Deepening real and financial integration of developing countries into the world economy has prompted renewed interest in the contribution of external shocks to their macroeconomic fluctuations.
... See More + This paper revisits the issue using four decades of annual data for a large sample of developing countries. The paper implements a conditionally-homogeneous panel vector autoregression with exogenous variables to model GDP fluctuations in these countries. It uses sign restrictions to identify four external structural shocks -– demand, supply, monetary, and commodity shocks -– and analyzes how their impact on growth is shaped by countries' policy and structural framework. External shocks are found to account for a small share of the forecast error variance of GDP, especially at short horizons. However, their contribution has been on the rise in recent decades. Further, global monetary shocks have become the leading external source of GDP volatility in developing countries. The paper presents a quantitative assessment of the effects of real and financial opening up, as well as those of commodity specialization, on the impact of external shocks on GDP. The results suggest that increasing openness can account for the increasing trend in the volatility attributable to external shocks, as well as the changing roles of different shocks. Moreover, commodity-intensive developing countries are found to be more vulnerable than the rest to all types of external shocks, not just commodity shocks.
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Policy Research Working Paper WPS7711 JUN 20, 2016
The high level of exports and their product and market concentration exposes the Democratic Republic of Congo to the economic fluctuations of the country's trade partners.
... See More + This paper uses the United Nations Conference on Trade and Development trade data set to analyze the Democratic Republic of Congo's export patterns for the period 1960-2014. The data confirm that the country's exports remain highly concentrated. The product concentration on minerals is high and reaches exceptional levels. The geographic concentration is also high, while there is a shift in destinations. Hence, EU27, traditionally the main market destination for the Democratic Republic of Congo, lost its importance to China for most of the past decade. This trend continued to increase in the past few years from 2010 to 2013. The clear prevalence of commodity products within the Democratic Republic of Congo's exports and the higher exposure to the Chinese economic cycle are sources of vulnerability. The empirical analysis indicates that the country's exports appear to be significantly sensitive to foreign demand fluctuations. This exposure increases the volatility of the country's macroeconomic framework to exogenous shocks, with negative consequences on growth in gross domestic product and on external balances. The analysis concludes that increasing the Democratic Republic of Congo's resilience requires product and market diversification of exports. This diversification requires improvements in the investment climate and business environment, with emphasis on skills and infrastructure.
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Policy Research Working Paper WPS7700 JUN 07, 2016
Since the Global Financial Crisis, world trade growth has been subdued and lagging slightly behind growth of gross domestic product. Trade is growing more slowly not only because growth of global gross domestic product is lower, but also because trade itself has become less responsive to gross domestic product.
... See More + This paper reviews the reasons behind the changing trade-income relationship, and then investigates its consequences for economic growth. On the demand side, sluggish world import growth may adversely affect individual countries' economic growth, as it limits opportunities for their exports. On the supply side, slower trade may diminish the scope for productivity growth through increasing specialization and diffusion of technologies. The paper finds preliminary evidence that the changing trade-income relationship matters, although the quantifiable effects do not appear to be large.
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Policy Research Working Paper WPS7673 MAY 13, 2016
With the success of the World Trade Organization and its predecessor, the General Agreement on Tariffs and Trade, in reducing conventional tariff barriers, much of the recent focus of regional and multilateral trade agreements has switched to non-tariff measures, both border and behind-the-border policies.
... See More + This paper considers the recent empirical and theoretical literature on non-tariff measures in the world trading system. It provides a set of stylized facts based on available data on non-tariff measures and reviews the key methods used to estimate their trade impact. It considers the theoretical treatment of these measures in the trade literature with a focus on the rules and institutions that govern non-tariff measures in the world trading system. It discusses some of the major issues regarding international cooperation in these policy areas, in particular whether such cooperation should entail deep integration (involving precise legally binding obligations) or shallow integration (which allows countries greater discretion in the setting of non-tariff measures). Finally, this paper reviews some of the specific features the World Trade Organization uses in dealing with non-tariff measures such as national treatment rules and non-violation complaints, and considers policy options beyond the WTO such as harmonization and mutual recognition of standards.
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Policy Research Working Paper WPS7661 MAY 04, 2016
Evidence indicates that trade costs are a much more substantial barrier to trade than tariffs are, especially in Sub-Saharan Africa. This paper decomposes trade costs into: (i) trade facilitation, (ii) non-tariff barriers, and (iii) the costs of business services.
... See More + The paper assesses the poverty and shared prosperity impacts of deep integration to reduce these three types of trade costs in: (i) the East African Customs Union–Common Market of East and Southern Africa–South African Development Community "Tripartite" Free Trade Area; (ii) within the East African Customs Union; and (iii) unilaterally by the East African Customs Union. The analysis employs an innovative, multi-region computable general equilibrium model to estimate the changes in the macroeconomic variables that impact poverty and shared prosperity. The model estimates are used in the Global Income Distribution Dynamics microsimulation model to obtain assessments of the changes in the poverty headcount and shared prosperity for each of the simulations for the six African regions or countries. The paper finds that these reforms are pro-poor. There are significant reductions in the poverty headcount and the percentage of the population living in poverty for all six of the African regions from deep integration in the Tripartite Free Trade Area or comparable unilateral reforms by the East African Customs Union. Further, the incomes of the bottom 40 percent of the populations noticeably increase in all countries or regions that are engaged in the trade reforms. The reason for the poor share in prosperity is the fact that the reforms increase unskilled wages faster than the rewards of other factors of production, as the reforms tend to favor agriculture. Despite the uniform increases in income for the poorest 40 percent, there are some cases where the share of income captured by the poorest 40 percent of the population decreases. The estimated gains vary considerably across countries and reforms. Thus, countries would have an interest in negotiating for different reforms in different agreements.
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Policy Research Working Paper WPS7660 MAY 04, 2016
How high were import tariffs when GATT participants began negotiations to reduce them in 1947? Establishing this starting point is key to determining how successful the GATT has been in bringing down trade barriers.
... See More + If the average tariff level was about 40 percent, as commonly reported, the implied early tariff reductions were substantial, but this number has never been verified. This paper examines the evidence on tariff levels in the late 1940s and early 1950s and finds that the average tariff level going into the first Geneva Round of 1947 was about 22 percent. It also find that tariffs fell by relatively more in the late 1940s and early 1950s for a core group of GATT participants (the United States, United Kingdom, Canada and Australia) than they did for many other important countries, including the set of other (non-core) GATT participants.
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Policy Research Working Paper WPS7649 APR 26, 2016
This is a statement by Xiaozhun Yi, Deputy Director-General at the ninety-third meeting of the Development Committee held on April 16, 2016. Today's meeting takes place against a backdrop of weak growth in world trade and output and a subdued outlook for the global economy.
... See More + While trade growth picked up in developed countries, import demand in developing and emerging economies has slowed sharply, and in some cases turned negative. The situation is reversed compared to 2012-13, when emerging economies sustained global trade. In light of these developments, the WTO's forecast for real trade growth in 2016 is in line with that of global GDP. This could be considered as a worrying development since trade played a crucial role in achieving the MDG goal of reducing extreme poverty by half ahead of schedule. The post-2015 sustainable development goals will be difficult to achieve without a stronger growth in trade. The WTO needs to create the policy conditions for even more countries to participate in global production and trade. This is what we aimed at the Bali and Nairobi Ministerial meetings: planting the seeds to allow for greater integration of developing countries, in particular the poorest, in global trade.
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This paper surveys empirically the broad features of trade policy in goods for 31 major economies that collectively represented 83 percent of the world's population and 91 percent of the world's GDP in 2013.
... See More + It addresses the following five questions: Do some countries have more liberal trading regimes than others? Within countries, which industries receive the most import protection? How do trade policies change over time? Do countries discriminate among their trading partners when setting trade policy? Finally, how liberalized is world trade? The analysis documents the extent of cross-sectional heterogeneity in applied commercial policy across countries, their economic sectors, and their trading partners, over time. It concludes that substantial trade policy barriers remain as an important feature of the world economy.
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Policy Research Working Paper WPS7620 APR 04, 2016
Bangladesh has the largest apparel export industry of the four South Asian sample countries (22.8 billion dollars), and the largest market share of global apparel exports.
... See More + The apparel industry is also extremely important to the economy, accounting for 83 percent of total exports. Wages and working conditions have long been a source of concern, as evidenced by the frequent strikes and labor unrest after the Rana Plaza disaster in April 2-13 (the single worst incident in the history of the apparel industry, which killed about 1,200 people) and other incidents such as the fire at Tazreen fashions in November 2012. Bangladesh can benefit from the following policies: improve productivity by adopting policies (such as additional incentives and transparency) to attract more foreign direct investment (FDI) to ensure access to buyers and additional capital; improve quality and product diversity by reducing import barriers to manmade fibers (through bonded warehouses, duty drawback, cash subsidy, and export processing zones (EPZs)); and improve compliance and reliability by ensuring that social policies are enforced (such as better safety conditions in EPZs) and encouraging firms to relocate to EPZs.
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Sri Lanka ranks third in terms of value (4.4 billion dollars) and global market share, although apparel has a relatively high share of total country exports at 45 percent.
... See More + Similar to Bangladesh, foreign direct investment (FDI) played a central role in initiating the industry in Sri Lanka, but today the industry is dominated by joint ventures and domestically owned firms. Sri Lanka's export profile differs from that of other South Asian countries because the country is a source of: intimate apparel, trousers, and swimwear. Wages and working conditions are generally better than in the other South Asian countries. Sri Lanka can benefit from the following policies: diversify end markets and export destinations for existing products (such as active wear and intimate apparel) by entering into more trade agreements and adopting clear investment policies to show political stability and attract FDI; diversify by expanding into new products such as formal wear and high-end outerwear that require higher levels of skill. Also position itself as a regional apparel and textile trade hub to take advantage of infrastructure and location; relieve labor shortages by promoting industrial relocation (such as tapping into the more remote and war-torn areas in the North and East) and attracting more female workers; and capitalize on its skills advantage by encouraging firms to expand into new products such as formal wear and high-end outwear.
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India ranks second in terms of value (12.5 billion dollars) and global market share, although unlike Bangladesh and Sri Lanka, apparel’s share of total county exports is quite low at 5 percent.
... See More + Foreign direct investment (FDI) has played a limited role (less than 1 percent) as a share of overall investment in the textile and apparel industry and as a share of the country's overall FDI inflows. Workers in the formal sector generally enjoy better working conditions and wages than those in the informal sector, where compliance is limited and where most apparel workers are actually employed. The following policies can help India increase apparel exports: increase product diversity by reducing tariffs and import barriers to ease access to manmade fibers (such as more transparency for duty drawback schemes and bonded warehouses, and removing anti-dumping duties on manmade fibers); improve productivity by helping firms enter the formal sector and take advantage of economies of scale with less complex labor policies; improve market diversity by taking advantage of access to emerging markets; and shorten lead times by using industrial parks to provide better infrastructure in a concentrated way.
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Pakistan ranks fourth in terms of value (4.2 billion dollars) with the same global market share as Sri Lanka, although apparel’s share of total country exports is lower at 19 percent.
... See More + Foreign direct investment (FDI) has not played an important role; in the apparel sector, the share of foreign-owned firms is estimated to be less than 2 percent, and only slightly higher in the textile sector. Wages and working conditions are better in the formal industry than in the large cottage sector, but short term or temporary contracts are widely used, particularly for women. The September 2012 factory fire in Karachi recently highlighted poor safety standards in the country. Pakistan can benefit from the following policies: increase product diversity by reducing barriers on imports so as to ease access to manmade fibers (such as duty and tax remission for exports, and export processing zones); attract foreign direct investment (FDI) by adopting policies to reduce red tape and increase transparency to close the gap with South Asian countries whose textile and apparel industries are located primarily on the coast; diversify markets by taking advantage of access to emerging markets; shorten lead times by improving road infrastructure to facilitate access to ports for exporting firms; shorten lead times by clustering strategies to provide key infrastructure and common facilities; enhance perceptions of stability as many buyers will not travel to Pakistan, which makes sourcing complicated.
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South Asia must create good-quality jobs for a rapidly expanding young population and bring more women into the labor force. The apparel sector in South Asia is labor intensive, employs more women on average than other manufacturing sectors, and provides jobs that allow for the acquisition of skills.
... See More + Apparel already constitutes approximately 40 percent of manufacturing employment. And, given that much of apparel production continues to be labor intensive, the potential to create more and better jobs is immense. Despite these development benefits, the sector has not reached its full potential because of inefficiencies that affect its competitiveness. As a creator of jobs that are good for development and an illustration of the distortions that stifle productivity in light manufacturing in South Asia, this sector merits careful analysis. This report is aimed at better informing that debate by demystifying the global and South Asian apparel markets, estimating the potential gains in exports and jobs (including for women), and identifying policies that can unleash South Asia’s export and job potential. The main message of this report is that it is important for South Asian economies to address existing impediments and to facilitate growth in apparel to foster the creation of good jobs for development.
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Publication 104271 MAR 23, 2016
Lopez-Acevedo , Gladys C.;Lopez-Acevedo,Gladys C.; Robertson , Raymond ;Robertson,RaymondDisclosed
After sharply declining in the first half of 2015, world trade began to grow, albeit at a slow pace. Preliminary data indicate that merchandise import growth was 1.7 percent in 2015, down from 3 percent in 2014.
... See More + Recent trade developments should be seen in the context of a deceleration in trade growth since the early 2000s, and particularly since the global financial crisis. These developments reflected a combination of old and new cyclical factors as well as enduring structural determinants, such as the maturation of global value chains and the slower pace of trade liberalization. In particular, trade developments in Latin America and Eastern Europe and Central Asia mostly reflected lower imports of recession hit commodity exporters such as Brazil and Russia. Latin America contributed 6 percent to the downward pull in global imports in 2015. Except for Japan, imports and exports of advanced economies did not show signs of a significant downturn, but were sluggish. Lower commodity prices have reduced real incomes in commodity producers and led to a contraction in their imports from all regions, including China. At the same time, the gradual shift from investment to consumption in China, and the more significant contraction in its industrial production seen in early 2015, have reduced its imports from other regions, including commodity producers.
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An efficient and transparent regulatory framework governing international trade is a necessary condition for countries to realize the benefits of international trade.
... See More + Over the last decade, Lao PDR has been deepening its economic ties with the global economy through the formal accession to the WTO in 2013. At the regional level, the country is committed to be full member of the ASEAN Economic Community. These agreements entailed profound changes to Lao PDR’s regulatory framework governing international trade. This report provides an overview of the incidence on NTMs on import flows in Lao PDR before and after WTO accession and identifies lingering regulatory hurdles that may still hamper the ability of the country to reap the gains of a deeper integration. Employing detailed and comparable NTM information, this note characterizes the changes in the trade related regulatory framework in Lao PDR and compares the current scheme with that of other countries in Asia. The report also combines econometric estimations of Ad-Valorem Equivalents (AVEs) of NTMs with qualitative information collected through fieldwork to identify priority measure to streamline. This report is organized as follows. Section two discusses main conceptual issues and presents the data and metrics to examine the role of NTMs in import flows. Section three, describes the trade incidence of NTMs and compares it with similar countries and with the situation prior to WTO accession. Section four combines an econometric technique with qualitative information to discuss the stringency of NTMs. Section five presents some concluding remarks and provides some recommendation for reform.
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As a small economy, Moldova’s growth and development prospects are closely related to its performance in international and regional markets. In this report the authors have looked at the export performance and competitiveness of the Moldovan economy.
... See More + This report provides an overview of Moldova’s trade competitiveness. Its objectives are twofold: (i) to present a comprehensive analysis of Moldova’s recent trade performance and (ii) to identify policy measures and interventions that can enhance the competitiveness of Moldova’s export firms and the value added of their exports. The report is divided into two main parts. Part one contains an exports outcome analysis. It assesses export performance along four dimensions that contribute to form a comprehensive picture of the sustainable competitiveness of the export sector, including (i) the level, growth, and market share performance of existing exports (the “intensive margin”); (ii) diversification of products and markets (the “extensive margin”); (iii) the quality and sophistication of exports (the “quality” margin); and (iv) the survival of export flows (the “sustainability margin”). Part two investigates constraints on Moldova’s competitiveness, focusing specifically on a series of supply-side factors, such as the role of backbone and input services and utilities, and access to finance; and the business environment, particularly government regulations affecting trade and governance and institutional quality. The rest of the report is structured as follows: Section two examines overall trends in trade flows, including the growth of exports and imports, the degree of trade openness, and the recent evolution in foreign direct investment flows. In Section three, the authors concentrate on export outcomes, analyzing the sectoral composition, the growth orientation, and degree of diversification of Moldovan exports. The authors also analyze the evolution in the quality and sophistication of exports and the survival of export relationships in different markets and sectors. In the second part of the report, the authors look at productivity dynamics of Moldovan firms in comparative perspective, and then investigate the impact of access to finance, backbone services, trade and customs regulations, and corruption on firm productivity. The authors conclude this report with policy recommendations to improve Moldova's export competitiveness and increase the product and market scope, quality, and sophistication of its export basket.
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Working Paper (Numbered Series) 103995 JAN 30, 2016
Moldova’s recent Association Agreement with the European Union (EU), which includes a Deep and Comprehensive Free Trade Agreement (DCFTA), represents an important opportunity, as well as challenges.
... See More + This analytical document has been commissioned by the World Bank Group to provide insights into potential outcomes of the DCFTA and of other trade options that Moldova has, using a Dynamic Computable General Equilibrium (DCGE) model calibrated to its economy. This paper begins by describing the general trends in economic relations between Moldova and the EU over the past 10 years, with an emphasis on trade, as well as Foreign direct investment (FDI) and labor migration. This section includes some additional facts and details that complement the Trade Competitiveness Diagnostic. In the second section, the paper presents the main elements of the DCFTA and highlights the trade commitments and concessions that the EU and Moldova undertook. It also includes a short review of available literature on the ex-ante or ex post impact assessments of other Association Agreements between the EU and third countries that have been done using CGE models. The third section presents key features of the DCGE and discusses the data used for assembling the Social Accounting Matrix (SAM). Then, the main features of the simulated trade scenarios are presented. Finally, this paper discusses the DCGE simulation results, including the effects of the various scenarios on welfare, trade, and economic activity level. Some distributional impacts are also brought into discussion. The final section concludes and makes several recommendations.
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Working Paper (Numbered Series) 103996 JAN 30, 2016
How do global supply chain linkages modify countries' incentives to impose import protection? Are these linkages empirically important determinants of trade policy?
... See More + To address these questions, this paper introduces supply chain linkages into a workhorse terms-of-trade model of trade policy with political economy. Theory predicts that discretionary final goods tariffs will be decreasing in the domestic content of foreign-produced final goods. Provided foreign political interests are not too strong, final goods tariffs will also be decreasing in the foreign content of domestically-produced final goods. The paper tests these predictions using newly assembled data on bilateral applied tariffs, temporary trade barriers, and value-added contents for 14 major economies over the 1995-2009 period. There is strong support for the empirical predictions of the model. The results imply that global supply chains matter for trade policy, both in principle and in practice.
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Policy Research Working Paper WPS7536 JAN 19, 2016
Once concentrated among a few large economies, global flows of goods, services, and capital now reach an ever larger number of economies worldwide.
... See More + Global trade in goods and services increased 10 times between 1980 and 2011, while FDI flows increased almost 30-fold. The sales from foreign-owned firms amount to $26 trillion. As many as 3,000 bilateral investment treaties have been signed to create the framework of deep agreements needed not only to facilitate the global movement of final goods and services but also to internationalize entire processes of production. All these flows have grown over time, creating increasingly dense and complex networks. This note is intended provide an overview of SACU countries’ participation and performance in GVCs, drawing on several data sources and indicators, and most importantly the recently released 189-country Eora multi-region-input-output (MRIO) database (Lenzen et al. 2012, 2013). Following this introduction, the note is structured in five additional sections. Section two discusses in greater detail the scope of the report, including the data sources and methodological approaches, as well as their respective limitations. Section three looks at structural integration in trade, including the degree to which SACU countries import and export intermediates. Section four analyzes trends in value-added exports as a first step in exploring GVC participation. Section five hones in on the core measures of GVC participation and a brief analysis of SACU countries’ position in GVCs. Finally, section six concludes by bringing together the main findings from the analysis.
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Suppose that when addressing the question of “what’s left for the WTO?,” tariff negotiators relied not on the agenda established in 2001 but instead on the terms-of-trade theory of trade agreements to identify negotiating priorities.
... See More + This paper uses the lens of the terms-of-trade theory to investigate three areas in which it is frequently alleged that currently applied tariffs remain “too high”; the implication being that the WTO’s job performance to date is incomplete. This includes applied tariffs for countries that are not members of the WTO, applied MFN tariffs for WTO members that are unbound, and applied MFN tariffs for WTO members set in the presence of large amounts of tariff binding overhang. These are almost exclusively the domain of developing countries’ own trade policies and they are collectively important; 3.5 billion people currently live in countries in which the WTO has had minimal effect for one of these three reasons. This paper builds upon recent developments in the empirical literature to present evidence—some direct, some indirect—that sheds light on each area. It then identifies specific needs for additional research to clarify policy implications for the future role of the WTO in the ever-changing international trading system.
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Policy Research Working Paper WPS7502 DEC 02, 2015
