YOUNG LEADERS TRAINING PROGRAM for Sustainable Development in Asia and the Pacific

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YOUNG LEADERS TRAINING PROGRAMfor Sustainable
Development in Asia and the Pacific

• 30 June-15 July 2006
• Kangwon National University
• Chunchon, Korea

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• Introduction to Methodologies inDevelopment and
  Trade Analysis

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LECTURER

• Prof Tran Van Hoa
• Director, Vietnam and ASEAN Research Program
• Centre for Strategic Economic Studies
• Victoria University, Melbourne, Australia
• Honorary Professor
• National Economics University, Vietnam
• National Advanced Training Institute (NATI)
• Ministry of Trade, Vietnam
• Consultant/Mentor
• AusAID-Cardno, Australia
• Email jimmy.tran_at_vu.edu.au
• Website http//www.staff.vu.edu.au/CSESBL/

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VARIOUS USES

• Research
• Teaching
• Training
• Policy
• National and International Networks

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FAST CHANGING WORLD CURRENT GLOBAL ISSUES

• 1 Issue 1 Global Economy
• 2 Issue 2 Global Knowledge
• 3 Issue 3 Global Commerce and Industry
• 4 Issue 4 Marching Globalisation
• Issue 5 Need of Global Competitiveness
• Issue 6 WTO and FTA Foundation Global Pure
  Competitive Market

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GLOBAL GOVERNANCE

• Finance (IMF)
• Commerce (GATT, GATS and WTO)
• Justice (The Hague)
• War and Peace (United Nations)

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REGIONAL TRADE AND DEVELOPMENT ISSUES IN ASIA

• Miracle (60-mid 90) and Crisis (97) Years in Asia
• IMF Policy Failures in Asia Crises (Mexico to
  Indonesia)
• Slow WTO Negotiations (Doha, agriculture)
• Fast (post-98) Recovery of Crisis Economies in
  Asia
• Benign Neglect of Crisis Asia from NAFTA and EU
• Support from Worlds 2nd Largest Economy

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REGIONAL TRADE AND DEVELOPMENT ISSUES IN ASIA

• Recent Economic Integration Developments
• Rise of Plurilateral FTA (LAFTA, 05)
• Rise of Bilateral FTA (AIFTA, AEFTA, 05)
• Emergence of New Asian Regionalism (ASEAN3,
  00)
• Emergence of East Asia Regionalism (EAS, 05)
• Emergence of South Asia Regionalism
• SAARC (85), SAFTA (05)

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ASIAN REGIONALISM AND FREE TRADE AGREEMENTS

• Asian Regionalism and FTAs are not new
• (eg, East Asia proposed by Japan in 1940s)
• Proliferation of plurilateral and bilateral FTAs
  in Asia and Oceania in recent years.

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ASIAN REGIONALISM AND FREE TRADE AGREEMENTS

• EXAMPLES
• Current
• AFTA, TAFTA, AUSFTA, JSFTA, ASFTA, ASEAN3,
• Proposed
• ASEAN5, ASEANIndia, ASEANEU,
  AustraliaEmirates, AustraliaChina,
  AustraliaJapan

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ASIAN FREE TRADE AGREEMENTS

• The Foundation of Asian FTAs
• Proximity (Gravity)
• Affinity in Consumption and Production
• Political Compatibility
• Strategic Regional Cooperation

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ISSUES IN FTAS

• Mechanics of FTAs
• Liberalisation of trade, investment, services,
  business and tourism
• Benefits
• Trade, economic, political in the medium long
  term

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ISSUES IN FTAS

• Challenges/Costs
• Country interests, NTMs, cultures, histories,
  religions, national, regional global crises,
  current rising oil prices, global competition,
  exchange rates, etc
• Ideology vs Realism
• Research-based policy versus policy-based
  (biased) research

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ROLE OF POLICY REFORM AND SHOCKS IN REGIONAL FTAS

• Gains from FTAs are affected positively by policy
  reforms negatively by shocks
• EXAMPLES
• South Korea economic reform
• China investment policy
• Tsunami in South East Asia
• Gulf and Iraq wars

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• Cointegration/unit root taxonomy of policy
  reforms and shocks
• GRADUAL SUDDEN
• Temporary Temporary
• Long lasting Long lasting
• Examples
• Doi Moi
• China SOE reform Gulf War, SARS, avian flu

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ROLE OF NTMS IN REGIONAL FTAS

• Non-Tariff Barriers or Measures (NTMS)
• 40 of LDC Exports Affected (UNCTAD)
• of Australia/Vietnam Trade Affected if NTMs
  Prevail?
• of US/Vietnam Trade Affected if NTMs Prevail?
• of Australias Exports/Investment to China
  Affected if NTMs Prevail?

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CHARACTERISING NTMS

• Lack of transparency
• Poor intellectual property-rights enforcement
• Quarantine
• Customs procedures
• Administrative import requirements
• Burdensome regulations and standards, and

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CHARACTERISING NTMS

• Restricted mobility of business people.
• Pervasive
• Currently Difficult to Quantify
• Politically Sensitive
• But Measurable?

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HOW TO BEST MEASURE GAINS/LOSSES FROM FTAS AND
WTO?

• The Economic/Commerce Policy Scene
• Policy Components
• Y Target, XInstruments
• Expected Action
• Y ? X Directional Causal Linkage
• Lucas Critique Y -gt X and Y lt- X

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HOW TO BEST MEASURE GAINS/LOSSES FROM FTAS AND
WTO?

• Advanced Impact Methodologies
• The Keynesian (1940)-SNA93 (1993)
• Y ?X V
• The Johansen CGE/GTAP (1960)
• dlogY ? dlogX

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HOW TO BEST MEASURE GAINS/LOSSES FROM FTAS AND
WTO?

• The Cross-Section Gravity Theory (1999)
• The Panel Regression (Dollar, EJ, 2004)
• The Generalised Gravity Theory (TVH, 2002)

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Advanced Impact MethodologiesMORE DETAIL

• The Keynesian (1940)-SNA93 (1993)
•  
• AY BX U, then with A ? 0
• A-1AY A-1BX A-1U or
• Y -A-1BX A-1U or
• Y ?X V Reduced Form

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Advanced Impact MethodologiesMORE DETAIL

• The Johansen CGE/GTAP (1960)
• dlogY ? dlogX
• Using Euler-Gauss Algorithm to solve

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Advanced Impact MethodologiesMORE DETAIL

• The Cross-Section Gravity Theory (Frankel
  Romer, 1999)
• logT a1 a2logY a3logG u
•  
• The Panel Regression (Dollar, EJ, 2004)
• logT a1 a2LOG(Y) a3LOG(G) u
• where LOG(Y)Vector of Y, etc

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Advanced Impact MethodologiesMORE DETAIL

• The Generalised Gravity Theory (TVH, 2002)
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• Y Y(T,S) Arbitrary Function
• T T(Y,S,FDI,X,Z) Arbitrary Function
• Specifying No Specific Functional Form and
  Allowing Circular Causality and Temporal Shocks
• or Policy Change

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Advanced Impact MethodologiesMORE DETAIL

• Using Planar Taylor Series Expansion
• dY (?Y/?T) dT (?Y/?S) dS
• dY/Y T(?Y/?T)(dT/TY) S(?Y/?S)(dS/SY)
• E1 dT/T E2 dS/S, or
• Y E1 T E2 S U.
• E1Elasticity of Y on T, etc. And, similarly
  for T.

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HOW TO BEST EMPIRICALLY MEASURE GAINS/LOSSES FROM
FTAS AND WTO WITH COMPREHENSIVE TRADE, POLICY
CHANGE SHOCKS?

• A trilogy of recent stories (research projects)
  in ASEAN3 (China, Japan, Korea) FTA (2001)
  incorporating trade, investment, services, policy
  reform and shocks
• Case Study 1 China

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CHINA TRADE WITH THE WORLD
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CHINA GAINS FROM MULTILATERAL FTA (WTO 2001)
More Exports
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GROWTH MODELLING EVALUATIONChina Growth and
China-Japan Trade
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GROWTH MODELLING EVALUATIONChina Growth and
China-ASEAN Trade
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HOW TO CARRY OUT A RESEARCH ON THE CAUSES OF
TRADE IN ASEAN3

• A Graphical Analysis
• Trade Causes Growth?
• What Causes Trade?
• Find the Causes of Trade
• Alternative Approaches
• Some Case Studies

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Reliability of Merchandise Trade Proxy in Models
on Chinas Trade with its Five Major Trading
Partners Openness (ExportsImports)/GDP 1981 to
2002   Model China-ASEAN China-Japan China-US Chin
a-EU China-Australia Correlation Coeff 0.98 0.98
0.96 0.97 0.94 RMSE 3.83 3.6 3.23 4.15 6.42 M
ean Error 0.00 0.00 0.00 0.00 0.00 Um 0.00 0.0
0 0.00 0.00 0.00 Us 0.01 0.01 0.02 0.01 0.03 Uc
0.99 0.99 0.98 0.99 0.97 ______________________
_______________________________________________ No
tes. UbUsUc 1. See Pindyck and Rubinfeld
(1998) for further detail on these evaluation
criteria. The estimates are based on TSP
calculation.
 
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SUBSTANTIVE EMPIRICAL (ECONOMETRIC) FINDINGS 1

• Table 1
• Impact of Trade, Services, FDI, Policy Reform and
  Shocks on Chinas Growth
• Generalised Gravity Theory in Flexible Structural
  Form
• 1981 to 2001
• China-ASEAN China-Japan China-US
• Variables OLS 2SLS 2SHI OLS
  2SLS 2SHI OLS 2SLS 2SHI
  __________________________________________________
  ________________________________________
• Constant 9.30 9.24 8.93 9.74
  9.40 8.23 9.78 9.41 8.80
• Openness/GDP 0.03 0.03 0.03
  0.02_at_ 0.02_at_ 0.02_at_ 0.04_at_ 0.05_at_ 0.05_at_
• Services/GDP 0.01 -0.01 -0.01 0.003
  -0.003 -0.003 -0.004 -0.02 -0.02
• FDI/GDP 0.04 0.05 0.04 0.04
  0.05 0.04 0.04 0.05 0.04
• Stock Crash 87 1.12_at_ 1.18 1.14 1.44
  1.68 1.58 1.13 1.43_at_ 1.34_at_
• China Turmoil 89 -6.97 -6.96 -6.73
  -7.42 -7.28 -6.83 -7.46 -7.29
  -6.82
• Gulf War 91 4.90 4.70 4.54 4.45
  3.92 3.68 4.83 7.53 4.17
• China Reform 93 2.15 2.32 2.24
  2.33 2.75 2.58 2.15 4.46
  2.21
• Asia Crisis 97 -2.84 -2.79 -2.69
  -2.67 -2.56 -2.40 -2.75 2.36
  -2.50
• R2 0.97 0.73 0.99 0.96
  0.91 0.98 0.96 0.95 0.98
• F 43.07 39.57 4.80
  25.57 21.88 5.49 25.84 21.06
  5.13
• DW 1.71 1.77 1.32 2.10 2.15
  1.36 2.19 2.17 1.32

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SUBSTANTIVE EMPIRICAL (ECONOMETRIC) FINDINGS 2

• China-EU China-Australia
• Variables OLS 2SLS 2SHI OLS 2SLS 2SHI
  __________________________________________________
  __________________________________________________
  ___
• Constant 10.37 10.10 9 .35 9.72
  9.61 8.75
• Openness/GDP -0.009 -0.003 -0.003
  0.01 -0.004 -0.004
• Services/GDP 0.009 0.009 0.008 0002 0.003
  0.003
• FDI/GDP 0.04 0.05 0.04 0.05 0.06
  0.05
• Stock Crash 87 0.41 0.72 0.67 1.36 1.02
  0.93
• China Turmoil 89 -7.17 -7.25 -6.72
  -7.59 -7.02 -6.40
• Gulf War 91 4.48 4.35 4.04 4.56
  3.58 3.26
• China Reform 93 2.66 2.72 2.55 2.56
  3.35 3.05
• Asia Crisis 97 -2.80 -2.75 -2.55
  -2.76 -2.59 -2.36
• R Square 0.95 0.94 0.97 0.95 0.93 0.97
• F 19.54 18.64 3.20
  19.88 14.74 5.49
• DW 2.44 2.40 1.35 2.24 2.42 1.21

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HOW TO MEASURE REGIONAL/SECTORAL GAINS/LOSSES
FROM FTAS?

• The Required Share Data
• Global
• National
• Regional
• Sectoral, etc

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REGIONAL/SECTORAL GAINS/LOSSES FROM FTAS?

• Modelling National Gains/Losses
• Modelling Regional/Sectoral Gains/Losses
• Modelling More Disaggregated Activities
• Urban and Regional Productivity/Wages
• Income Inequality
• Employment/Unemployment
• Education and Jobs

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IMPACT OF NTMS

• An Important Current Research Subject for WTO and
  FTA Impact

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AUSTRALIA TRADE WITH THE WORLD AND ITS FUTURE
STRATEGY
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