Trade - trade performance

Question 1

what is evidence that trade is positively correlated with growth

Answer 1

1. cross country regressions
2. country studies = East Asia exports studies
3. firm level evidence = exporting firms perform better - increases productivity and competitiveness

Question 2

but does trade have a casual effect on growth
- what is an issue with finding this out

Answer 2

endogeneity
- depends on the composition of exports (manufacturing vs primary commodities)
- gains of trade are realised more by manufacturers - technology and competitiveness

Question 3

why is GMM used instead of OLS

Answer 3

OLS
* omitted variable bias
* endogeneity
GMM used instead

Question 4

Ackah & Morrissey 2007
what do they do

Answer 4

tests relationship between trade policy and growth

• 44 developing countries
• 1980-99
• employ both measures of trade policy (NRP, INT) = the coefficient reflects the average effect of trade policy on growth
• include O*y interaction term to test if trade barriers is contingent on level of development
• GMM estimation

Question 5

Ackah & Morrissey 2007
what do they find

Answer 5

below a low income threshold
* higher tariff = higher growth
* protects domestic producer and helps them produce more
* increases gov revenue

above income threshold
* protection has a negative association with growth = manufacturing

• same results regardless NRP/INT

Question 6

Brueckner (2015)
what do they do

Answer 6

• trade volume openness and growth for panel of 42 SSA countries
• addresses endogeneity

1. does growth affect trade
   - uses average rainfall as instrument for GDPpc
2. does trade affect growth
   - uses OECD growth as instrument for SSA trade

Question 7

Brueckner (2015)
what do they find

Answer 7

1. does growth affect trade
   - GDPpc growth is negatively associated with trade openness
   - in SSA trade grows slower than GDP - growth reduces trade volume
2. does trade affect growth
   - trade openness increases growth in SR
   - stronger relationship over the LR

• trade supported growth in SSA
• trade shocks have long lasting effects on growth

Question 8

does this mean that all countries will benefit from trade

Answer 8

• no
• SSA countries that export few primary commodities are least likely to gain from trade - because price and income elasticities are low for primary commodities - demand is not responsive to incomes

Question 9

has trade policy reforms and liberalisation since 1980s increased exports for SSA

Answer 9

NO - because limited diversification
* no correlation between trade liberalisation and export growth - or impact on growth

• liberalised trade in 1990s - reduce restrictions
• SSA has limited diversification of exports = so liberalisation has not encouraged a significant export supply response = no effect on growth
• liberalisation = more competitive, increase consumer welfare, inputs
• little evidence that imports increase = constrained by import capacity and availability of foreign exchange

Question 10

RTA for SSA

Answer 10

means that applied tariffs vary depending where imports are from