Motivation Overview Theory Empirical Analysis Conclusion Back-up The Distributional Consequences of Preferential Trade Liberalization: Firm-Level Evidence Leonardo Baccini * Pablo M. Pinto † Stephen Weymouth ‡ *McGill University †University of Houston ‡Georgetown University Trade & Employment in Developing Countries, ILO, Geneva September 2, 2015 Leonardo Baccini, McGill University The Distributional Consequences of PTAs
57
Embed
The Distributional Consequences of Preferential Trade ...September 2, 2015 Leonardo Baccini, McGill University The Distributional Consequences of PTAs Motivation Overview Theory Empirical
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
The Distributional Consequences of PreferentialTrade Liberalization: Firm-Level Evidence
Leonardo Baccini∗ Pablo M. Pinto† Stephen Weymouth‡
∗McGill University
†University of Houston
‡Georgetown University
Trade & Employment in Developing Countries, ILO, GenevaSeptember 2, 2015
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
The Globalization of Production-.
10
.1.2
.3.4
Pe
rce
nta
ge
ch
an
ge
Local sales Export-Platform sales Vertical sales
The growing importance of global supply chains, i.e. vertical and export-platform sales (1989-2009).
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Trade Governance
merged$Var1
me
rge
d$
cum
1950 1960 1970 1980 1990 2000 2010Year
0
100
200
300
400
Cu
mu
lativ
e n
um
be
r o
f P
TAs
in fo
rce
0
10
20
30
40
Ag
ree
me
nts
sig
ne
d b
y ye
ar
The dramatic proliferation of preferential trade agreements since 1994, i.e. the New Regionalism.
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Backlash
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Research questions
• Who benefits from preferential trade agreements (PTAs)?
• How do PTAs affect the operations of multinationalcorporations (MNCs)?
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Answers
• PTAs trigger a huge redistribution effect among powerfuleconomic and political actors
• A small number of large MNCs benefit from preferentialliberalization
• MNCs activities increase through the reductions of trade costs• Market concentration in host countries increases (on average)
12% after the formation of trade agreements with the US
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Road Map
1 Overview
2 Theory
3 Empirical Analysis
4 Conclusion
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Literature Review
• Effect of international economic institutions on trade: Rose(2004); Goldstein et al. (2007); Baccini et al. (forthcoming)
• Effect of international economic institutions on FDI: Butheand Milner (2008; 2014); Antras and Foley (2009); Kenyonand Margalit (2013), Baccini and Dur (forthcoming)
• Distributive consequences of international economicinstitutions among countries: Gowa and Kim (2005),Goldstein et al. (2007)
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Our Contribution
• Theory
• Redistribution effects within countries• PTAs → heterogeneous MNCs activities
• Empirical Analysis
• Exploring the micro-foundations of cooperation using firm-leveldata
• Testing the mechanism hinging on trade cost reduction
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Our Contribution
• Theory
• Redistribution effects within countries• PTAs → heterogeneous MNCs activities
• Empirical Analysis
• Exploring the micro-foundations of cooperation using firm-leveldata
• Testing the mechanism hinging on trade cost reduction
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Three Building Bloks
1 New New Trade Theory (Melitz 2003)
2 Forming PTAs reduces trade costs
3 Preferential liberalization have a heterogeneous effect onMNCs activities
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Melitz’s Model (2003)
• Exporters and MNCs face larger fixed and variable costscompared to firms serving only the domestic market
• Open economy equilibrium: only the most productive firmscompete on both domestic and foreign markets
• Trade liberalization → lower variable costs• Exporters and MNCs increase their activities• Increasing competition, which pushes less productive firms out
of the market• Reallocation of sales from the least productive exiting firms to
the most productive surviving firms
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Melitz’s Model (2003)
• Exporters and MNCs face larger fixed and variable costscompared to firms serving only the domestic market
• Open economy equilibrium: only the most productive firmscompete on both domestic and foreign markets
• Trade liberalization → lower variable costs• Exporters and MNCs increase their activities• Increasing competition, which pushes less productive firms out
of the market• Reallocation of sales from the least productive exiting firms to
the most productive surviving firms
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Melitz’s Model (2003)
• Exporters and MNCs face larger fixed and variable costscompared to firms serving only the domestic market
• Open economy equilibrium: only the most productive firmscompete on both domestic and foreign markets
• Trade liberalization → lower variable costs• Exporters and MNCs increase their activities• Increasing competition, which pushes less productive firms out
of the market• Reallocation of sales from the least productive exiting firms to
the most productive surviving firms
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Melitz’s Model (2003)
• Exporters and MNCs face larger fixed and variable costscompared to firms serving only the domestic market
• Open economy equilibrium: only the most productive firmscompete on both domestic and foreign markets
• Trade liberalization → lower variable costs• Exporters and MNCs increase their activities• Increasing competition, which pushes less productive firms out
of the market• Reallocation of sales from the least productive exiting firms to
the most productive surviving firms
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
PTAs and Trade Costs
• Lower tariffs, especially in intermediates
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
MotivationOverview
TheoryEmpirical Analysis
ConclusionBack-up
Tariff Cuts in US PTA by Type of Product
2.8
2.9
33.
13.
2
Final & Mixed Goods Intermediates
US Tariff Cut 90% CI
Note: The figure displays the differences between MNF tariffs prior to the formation of PTAs and preferential tariffs(PRF) after a PTA is in force by type of product classified as intermediate or consumption and mixed use. The
categorization of products come from Francois and Pindyuk (2012) and Bekkers et al. (2012). The whiskersrepresent 90% confidence intervals.
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
• Entering into a PTA with the U.S. results in:• Increase in sales to third market (export-platform activity)
1 preferential tariff cuts implemented by host country2 Increase in export-platform sales should scale with productivity3 note: no tariff reduction with third countries
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
Low Contract Intensive Industries High Contract Intensive Industries
US Tariff Cut 90% CI
Note: The figure displays the differences between MNF tariffs prior to the formation of PTAs and preferential tariffs(PRF) after PTA is in force, by type contract intensity. The measure of contract intensive product comes Nunn
(2007). The whiskers represent 90% confidence intervals.
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
SPS harmionization provisionTBTs least trade distortingCooperation on SPSGATT/WTO reference on SPSGATT/WTO reference on TBTsCooperation on TBTsTBT mentionedSPS mentioned
Transparency provisionNational treatmentGATT/WTO referenceRegulation at least aimed for
References to pharmaceuticalsWIPO phonograms treatyWIPO copyright treatyReferences to geographical indicationsRome conventionProvisions related to enforcement Bern conventionParis conventionMFN treatmentAt least general reference
Only in services chapterBased on BITInvestor−Country DSMBeyond servicesMFN treatmentCompensation in case of expropriationNon−discrimination (mergers)Non−discrimination (pre−establishment)Non−discrimination (post−establishment)National treatmentNon−discrimination (operation)Restrictions to transfers and paymentsProtection aimed for
Positive list approachNegative list approachMFN treatmentNational treatmentMovement of natural personsGATS referenceService liberalization mentioned
SPS/TBT
Procurement
IPRs
Investments
Services
0 20 40 60 80Percentage
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
203583859799
102108110124210278297463487
14405861
137170176188266331354356378404475
13162267
101155252284302329408
Monetary sanctionsCreation of standing bodySanctions cross−sectorSanctions within sectorMediation provisionDefendant chooses amountRestriction to one forumProvision on forum shoppingDelegation to external bodyThird party chooses amountArbitration provisionComplainant chooses amountProvision on sanctionsConsultation provisionSome type of dispute settlement
AD ruled outLimited safeguard ceilingSafeguard during transition periodCommon subsidy policiesLimited safeguard durationAD allowed with specific provisionsGATT/WTO reference on safeguardsAllowing structural adjustment programsGATT/WTO reference on subsidiesGATT/WTO reference on ADEscape to address BOPs issuesAllowing countervailing measuresSubsidy provisionAntidumping (AD) provisionsSafeguard provisions
Create common authoritySet up national authorityMergers and acquisitionsCoordinate among authoritiesChapter on competitionProvision to exchange informationState trading enterprisesMonopolies and cartelsCreate joint committeeState aidNot distort competition
Dispute settlement
Trade remedies
Competition
0 20 40 60 80Percentage
Note: Data on Depth available at http://www.designoftradeagreements.org/.
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
US-Australia 18 May 2004 1 January 2005 Thailand-Australia 5 July 2004 1 January 2005US-Chile 6 June 2003 1 January 2004 South Korea-Chile 15 February 2003 1 April 2004
US-South Korea 30 June 2007* 15 March 2012 India-South Korea 7 August 2009 1 January 2010US-Costa Rica 5 August 2004 1 January 2009 Canada-Costa Rica 23 April 2001 1 November 2002
US-Peru 12 April 2006** 1 February 2009 Canada-Peru 29 May 2008 1 August 2009US-Singapore 6 May 2003 1 January 2004 Japan-Singapore 13 January 2002 30 November 2002
* Amended on December 3, 2010.
Signature Signature
** Ratified with amendments on February 1, 2009.
PTA Instrumented Ratification PTA used as instrument Ratification
Leonardo Baccini, McGill University The Distributional Consequences of PTAs
Note: The dependent variable in Column 1 is the log of the sales of goods for further processing from the USparent company to the affiliate. *** p < 0.01, ** p < 0.05, * p < 0.10.
Leonardo Baccini, McGill University The Distributional Consequences of PTAs