rate is expected to reduce the further share of trade revenue in domestic tax revenue. For long run this may increase the burden on fiscal structure as well as increase budget deficit. Under imperfect market condition, the government has only choice to overcome the revenue loss through appropriate changes in domestic tax structure. Furthermore, the problem of budget deficit may be solved and stable economic growth may be achieved through domestic tax performance. Overall, Pakistan’s trade policy makers have always adopted the supply side incentives to improve the exports performance such as tax incentives and support prices etc. But they have less focused on removal of structural weaknesses, such as provision of basic infrastructure and quality control in exports.
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Trade Liberalization and Firm Dynamics

Trade Liberalization and Firm Dynamics

In order to keep our analysis tractable, we have limited our modeling exercise to just one form of international market participation (exports) and one form of innovation. As we noted in our introduction, the literature has examined many other forms of international market participation. Our choice should not be construed to imply that dynamics are more important for exports than for those other forms of market participation. We picked exports as an example (one that is very well understood) to highlight the importance of dynamic considerations. Similarly, we recognize that we modeled innovation in a coarse, reduced form way. First, we have assumed that only labor is used for innovative activities, and thus have not captured how globalization may a¤ect the cost of innovation via changes in other input costs or spillovers. Second, we have not explicitly speci…ed the channels through which innovation/investment activities generate performance improvements – other than through a direct e¤ect on labor productivity. Such channels could include management quality, o¤shoring that breaks-up the production chain, development of a …rm’s product range, changes in input usage due to the availability of imported intermediates, and marketing/relationship building with foreign buyers. Many of these factors apply di¤erentially across a …rm’s destination markets, and could hence result in destination-speci…c dynamics that di¤er from those of our model in which productivity improvements apply world-wide. These are all fruitful areas for future work.
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Rice trade liberalization and poverty

Rice trade liberalization and poverty

Finally, the world rice market is also highly segmented by type and quality. Trade flows are thus determined by what varieties are demanded and the ability of countries to supply them. For instance, while East Asia’s demand for japonica is serviced by the U.S., Australia, and China, Africa’s indica demand is met primarily by India and Thailand. Europe, on the other hand, obtains its high-quality grain from South Asia while importing indica rice from the U.S. While Middle East imports are primarily basmati from South Asia, most trade in South America is in paddy supplied by the U.S., mainly because of locational advantages. Indica rice accounts for a bulk of global rice trade (75−80%), followed by japonica (10−12%) and aromatic rice such as basmati and jasmine (10%), with glutinous rice accounting for the rest. There are limited substitution possibilities across varieties in both production and consumption, but they tend to be less for the latter given strong regional preferences in consumption.
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Foreign entry liberalization and export quality: evidence from China

Foreign entry liberalization and export quality: evidence from China

We obtained three main results. First, foreign entry deregulation in intermediate markets induces downstream firms to produce higher quality products and set higher export prices. Second, the effect of foreign entry deregulation in upstream manufacturing sectors is much stronger than the effect of foreign entry deregulation in upstream services sectors. Third, firm imported input intensity has an important influence on the positive effect of foreign entry deregulation in the intermediate market. This implies that foreign entry deregulation is more likely to raise export quality and price in firms with larger imported input intensity. These results are robust under a number of alternative specifications. Using other countries’ FDI regulation as an instrument to control for the possible endogeneity arising from reverse causality, we found that the impact of upstream foreign entry deregulation is still positively related to downstream firms’ export quality and export price.
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Trade Liberalization and Export Variety: A Comparison of China and Mexico

Trade Liberalization and Export Variety: A Comparison of China and Mexico

Existing methods of measuring productivity growth makes an attempt to deal with quality change in inputs and outputs by distinguishing factors by their skill characteristics, such as education of workers, or the speed of computers. But the issue of input or output variety has received very little attention due to its inherent difficulty. In the language of index numbers, an expansion in the range of inputs or outputs is a “new goods” problem: an good that is newly available will have an observed price and quantity, but no corresponding price or quantity the year before. The availability of this new good will allow the firm to produce at least as much output at the same cost, and accordingly, there is a productivity gain. The goal of this paper is to show how changes in export variety can be measured, and illustrate the results obtained for China and Mexico.
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Trade Liberalization and Export Competitiveness: Evidence from the EU ECOWAS Trade

Trade Liberalization and Export Competitiveness: Evidence from the EU ECOWAS Trade

The signing of the EPA did not come without controversy as many West African states were reluctant to sign due to fears and doubts as to whether it would be favourable to their individual countries or not. This is because the EPA requires a mutual relationship such that West African States would have to extend a similar form of trade liberalisation to EU products in their domestic market, a move that many critics and pessimists say would collapse industries in the ECOWAS region many of which are infant industr ies. CONCORD (2015), explain that “West Africa has to make considerable sacrifices, eliminating most of the customs duties levied on imports from the EU. The EU will enjoy a much more favourable treatment compared to other African countries with which West Africa trades.” It further explains that the Common Agriculture Policy of the EU would lead to dumping of agriculture products in West African markets, at prices for which west African agricultural producers cannot compete with.
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Trade Liberalization and Market Access: Analyzing Dominican Export Performance during the Twentieth Century

Trade Liberalization and Market Access: Analyzing Dominican Export Performance during the Twentieth Century

2 Trade policy in the Dominican Republic and trade relations with the US Export duties and controls, quantitative restrictions on imports, high tariff barriers and overvalued exchange rates are all characteristic of state-led industrialisation drives, particularly in the case of import substitution industrialisation. These instruments have long been regarded as imparting a strong anti-export bias by distorting the price signals to which the private sector responds, discouraging investment in the export sector and reducing export growth. By setting a more realistic (or even undervalued) exchange rate, removing import restrictions (particularly on imported inputs for export production) and reducing or eliminating export duties and taxes, trade liberalisation brings domestic prices into closer alignment with international prices, which encourages export growth by making exports more internationally competitive and facilitating access to cheaper imported inputs. Similarly preferential market access agreements encourage export growth by lowering the cost to consumers of the export products vis-à-vis those of its competitors.
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Welfare Impact of Trade Liberalization

Welfare Impact of Trade Liberalization

This paper constructs a static Applied General Equilibrium Model and analyzes the distribu- tional impact of trade reforms. To calibrate our model, we work with the Household Expen- diture Survey to disaggregate household groups by income, age, and skill intensity, and the Input-Output table to construct a Social Accounting Matrix. Our benchmark simulation looks at Slovenia joining the European Union. We then compare with two alternative scenarios: a free trade agreement between Slovenia and the EU, and an alternative fiscal arrangement of distributing tariff revenues under the EU. While trade reforms lead to falling prices in the im- port sector, rising production in the export sector, and improvement in aggregate welfare, the distributional impacts across household groups vary in its degree. 1
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