Peter Lloyd

Industrial policy and the WTO

This paper reviews the objectives and instruments of industrial policy in a changing global context and multilateral rules and discipline. The authors provide an analytical review of the objective and justification for industrial policy pursued by countries. The importance of having an analytical framework is that it becomes the benchmark against which objectives, instruments and outcomes can be measured. The use of different instruments for industrial policy is reviewed. The paper assesses whether changes have been due to compliance to multilateral and/or regional commitments, and whether due to unilateral reform efforts. The authors focus on the role of industrial policy in the post Uruguay Round era with a view to the next round of WTO negotiations. The research examines both the theoretical and applied aspects of industrial policy before surveying the extent to which existing WTO rules affect a members ability to pursue industrial policy objectives. The possibilities and implications of revising rules that affect the use of industrial policy instruments in the next round are examined. The paper concludes with a final section to review the implications for developing economies.

Distortions to Agricultural Incentives in Australia Since World War II

Australias lackluster economic growth performance in the first four decades following World War II was in part due to an anti-trade, anti-primary sector bias in government assistance policies. This paper provides new annual estimates of the extent of those biases since 1946 and their gradual phase-out during the past two decades. In doing so it reveals that the timing of the sector assistance cuts was such as sometimes to improve but sometimes to worsen the distortions to incentives faced by farmers. The changes increased the variation of assistance rates within agriculture during the 1950s and 1960s, reducing the welfare contribution of those programs in that period. Although the assistance pattern within agriculture appears not to have been strongly biased against exporters, its reform has coincided with a substantial increase in the export orientation of many farm industries. The overall pattern for Australia is contrasted with that revealed by comparable new estimates for other high-income countries.

Trade expenditure functions and the gains from trade

Abstract This paper develops a number of concepts of trade expenditure functions for an internationally trading economy with many households which differ in tastes and factor endowments. These concepts are then applied to the analysis of gains from trade in undistorted economies with and without governmental intervention. We generalise and extend a number of propositions concerning sufficient, and necessary and sufficient conditions for individual households and groups of households to gain from trade in economies which are subject to trade taxes and subsidies.

Frontiers of research in intra-industry trade

List of Tables List of Figures Acknowledgements Notes on the Contributors Introduction P.J.Lloyd & H.H.Lee PART I: DEVELOPMENT OF INTRA-INDUSTRY THEORY AND MEASUREMENT Controversies Concerning Intra-Industry Trade P.J.Lloyd PART II: MODELS OF INTRA-INDUSTRY TRADE Horizontal Intra-Industry Trade and the Growth of International Trade N.Schmitt & Z.Yu Intra-Industry Trade in Homogeneous Products D.M.Bernhofen Fragmentation and Intra-Industry Trade R.W.Jones, H.Kierzkowski & G.Leonard The Geography of Intra-Industry Trade M.Amiti & A.J.Venables PART III: EMPIRICAL STUDIES AND POLICY ISSUES OF INTRA-INDUSTRY TRADE Marginal Intra-Industry Trade: Towards a Measure of Non-Disruptive Trade Expansion M.Brulhart Long-term Trends in Intra-Industry Trade L.Fontagne & M.Freudenberg Intra-Industry Trade in Services H.H.Lee & P.J.Lloyd Intra-Industry Trade and the C-H-O model: Evidence and Labour Market Adjustments D.Greenaway & C.Milner PART III: INTRA-INDUSTRY TRADE, AFFILIATE PRODUCTION AND FDI A Unified Approach to Intra-Industry Trade and Direct Foreign Investment J.R.Markusen & K.E.Maskus Factor Endowments and Intra-Industry Affiliate Production by Multinational Enterprises K.Ekholm Globalization and Intra-Firm Trade: Further Evidence K.Fukasaku & F.Kimura Intra-Industry Trade in Assets H.Grubel Index

New Bilateralism in the Asia-Pacific

This paper reviews recent changes in the geographic pattern of regional trading agreements (RTAs), focusing on examples from the Asia-Pacific area. The general pattern is one of new bilateral agreements combined with a trend towards continentalism. The new trend towards bilateralism can be explained largely by a fear of countries being excluded from their major markets as other countries secure preferential and superior access to these markets. This pattern is creating many intersections between RTAs with consequential multi-tiered preferences and multiple systems of trade rules. Viewed dynamically, however, this pattern may have positive effects on world trade. It mitigates the effects of large continental RTAs and may lead to coalescence or enlargement of RTAs. The paper reviews models which ask the important question as to whether this process will progress all the way to free trade for the world economy. Copyright Blackwell Publishers Ltd 2002.

Measures of trade openness using CGE analysis

While a number of measures of openness have been used in empirical studies, none has a theoretical derivation. Using cge models of an economy, this paper derives a number of measures of opennesss which lie on the unit interval and have a welfare interpretation. One group of measure are transformations of the Uniform Tariff Equivalent which are zero for a closed economy and unity for a completely open economy, and have the property that national welfare increases monotonically with the measures of openess. An alternative measure is calculated as the ratio of the volume of trade in a restricted trade situation to that under the free trade situation. These measures are calculated for 8 regions of the world economy, using the GTAP model. We find close correspondence between all the cge measures but the ranking of countries according to these measures differs substantially from that of the actual trade ratios which are most commonly used in empirical studies.

Distortions to Agricultural Incentives in Australia and New Zealand

In 1990, Australia and New Zealand were ranked around 25th and 35th in terms of GNP per capita, having been the highest-income countries in the world one hundred years earlier. The poor performance over that long period contrasts markedly with that of the past 15 years, when these two economies out-performed most other high-income countries. This difference in growth performance is due to major economic policy reforms during the past two to three decades. We provide new evidence on the extent of governmental distortions to agricultural incentives in particular in the two economies since the late 1940s, both directly and indirectly (and negatively) via manufacturing protection.

Openness and growth in East Asia after the Asian crisis

Abstract Openness with respect to trade in goods, services and foreign direct investment has a positive marginal effect on growth. The fast-growing East Asian economies were early openers, and this contributed to their fast growth. However, East Asian countries are not relatively open today. This factor, together with the convergence effect of fast growth in the past, imply that their economies will slow down. Their growth prospects are further reduced by growing geographic discrimination against their goods and services in world markets, and the slow down of the Japanese economy.

The role of foreign investment in the success of Asian industrialization

Abstract There has been a tremendous upsurge of foreign direct investment into Asia, chiefly East Asia, since the mid-1980s. Much of this is intra-Asian investment, starting with Japanese investment in the NIEs and other countries and more recently foreign direct investment from the NIEs in other East Asian economies. This paper looks at foreign investment as a source of savings to the Asian economies and at FDI as an agent of technology transfer and transformation of the structure of the economies. Much of the investment has been in export-oriented industries and this has association of FDI and exports has been called the foreign investment-led export growth. Looking at the regional economy, FDI has led to a relocation of productive activities among the countries of the region. This aspect has come to be called the Flying Geese pattern. It is an important part of the structural adjustments of the source and host countries and it has enabled these countries to sustain rapid growth for long periods. In the longer run, several of the high income countries in Asia have gone through a Savings-Investment Transition which has converted them from net borrowers to net lenders or investors. This Savings-Investment Transition can be linked to the Migration Transition which has caused these and some other Asian countries to switch from net exporters of labor to net importers of labor. Together these transitions define new relationships among the countries which are an important part of the growth process in Asia.

The Armington Model

A Productivity Commission Staff Working Paper, The Armington Model, by Peter Lloyd and Xiao-guang Zhang was released on 8 February 2006, in conjunction with an additional staff working paper, Armington Elasticities and Terms of Trade Effects in Global CGE Models. The paper explores how models adopting the Armington formulation differ from traditional models, in their quantitative properties and underlying theory of trade. In publishing its research in this area, the Commission hopes to clarify issues that arise as single-country and global trade models are increasingly used to assess the potential impacts of various types of trade liberalisation. The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.