The Value of Deep Trade Agreements in the Presence of - - PowerPoint PPT Presentation

▶
the value of deep trade agreements
SMART_READER_LITE
LIVE PREVIEW

The Value of Deep Trade Agreements in the Presence of - - PowerPoint PPT Presentation

Sep 09, 2022 473 likes •713 views

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions The Value of Deep Trade Agreements in the Presence of Pricing-to-Market Meredith A. Crowley, Lu Han, & Thomas Prayer World Bank Deep Trade Agreements

slide-1
SLIDE 1

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

The Value of Deep Trade Agreements

in the Presence of Pricing-to-Market

Meredith A. Crowley, Lu Han, & Thomas Prayer World Bank Deep Trade Agreements Webinar November 2020

slide-2
SLIDE 2

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Introduction

  • Prior research using the universe of international trade

transactions for the UK (2010-2017) and China (2000-2014) has found that firms that export to multiple foreign destinations employ different pricing strategies.

  • Pricing-to-market is correlated with observables and is more

prevalent for:

  • highly differentiated products,
  • consumer versus intermediate goods,
  • goods exported by foreign-invested firms (China),
  • goods invoiced in the local currency of the destination (UK).
  • Our question: Do preferential trade agreements lead to

greater market integration, more intense competition, and less market power for exporting firms?

slide-3
SLIDE 3

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Our approach

Using product-level exports from 640k firms located in 13 emerging and low-income countries to 165 destinations, we examine 257 deep trade agreements to evaluate how

  • third-country competitive pressures (measured as PTAs and

preferential tariffs) and

  • specific (bilateral) trade agreement provisions impact
  • firm-level export sales,
  • prices, and
  • destination-specific markups.
slide-4
SLIDE 4

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Literature

  • Gravity

Anderson & vanWincoop 2003, Feenstra 2004, Redding &Venables 2004, Baier & Bergstrand 2007, Head & Mayer2014;

  • Price and markup responses to trade policy

Konings & Vandenbussche 2005, Bown & Crowley 2006, Amiti & Konings 2007, Pierce 2011, deLoecker, Goldberg, Khandelwal, & Pavcnik 2016;

  • Third-country competition and trade-policy spillovers

Chang & Winters 2002, Bown & Crowley 2007, Romalis 2007, Estevadeordal, Freund, & Ornelas, 2008, Corsetti, Crowley, Han, and Song 2018.

slide-5
SLIDE 5

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Firms’ product-level exports from 13 origin countries

27.5 million firm-product-origin-destination-year observations Albania 2004-2012 Guatemala 2005-2013 Senegal 2000-2012 Burkina Faso 2005-2012 Jordan 2003-2012 Uruguay 2001-2012 Bulgaria 2001-2006 Mexico 2000-2012 Yemen 2008-2012 China 2000-2006 Malawi 2006-2012 Egypt 2005-2016 Peru 1993-2013 HS06 product-level data on destination trade policy against origin AND destination trade policy against origin’s competitor countries.

slide-6
SLIDE 6

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Structural gravity equation applied to firm-level data

We start with a model of trade flows as a function of preferential trade agreements (PTAs) and a set of fixed effects. ln(vfodit) = β1 ∗ ptaodt + δfoit + δdit + (δod) + ǫfodit (1) where

  • f , o, d, i, t represent firm, origin country, destination country,

product and year respectively.

  • δfoit: firm-origin-product-year fixed effects
  • δdit: destination-product-year fixed effects
  • δod: origin-destination fixed effects
slide-7
SLIDE 7

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Structural gravity equation extended to

include a measure to capture competition from third countries

We then introduce a measure to capture the share of country o’s competitors that have a PTA with destination d. ln(vfodit) = β1 ∗ ptaodt + β2 ∗ competitor pta(−o)dit+ + δfoit + δdit + (δod) + ǫfodit (2) where

  • f , o, d, i, t represent firm, origin country, destination country,

product and year respectively.

slide-8
SLIDE 8

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Third-country competition effects

Calculating the Proportion of Competitor Countries with Access to a PTA

  • Origin (bottom) exports to

destination (center)

  • Firms in five competitor

countries also export to destination

  • Countries 1-3 have PTAs

with destination

  • Countries 4-5 do NOT
  • Product-level import-wt’d

share of competitor countries with PTA = 0.6

slide-9
SLIDE 9

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Structural gravity equation extended to

include measures of tariffs and trade agreement provisions

We extend the specification to include:

  • tariffs (on origin and on third-country competitors) and
  • PTA provisions (for origin and third-country competitors).

ln(vfodit) = β1 ∗ ptaodt + β2 ∗ competitor pta(−o)dit + β3 ∗ ln(1 + bilateral τodit) + β4 ∗ ln(1 + competitor τ(−o)dit) + β5 ∗ provisionodt + β6 ∗ competitor provision(−o)dit + δfoit + δdit + (δod) + ǫfodit The analysis can be applied to any (binary) provision in the DTA database.

slide-10
SLIDE 10

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Third-country competition effects

Calculating the Average Tariff Faced by Competitors

  • Origin (bottom) exports to

destination (center)

  • Firms in five competitor

countries also export to destination

  • Country 4 faces a 0% tariff

in destination

  • Countries 1-3 and 5 face

non-zero tariffs

  • Product-level import-wt’d

average tariff faced by competitor countries = 4.5%

slide-11
SLIDE 11

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Main findings: PTAs

  • Direct effects of PTAs:
  • Export sales increase 40-52%
  • Prices fall 2-5%
  • Markups fall 4%

PTAs have pro-competitive effects.

  • Indirect, third-country PTA effects:
  • Export sales fall 10% when 10% of competitors have a PTA
  • Prices increase 0.4-0.8% when competitors’ tariffs increase 1%
  • Markups of highly differentiated goods increase 1.4% when

competitors’ tariff increase 1%

slide-12
SLIDE 12

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Deep Trade Agreements

PTAs and third-country competition effects on average export value from origin

Value Value Value (1) (2) (3) PTAodt 0.42*** 0.34***

  • 0.04***

Competitors’ Avg PTA(−o)dit

  • 1.12***
  • 0.36***

Tariffodit

  • 4.02***
  • 3.73***
  • 1.25***

Competitors’ Avg Tariff(−o)dit 4.83*** 3.71*** Observations 16, 338,526 15,543,005 15,542,843 Fixed Effects Origin-firm-product-year

  • Destination-product-year
  • Origin-destination
  • If origin and destination

have a PTA ⇒ avg exports from origin ↑ 40% If 10% of origin’s competitors in destination have a PTA ⇒ avg exports from origin ↓ 10.6% A 1% increase in the avg tariff against competitors in destination ⇒ avg exports from origin ↑ 4.8%

slide-13
SLIDE 13

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Deep Trade Agreements

PTAs and third-country competition effects on average export value from origin

Inclusion of O-D fixed effects implies PTAs have a small negative effect on trade.

Value Value Value (1) (2) (3) PTAodt 0.42*** 0.34***

  • 0.04***

Competitors’ Avg PTA(−o)dit

  • 1.12***
  • 0.36***

Tariffodit

  • 4.02***
  • 3.73***
  • 1.25***

Competitors’ Avg Tariff(−o)dit 4.83*** 3.71*** Observations 16, 338,526 15,543,005 15,542,843 Fixed Effects Origin-firm-product-year

  • Destination-product-year
  • Origin-destination
  • But trade policy against

third-country competitors remains important:

  • If 10% of origin’s

competitors in destination have a PTA ⇒ avg exports from origin ↓ 3.5%

  • A 1% increase in the

avg tariff against competitors in destination ⇒ avg exports from origin ↑ 3.7%

slide-14
SLIDE 14

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Estimating the impact on prices (unit values) and markups

ln(pfodit) = β1 ∗ ptaodt + β2 ∗ competitor pta(−o)dit + β3 ∗ ln(1 + bilateral τodit) + β4 ∗ ln(1 + competitor τ(−o)dit) + β5 ∗ provisionodt + β6 ∗ competitor provision(−o)dit + δdit + (δf &δoit) or ( δod&δoit) or δfoit + ǫfiodt We regress prices on destination-product-time fixed effects and:

  • 1. firm and origin-product-time fixed effects, or
  • 2. origin-destination and origin-product-time fixed effects, or
  • 3. firm-origin-product-time fixed effects (to study markups).
slide-15
SLIDE 15

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Deep Trade Agreements

Pro-competitive effect of PTAs on prices and markups

Prices Prices Markups (4) (5) (6) PTAodt

  • 0.02***
  • 0.05**
  • 0.04***

Competitors’ Avg PTA(−o)dit

  • 0.02
  • 0.13***

0.01 Tariffodit 0.00 0.24*

  • 0.03

Competitors’ Avg Tariff(−o)dit 0.45* 0.86** 0.25 Observations 14,256,684 14,257,049 14,238,884 Fixed Effects Origin-firm-product-year

  • Destination-product-year
  • Origin-destination
  • Origin-product-year
  • Firm
  • If origin and destination

have a PTA ⇒ avg prices from origin ↓ 2-5% If origin and destination have a PTA ⇒ avg markups from origin ↓ 4% Prices are increasing in own tariff and in the avg tariff against competitors when

  • rigin-destination FEs

included AND when sample restricted to highly differentiated goods (not shown).

slide-16
SLIDE 16

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

PTA Provisions:

Two distinct applications of methodology

Certifying Rules of Origin To qualify for preferential tariffs, a firm must document it meets the PTA’s Rules of Origin.

  • Some PTAs allow an

exporting firm to self-certify

  • rigin. [Easy/cheaper]
  • Others require a gov’t or

gov’t-approved authority to certify origin. [Costly] Mutual Recognition If a PTA includes mutual recognition of standards, origin firms can export merchandise satisfying origin standards to the destination. If a PTA includes mutual recognition of conformity assessment, origin firms can use a local testing facility to document compliance with destination standards.

slide-17
SLIDE 17

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Rules of Origin Certification in a PTA

Experiment: Compare estimated outcome under a PTA with self-certification of ROOs v. a PTA with government certification of ROOs.

Percentage increase in trade, prices markups all goods all goods high diff. all goods all goods (1) (2) (3) (4) (5) Origin has a PTA... 40.5 with self-certification of ROOs 84.5 66.5 1.1 2.3 with gov’t-certification of ROOs 65.9 55.6

  • 2.0
  • 3.0

10% of Competitors have a PTA...

  • 10.6

and ROOs with self-certification

  • 15.0
  • 14.5
  • 1.4
  • 1.2

and ROOs with gov’t-certification 0.0 0.1

For an exporter in an origin, a PTA with self-certification is associated with more trade, higher prices, and higher markups rel. to no PTA.

slide-18
SLIDE 18

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Rules of Origin Certification in a PTA

Experiment: Compare estimated outcome under a PTA with self-certification of ROOs v. a PTA with government certification of ROOs.

Percentage increase in trade, prices markups all goods all goods high diff. all goods all goods (1) (2) (3) (4) (5) Origin has a PTA... 40.5 with self-certification of ROOs 84.5 66.5 1.1 2.3 with gov’t-certification of ROOs 65.9 55.6

  • 2.0
  • 3.0

10% of Competitors have a PTA...

  • 10.6

and ROOs with self-certification

  • 15.0
  • 14.5
  • 1.4
  • 1.2

and ROOs with gov’t-certification 0.0 0.1

For an exporter in an origin, a PTA with gov’t certification is associated with more trade, lower prices, and lower markups rel. to no PTA. Trade gains are substantially smaller than with self-certification.

slide-19
SLIDE 19

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Rules of Origin Certification in a PTA

Experiment: Compare estimated outcome when 10% of competitors have a PTA with self-certification v. a PTA with government certification.

Percentage increase in trade, prices markups all goods all goods high diff. all goods all goods (1) (2) (3) (4) (5) Origin has a PTA... 40.5 with self-certification of ROOs 84.5 66.5 1.1 2.3 with gov’t-certification of ROOs 65.9 55.6

  • 2.0
  • 3.0

10% of Competitors have a PTA...

  • 10.6

and ROOs with self-certification

  • 15.0
  • 14.5
  • 1.4
  • 1.2

and ROOs with gov’t-certification 0.0 0.1

For an exporter in an origin, if third-country competitors in a destination have a PTA with self-certification, then trade, prices, and markups are lower rel. to competitors having no PTA. “Deeper” provision harms outsiders’ trade. If third-country competitors have a PTA with gov’t certification, then no impact on trade, prices, and markups.

slide-20
SLIDE 20

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Mutual Recognition Provisions in a PTA

Experiment: Compare estimated outcomes under PTA with MR of standards (in 10 PTAs) v. conformity assessment (in 16 PTAs).

Percentage increase in trade prices markups all goods high diff. all goods all goods (1) (2) (3) (4) Origin has a PTA... with Mutual Recognition of Standards 97.2 138.4

  • 0.9
  • 0.8

with Mutual Recognition of Conformity Assessment 97.2 138.4

  • 0.9
  • 0.8

10% of Competitors have a PTA... with Mutual Recognition of Standards 29.6 25.2 0.6 1.2 with Mutual Recognition of Conformity Assessment 30.1 25.7 0.5 1.2

For an exporter in an origin, if PTA includes MR of standards OR conformity assessment, then huge increase in trade, modest reductions in prices and markups rel. to no PTA.

slide-21
SLIDE 21

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Mutual Recognition Provisions in a PTA

Experiment: Compare estimated outcomes when 10% of competitors have PTA with MR of standards v. conformity assessment.

Percentage increase in trade prices markups all goods high diff. all goods all goods (1) (2) (3) (4) Origin has a PTA... with Mutual Recognition of Standards 97.2 138.4

  • 0.9
  • 0.8

with Mutual Recognition of Conformity Assessment 97.2 138.4

  • 0.9
  • 0.8

10% of Competitors have a PTA... with Mutual Recognition of Standards 29.6 25.2 0.6 1.2 with Mutual Recognition of Conformity Assessment 30.1 25.7 0.5 1.2

For an exporter in an origin, if competitors have PTA with MR of standards OR conformity assessment, then sizeable increase in trade, modest increases in prices and markups rel. to no PTA. Interpretation? Perhaps captures a simpler, more transparent regulatory regime in destination that benefits all origins.

slide-22
SLIDE 22

Intro Data Empirical Strategy Results: PTAs Results: PTA Provisions Conclusions

Conclusions

We introduce a new approach for examining the direct and indirect third-country effects of PTAs.

  • PTAs enhance direct trade flows, but the indirect effect of

third countries’ PTAs on an origin’s exports are negative.

  • PTAs appear to be pro-competitive.
  • Deeper trade agreements characterized by more intense trade

among members but impacts on third-countries depend on type of provision.

  • For provisions like self-certification – a simplification of

paperwork available to TA members only – deepening of PTA harms non-members’ trade.

  • For provisions like mutual recognition, third-country impact on

trade is positive; suggestive evidence provisions which broadly clarify/simplify the economic environment have non-exclusive benefits.