Services Trade Policy and Manufacturing Productivity: The Role of Institutions – Journal of International Economics, vol. 104, Jan 2017, 166-182
with Cosimo Beverelli and Bernard Hoekman
Media coverage: VOX Column
Abstract: We study the effect of services trade restrictions on manufacturing productivity for a broad cross-section of countries at different stages of economic development. Decreasing services trade restrictiveness has a positive impact on the manufacturing sectors that use services as intermediate inputs in production. We identify a critical role of institutions in importing countries in shaping this effect. Countries with high institutional quality benefit the most from lower services trade restrictions in terms of increased productivity in downstream industries. We show that the conditioning effect of institutions operates through services trade that involves foreign establishment (investment), as opposed to cross-border arms-length trade in services.
Asymmetric Cultural Proximity and Greenfield FDI – [PDF latest version]
with Giorgia Giovannetti, Mauro Lanati and Filippo Santi
Abstract: This paper investigates the role of asymmetric cultural proximity (CP) on greenfield foreign direct investment (FDI). We build a conceptual framework that explicitly accounts for cultural attractiveness as an asymmetric dimension within a broad notion of CP. We revisit the existing supply/origin-side theories of bilateral FDI to derive a gravity equation suited for testing the impact of (i) the attractiveness of destination’s culture for citizens in the origin country, and (ii) the attractiveness of origin’s culture for individuals in the destination economy. While the role of the former direction of CP is well understood in the literature, we propose new mechanisms to rationalize that of the latter. We use exports and imports of cultural goods to proxy for the two directions of asymmetric and time-dependent CP in the same empirical specification. The econometric analysis confirms a positive role of asymmetric CP as a determinant of Greenfield FDI. Moreover, it suggests a stronger investment effect of the origin’s culture attractiveness for the destination country. Finally, it provides support for the mechanisms proposed in the theoretical discussion.
Economic Governance, Regulation and Services Trade Liberalization
with Bernard Hoekman
Abstract: Many agreements to liberalize trade in services tend to be limited in scope. Concerns about possible negative regulatory consequences of services liberalization is one reason for this. In this paper we provide quantitative estimates of the impact of governance quality on the magnitude of the potential productivity gains of external services trade liberalization, and, in the context of the EU, their distribution across member states. Our findings suggest that greater effort to design trade agreements with a view to improving economic governance would benefit both the EU as well as its trading partners. There is significant scope to incorporate elements of the approaches that have been used in the EU single market context into external trade agreements, and to use the latter to further the realization of a single EU market for services.
Transparency in Transnational Sustainability Governance: A Multivariate Analysis of Regulatory Standard-Setting Programs
with Philip Schleifer and Graeme Auld
Abstract: Beginning in the early 1990s, non-state actors have taken over a wide range of governance functions that used to be the prerogative of states and international organizations. In the field of International Relations and related disciplines, this has intensified debates about a lack of accountability and legitimacy in global governance. Reviewing this debate and the role transparency can play in mitigating the problem, this article uses a new data set to analyze the issue empirically. Examining a sample of 143 regulatory standard-setting (RSS) programs in the field of transnational sustainability governance, we show that “deep transparency” – i.e. the disclosure of salient information – remains a problem in this domain. However, there are also RSS programs that are highly transparent in their practices. Using a multivariate analysis, we investigate the internal and external determinants of these inter-program variations. We find a systematic relationship between inclusiveness and transparency – although no evidence for the conventional wisdom that single-actor business programs are per se less credible. Turning to the external determinants of transparency two findings stand out: First, instead of a “ratcheting-up effect”, we observe a race-to-the-bottom dynamic between competing RSS programs. Second, our results confirm arguments about the positive influence of meta-governance on transparency.
Services Policy Reform and Manufacturing Employment: Evidence from Transition Economies – [PDF latest version]
with Bernard Hoekman and Clément Malgouyres
Abstract: The performance of services sectors can have significant impacts on industries that use services as intermediate inputs. In this paper we complement the literature analyzing the productivity effects of services trade policies by investigating the relationship between services policy reforms and employment in manufacturing industries. Using a panel of sector-level data for 24 transition economies for the 1990-2012 period, we find find that moving towards best practice services policies is associated with an economically significant reduction of manufacturing employment. This negative effect is mitigated or disappears for countries with high levels of economic governance and human capital. The decline in manufacturing employment is observed only in the first decade of transition, with the major driver being reforms in the utilities sector. The estimated negative effect of policy reforms is of a contemporaneous nature; it does not persist along the lag structure.
The Political Economiy of Migrants Integration – [PDF]
Abstract: Migrants participation into the receiving country labor market entails an economic trade-off. On the one hand it benefits the economy through positive spillovers. On the other, it may harm the low-skilled (low-wage) native workers. Taking this trade-off into account, the present paper offers a positive theory of migrants integration, defined as a set of policies that enhance the opportunities of a disadvantaged migrant community to participate in the host country labor market. We build a simple game theoretic model describing a static economy with migrant and native workers. We derive testable implications on the relationship between the level of integration implemented in a political economy and some key parameters of both the labor market and the demographic composition in the host country. Suggestive cross-country empirical evidence supports our theoretical findings.
Institutions and Firms’ Organization: Asymmetric Effects of Trade on Productivity and Welfare – [PDF]
with Mathilde Lebrand and Alberto Osnago
Abstract: Contract enforcement and, more generally, the business environment play an important role in a world where producers of final goods need to source inputs from other suppliers. Weak institutions create uncertainty over the provision of intermediate goods demanded by final producers. Firms adapt the organization of their production to the local institutional environment. Compared to other models, we allow heterogeneous producers to choose their sector of production and we study how trade affects the relocation of final producers and resources across sectors. The quality of institutions and the ex-ante distribution of productivity determine the endogenous organization of firms and, in turn, the sector in which each final producer specializes. The best producers are shown to be relatively better at producing more complex goods and choose to specialize in the most complex sectors. We study how trade liberalization leads to asymmetric effects on the allocation of intermediate suppliers across final producers and across industries, as well as on aggregate productivity and welfare, when countries differ in institutional quality. Consistent with results in the literature, the model finds a positive effect of trade liberalization on aggregate productivity in the country with good institutions. On the other hand, it unveils a negative effect in the country with weak institutions. This asymmetric effect is larger when the difference in institutions is higher. In addition a large difference leads consumers from the country with good institutions that benefit from more varieties to lose in terms of purchasing power and aggregate utility.
The Political Economy of Service Trade Agreements – [PDF latest version]
with Mathilde Lebrand
Abstract: Why do governments sign services trade agreements? This paper focuses on the role of international agreements in the context of trade in services when services are used as intermediate inputs in downstream industries. Compared to goods, services inputs are mostly non-tradable and complementary to other factors of production. We build a theoretical trade policy framework in which firms use foreign investment to contest foreign markets in services sectors and governments can restrict the entry of multinationals. Commitment helps governments to avoid political pressures that would result in protectionist measures leading downstream industries to inefficiently reduce their production. First we show that the role of services as complementary inputs is central to explain governments’ commitment to services trade liberalization. Second we provide new results on the influence of lobbying by both national firms and foreign multinationals on trade policies and the gains from commitment. Finally we discuss how the bargaining power of the government, the size of national services sectors and the difference in valuation between national and foreign contributions affect the willingness of the government to sign a services trade agreement.
Exploring Voluntary Sustainability Standards using ITC Standards Map
with Bernard Hoekman, Marion Jansen, Philip Schleifer, Olga Solleder, Regina Taimasova and Joseph Wozniak
Abstract: Voluntary Sustainability Standards (VSS) have long become a usual attribute of international production and trade. Despite the fact that VSS are not obligatory to conform with in order to be a part of global value chains, they have become de facto mandatory, and non-compliance may lead to exclusion of producers from the value chains. The relevance of VSS is reflected by a growing literature across social sciences, in particular economics and political science. This paper describes a new database that collects comparable information on 181 standards systems, across a wide range of products and countries. We conduct a first empirical analysis of this data with a primary focus on two aspects of standards systems: their practices and features in support of producers, and their geographic availability. We find high variability of support and availability across standards systems and countries respectively. Finally, we identify standards- and country-specific features associated with higher support to producers and higher geographic availability.
WORK IN PROGRESS
Local Labour Markets and the China Shock: The Role of Services Input Intensity (with Omar Bamieh, Bernard Hoekman and Adam Jakubik)
Services Trade Policy and Sustainable Development (with Bernard Hoekman)
Trade Liberalization, Infrastructure and Firm Performance: Evidence from Ethiopia (with Marco Sanfilippo and Asha Sundaram) – [DEGIT 2017 conference paper]
CHAPTERS IN BOOKS
Globalization and Structural Change: Upheaval in the Nineties or in the Noughties?
with Marion Jansen and Weisi Xie
forthcoming in “Factory-Free Economy: What Future for 21st Century?” edited by Lionel Fontagné and Ann E. Harrison. Oxford University Press
Social and Environmental Standards: Contributing to More Sustainable Value Chains
joint ITC-EUI Publication 2016 (other main contributors: Bernard Hoekman, Marion Jansen, Philip Schleifer, Olga Solleder, Regina Taimasova and Joseph Wozniak)
Services and Sustainable Development: A Conceptual Approach
ICTSD publication 2016 (other main contributors: Bernard Hoekman and Marta Soprana)