Trade Policy, Economic Performance and Poverty. L Alan Winters Professor of Economics, University of Sussex Director of UK Trade Policy Observatory

Transcription

1 Trade Policy, Economic Performance and Poverty L Alan Winters Professor of Economics, University of Sussex Director of UK Trade Policy Observatory

2 Core readings Winters, L.A. (2004) Trade Liberalisation and Economic Performance: An Overview. The Economic Journal, Vol. 114 (February), pp. F4-F21. Winters, L. Alan, Neil McCulloch and Andrew McKay, Trade Liberalization and Poverty: The Evidence So Far. Journal of Economic Literature, Vol. XLII (March), pp Winters L A and A Masters (2014) Openness And Growth: Still An Open Question?. Journal of International Development, 25(8), , Martuscelli, Antonio and Winters L Alan (2014) Trade Liberalisation and Poverty: What have we learned in a decade?, Annual Review of Resource Economics, vol 6, 2014, DOI: /annurev-resource ; also CEPR Discussion Paper No / /annurev-resource Goldberg, Pinelopi Koujianou; Pavcnik, Nina Distributional Effects of Globalization in Developing Countries, Journal of Economic Literature, Volume 45(1) March 2007, pp Porto, G (2006), "Using Survey Data to Assess the Distributional Effects of Trade Policy", Journal of International Economics, 70(1):

3 What is the issue? 3

4 Log (y) Trade and Growth: Levels vs. Changes Income Higher vs. growing more rapidly Permanent vs. transitory growth effects Y Y Y Event time 4

5 Empirical challenges 1. Defining and measuring openness Binary (Sachs/Warner); (X=M)/GDP Averages weights, Anderson-Neary 2. Establishing causation Liberalisation growth or vice versa? 3. Separating openness from other policies the attribution problem 5

6 What have we learned (I) Case studies No closed economy has developed post WW2 Nineteenth century and 1930s low relevance Five common features of successful growers: Macro stability High savings and investment Use markets to allocate resources Committed, credible, capable government Fully exploited world economy Growth Commission (2008) 6

7 What have we learned? (II) Instruments Frankel and Romer (AER, 1999) gravity Many followers; not always successful Noguer and Siscart (2005, JIE) More countries in gravity instruments clarity But see Bazzi and Clemens (AEJ-MAC, 2013) Strong critique of weak instruments Country size is treacherous - little time variance Be serious about the exclusion restriction This includes GMM and system GMM too! 7

8 Exclusion Deaton (2010, JEL) instrumentation requires a narrative Bazzi and Clemens Many studies take the form: growth = f(x, W); x=g(z) If you estimate: growth = h(y, W*); y=m(z) You strictly have to reject every one of them! 8

9 Other instruments Feyrer (2009, NBER WP) Time varying instrument for trade Importance of difference in sea distance and air distance becomes more significant as air travel cheapens Romalis (2007, NBER WP) US tariffs (also time varying), but Commodity structure; Relates trade policy level to output growth 9

10 What have we learned (III) time series Mixed results Gries, Kraft & Meierrieks (2009, WD) GMM Individual African economies Granger-Hsaio causation Wacziarg & Welch (2008, WBER) 13 country statistical case studies Kneller, Morgan & Kanchanahatakij ( 08, WE) Panel of event studies 10

11 What have we learned (IV) Conditions Heterogeneity of country studies E.g. Chang, Kaltani & Loayza (2009, JDE) and Bolaky and Freund (JDE, 2008) Interactions of openness with Property Rights Financial Depth Lab. market flexibility Rule of law Education Governance Telecoms Firm entry Firm exit 11

12 Income, Openness and Regulation (Bolaky-Freund; JDE 2008) Less regulated half More regulated half 12

13 What have we learned (V) Productivity Selectivity Imported inputs (Amiti & Koenings (2007, AER) and AER P&P 2009 Learning by Exporting (Fernandes & Isgut, 2005, WB; Blalock & Gertler, 2004, JDE) Learning to Export (Iacovone, 2009, WB) 13

14 What does this mean for policy? Vast majority of growth policy is not trade policy; try to make trade policy simple and unobtrusive Treat as decision, not a hypothesis test 14

15 Poverty

16 Shares in Long-run Poverty Reduction (Kraay, JDE 2006, cross-section) growth sensitivity distribution Watts FGT 2 FGT 1 FGT 0 0% 20% 40% 60% 80% 100% Share of poverty reduction 16

17 Conceptual Framework Trade Policy and Poverty Causal Connections World Prices and Quantities Exchange Rate Tariffs, QRs Tariff Revenue Tariff Revenue Trading Domain Pass through, competition Enterprises Border Price Wholesale Price Taxes, regulation, distributors, procurement Taxes Tradables National Profits Wages Employment Retail Price Distribution, taxes, regulation, co-ops Co-operatives, technology, random shocks Spending Regional males females Welfare Household Welfare Prices, Wages Endowments, Profits, Other Income elderly young Subsistence Winters World Economy (2002) ) 17

18 Households and Markets Do border price shocks get transmitted to poor households? Are markets created or destroyed? How well do households respond? Do the spillovers benefit the poor? Does trade liberalisation increase vulnerability? Winters, McCulloch and McKay JEL (2004) 18

19 Wages and Employment Does liberalisation raise wages or employment? Is transitional unemployment concentrated on the poor? Government Revenue and Spending Does liberalisation actually cut government revenue? Do falling tariff revenues hurt the poor? 19

20 u Households and Markets h v h x, p v m, p h Common price vector, Separability : labour-leisure labour-use u v v p x p p h h h h i h i i h h h 20

21 πu h h p i q hi, Shepard, Hotelling v h p i c hi v x h h Roy's Indentity u h log v p q c h p log x x i hi hi i h h ve net benefit 21

22 p dp i dw -(q-c) first order approximation of the welfare effect W ( q c ) p i i i i 22

23 The Transmission of Border-Price Shocks P w r t m γ m P m int P r(1 t ) w m is the world price the exchange rate the proportional tariff or tax and the transaction costs on importables m P x int P r(1 t ) w x x 23

24 Porto (JIE, 2006) Uses the framework on Mercosur Welfare = f(prices, incomes); SOE traded prices changed by tariffs etc Non-traded prices and wages = f(traded prices) Estimates based on theory, then simulates 24

25 Empirical Use of the Framework Identity, definition; LHS unobservable Observable equivalent Δ(real consumption) Δrc j =.. β (Σ i w ji dlnτ i )+ u j Second order effects Omitted variables Parameter heterogeneity Errors of observation Δrc j =.. β (exposure) + u j Partial studies: pass-through; wage effects, ε 25

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27 Topalova (AEJ-AE, 2010) India, 1990s reforms Real consumption or poverty rate by region (77) and district (450) Regressed on employment-weighted tariffs and fixed effects; hence, Import-based D-i-D only relative effects Greater exposure worse poverty outcomes 27

28 Refinements Standard robustness tests Agricultural wages/returns main channel Harm is associated with lack of mobility regional and sectoral = big issue for the poor i.e alternatives to agriculture weakened Inflexible labour laws are a key factor Export exposure liberalisation reduces poverty (Topalova, 2007) 28

29 Thank you Some Additional Slides follow 29

30 The Widening Skills Gap When trade may increase the skills premium: Initial pattern of protection (Lat Am) China has pinned the unskilled wage at very low levels Tasks that relocate are relatively unskilled in the North and relatively skilled in the South (Feenstra and Hanson, 1996) Outsourcing but not exclusively so 30

31 Complementarity Skills and natural resources or capital are complementary Liberalisation increases imports of equipment that need skilled labor to work Defensive innovation is skill biased innovation related to size of shock Export penetration requires skills (quality higher) Intra-sectoral re-allocation unskilled tasks outsourced (Grossman and Rossi-Hansberg) 31

32 Segmented Labour Markets: Space Segmentation seems pretty dominant Geographical segmentation across regions Especially for multi-island economies Large economies Ethnically diverse countries Repeats integrated-economy results on smaller scale e.g central highlands of Vietnam and coffee 32

33 Segmented Labour Markets: Sectors and Firms Arguably still more plausible Recent boom in research Labour as the specific factor Workers may share sectoral/firm rents influenced by trade policy; fair wage models Variation with regional exposure to globe: Import-competing sectors lose from liberalisation, especially if it reduces regulatory rents Export sectors gain 33

34 Heterogeneity Heterogeneous firms (Melitz, 2003) Exporters more efficient; May correlate with use of intermediates (Amiti) Liberalisation may increase the gap if it boosts exports Heterogeneous workers (within groups) Exporters get better workers (Helpman et al) Pay better, better at selecting? Helps to explain significant inequality within sectors and occupations 34

35 Examples Egger, Egger, Kreickmeier (Europe) exporting firms pay higher wages Amiti, Cameron (Indonesia) Liberalising imports of intermediates narrows skills premium Juhn et al (Mexico in NAFTA) Improved market access boosts technology level and so increases relative demand for female workers (brain vs.brawn) 35

36 Employment Sectoral re-allocation vs. unemployment Sometimes moves into informality especially if labour regulation strict (Goldberg and Pavcnik) But informality is not the same as poverty Nicita simulates Madagascar textiles boom Identifies workers called to new jobs (out of informal sector) Not always the poor skills, location, 36