How China Navigated the Dilemma of Trade Liberalization and Government Revenues

Many economists believe that in the long run, the aggregate performance of open economies is better than that of closed ones, and that open policies contribute significantly to economic development. At the same time, many political scientists and policy makers fear that, in the short run, one of the steps towards openness — trade liberalization — may harm government revenues. However, in the 1990s, China successfully navigated the dilemma of trade liberalization and government revenues. In this period, China decreased tariff and non‐tariff barriers for WTO accession, but has achieved dramatically increased tariff revenues since 1999. This study explores how China implemented trade liberalization and simultaneously increased tariff revenues in the 1990s. It demonstrates that a series of institutional arrangements, including a reform of Criminal Law, rigorous anti‐smuggling activities and a de facto tax imposed on the export sector, successfully curbed smuggling activities through the processing trade, and made foreign‐invested manufacturing enterprises the major contributors to the stability of customs revenue. China's case shows that a prosperous, export‐oriented and foreign‐invested manufacturing sector could potentially provide a developing country with a source of customs revenue.     

TRANSPORTATION COSTS IN REGIONAI,MODELS OF FOREIGN TRADE: AN APPLICATION TO CANADA-U.S. TRADE*

ABSTRACT. This paper outlines some arguments about the role of transportation costs in determining the welfare consequences of trade restrictions. The analysis uses a computable general equilibrium (CGE) model and presents the relevant features for trade analysis. The model has two alternative spatial formulations. In the first, all production and trade occur at one point, while in the second the regions are separated by distance. The calculated effects of a unilateral tariff increase are compared using the CGE model with the “point” and “distance” formulation. While the presence of transportation costs is crucial to some sectoral trade and production results, most welfare results are relatively insensitive to the spatial structure of the model.     

ECONOMIC GEOGRAPHY OF FIRMS AND SKILLED LABOR*

ABSTRACT This paper investigates the relationship between firm location and skilled‐labor location. While existing new economic geography (NEG) models could not explicitly analyze the relationship due to their assumptions, I construct a new NEG‐type model allowing for different location dynamics of firms and skilled labor for this objective. The main results are as follows. First, a relatively large pool of skilled labor attracts firms when trade costs are small, while it might repel firms when trade costs are sufficiently large. Second, assuming that skilled workers are mobile between regions, the model shows that skilled workers agglomerate faster than firms with decreasing trade costs. Third, the model supports the hypothesis that firms follow skilled labor rather than the reverse. These results are consistent to Indian and Chinese experiences, and some “creative‐class” or “skilled‐city” stories.     

Unravelling the Relationships between Used‐Clothing Imports and the Decline of African Clothing Industries

African clothing industries have declined since the implementation of economic liberalization policies in the early 1980s whilst used‐clothing imports to Africa have increased. The general effects of economic liberalization on African clothing industries are well documented, although little research has been conducted on the particular impact of increased imports of second‐hand clothes on the local manufacturing sectors. Whether these two processes are causally related is difficult to determine due to limitations in official data sets. In this article, the used‐clothing trade is explored in detail and a broad range of cultural and local economic processes are investigated. Trends such as declining local purchasing power and the opening of African markets to cheap new clothing imports, as well as imports of used‐clothing, are examined, along with the converse boost to African clothing export production resulting from preferential trade agreements in the 2000s. With respect to the differential legal and illegal imports of second‐hand clothing to selected African countries, it is demonstrated that official trade data sets often fail to capture the nuances of contemporary social and economic processes.     

GLOBALIZING KNOWLEDGE: HOW TECHNOLOGICAL OPENNESS AFFECTS OUTPUT,SPATIAL INEQUALITY,AND WELFARE LEVELS

Using an analytically solvable model, we study how the spatial distribution of economic activities and the ensuing welfare levels are affected by pecuniary externalities, depending on transportation costs, and localized technological externalities, due to the cost saving effect of intra‐ and interregional knowledge spillovers. Under the assumption of capital mobility and labor immobility, we show that increasing interregional knowledge spillovers, i.e., promoting technological openness, favors a smoother transition between different levels of firms concentration, makes trade globalization less likely to generate catastrophic and irreversible agglomeration, and ultimately leads to a less uneven distribution of welfare.     

Ideology, Discourse, and the Geography of Hegemony: From Socialist to Neoliberal Development in Postapartheid South Africa

The African National Congress (ANC) has long stood for a development policy committed to improving living conditions for black people in South Africa. Assuming power in 1994, the ANC adopted a leftist, basic-needs-oriented Reconstruction and Development Programme as the popular foundation for its economic policy. Within two years, the ANC had switched to a rightist, neoliberal Growth, Employment and Redistribution policy stressing privatization, deregulation, and trade liberalization. This article critically examines the displacement of economic policy from socialism to neoliberalism. My thesis is that ANC policy was disciplined by a neoliberal economic discourse formulated by an academic-institutional-media complex with linked centers of persuasion inside and outside the country. The article combines ideas about hegemony from Gramsci with notions of discourse derived from Foucault in constructing a geographic theory of globally hegemonic discursive formations colonizing alternative, counterhegemonic discourses.     

Macroeconomic Effects of 21st Century Trade and Investment Agreements: The Case of the Trans‐Pacific Partnership

Following United States withdrawal, the Trans‐Pacific Partnership agreement (TPP) is likely to be replaced or complemented by a series of bilateral deals between the US and TPP partners. In this case, TPP will shape trade, finance and public policy globally even without formal US participation. Proponents of TPP emphasize its prospective economic benefits, with economic growth increasing due to rising trade volumes and investment. Widely cited projections suggest modest GDP gains after 10 years, varying from less than half a percentage point in the USA to 13 per cent in Vietnam. However, these projections assume full employment and constant income distribution in all countries, excluding some of the major risks of trade liberalization. This article provides alternative projections of the TPP's economic effects using the United Nations Global Policy Model, which allows for changes in employment and income distribution. Using this model, the authors obtain very different results. They find that the benefits to economic growth are even smaller than those projected with full‐employment models, and are negative for Japan and the USA. More importantly, they find that the TPP will likely lead to losses in employment and increases in inequality.     

In the Shadow of Globalization: The European Community and the United States in the GATT Negotiations of the Tokyo Round (1973–1979)

This article explores the trade negotiations between the United States and the European Community in the Tokyo Round of General Agreement on Tariffs and Trade (GATT) negotiations, held in Geneva from 1973 to 1979. The article shows how the economic turbulence and the different domestic stances and policies toward the globalizing economy split the Western members of GATT into two camps. Countries, like France and the United Kingdom, less well equipped to face increased worldwide competition and the economic crisis were not keen on trade liberalization. Countries, like the United States and Germany, better equipped to face worldwide competition and in favour of policies that strengthened it, saw trade liberalization as the right path. Eventually, under US President Jimmy Carter's leadership and with the key support of Chancellor Helmut Schmidt, the results of the Round reflected a vote in favour of liberalizing international trade. Thus, the Round was shaped by the globalizing economy but, at the same time, its results gave further impetus to the globalization wave that would reach full swing in the 1980s–1990s. The GATT talks took place in the shadow of globalization: while attempting to govern the process, also built it up.     

A LONG RUN ECONOMIC EFFECT ANALYSIS OF ALTERNATIVE TRANSPORTATION FACILITY PLANS—REGIONAL AND NATIONAL

Initially we explained the main part of our model which enabled us to estimate and compare the long run and global economic effects of alternative transportation facility plans. Usually the short run effects of this kind of regional economic impact have been analyzed by input-output models, and the long run effects by econometric models. However, in this model, the input-output model and the econometric model were combined so as to enable us to analyze the global and long run economic effects. The interregional trade pattern coefficients and input coefficients change endogenously in each year in this model. It has previously been assumed that the fixedness of interregional trade pattern coefficients and input coefficients are the weakest points in applying the interregional input-output model for long run studies. In our model, on the contrary, variation of these coefficients has central importance. We then showed the results which were obtained from applying this model to a comparison of the long run economic effects of alternative bridge construction plans over the Japan Inland Sea. The results obtained from this demonstrative calculation are reasonable. Thus, we think, this model has sufficient applicability to the comparison of economic effects of alternative plans for nationwide transportation facility improvement. However, the variations of production cost differentials between regions are given exogenously in this model. To make them endogenous, agglomeration economies should be considered more precisely. In that case, the applicability and the precision of this model could be improved.     

Trade Liberalization and the Fiscal Squeeze: Implications for Public Investment

This article examines the impact of trade liberalization on the level and structure of government expenditures across countries, with particular emphasis on low income countries. It develops the argument that the policies employed during trade liberalization have resulted in a fiscal squeeze as a result of declining tax revenues and rising interest expenditures. To surmount this fiscal hurdle, expenditures on physical capital, which have negligible political ramifications, have been reduced. Other more politically sensitive expenditures, such as spending on social capital, have been financed by incurring additional debt. However, additional debt has exerted upward pressure on interest payments, further exacerbating the fiscal situation. The statistical analysis carried out to examine the evidence uses panel data for eighty developing and industrialized countries over the period 1970–98 and employs a fixed–effects regression framework to account for country–specific characteristics. The results indicate that trade liberalization has indeed resulted in declining revenues and higher interest expenditures and that these factors have contributed to the observed decline in infrastructure spending.     

Elastic labor supply and agglomeration

This study analyzes the interplay between the agglomeration of economic activities and interregional differences in working hours, which are typically longer in large cities, as they are normally more developed than small cities. For this purpose, we develop a two‐region model with endogenous labor supply. Although we assume a symmetric distribution of immobile workers, the symmetric equilibrium breaks in the sense that firms may agglomerate when trade costs are intermediate and labor supply is elastic. We also show that the price index is always lower, while labor supply, per capita income, real wages, and welfare are always higher in the more agglomerated region.     

The ripple effects of large-scale transport infrastructure investment

We analyze the general equilibrium effects of an asymmetric decrease in transport costs, combining a large-scale spatial dynamic general equilibrium model for 267 European NUTS-2 regions with a detailed transport model at the level of individual road segments. As a case study, we consider the impact of the road infrastructure investments in Central and Eastern Europe of the European Cohesion Policy. Our analysis suggests that the decrease in transportation costs benefits the targeted regions via substantial increases in gross domestic product (GDP) and welfare compared to the baseline, and a small increase in population. The geographic information embedded in the transport model leads to relatively large predicted benefits in peripheral countries such as Greece and Finland, which hardly receive funds, but whose trade links cross Central and Eastern Europe, generating profit from the investments there. The richer, Western European nontargeted regions also enjoy a higher GDP after the investment in the East, but these effects are smaller. Thus, the policy reduces interregional disparities. There are rippled patterns in the predicted policy spillovers. In nontargeted countries, regions trading more intensely with regions where the investment is taking place on average benefit more compared to other regions within the same country, but also compared to neighboring regions across an international border. We uncover that regions importing goods from Central and Eastern Europe enjoy the largest spillovers. These regions become more competitive and expand exports, to the detriment of other regions in the same country.     

Economic interdependence and international interactions: the impact of country size on political conflict and cooperation

The trade–conflict model claims that one state, designated as the ‘actor’, is deterred from initiating conflict against a trading partner, designated as the ‘target’, for fear of losing the welfare gains associated with trade. This article extends the trade–conflict model to examine the effect of country size on the trade gains among countries. We derive three propositions with regard to international interactions that pertain to the links between trade, conflict and country size. These hypotheses all imply that a country with an improvement in its terms of trade with a large country will decrease conflict more than it would with an improvement in its terms of trade with a small country. A 30‐country sample from the Conflict and Peace Data Bank (COPDAB) is used for empirical tests. The empirical analyses support the derived hypotheses. The model predicts that a country's ability to influence domestic consumption in a trading partner is an important determinant of international interactions.     

人民币升值对中国入境旅游的影响评估——基于扩展旅游引力模型的实证分析

汇率变动通过价格效应对入境旅游需求产生影响。在人民币面临较大升值压力的背景下,探讨人民币升值对中国入境旅游的影响具有重要的现实意义。本文基于标准贸易引力模型和传统旅游引力模型,构建一个扩展的旅游引力模型,采用面板数据计量方法实证分析了人民币升值对中国入境旅游发展的影响,结果表明:人民币升值给中国入境旅游发展带来了强烈的冲击,客源国的经济发展水平及其人口规模以及中国的经济发展水平与中国入境旅游发展呈正相关关系,客源国与中国的距离则是中国入境旅游发展的一个阻碍因素。     

Regional Specialization and Industrial Concentration Patterns in the Turkish Manufacturing Industry: An Assessment for the 1980–2000 Period1

Previous studies on geographical distribution of economic activity in Turkey demonstrate that firms are localized in major metropolitan areas as well as a set of emerging regions. The aim of the paper is to complement the findings of the studies on regional and industrial concentration in Turkey's manufacturing industry by exploring whether regional specialization and industrial concentration patterns changed during the 1980–2000 period. The paper further aims to explore the driving forces of industrial concentration in Turkey's manufacturing industry, particularly during Turkey's economic integration process that started with trade liberalization after 1980 and further developed with the Customs Union in 1996. Regional specialization and industrial concentration are measured by GINI indices Turkey's NUTS-2 regions at the four-digit level for the years between 1980 and 2000. To investigate which variables determine industry concentration, systematic relation between the characteristics of the industry and industrial concentration is tested. Following the method proposed by Paluzie, Pons and Tirado, a panel regression equation is estimated, where the dependent variable is the Gini concentration index and the independent variables are the variables that represent the characteristics of the sectors that follow the predictions of classical trade theory, new trade theory and new economic geography. The major finding of the study is that during 1980–2000, Turkey's regions became more specialized and industry became more concentrated. Increases in the average values of regional specialization and industrial concentration support the prediction developed by Krugman hypothesis that regions become more specialized and industries become more concentrated with economic integration. In exploring the driving forces of industrial concentration, the findings demonstrate that firms tend to cluster in regions where there are economies of scale.     

Producer Services, Economic Geography, and Services Tradability

We investigate how the incorporation of producer services linkages affects the outcome of an economic geography model. We specify the production of manufactures such that a variety of producer services is needed to transform tradable unfinished goods into final consumption goods. We find that service linkages promote the concentration of economic activity in a single region, but whether full concentration is achieved depends on the costs and mode of services trade. Applying the model to a multiregion world shows that incorporating producer services may also give rise to regions that specialize in different economic activities.     

Spatial Inequality Between and Within Urban Areas: The Case of Israeli Cities

Central areas enjoy greater efficiency in the production of goods and services than do outlying areas. Because of the inherent advantages of central areas over outlying areas, disparities among regions do not vanish over time. On the contrary, centripetal forces increase inequalities across space. The phenomena of increased globalization, trade liberalization and treaties among countries not only enable the flow of labour, products (export) and foreign direct investment but also help reduce spatial inequality between countries. These phenomena also induce greater spatial economic concentration within a country. Thus, although disparities among countries decrease, a widening gap is observed between regions within countries and within large urban areas. In the empirical part, we analyse the general patterns of spatial inequality found among 55 localities in Israel with population size over 20,000. Looking at the spatial inequality relationship, both within and between cities in Israel, we show how all economic indicators measured, including inequality, decrease with distance from the core. Localities in the periphery that experience greater equality also experience lower average income, lower education, less self-employment and more unemployment.     

ON THE IMPACT OF COMPETITION ON TRADE AND FIRM LOCATION

We study how the level of trade costs and the intensity of competition interact to explain the nature and intensity of trade within a given industry and the location of firms across countries. As trade costs decrease from very high to very low values, the global economy moves from autarky to two‐way trade, through one‐way trade from the larger to the smaller region. By exploring the intensive and extensive margins of exports, we investigate how the intensity of trade reacts to the degree of competitiveness. Furthermore, when firms are free to change location, they flow from the small to the large country, and the larger country is always a net exported on the manufactured good. Firms located in the big country have a bigger size than those located in the small one. Under one‐way trade, the relocation of firms changes their attitude toward export.     

AGGLOMERATION VERSUS PRODUCT VARIETY: IMPLICATIONS FOR REGIONAL INEQUALITIES*

ABSTRACT We investigate how cross‐country differences in firms' fixed set‐up costs affect the trade‐off between global efficiency and spatial equity. Our analysis reveals that the standard assumption of symmetry in set‐up costs masks the existence of an interesting effect: the range of available varieties depends on the spatial distribution of firms. In such a setting, where the market outcome leads to excessive agglomeration in the symmetric case, a planner may opt for asymmetric set‐up costs and even more agglomeration. We show that the planner will always favor lower set‐up costs in the large country with more agglomeration when the consumer's marginal preference for variety is high, or with less agglomeration when the consumer's marginal preference for variety is low.     

Free Trade Agreements and the Neo-Liberal Economic Paradigm: Economic,Ecological, and Moral Consequences

Abstract

Since signing and implementing the North American Free Trade Agreement (FTA) in the early 1990s, the United States has pursued other free trade agreements with nations in Latin America and Asia. The premise undergirding FTAs is that trade liberalization within the neo-liberal global economy produces economic growth and development among all parties, and reduces poverty in poor nations. We examine arguments of proponents of free trade and the neo-liberal economy— particularly those of Martin Wolf, author of Why Globalization Works— to test these claims. We explore alternatives that center on norms of ecological sustainability and social justice, holding these two as inseparable. The central moral question of how to achieve needed socioeconomic development in the Global South in ways that are both ecologically sustainable and socially just frames our analysis. We conclude by proposing five principles for an alternative, more sustainable and equitable economic paradigm.