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Conference Summary: Vienna Conference on Trade Policy Research

Author(s):
Clinton Shiells, Antonio Spilimbergo, Vladimir Klyuev, and Raghuram Rajan
Published Date:
December 2006
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Clinton R. Shiells

The European Research Workshop in International Trade (ERWIT), which was jointly organized and sponsored by the Joint Vienna Institute (JVI) and the Center for Economic Policy Research (CEPR), was held June 15-18 at the JVI. It is an annual trade policy research conference that brings together experienced and younger scholars to discuss work in progress, and has developed as a principal institution promoting collaboration between international trade policy researchers in Europe.

The conference explored a variety of themes related to the effects of trade on productivity and economic growth, with many of the 19 papers focusing on trade policy issues relevant to European economic integration, including with the transition economies. In particular, it included sessions on World Trade Organization/General Agreement on Tariffs and Trade (WTO/GATT) issues, European Union (EU) integration, the global organization of production, trade and financial sector development, labor markets and trade, immigration, trade and competition, and regional trading arrangements (RTAs). Given the wide range of topics, this brief article can describe only a selection of the papers. (The detailed program is available on the JVI’s website at http://www.jvi.org/index.php?id=6246.)

The session on WTO/GATT issues considered the structure of international trade agreements from an institutional perspective and the benefits of joining the WTO. Henrik Horn (Institute for International Economic Studies (IIES), Stockholm University), in a paper coauthored with Giovanni Maggi (Princeton University and the National Bureau of Economic Research (NBER)) and Robert W. Staiger (University of Wisconsin and NBER), developed a framework in which incompleteness of contracts arises endogenously to investigate many features of existing GATT agreements, including the asymmetry in the coverage of trade versus domestic policy instruments. Man-Keung Tang (IMF), in joint work with Shang-Jin Wei (IMF and CEPR), found that WTO/GATT accession yielded strong growth and investment effects but only for those countries that were subject to rigorous accession procedures, including, notably, many of the transition economies. Policy commitments associated with accessions were helpful, especially for countries with poor governance.

A number of papers considered the effects of European economic integration. Beata S. Javorcik (World Bank and CEPR), in joint work with Jens Arnold (World Bank and Bocconi University) and Aaditya Mattoo (World Bank), showed that the liberalization of the Czech services sector in the 1990s was associated with substantial productivity gains in manufacturing industries. Importantly, they found that allowing foreign entry into service industries may be the key channel through which services liberalization contributes to improved performance of downstream manufacturing sectors. Gianmarco I.P. Ottaviano (University of Bologna, Fondazione Eni Enrico Mattei (FEEM) and CEPR), in joint work with Massimo Del Gatto (University of Cagliari and Centro Richerche Economiche Nord Sud (CRENoS)) and Giordano Mion (Center for Operations Research and Econometrics (CORE), Université Catholique de Louvain, and Fonds National de la Recherche Scientifique (FNRS)), used a calibrated trade model with heterogeneous firms and monopolistic competition to show that trade integration within the EU generated substantial productivity gains through firm selection in response to import competition.

IMF Staff Papers

Volume 53, Number 3

“Portfolio Constraints and Contagion in Emerging Markets”

Anna Ilyina

“To Buy or Not to Buy? Uncertainty, Irreversibility, and Heterogeneous Investment Dynamics in Italian Company Data”

Stephen R. Bond and Domenico Lombardi

“Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A ‘Fan-Chart’ Approach”

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“How Should Subnational Government Borrowing Be Regulated? Some Cross-Country Empirical Evidence”

Alexander Plekhanov and Raju Singh

“The Potential of Foreign Aid as Insurance”

Stéphane Pallage, Michel A. Robe, and Catherine Bérubé

“Parity Reversion in Real Exchange Rates: A Puzzle or a Nonissue?”

Jacques J. Polak

Special Data Section

“Measuring Financial Development in the Middle East and North Africa: A New Database”

Susan Creane, Rishi Goyal, A. Mushfiq Mobarak, and Randa Sab

Subscriptions to the printed edition of IMF Staff Papers cost $116 per volume (with three issues per volume) or $87 per volume to faculty and students at universities and colleges. Single issues cost $40 each. To read articles in this and other issues of IMF Staff Papers and the data underlying them on the Web, as well as to order printed copies, please point your browser to http://www.imf.org/staffpapers.

In a session on the global organization of production, Dalia Marin (University of Munich) and Thierry Verdier (Paris School of Economics) presented a theory of why—among other things—firms in larger countries have flatter, more decentralized corporate hierarchies than firms in smaller countries, a feature which is supported by the authors’ analysis of firm-level data for Austrian and German corporations. Based upon a unique new dataset constructed using detailed information on U.S. international export transactions in the 1990s, Andrew B. Bernard (Amos Tuck School of Business, Dartmouth College and NBER), in joint work with J. Bradford Jensen (Institute for International Economics) and Peter K. Schott (Yale School of Management and NBER), examined how prices set by multinational firms vary across arm’s-length and related-party customers, with arm’s length prices substantially higher than related-party prices for U.S.-based multinational exporters, especially for goods sent to countries with lower taxes and higher tariffs.

Andrei A. Levchenko (IMF), in joint work with Quy-Toan Do (World Bank), presented empirical findings suggesting that financial market development may be spurred in a country that has a comparative advantage in financially intensive sectors, a result which complements those of existing studies showing that an efficient financial sector may be a source of comparative advantage.

A number of papers considered the interactions among labor markets, immigration, and trade. Notably, Alejandro Cuñat (University of Essex, Center for Economic Performance (CEP), and CEPR), in joint work with Marc Melitz (Harvard University, CEPR, and NBER), constructed a model in which international differences in the flexibility with which labor market regulation enables firms to adjust to idiosyncratic shocks are a source of comparative advantage if the within-industry dispersion of shocks is different across industries. Other things being equal, countries with more flexible labor markets specialize in industries with high volatility—a finding that is consistent with empirical evidence for a large sample of countries.

Several papers considered the interactions between product market competition and trade. For instance, Natalie Chen (University of Warwick, European Center for Advanced Research in Economics and Statistics (ECARES), and CEPR), in joint work with Jean Imbs (Hautes Etudes Commerciales (HEC), Université de Lausanne; Swiss Finance Institute; and CEPR) and Andrew Scott (London Business School and CEPR), showed that trade openness exerted a procompetitive effect, with prices and markups falling and productivity rising, using disaggregated data for EU manufacturing sectors during the 1990s. Consistent with their theoretical model, however, these effects diminished over time as less competitive economies became attractive havens from which to export.

Two papers considered the economics of regional trading arrangements. Giorgia Albertin (IMF) showed that a maximum size of an RTA exists, beyond which member governments would prevent any further enlargement to avoid a loss of political support for the RTA. Klaus Desmet (Universidad Carlos III and CEPR), in joint work with George Deltas (University of Illinois at Urbana-Champaign) and Giovanni Facchini (University of Illinois at Urbana-Champaign and Centro Studi Luca d’Agliano), showed how a hub-and-spoke arrangement—under which a hub country has free trade agreements with multiple spoke countries—tends to increase welfare in the hub country but decrease it in the spoke countries.

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