Roberta Piermartini

Infrastructure and trade

This paper explores the role that quality of infrastructure has on a countrys trade performance, estimating a gravity model that incorporates bilateral tariffs and a number of indicators for the quality of infrastructure. The paper looks at the impact of the quality of infrastructure (road, airport, port and telecommunication, and the time required for customs clearance) on total bilateral trade and on trade in the automotive, clothing and textile sectors. In order to obtain unbiased estimators, multilateral resistances for tariffs and remoteness are introduced in the gravity equation. Moreover, the robustness of the results is tested by estimating a fixed-effect model, where bilateral indexes of the quality of infrastructure are included. The results can be summarised in four main findings: (i) bilateral tariffs, generally neglected in gravity regression of bilateral flows, have a significant negative impact on trade; (ii) quality of infrastructure is an important determinant of trade performance; (iii) port efficiency appears to have the largest impact on trade among all indicators of infrastructure; (iv) timeliness and access to telecommunication are relatively more important for export competitiveness in the clothing and automotive sector respectively.

Product Standards and Margins of Trade: Firm Level Evidence

This paper analyses the trade effects of restrictive product standards on the margins of trade for a large panel of French firms. To focus on restrictive product standards only, we use a new database compiling the list of measures that have been raised as concerns in dedicated committees of the WTO. We restrict our analysis to the subset of Sanitary and Phyto-Sanitary (SPS) regulatory measures and analyse the effects of product standards on three variables: (i) probability to export and to exit the export market (firm-product extensive margins), (ii) value exported (firm-product intensive margin) and (iii) export prices. In particular we study whether firms size, market shares and export orientation modify the effect of SPS measures. We find that SPS measures discourage exports. We also find a negative effect of SPS imposition on the intensive margins of trade. Finally, the negative effects of SPS measures on the extensive and intensive margins of trade are attenuated for big firms.

Temporary Migration and Bilateral Trade Flows

Empirical evidence on migration and trade has established that permanent migration promotes trade. This finding has been interpreted as proof for the role of migrants in reducing trade-related transaction costs such as contract enforcement costs or information costs. This paper contributes to improving our understanding of trade-related transaction costs by analysing empirically whether temporary migrants, like permanent migrants, have an impact on bilateral trade flows. Temporary migrants can be expected to be less integrated in the host country than permanent migrants. At the same time, their knowledge of the home country can, on average, be expected to be more up-to-date. Our findings therefore give insights as to the relative importance of knowledge on the host and the home country for trade-related transaction costs. Using a gravity approach in our empirical analysis, we find that temporary migration has a positive and significant effect on trade and that temporary migration tends to have a stronger and more significant effect on both imports and exports than permanent migration. Interestingly, the role of temporary migrants in reducing trade costs does not appear to be associated with their skills.

Liberalization of Air Transport Services and Passenger Traffic

We find robust evidence of a positive and significant relationship between the volumes of traffic and the degree of liberalization of the aviation market. An increase in the degree of liberalization from the 25th percentile to the 75th percentile increases traffic volumes between countries linked by a direct air service by approximately 30 per cent. In particular, the removal of restrictions on the determination of prices and capacity, cabotage rights and the possibility for airlines other than the flag carrier of the foreign country to operate a service are found to be the most traffic-enhancing provisions of air service agreements. The results are robust to the use of different measures of the degree of liberalization as well as the use of different estimation techniques.

The Economic Impact of EPAs in SADC Countries

The Cotonou Agreement introduces new fundamental principles with respect to trade between the European Union and African, Caribbean and Pacific countries relative to the Lome Convention: in particular non-reciprocal preferential market access for ACP economies will only last until 1 January 2008. After that date, it will be replaced by a string of Economic Partnership Agreements meant to progressively liberalise trade in a reciprocal way. The progressive removal of barriers to trade is expected to result in the establishment of Free Trade Agreements between the EU and ACP regional groups in accordance with the relevant WTO rules and help further existing regional integration efforts among the ACP. In this paper, an applied general equilibrium model (15 regions, 9 sectors) is used to simulate the impact of EPAs for countries of the Southern African Development Community. The standard Global Trade Analysis Project (GTAP) model has been extended to include the elimination of textile quotas, EU enlargement to 25 members as well as tax revenue sharing and a common external tariff among Southern African Customs Union countries. A number of comparisons between different scenarios are undertaken, in particular: (i) the EPA scenario is compared to the multilateral liberalization scenario; (ii) SADC liberalization with the EU only is compared to a scenario with simultaneous regional integration among African economies and to the case of the EU also signing an FTA with Mercosur; and (iii) a complete reduction of import barriers is contrasted with partial liberalization (i.e. only 50 per cent tariff reductions in agriculture) and with full trade liberalization that includes the elimination of subsidies. The issue of tariff revenue loss is also addressed and the required tax replacement is calculated. Selected experiments are re-run under an unemployment closure. Simulation results show that EPAs with the EU are welfare-enhancing for SADC overall, leading also to substantive increases in real GDP. For most countries further gains may arise from intra-SADC liberalization. The possibility of the EU entering an FTA with other countries, such as Mercosur, reduces estimated gains, but they still remain largely positive. Similarly, estimated gains need to be revised downwards if agriculture liberalization is not as far reaching as a reduction of import barriers for manufactures. At the sectoral level, the largest expansions in SADC economies take place in the animal agriculture and processed food sectors, while manufacturing becomes comparatively less attractive following EU-SADC liberalization. Interestingly, multilateral liberalization would instead foster some of the manufacturing sectors (textile and clothing and light manufacturing). Results also show the need for the SACU tariff pooling formula to be adjusted to reflect new import patterns as tariffs are removed.

Timeliness and contract enforceability in intermediate goods trade

This paper shows that the institutional environment and the ability to export on time are sources of comparative advantage as important as factors of production. In particular, the ability to export on time is crucial to explain comparative advantage in intermediate goods. These findings underscore the importance of investing in infrastructure and fostering trade facilitation to boost a countrys participation in production networks. Furthermore, the paper contributes to the so-calleddistance puzzleby showing that the increasing importance of distance over time is in part driven by trade in intermediate goods.

Natural resources and non-cooperative trade policy

When looking at the conditions of trade in natural resources the world appears upside down: tariff protection in natural resources sectors is generally lower than for overall merchandise trade, while export restrictions are twice as likely as in other sectors. On the other hand, tariff escalation is significant in natural resources sectors, where materials in their raw state face, on average, lower duties than in their processed form. In this paper, we discuss how export taxes and tariff escalation may be the result of an uncooperative trade policy. Specifically, tariff escalation and export taxes can be “beggar-thy-neighbor” policies because governments may be tempted to use them to alter the relative price of exports to their advantage (terms-of-trade effect) or to expand the domestic processing industry at the expenses of foreign production (production relocation effect). In equilibrium, these policies offset each other in a Prisoners’ Dilemma situation, where trade is inefficiently low.

The Impact of Mode 4 Liberalization on Bilateral Trade Flows

This paper gives insights into the possible trade creating effects of service trade liberalization via Mode 4. In particular we expect that temporary movements of persons, like permanent movements, have the potential to reduce transaction costs for merchandise trade between home and host country. Exploiting data on H-1B beneficiaries from different origins in the United States and using a gravity model of trade, we find significantly positive effects of temporary movements of persons on bilateral merchandise trade. In addition to this, the paper provides insights into the determinants of temporary movements of persons.

Trade Policy Uncertainty and the WTO

Do WTO commitments reduce the risk of trade policy reversals? To address this question, we rely on the theoretical model of varying cooperative tariffs by Bagwell and Staiger (1990) to specify our empirical model for the probability of a tariff increase. We then study how WTO tariff commitments affect this probability. We estimate our model using a database of WTO bound tariffs that we built for all WTO Members from 1996 to 2011 at the HS 6-digit level of disaggregation. Our results show that WTO commitments significantly reduce the probability of a tariff increase, even when the bound tariff is above the MFN applied rate. In addition, the WTO reduces trade policy uncertainty through its monitoring function. These results are robust to including political economy explanations of tariff changes and to addressing endogeneity concerns.

The impact of mode 4 on trade in goods and services

This paper estimates the impact of liberalization of temporary movements of individual service suppliers on trade in goods and services. In particular, the paper looks at the impact of the so-called forth mode to provide a service on trade in services under the other three modes: cross-border service supply (Mode 1), consumption abroad (Mode 2) and commercial presence abroad (Mode 3). Estimates are obtained using a gravity model of trade augmented for a measure of temporary movements of service suppliers. Estimates of the size of a countrys Mode 4 trade in services are based on specific information regarding the number of temporary foreign workers occupied in the service sector and their estimated average earnings, thus overcoming the limitations of traditional measures of Mode 4 based on remittances or compensation for employees. We find a positive and significant effect of temporary movements of service providers on merchandise trade and services trade under Mode 1 and 3. No significant relationship is found between services trade under Mode 2 and Mode 4.