Essays on international trade

• Main Author: SONG, Shenxi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: International Economics
• Online Access: https://ink.library.smu.edu.sg/etd_coll/411; https://ink.library.smu.edu.sg/context/etd_coll/article/1409/viewcontent/GPEC_AY2017_PhD_Song_Shenxi.pdf
• Institution: Singapore Management University

Reciprocity is a key principle governing the negotiations under the GATT/WTO agreement, which calls for a balance of concessions among the WTO members. In recent years, however, various politicians across the world have voiced concerns about their country's excessive obligations under the WTO and a lack of reciprocation by their trading partners. The objective in the first chapter is to evaluate the degree to which the pattern of applied tariffs across WTO members deviates from a balanced-concession condition. To this end, we employ a quantitative trade model and use alternative definitions of reciprocity (based on market access or welfare) to measure the concessions received and given by each country during 1995-2011 for a large set of 64 economies and 20 sectors, relative to the counterfactual of unilateral optimal tariffs. We characterize how the balance of bilateral and multilateral concessions have shifted over time due to changes in applied tariffs and in market sizes, and how they systematically differ across developed WTO members, old developing members, and new developing members. The World Trade Organization disciplines regulatory protectionism by the principle of national treatment, which prohibits discrimination between imported and domestic "like" products. In the second chapter, we provide the first empirical analysis on how product likeness, approximated by elasticity of substitution, affects trade frictions associated with non-tariff barriers that are subject to national treatment. Regression results using both product- and firm-level trade data are consistent with the hypothesis that technical barriers to trade create more frictions when the corresponding market and product have a smaller elasticity of substitution. We also construct a model that features heterogeneous terms and production relocation to illustrate the role of product likeness under national treatment. In the third chapter, we demonstrate that treating trade imbalance as gifts (discrepancies between local income and expenditure, as a fixed share of world output or as contributions in excess of receipts to and from a global portfolio) leads to unintended implications on optimal tariff policy analysis. In particular, there arises a negative association between the optimal tariff rate and the trade-deficit-to-GDP ratio across countries. By purging away trade imbalances before conducting optimal tariff analysis, although circumventing the caveat above, leads to optimal tariffs that are distorted and compressed toward zeros and hence underestimated welfare gains (and exchanges of market access concessions) of tariff cooperation. We then show that the reputable negotiating rule of the GATT/WTO - the principle of reciprocity - cannot keep the world prices fixed in the presence of trade imbalances (and neutralize the terms-of-trade externality, a function critical in facilitating reciprocal trade liberalization). We propose methodologies toward endogenizing trade imbalances in general equilibrium trade models by calibrating the discount factor (that are country-specific and time-varying for a large set of economies), such that the model matches the pattern of borrowing and lending across countries. The framework can then be used to conduct counterfactual analysis of tariff reductions, where the world interest rate and trade imbalances respond endogenously to changes in tariffs, and to assess how the quantitative implications on trade and welfare are distorted by shutting down the mechanism of endogenous trade imbalances.