Heterogeneous Effects of Economic Integration Agreements

By Scott L. Baier (Clemson University), Jeffrey H. Bergstrand (University of Notre Dame), and Matthew W. Clance (University of Pretoria)

It is now widely accepted that economic integration agreements (EIAs) and other trade-policy liberalizations contribute to nations’ economic growth and development. EIAs have proliferated among North-North (N-N), North-South (N-S), and South-South (S-S) country-pairs. While such agreements inevitably alter distributions of income within countries, for the most part EIAs are believed to raise economic welfare. A major recent advance in the international trade literature — in the wake of and building upon theoretical developments associated with firm heterogeneity and export fixed costs — is the development of the “new quantitative trade models.”[1] These models provide calculations of general equilibrium trade and welfare effects of trade liberalizations using exogenous (variable-cost) “trade elasticities” estimated from structural gravity equations combined with aggregate bilateral trade data. Moreover, estimates of welfare effects of EIAs can be computed once one has partial treatment effects from a properly specified gravity equation with EIA dummy variables and an exogenous trade-elasticity (parameter) value.[2]

However, an important unresolved and hardly explored issue is whether — and by what factors — trade elasticities with respect to trade-policy changes vary across time and space, that is, are sensitive to “particular settings”; this is particularly important in contrasting trade elasticities for N-N, N-S, and S-S EIAs. In a recent study, we address three particular questions related to this issue.[3] First, how are trade elasticities — fixed-cost-trade-policy trade elasticities as well as variable-cost ones — theoretically related to levels of fixed and variable trade-cost variables, which vary dramatically between N-N, N-S, and S-S pairs? Second, is there convincing empirical evidence supporting these theoretical interactions? Third, how important quantitatively is the heterogeneity in partial equilibrium trade impacts in determining the general equilibrium welfare impacts of trade-policy liberalizations?

To address these questions, we provided three contributions. First, we extended a standard Melitz model of trade to show theoretically how extensive-margin, intensive-margin, and trade elasticities are endogenous to the levels of theoretical bilateral variable and fixed, policy and non-policy trade costs — even with CES preferences and with an untruncated Pareto productivity distribution.[4] Among several theoretical results, we note three. While the intensive-margin elasticity of tariff rates is sensitive only to the relative levels of variable policy and non-policy trade costs, the extensive-margin elasticity is sensitive also to the relative importance of bilateral endogenous export fixed costs (via network effects) in total bilateral export fixed costs. While the intensive-margin elasticity of policy export fixed costs is zero, the extensive-margin elasticity of policy export fixed costs is sensitive to the relative importance of bilateral endogenous export fixed costs in total bilateral export fixed costs as well as the relative importance of exogenous policy export fixed costs to exogenous non-policy export fixed costs. The theoretical comparative statics provide numerous predictions about how proxies for (time-invariant exogenous) natural variable trade costs and policy and non-policy export fixed costs influence the expected partial effects of EIAs on intensive margins, extensive margins, and bilateral trade.

Second, we evaluated empirically our theoretical hypotheses. We provided empirical evidence confirming our theory and demonstrated the heterogeneity of EIAs’ trade effects depending upon country-pairs’ geographic, cultural, institutional, and development characteristics. Extending earlier work, this is the first study to show evidence that extensive-margin, intensive-margin, and trade-flow EIA elasticities are indeed sensitive to levels of (observable) bilateral variable and fixed, policy and non-policy trade costs in a manner consistent with theoretical comparative statics.[5] Trade elasticities with respect to trade-policy changes do vary across “particular settings.” Geographic, cultural, institutional, and development country-pair characteristics all significantly influence the extensive margin elasticity, whereas primarily geographic variables (distance and adjacency) influence the intensive margin elasticity, consistent with our theory.

Finally, our framework allows us to put to ex ante use the partial effects of EIAs. By explaining the heterogeneity of EIAs’ effects according to theoretically-motivated factors, one can use the heterogeneous partial (treatment) effects for ex ante predictions and we demonstrate empirically that the partial effect of an EIA tends to be much larger for a pair of developing economies. Moreover, in the context of the new quantitative trade models, we demonstrate empirically using two approaches how sensitive quantitatively general equilibrium welfare effects of EIA liberalizations are to the bilaterally heterogeneous (partial) trade elasticities. In one approach, we calculate the general equilibrium welfare effects for importers of 1,358 bilateral EIA liberalizations among N-N, N-S, and S-S country-pairs. Consistent with theory, we show that 98-99 percent of the variation in these 1,358 welfare changes can be explained by the variation in two statistics: the estimated pair-specific bilateral EIA partial (treatment) effect and the share of the importer’s national expenditures on exports from the EIA partner. In the other approach, we show that the probability of two countries having an EIA — which in the context of a theoretical model is related to the net welfare gain from such EIA — is highly correlated with the heterogeneous EIA coefficients and the trade shares.[6] Our results suggest that a 10 percent lower average per capita income of a country-pair is associated with a 60 percent higher partial (trade) effect of an EIA. We close our study by demonstrating the relevance of our findings to the current trade-policy debate, analyzing the partial effect of “Brexit” from the European Union (EU), as well the potential effects of two EU members that are developing economies exiting the EU.

References

Arkolakis, C., A. Costinot, A. Rodriguez-Clare, (2012); “New Trade Models, Same Old Gains?American Economic Review, 102 (1), 94-130.

Baier, S., and J. Bergstrand, (2004); “Economic Determinants of Free Trade Agreements.Journal of International Economics, 64 (1), 29-63.

Baier, S., J. Bergstrand, and M. Clance, (2018); “Heterogeneous Effects of Economic Integration Agreements.Journal of Development Economics, 135, 587-608.

Baier, S., J. Bergstrand, and M. Feng, (2014); “Economic Integration Agreements and the Margins of International Trade.Journal of International Economics, 93 (2), 339-350.

Costinot, A., and A. Rodriguez-Clare, (2014); “Trade Theory with Numbers.” In Handbook of International Economics, Volume 4, edited by G. Gopinath, E. Helpman, and K. Rogoff. Elsevier Science: Amsterdam.

Head, K., and T. Mayer, (2014); “Gravity Equations: Workhorse, Toolkit, and Cookbook.” In Handbook of International Economics, Volume 4, edited by G. Gopinath, E. Helpman, and K. Rogoff. Elsevier Science: Amsterdam.

Melitz, M., and S. Redding, (2015); “New Trade Models, New Welfare Implications,” American Economic Review, 105 (3), 1105-1146.

Novy, D., (2013); “International Trade without CES: Estimating Translog Gravity,” Journal of International Economics, 89 (2), 271-282.

Endnotes

[1] See Arkolakis, Costinot, and Rodriguez-Clare (2012), Head and Mayer (2014), and Costinot and Rodriguez-Clare (2014).

[2] See Head and Mayer (2014).

[3] See Baier, Bergstrand, and Clance (2018).

[4] Novy (2013) generated endogenous trade elasticities by assuming transcendental logarithmic preferences and Melitz and Redding (2015) generated endogenous trade elasticities by assuming a truncated Pareto productivity distribution.

[5] See Baier, Bergstrand, and Feng (2014) and Head and Mayer (2014) for earlier work.

[6] See Baier and Bergstrand (2004) for underpinnings on this methodology.

NORFACE: Democratic governance in a turbulent age

Pre-call announcement

NORFACE will be announcing a new transnational research programme on democratic governance. The main focus of this research programme will be on understanding the precise nature of the recent turbulence in democratic politics and governance in Europe, how European states can negotiate it and how they can develop strategies to enhance the quality of democratic politics and governance.

Background

Democratic politics and governance in Europe are facing turbulent times. Party systems have crumbled or been substantially changed by new parties, including populist parties, and new social movements. Parties in power at the national and regional levels have called into question constitutional arrangements and guarantees once thought to underpin modern democracies. Such political changes have in part resulted from changes in the nature and form of citizen attachments to government, political parties and democratic procedures. The financial crisis of 2007-08 raised questions about the ability of European governments to provide a framework for economic security and the pursuit of redistributive policies. Government itself has changed significantly over the past quarter century, with a growing role for ‘arm’s length’ agencies and regulatory bodies, international governance structures and private sector organisations.

In light of these developments, the NORFACE network will launch a transnational research programme on the topic of democratic governance. The programme is structured around five of the most important challenges to democratic governance and politics (described in detail in the programme text (PDF) available on the NORFACE website):

  1. Inequality and redistribution
  2. The evolving politics of threat
  3. The democratisation of information
  4. Shifting identities and representation
  5. The changing authority of institutions

Who can apply

Researchers can submit a proposal on behalf of a project team comprised of at least three eligible research partners based in three or more different countries participating in this NORFACE call. These countries include: Austria, Belgium, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Lithuania, Luxembourg, Ireland, The Netherlands, Norway, Poland, Slovenia, Spain, Sweden, Switzerland and the UK. All partners in a project team must have the interest and competence to undertake social science research within the specified topic of the Governance programme.

Specific national/regional eligibility rules will apply, as specified in the call for proposals. This could mean that eligibility may be defined at the individual or organisational level, depending on the country or funding agency.

How to apply

The call for proposals will be announced on the NORFACE website.

Key dates

The call for proposals is expected to be announced on 3 December 2018, with a deadline for submitting outline proposals on 19 February 2019. These dates may be subject to change.

Further information

Further details of the pre-call are available on the NORFACE website.

This programme will be implemented with the support of the EU and is subject to the signature of the Grant Agreement with the European Commission.

The First Annual Conference on Crime, Risk and Economics

Conference dates

15 May 2019 – 17 May 2019

Location

University College London

This conference will bring together economists, criminologists, and researchers from other disciplines who seek to understand the causes and consequences of crime, including the evaluation of policies aimed to mitigate or manage the cost of crime. The program is limited to presentations of eight applicants in addition to keynote presentations, and invitations to participate are subject to competitive review. We seek high quality academic work that enriches, refines, and challenges our understanding of the etiology and mitigation of crime, with particular emphasis on new methodological approaches and a focus on emerging challenges of crime in the 21st century. Papers should be unpublished at the time of submission.

The meeting will feature four keynote addresses:
– Daniel Nagin, Teresa And H. John Heinz III University Professor of Public Policy and Statistics, Carnegie-Mellon University.
– Olivier Marie, Endowed Professor of Labour Economics, Research Centre for Education and the Labour Market, Erasmus School of Economics.
– Steve Machin, Professor of Economics, Centre for Economic Performance, London School of Economics.
– Tim Besley, W Arthur Lewis Professor of Development Economics, London School of Economics.

Schedule:
— Day 1. Pre-conference Research Presentations on Emerging Trends in Crime (attended by security, counter-terrorism, and private sector cybersecurity leaders in London)
– Morning Presentations on cybersecurity, cybercrime, public-private partnerships in tackling online and technology-enhanced crime, and the forecasting of crime trends
– Afternoon Day 1 Keynote

— Day 2. Research Presentations on Crime Science and Economics
– Morning Session to include two research presentations and first Day 2 Keynote
– Afternoon Session to include two research presentations and second Day 2 Keynote

— Day 3. Research Presentations on Crime Science and Economics
– Morning Session to include two research presentations and Day 3 Keynote
– Afternoon Session to include two research presentations, followed by a closing symposium featuring Daniel Nagin (Carnegie-Mellon University), Tim Besley (London School of Economics), Olivier Marie (Erasmus School of Economics), Richard Rosenfeld (University of Missouri-St. Louis), Shane Johnson (University College London), Richard Wortley (University College London), and Glenn Harrison (Georgia State University).

Organizers
– Glenn Harrison (Center for Economic Analysis of Risk, Georgia State University); gharrison@gsu.edu
– Volkan Topalli (The Andrew Young School of Policy Studies, Georgia State University); vtopalli@gsu.edu
– Anna Harvey (Professor of Politics, Affiliated Professor of Law, and Director, Public Safety Lab, New York University); anna.harvey@nyu.edu
– Greg DeAngelo (Department of Economic Sciences, Claremont Graduate University); gregory.deangelo@cgu.edu
– Richard Wortley (The Jill Dando Institute, University College London); r.wortley@ucl.ac.uk
– Shane Johnson (The Dawes Centre for Future Crime, University College London); shane.johnson@ucl.ac.uk

Location:
UCL and the Jill Dando Institute are located in the heart of London. Activities associated with the conference will take place at The Jeremy Bentham Theater on Campus.

Financial Support: One author of accepted papers will be provided financial support to offset the costs of airfare and hotel accommodation, subject to the usual university restrictions.

Submissions should be made before January 5th, 2019 through the form online at: https://cear.gsu.edu/event-archives/first-annual-conference-on-crime-risk-and-economics/
Final decisions will be made by February 1st, 2019. Full papers are preferred, but extended abstracts will be considered.

CESifo Venice Summer Institute 2019

Conference dates

03 Jun 2019 – 08 Jun 2019

Location

Venice, Italy

CESifo Venice Summer Institute 2019

The annual CESifo Venice Summer Institute, focuses on themes of current interest in European economic policy. The Institute brings together international economists working on economic policy topics for workshops, panel meetings and discussion. The conference venue is Venice International University on San Servolo, a tiny island across the water from San Marco in the bay of Venice.

CESifo’s twentieth Venice Summer Institute will be held from 3 – 8 June 2019, with five workshops. The call for papers is now open. Please note that we have an online submission procedure and that online submissions only will be accepted for consideration. In order to submit your paper on line, please go to (<http://www.cesifo.org/venice>) and click on the “Submit a Paper” link associated to the workshop in question. Should you have any (technical) difficulties with the online submission procedure, please contact office@cesifo.de for assistance. The deadline for the submission of papers is 1 December 2018 at midnight CET. Authors of papers that are accepted for presentation at a workshop will be notified by mid December 2018.

CALL FOR PAPERS VENICE SUMMER INSTITUTE 2019

The following workshops are scheduled:

Economics of the Gig Economy (http://www.ifo.de/w/3kE92K5JT)
Date: 3 – 4 June
Organisers: Oliver Falck and Justus Haucap
Keynote Speaker: Christopher Stanton (Harvard Business School)

Taxation in the Digital Economy: Theory and Evidence (http://www.ifo.de/w/3DDw3LaPn)
Date: 3 – 4 June
Organisers: David R. Agrawal and Marko Köthenbürger
Keynote Speakers: Jean-Charles Rochet (University of Zurich), and Joel Waldfogel (University of Minnesota)

Poverty, Inequality and their Associations with Disasters and Climate Change (http://www.ifo.de/w/3DpFxTj7u)
Date: 5 – 6 June
Organisers: Ilan Noy and Jasmin Gröschl
Keynote Speakers: Stefan Dercon (University of Oxford), and Seema Jayachandran (Northwestern University)

The Future of Europe: Structural Reforms, Growth and Globalisation (http://www.ifo.de/w/3QyZbg6ry)
Date: 5 – 6 June
Organisers: Nauro F. Campos, Balázs Égert and Jan-Egbert Sturm
Keynote Speakers: Philippe Aghion (College de France), Ufuk Akcigit (University of Chicago), Romain Duval (IMF Research Department), and Paul de Grauwe (London School of Economics)

Gender in the Developed and Developing World (http://www.ifo.de/w/3Qj7TTzHb)
Date: 7 – 8 June
Organisers: Seema Jayachandran and Basit Zafar
Keynote Speakers: Francine Blau, Cornell University, and Chrstiopher Udry, Northwestern University

The University of Sydney Fellowships

  • Location: Sydney, New South Wales Australia
  • Job CategoriesPost-Doc

Reference no: 1321/0718F

  •    Opportunity for outstanding early career researchers in any discipline or research area (10 positions available)
    •     Holders of the Fellowships will be lifetime members of the Sydney Society of Fellows
    •     Full time, 3 year fixed term, salary AUD98,940 p.a, plus up to 17% superannuation and leave loading

The University of Sydney Fellowships aim to attract outstanding early career researchers to contribute to and enhance the research strengths and culture of the university. Holders of the Fellowships will be lifetime members of the Sydney Society of Fellows. The society fosters inter-faculty collaboration, builds on a network of outstanding international alumni and provides further career development opportunities.

Applications are encouraged from any discipline or research area, with recipients able to work with our leading Faculties, schools and centres as well as with one of our 10 whole-of-university multidisciplinary initiatives that are focused on some of the greatest challenges of our time:

•     Charles Perkins Centre
•     Brain and Mind Centre
•     Sydney Nano
•     China Studies Centre
•     Sydney Southeast Asia Centre
•     Cancer Research Network
•     Sydney Environment Institute
•     Marie Bashir Institute for Infectious Diseases and Biosecurity
•     Centre for Translational Data Science
•     Sydney Policy Lab

Further information about the University’s research strategy, including our commitment to multidisciplinary research, can be found in the University’s Strategic Plan 2016-20.

Eligibility for Fellowship Scheme 2019

  1.    All applicants must have a PhD award dated no earlier than 1 January 2013 and no later than 19 August 2018. PhD award/conferred date is defined as the date on the testamur.
    2.     All applicants must obtain the endorsement of a proposed University of Sydney supervisor before applying.
    3.     Strong preference will be given to applicants seeking to join the University from another organisation in Australia or from overseas. However, applicants currently employed at the University of Sydney or other affiliated institutions (including medical research institutes) who commenced such employment after 1 July 2017 are eligible to apply.
    4.     Applicants with a PhD awarded by the University of Sydney may only apply if they have held a paid position with another organisation subsequent to the award of their PhD.

Career interruption

Candidates awarded their PhD after 1 January 2010 who have had a period of significant career interruption (3 months or more is considered significant in this context) will have their eligibility considered.

Assessment Criteria

There are two essential criteria.

  1.    Research excellence will be a primary criterion, both in terms of the project quality, innovation and feasibility and the track-record and potential of the researcher (relative to opportunity).
    2.     The alignment of the proposed research (by the applicant) with the University’s agenda of excellence and multidisciplinary research (both with the initiatives listed above and more broadly).

For full information regarding the fellowships, application requirements and to apply click here.

CLOSING DATE: 11.30pm Sydney time, Sunday 19 August 2018

Late applications will not be accepted

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The University of Sydney Fellowships

 

  • EEO/AA Policy

We are committed to diversity and social inclusion. We welcome applications from women (particularly for senior and non-traditional roles), Aboriginal and Torres Strait Islander people, people with a disability, people who identify as LGBTIQ, and people from culturally and linguistically diverse backgrounds.

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