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Trade, Inclusive Growth, and the Role of Policy

Emmanuel A. San Andres APEC Policy Support Unit

Copyright © 2016 APEC Secretariat

Aid for Trade Seminar Hotel Jen Tanglin, Singapore | 21 April 2016

Outline

• What is APEC? • Economic growth and trade • Inclusive growth: concept and

measurement • Trade and inclusive growth • The role of policy

What is APEC?


• Established in 1989. • Forum for facilitating economic growth,

cooperation, trade and investment in the Asia-Pacific region.

• Intergovernmental grouping that operates on the basis of non-binding commitments, open dialogue, and equal respect for the views of all participants.

• Composed of 21 Member Economies.

APEC Member Economies

APEC Official Observers • Association of South East Asian Nations (ASEAN) Secretariat • Pacific Economic Cooperation Council (PECC) • Pacific Islands Forum (PIF)



APEC’s Significance

Source: StatsAPEC, Key Indicators Database.

APEC Policy Support Unit


• APEC Policy Support Unit (PSU) is the research and analysis arm of APEC.

• Conducts independent research in line with APEC’s core priorities. • Mission: To provide rigorous research & analysis needed to

improve the quality of APEC's deliberations and decisions. • Provide APEC members and fora with professional & tailor-made

research, analysis, policy support & evidence-based policy suggestions. • Five focus areas:

• Trade & Investment Liberalization & Facilitation • Structural Reform • Connectivity including Supply Chain Connectivity & Global Supply Chains • Economic and Financial Analysis • Sustainable Economic Development

Trade and economic growth

• Economies trade because it is mutually beneficial • Classical trade theory: specialise in goods you can make

efficiently (comparatively) and trade for goods you cannot make efficiently (comparatively)

• New trade theories: global value chains, horizontal integration, economic geography and networks, etc.

• Empirical data show synergies between trade and economic growth • More open economies grow faster than less open economies

• Economies that trade more get richer more quickly (e.g., East Asian miracles)

Trade and economic growth

• Elasticities: impact on GDP growth of 1% growth in trade • Positive for all economies; more positive in APEC

• More synergistic in recent decades

• But what about inclusive growth?

Period Elasticity (in %) Observations Overall R2

APEC Economies 1960-1988 0.428 376 0.687 1989-2013 0.565 453 0.783

Rest of the World 1960-1988 0.305 1,914 0.737 1989-2013 0.389 2,878 0.886

What is inclusive growth?

• Two aspects: inclusiveness and growth

• Growth is a necessary condition for inclusive growth

• But inclusiveness implies an improved distribution

Economic growth

• GDP per capita

• Mean household income

Inclusive growth

• [no commonly used measures]

Inclusiveness

• Gini coefficient

• Poverty measures

• Poor’s share of income

Measuring inclusive growth

• Inclusive growth is income growth adjusted for changes in inequality

• Both average income growth and reduction in inequality are considered

• An increase in inequality reduces the inclusiveness of income growth

• Note: mean HH income ≠ per capita income (but closely related)

inclusive growth = growth in mean household income – increase in inequality

Inclusive growth in APEC

Inclusive growth and per capita GDP growth, 1989-2012

Note: IG = inclusive growth; PCGDP = per capita GDP growth; ROW = rest of the world. Aggregate growth rates are averages of economy-level growth rates weighted by population. Source: PovcalNet data and APEC Policy Support Unit estimates.

Inclusive growth in APEC

Components of inclusive growth in APEC, 1989-2012

Note: Figures for inequality are presented in the negative: a negative growth rate means an increase in inequality while a positive rate means more equality. Aggregate growth rates are averages of economy-level growth rates weighted by population. Source: PovcalNet data and APEC Policy Support Unit estimates.

Trade and inclusive growth

Inclusive growth

Trade growth GDP growth


Inclusive growth


• Increased income and employment

• Investment and consumption multipliers

• Progressive public policy: taxation and service provision


Inclusive growth


• Increased income and employment

• Investment and consumption multipliers

• Progressive public policy: taxation and service provision

• Exports sector employs poor workers; located in poorer areas

• Imports make goods more affordable

• Access to educational materials and medicines; food security


Trade openness All APEC Rest of the world

Inclusive growth years



Group 1 (least open) 41.8 16.7 50.0 Group 2 53.1 54.6 52.5 Group 3 46.3 43.2 47.0 Group 4 52.0 60.5 51.1 Group 5 (most open) 57.3 53.9 57.9 p-value 0.004 0.000 0.096

Bivariate analysis of inclusive growth and trade openness

• More open economies are significantly more likely to report inclusive growth

• Bivariate correlation seems to be stronger in APEC


Variable (1) (2) (3) (4) Exports growth Negative* Negative* Imports growth Negative Positive Trade growth Negative* Merchandise trade growth Positive GDP growth x exports growth Positive* GDP growth x imports growth Negative GDP growth Positive Positive Positive Positive Population growth Negative Negative Negative Negative Inequality (Gini index) Negative* Negative* Negative* Negative* Note: Trade indicator independent variables for the models are: (1) exports and imports growth separately; (2) total trade growth (exports + imports); merchandise trade growth (goods exports + goods imports); and (4) exports and imports growth separately and interacted with GDP growth. Source: PovcalNet and WDI data and APEC Policy Support Unit estimates.

Multivariate correlations with inclusive growth


• Empirically, direct relationship between inclusive growth and trade is mixed • Could be positive or negative depending on specification and

econometric model used

• Statistically insignificant in many cases

• Indications that the direct beneficiaries of trade growth are the more well-off segments of society • Bulk of APEC trade is in skill-intensive industries

• APEC top 3 exports: (1) integrated circuits and microassemblies; (2) ICT electric appliances; (3) petroleum oils (not crude)


• However, indirect linkages point to positive effects • Coefficient for the exports-GDP growth interaction variable is

positive and significant

• Although direct beneficiaries of exports growth are the well-off, evidence to say the poor also benefit indirectly through the overall economy

• Interestingly, all coefficients for imports growth are not significant • No indication that the poor, in general, are hurt by imports

• Negative and positive impacts of trade seem to even out

• Protectionism not necessarily pro-poor

The role of policy

• Inclusive growth is not automatic with trade • Trade can play a positive role in inclusive growth

• But inclusiveness doesn’t just happen with trade; need to think about inclusiveness in policy/programme development

• APEC: SME internationalisation, cooperation in services sector

• Trade openness should be accompanied by structural reforms that enhance inclusiveness • Human capital investment and skills development

• Social protection (e.g., unemployment and health insurance)

• Labour market and financial sector policies that expand opportunities

• Access to finance and markets among the poor

Thank You

www.apec.org APEC PSU: www.apec.org/About-Us/Policy-Support-Unit.aspx www.facebook.com/APECnews

@APEC and @Bollard_APEC

www.linkedin.com/company/asia-pacific-economic-cooperation-apec-secretariat

Presenter

Presentation Notes

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http://www.apec.org/About-Us/Policy-Support-Unit.aspx





