[Show abstract][Hide abstract] ABSTRACT: Despite the fact that many modern preferential trade agreements include commitments to foreign investors in imperfectly competitive services sectors, the literature has not established conditions under which these agreements are beneficial or harmful. The authors fill that void by developing a model with monopolistic competition and foreign direct investment in services with Dixit-Stiglitz endogenous productivity effects from additional varieties. They specify a numerical model, with probability distributions of all parameters. The model is executed 30,000 times, and results are reported as probability of an outcome, based on the sample distribution. In order to ground the results in reality, the authors apply the model to Kenya. They show that preferential commitments in services could be immizerising. Losses are more likely the greater the share of initial rent capture on the services barriers in the home country and the more technologically advanced are the excluded regions relative to the partner region.
Preview · Article · Nov 2015 · Economics E-Journal
[Show abstract][Hide abstract] ABSTRACT: We investigate the environmental impacts of Russia's World Trade Organization (WTO) accession with a computable general equilibrium model incorporating imperfectly competitive firms, foreign direct investment and endogenous productivity. WTO accession increases CO2 emissions through technique (−), composition (+) and scale (+) effects. We consider three complementary policies to limit CO2 emissions: cap and trade, emission intensity standards and energy efficiency standards. With imperfectly competitive firms, gains from WTO accession result with any of these policies. If we assume perfectly competitive market structures, the negative environmental impacts of WTO accession are smaller and no net gains arise when environmental regulation involves energy intensity or efficiency standards.
No preview · Article · Nov 2015 · Review of International Economics
[Show abstract][Hide abstract] ABSTRACT: A new database on the barriers faced by foreign suppliers of services has been produced by the World Bank. Data for 103 countries are available on eleven of the most important services sectors in international trade. To date, however, these data have not been converted into ad valorem equivalents. Based on these data, and building on the methodology and publications supported by the Australian Productivity Commission, we produce estimates of the ad valorem equivalents of the barriers for all these sectors and countries. Compared with estimates available in the literature that are based on assessments of country and sector-specific barriers to services providers, our estimates expand the set of sectors and more than triple the set of countries for which estimates of the ad valorem equivalents of the services barriers are available.
[Show abstract][Hide abstract] ABSTRACT: Evidence indicates that trade costs are a much more substantial barrier to trade than tariffs, especially in sub-Saharan Africa.
We decompose trade costs into (a) trade facilitation; (b) non-tariff barriers and (c) the costs of business services. We develop
a conceptually innovative model and new dataset to assess deep integration to reduce these three types of trade costs in the
East African Community, the Common Market of East and Southern Africa and South African Development Community (EAC-COMESA-SADC)
‘Tripartite’ Free Trade Area (FTA), within the EAC alone and unilaterally by the EAC. We find that there are substantial gains
for all six of our African regions from deep integration in the Tripartite FTA or comparable unilateral reforms by the EAC;
but the estimated gains vary considerably across countries and depend on the reform. Thus, countries would have an interest
in negotiating for different reforms in different agreements. Tariff removal in the Tripartite FTA would produce only small
losses or gains, depending on the country. Interestingly, we estimate that Kenya gains less from comparable unilateral liberalisation
by the EAC than from the Tripartite FTA, due in part to an umbrella of protection in services markets in the Tripartite region.
No preview · Article · Jul 2015 · Journal of African Economies
[Show abstract][Hide abstract] ABSTRACT: Tivo regional trade agreements have been at the centre of attention in Ukraine: the Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU and the Russia-led Eurasian Customs Union (ECU). Arguably they were the source of the fall of the Yanukovych government and the hostilities in Eastern Ukraine in the spring and summer of 2014. This article argues that a trade policy that is global in perspective and the lowering of trade costs are critical for Ukraine, and that efforts should centre on addressing specific policy areas that negatively eject trade with both customs unions. Ukraine could propose the creation of a number of 'supply chain councils' organized around the major export sectors for Ukraine, the ECU countries as well as the EU. The councils would have a mandate to identify the most important sources of supply chain inefficiencies as well as actions to resolve them. Such an approach would help to rebuild trust between Ukraine and Russia after the cessation of hostilities and help to assure Russia that the DCFTA is not an anti-Russian agreement.
No preview · Article · Aug 2014 · Journal of World Trade
[Show abstract][Hide abstract] ABSTRACT: In this paper we use ten-digit trade data that allow an accurate assessment of how the tariff structure of the Russian Federation will change as a result of the phased implementation of its World Trade Organization (WTO) commitments between 2012 and 2020 and how it has changed as a result of Russia's agreement to participate in a customs union with Kazakhstan and Belarus. WTO commitments will progressively and significantly lower the applied tariffs of the Russian Federation. Russian tariffs will ultimately fall to between 45 and 68 percent of their pre-accession levels, with the larger fall being on a weighted average, rather than an unweighted average basis. Nonetheless, bound tariffs will exceed applied tariffs for almost 1,500 tariff lines. Russia's commitments are not unusual, especially when compared to the transition countries that have acceded to the WTO.
No preview · Article · Sep 2013 · Eastern European Economics
[Show abstract][Hide abstract] ABSTRACT: In 2010, Russia, Belarus and Kazakhstan formed the Eurasian Customs Union and imposed the Russian tariff as the common external tariff of the Customs Union. This resulted in almost doubling the external average tariff of the more liberal Kazakhstan. Russia has benefited from additional exports to Kazakhstan under the protection of the higher tariffs in Kazakhstan. But estimates reveal that the tariff changes resulted in substantial transfers from Kazakhstan to Russia as importers in Kazakhstan now purchase lower quality or higher priced Russian imports that are protected under the tariff umbrella of the common external tariff. Transfers from the Central Asian countries to Russia were the reason the Eurasian Economic Community (known as EurAsEC) failed, so this bodes badly for the ultimate success of the Eurasian Customs Union. What is different, however, is that the Eurasian Customs Union and its associated Common Economic Space aim to reduce non-tariff barriers and improve trade facilitation, and also to allow the free movement of capital and labor, liberalize services, and harmonize some regulations. Estimates by my colleagues and I show that if substantial progress could be made in trade facilitation and reducing non-tariff barriers, this could make the Customs Union positive for Kazakhstan and other potential Central Asian members. Unfortunately, so far the Customs Union has made these matters worse. But Russia’s accession to the World Trade Organization will eventually substantially reduce the transfers from Kazakhstan to Russia. Progress with non-tariff barriers and trade facilitation, however, will take a strong political commitment from Russia which we have not yet seen. But if that Russian political leadership is forthcoming, the Eurasian Customs Union could succeed where its predecessor failed.
No preview · Article · Dec 2012 · SSRN Electronic Journal
[Show abstract][Hide abstract] ABSTRACT: After 18 years of negotiations, Russia has joined the World Trade Organization. This paper assesses how the tariff structure of the Russian Federation will change as a result of the phased implementation of its World Trade Organization commitments between 2012 and 2020 and how it has changed as a result of its agreement to participate in a Customs Union with Kazakhstan and Belarus. The analysis uses trade data at the ten digit level, which allows the first accurate assessment of the impact of these policy changes. It finds that World Trade Organization commitments will progressively and significantly lower the applied tariffs of the Russian Federation. After all commitments are implemented, tariffs will fall from 11.5 percent to 7.9 percent on an un-weighted average basis, or from 13.0 percent to 5.8 percent on a weighted average basis. The average "bound" tariff rate of Russia under its World Trade Organization commitments will be 8.6 percent, that is, 0.7 percentage points higher than the applied tariffs. Russia's commitments represent significant tariff liberalization, but compared with other countries that have acceded to the World Trade Organization, the commitments of the Russian Federation are not unusual, especially when compared with the Transition countries.
[Show abstract][Hide abstract] ABSTRACT: We develop a seven region comparative static computable general equilibrium model of Russia to assess the impact of accession to the World Trade Organization (WTO) on households and poverty in its seven federal regions. Crucially, our model allows for foreign direct investment in business services and endogenous productivity effects from additional varieties of business services and goods. National welfare gains are substantial at about 4.5% of GDP; but we show that the gains in a traditional constant returns to scale model without FDI in business services are only 0.1%. Variance in the gains across the regions is explained by their capacity to attract FDI in services. Distributional impacts within regions are rather flat for the first nine deciles; but the richest decile of the population in the three regions that attract the most FDI in business services gains significantly more than the other nine representative households in those regions.
No preview · Article · Aug 2012 · International Journal of Services Technology and Management
[Show abstract][Hide abstract] ABSTRACT: Services as a share of gross domestic product and in foreign direct investment flows have increased in importance both globally and in the transition countries of Europe and Central Asia. So has the need for both academics and policymakers to understand the impacts of services liberalization in the transition countries. For this reason, the World Bank Institute, under a grant from the Government of Austria, commissioned seven studies under the auspices of the Economic Education Research Consortium (headquartered in Kiev, Ukraine) to investigate the impact of services liberalization on productivity, focusing on services reform in the transition countries of Europe and Central Asia. All of the studies have been produced by authors from the transition countries of Europe or Central Asia. This paper summarizes six of these studies that will appear in a volume in Russian edited by the author of this paper. The studies contribute to the growing empirical literature establishing that liberalization of barriers against service providers can make an important contribution to increase total factor productivity, exports and growth in the economy. They also show that the issue of services liberalization is important for the transition countries in particular. Links to the English language versions of the papers are provided.
[Show abstract][Hide abstract] ABSTRACT: With the growing importance of services and foreign direct investment in services, it is important to have a framework to analyze the impact of the liberalization of barriers to foreign direct investment in services. This paper summarizes several recent papers and builds policy-based computable general equilibrium models showing the dynamics of services, foreign direct investment and the endogenous productivity effect from services. The modeling framework shows that the liberalization of barriers against foreign direct investment in services yields welfare gains several times larger than the usual estimates from traditional computable general equilibrium models, which focus on goods trade, not foreign direct investment in services. The larger estimates are consistent with econometric evidence on the gains from services liberalization. The paper begins with a small stylized model to help understand the fundamental economics. Then it describes models developed at the request of the Russian government to assess the potential impact of Russia's accession to the WTO. Reviews of the work indicated that the modeling helped the Russian government gain public support for the WTO entry. The paper also describes a new technique that allows modelers to include tens of thousands of households in the model.
[Show abstract][Hide abstract] ABSTRACT: An effective trade policy is central to the integration of Russia in the international economic system and the growth that will generate: Tariff policy is the centerpiece of trade policy in a market system. Tariffs are, with very few exceptions, the only acceptable policy tool for protection under the GATT/WTO; and they are superior to alternative instruments of protection, such as quotas, licenses and technical barriers to trade. Today's Russian tariff averages 13-14% with ad valorem maximum tariffs of 30% but with some specific tariffs that have ad valorem tariff equivalents higher than 30%. The analysis in this paper strongly suggests that there is little economic justification and there are many dangers in providing differentiated tariff protection to various sectors of industry and agriculture in Russia today. Most of the arguments in which tariffs differentiated by product are the optimal policy intervention are of little practical significance: There are few products in which Russia has monopsony power or industries in which it can gain advantage through "strategic" application of tariffs. In many circumstances where tariffs are second best policy intruments, such as to raise public revenue or to cope with balance of payments problems, a uniform tariff rate is the most practical and efficient alternative. Where Russia may be interested in using the tariff as a bargaining instrument in multilateral negotiations, it is immaterial whether the tariff is uniform or differentiated--the issues have to do with its capacity to use the tariff as a bargaining instrument and what it bargains for. Differentiated tariff protection i n support of infant or restructuring industries is typically ineffective at addressing the alleged market failure problem; governments are not very good at picking winners and there are serious dangers that the policy would be overwhelmed by requests for p rotection from vested interests irrespective of its economic merits.
[Show abstract][Hide abstract] ABSTRACT: In this paper the authors develop an innovative 21 sector computable general equilibrium model of Armenia to assess the impact on Armenia of a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU, as well as further regional or multilateral trade policy commitments. They find that a DCFTA with the EU will likely result in substantial gains to Armenia, but they show that the gains derive from the deep aspects of the agreement. In order of importance, the sources of the gains are: (i) trade facilitation and reduction in border costs; (ii) services liberalization; and (iii) standards harmonization. A shallow agreement with the EU that focuses only on preferential tariff liberalization in goods will likely lead to small losses to Armenia primarily due to a loss of productivity from lost varieties of technologies from the Rest of the World region in manufactured products. Additional gains can be expected in the long run from an improvement in the investment climate. The authors estimate only small gains from a services agreement with the CIS countries, but significant gains from expanding services liberalization multilaterally. --
Preview · Article · May 2011 · Economics E-Journal
[Show abstract][Hide abstract] ABSTRACT: Given the growing importance of commitments to foreign investors in services in regional trade agreements, it is important to develop applied general equilibrium models to assess the impacts of liberalization of barriers to multinational service providers. This paper develops a 55 sector applied general equilibrium model of Kenya with foreign direct investment and Dixit-Stiglitz productivity effects from additional varieties of imperfectly competitive goods or services, and uses the model to assess its regional and multilateral trade options, focusing on commitments to foreign investors in services. To assess the sensitivity of the results to parameter values, the model is executed 30,000 times, and results are reported as confidence intervals of the sample distributions. The analysis reveals that a 50 percent preferential reduction in the ad valorem equivalents of barriers in all business services by Kenya with its African partners would be somewhat beneficial for Kenya. If a preferential agreement with African partners is combined with an agreement with the European Union, the gains would more than triple the gains of an Africa only agreement. Multilateral reduction of services barriers, however, would yield gains about 12 times the gains of an agreement with the Africa region alone. These results suggest that preferential liberalization in the region is a valuable first step, but wider liberalization, with larger partners and liberal rules of origin or multilaterally, will yield much larger gains due to providing access to a much wider set of services providers. The largest gains would come from domestic regulatory reform in services, as this would almost triple the gains of multilateral liberalization.
[Show abstract][Hide abstract] ABSTRACT: Despite the growing importance of commitments to foreign investors in services in regional trade agreements, there are no applied general equilibrium models in the literature that assess these regional impacts. This paper develops a 52 sector applied general equilibrium model of Tanzania with foreign direct investment, and uses that model to assess Tanzania's regional and multilateral trade options. The model incorporates the features of the modern theory of international trade that has shown empirically that trade and foreign direct investment can increase productivity, and trade and foreign direct investment with technologically advanced countries is especially valuable for that purpose. To assess the sensitivity of the results to parameter values, the model is executed 30,000 times, and the results are reported as confidence intervals of the sample distributions. The analysis finds that a 50 percent preferential reduction in the ad valorem equivalents of barriers in all business services by Tanzania with respect to its African regional partners would be slightly beneficial for Tanzania. But wider liberalization, with larger partners or multilaterally, it will yield much larger gains due to providing access to a much wider set of service providers. Finally, the results show that the largest gains in services would be derived from reduction of regulatory barriers that are geographically non-discriminatory.
[Show abstract][Hide abstract] ABSTRACT: Many economists have argued that it is necessary to reorganize big banks that require sustained subsidies or are close to insolvency. By wiping out the shareholders and giving haircuts to bondholders, the resulting reorganized banks will be financially sound and capable of leading the country out of recession. But there are fears that failure of large financial institutions, especially a key player in the counterparty operations, will cause systemic financial market failure, and they are therefore “too big to fail.” However, when Washington Mutual failed, it was 6-7 times larger than the previous largest US bank to fail; it was placed into FDIC receivership and reopened literally the next day as J.P Morgan Chase, with account holders having full access to their deposits and bank services. When Lehman Brothers went bankrupt, it was the third largest user worldwide of credit default swaps for mortgage backed securities. But the Depository Trust and Clearing Corporation (DTCC) serves as a “central counterparty” guaranteeing all contracts traded under its auspices. The DTCC unwound all of Lehman’s credit default swap holdings within four weeks with all parties receiving payment on the terms of their original contracts, i.e. there was no systemic impact from losses on the Lehman credit default swaps. Moreover, while the DTCC indicates that it and its subsidiaries process about 95 percent of all swaps, in order to assure swaps are covered by clearing guarantees, the new financial reform law requires all eligible swaps must be submitted for clearing.
Preview · Article · Aug 2010 · SSRN Electronic Journal
[Show abstract][Hide abstract] ABSTRACT: Many economists have argued that it is necessary to reorganize big banks that require sustained subsidies or are close to insolvency. By wiping out the shareholders and giving haircuts to bondholders, the resulting reorganized banks will be financially sound and capable of leading the country out of recession. But there are fears that failure of large financial institutions will cause systemic financial market failure and they are therefore “too big to fail.” In this note, the author argues that the US experience, shows that “too big to fail” is a myth. When Washington Mutual failed, it was 6-7 times larger than the previous largest US bank to fail; it was placed into FDIC receivership and reopened literally the next day as J.P Morgan Chase, with account holders having full access to their deposits and bank services. More worrisome to many is the failure of a central player in the counterparty operations. But when Lehman Brothers went bankrupt, it was the third largest user worldwide of credit default swaps for mortgage backed securities. It had its massive credit default swap holdings unwound within four weeks by the Depository Trust and Clearing Corporation (DTCC) and its subsidiaries, with all parties receiving payment on the terms of their original contracts. Moreover, through the DTCC and new developing exchanges, there are financial market institutional mechanisms in place designed to assure that the smooth resolution of credit default swaps, as occurred in the Lehman case, will hold in general.
[Show abstract][Hide abstract] ABSTRACT: Purpose – The purpose of this paper is to discuss the key regulatory, market, and political failures that led to the 2008-2009 US financial crisis and to suggest appropriate recommendations for reform. Design/methodology/approach – The approach is to examine the underlying incentives that led to the crisis and to provide supporting data to support the hypotheses. Findings – While Congress was fixing the savings and loan crisis, it failed to give the regulator of Fannie Mae and Freddie Mac normal bank supervisory power. This was a political failure as Congress was using government sponsored enterprise (GSE) resources and the resources of narrow constituencies for their own advantage at the expense of the public interest. Second, in the mid-1990s, to encourage home ownership, the Administration changed enforcement of the Community Reinvestment Act, effectively requiring banks to use flexible and innovative methods to lower bank mortgage standards to underserved areas. Crucially, this disarmed regulators and the risky mortgage standards then spread to other sectors of the market. Market failure problems ensued as banks, mortgage brokers, securitizers, credit rating agencies, and asset managers were all plagued by problems such as moral hazard or conflicts of interest. Originality/value – The paper focuses on the political economy reasons for why Congress and US administrations provided these perverse incentives to the GSEs and banks to lower mortgage standards. It also proposes some innovative methods of improving bank regulation that address the regulatory capture problem.
Preview · Article · Jun 2010 · Journal of Financial Economic Policy
[Show abstract][Hide abstract] ABSTRACT: This paper summarizes the estimates of what Russia will get from World Trade Organization accession and why. A key finding is the estimate that Russia will gain about $53 billion per year in the medium term from World Trade Organization accession and $177 billion per year in the long term, due largely to its own commitments to reform its own business services sectors. The paper summarizes the principal reform commitments that Russia has undertaken as part of its World Trade Organization accession negotiations, and compares them with those of other countries that have acceded to the World Trade Organization. It finds that the Russian commitments represent a liberal offer to the members of the World Trade Organization for admission, but they are typical of other transition countries that have acceded to the World Trade Organization. The authors discuss the outstanding issues in the Russian World Trade Organizaiton accession negotiations, and explain why Russian accession will result in the elimination of the Jackson-Vanik Amendment against Russia. They discuss Russian policies to attract foreign direct investment, including an assessment of the impact of the 2008 law on strategic sectors and the increased role of the state in the economy. Finally, the authors assess the importance of Russian accession to Russia and to the international trading community, and suggestions for most efficiently meeting the government’s diversification objective.