Multilateral organisms dealing with International Trade: a survey

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Trade, growth and development Theory,
empirical evidence and development strategies
Federico Steinberg
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Outline

• The present trading context
• The logic of trade liberalization
• The political economy of trade policy
• The arguments for protection
• The empirical evidence what do we know?
• Some historical lessons
• What should emerging economies do?

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The present trading context

• Wide spread retoric of virtues of trade openness
  fostered by multilateral institutions
• IMF / World Bank
• Washington Consensus policies (ie. structural
  adjustment plans that include trade
  liberalization)
• The globalizers grow faster (SE Asia, China,
  India, etc)
• WTO
• Strong pressures by the north for
  liberalization and harmonization of national
  standards
• New topics on the trade agenda (trade-related
  issues)
• But Doha negotiations collapsed

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Average applied tariffs (2009) Average applied tariffs (2009) Average applied tariffs (2009)
Developed countries Developing countries
Agriculture 16 17,7
Textiles 7,5 17
Manufactures 1,9 9
Total (excluding services) 2,9 9,9
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Free trade is good because it

• Increases economic efficiency
• Reduces consumers prices
• Allows to reap the benefits of economies of scale
  and increases product variety
• Promotes competition
• Speeds up technological transfer
• Increases welfare and promotes growth
• Non economic arguments
• Reduces rent-seeking activities (corruption)
• Political stability

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The political economy of trade policy

• Trade liberalization redistributes income
  (Stolper-Samuelson theorem). With liberalization
• Owners of the relatively scarce factors of
  production lose
• Owners of the relatively abundant factors of
  production win
• Examples
• In China unskilled labor is relatively abundant ?
  wages increase with trade liberalization
• In Europe, low skilled labor is relatively scarce
  ? wages decrease with trade liberalization
• Income redistribution through trade policy is
  economically inefficient and not transparent

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Arguments for protection

• Infant industry protection (Mill, Hamilton,
  List)
• Latecomers are not able to compete on a level
  playing field with advanced/industrialized
  countries they need temporary protection
• Critics trade protection is not the best policy
  to solve this problem
• Strategic trade policy/picking winners
• On strategic sectors with high profits and
  positive externalities it is justified to
  protect (subsidies, RD)
• Critique how do you pick those sectors?
• Historical argument most rich countries were
  protectionist
• Non-economic argument security concerns, high
  politics
• Other (mostly incorrect) arguments terms of
  trade, job protection, Balance of Payments
  deficits,

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Empirical evidence what do we know?

• Rich countries tend have relatively open trade
  policies (excluding agriculture)
• So, does openness cause growth?
• ?

Trade liberalization
Economic growth
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First problem which variable is more important
for growth? Impossible to discern
Macroeconomic stability
Poverty reduction
Good institutions/regulation
Trade liberalization
Exchange rate policy
Economic growth
Financial liberalization


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Second problem

• In practice it is very difficult to measure
  protectionism
• Tariffs are easy to compute
• But protectionism includes
• Non-tariff barriers
• Subsidies
• Regulatory barriers

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Empirical evidence what do we know?
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The most relevant econometric studies (Edwards
1998, Rodrik and Rodriguez 2000, Winters 2004, )
show that

• It is not possible to establish a clear causal
  relationship between openness and growth
• Over long periods of time, open economies tend to
  grow faster (dynamic gains from trade)
• Very closed economies grow very slowly (lack of
  technology and competition, ex North Korea)
• Strategic trade liberalization, combined with
  other sound policies (macro, institutional, etc),
  accelerates growth (but trade liberalization is
  not enough)
• Once a country has developed, it tends to
  increase trade liberalization (so maybe growth
  causes openness)

Thus, we can conclude that
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Some historical lessons

• United Kingdom successful unilateral trade
  liberalization (1846), but it was a hegemonic
  power
• Germany and USA (XIX century) used protectionism
  to promote industry and manufactures
• Japan (1950s-1960s), South Korea (1960s-1970s)
  and other South East Asian countries developed
  with protection and active industrial policies to
  promote exports in strategic sectors
• China and India gradualism, selective protection
  and control over FDI

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What should emerging economies do?

• Integrate strategically in the global economy
  following its comparative advantage
• Maintain policy space (industrial policy, IPR,
  FDI regulation, credit allocation to key sectors,
  etc)
• Reject new trade issues that reduce political
  autonomy (Singapore issues, environment, labor)
• Foster multilateral, rules-based integration
• Regional/bilateral treaties only when political
  autonomy is not reduced (avoid asymmetries)