does economic integration increase trade margins ? empirical evidence from latin america
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DOES ECONOMIC INTEGRATION INCREASE TRADE MARGINS ? EMPIRICAL EVIDENCE FROM LATIN AMERICA. Luis Marcelo Florensa Laura Márquez-Ramos María Luisa Recalde María Victoria Barone. Objectives. - PowerPoint PPT PresentationTRANSCRIPT
DOES ECONOMIC INTEGRATION INCREASE TRADE MARGINS ? EMPIRICAL EVIDENCE FROM LATIN
AMERICA
Luis Marcelo FlorensaLaura Márquez-RamosMaría Luisa RecaldeMaría Victoria Barone
Objectives• To analyze the effects of economic integration in
Latin America on the extensive and intensive margins of trade
• To distinguish– The effects of different levels of integration– Short versus long term effects– The effects on different sectors
• primary goods and agricultural manufactures • industrial manufactures• mineral fuels, lubricants and related materials
Background• A number of studies use the gravity equation to
analyze the effect of EIAs on international trade (Carrère, 2006; Magee; 2008 and Martinez-Zarzoso et al. 2009)
• Recalde and Florensa (2009), and Recalde et al. (2010) also use the gravity equation for the case of the Mercosur
• The dependent variable is the total value of exports (or imports) between two countries and the existence of EIA is modeled by including a dichotomous variable among the explanatory variables
Background
• Hummels and Klenow (2005): the extensive margin accounts for 60% of export growth in larger economies
• Hillberry and McDaniel (2003): both margins coexist in the US after the creation of NAFTA
Background• Bensassi et al. (2011): North African countries
have enjoyed a significant increase in exports associated with Euro-Med agreements, operating through the intensive margin for Algeria and Tunisia, and through both the extensive and intensive margins for Egypt and Morocco. Diverse trade patterns could be at the origin of these differences
• Baier et al. (2011): Short-term effects are reflected mainly in the intensive margin, while in the long-term the most important effect is reflected on the extensive margin. BBF did not perform an analysis considering/comparing particular integration agreements or regions
Methodology• Aspects to consider:
– Endogeneity of the EIA variables• Use of panel econometric techniques to avoid endogeneity
biases– “Multilateral resistance” terms
• Inclusion of bilateral FE, importer-time and exporter-time FE– Length of the period
• Use of panel econometric techniques to capture short versus long-term effects (1962-2005)
– Distinguish between EM and IM • Use of the methodology developed in Hummels and Klenow
(2005)
Methodology
• Xijt -- value of the aggregate trade flow from country i to country j in year t,
• Yit(jt) -- GDP in country i (j) in year t, • DISTij -- bilateral distance between the economic centers of i and j• CONTIGij --dummy variable assuming the value 1 if the two
countries share a common land border • COMLANGij -- dummy variable assuming the value 1 if the two
countries share a common language• EIAijt– indicates the level of integration between the two countries in
year t• is exporter i´s (importer j´s) non-linear and
unobservable multilateral price/resistance term. • error term.
Methodology• Extensive Margin: measure of the fraction of all products
that are exported from i to j in year t, where each product is weighted by the importance of that product in world exports to j in year t
• XmWjt -- value of world´s exports to country j in product m
in year t• MWjt -- set of all products exported by the world to
country j in year t • Mijt -- set of all products exported from i to j in year t
Methodology• Intensive Margin: the market share of country i in country
j´s imports from the world within the set of products that i exports to j in year t
• Xmijt -- value of exports from i to j in product m in year t
Methodology• Property 1: the product of the two margins equals the ratio of
exports from i to j relative to country j total imports
Where denotes j´s imports from the world.• Property 2: Taking the natural logs…
The log of the value of trade flows from i to j in the year t can be decomposed linearly into logs of the extensive margin, the intensive margin and the value of j´s imports from the world
The process of LA integration• Some important dates for the regional integration in Latin
America:
– LAIA (Montevideo Treaty, 1980) aims to establish an economic preferential system within the LA region.
• Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela.
– Mercosur (Asuncion Treaty, 1991) signed by Argentina, Brazil, Paraguay and Uruguay.
– CAN (Andean Community, 1969)• Bolivia, Colombia, Ecuador and Peru
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The process of LA integration
• Chile and Mexico have signed the highest number of bilateral agreements in the region
• Chile has undergone the most far-reaching liberalization process in the Latin American region, and together with Mexico seems to have liberalized relatively more within other integration agreements such as the NAFTA and the EU, than within LAIA (Florensa et al, 2011)
• An important number of developed countries had signed non reciprocal agreements with developing countries (Generalised System of Preferences)
• 1: To study whether the EIAs signed by LAIA members have positively affected trade margins and whether the deepest EIAs have had a greater impact on trade margins.
– BBF explored the effects on the margins of trade of alternative types of EIAs and found that deeper integration agreements have a larger impact on trade flows than shallower agreements
• 2: Relative effect of EIAs on trade margins.
– BBF found that the effect of EIAs on the intensive margin is higher in magnitude than the effect on the extensive margin (in the current period)
• 3: Differential “timing” effect of EIAs on trade margins. To test whether positive effects are more persistent over time among deeper level of integration.
– BB argues that EIAs are likely to have delayed impacts on trade flows, because they are “phased-in” over 5 to 10 years, delaying the full implementation of liberalization
• 4: The effect of trade agreements differs for different sectors
– Chaney (2008) shows that the EM and the IM are affected in different directions by the elasticity of substitution. The impact of trade barriers is strong in the intensive margin for high elasticities of substitution (homogeneous products), whereas the impact is mild on the EM
• 5: Differential “timing” effect of EIAs on trade margins differs by type of product
– Effect 1: Trade margins might be more time-sensitive to changes in trade liberalization in primary goods and agricultural manufactures, as LAIA countries have a comparative advantage in agriculture
– Effect 2: Trade liberalization might be fostering the development of the industrial manufacturing sector to a greater extent in the long term.
Data• Exporting countries: Argentina, Bolivia, Brazil, Chile, Colombia,
Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela• Importing countries: 161• Period: 1962-2005• Bilateral trade flows
– Trade data for the period 1962-2000 -- NBER- United Nations trade data set (http://cid.econ.ucdavis.edu/data/undata/undata.html)
– Trade data for the period 2001-2005 -- WITS (COMTRADE) (https://wits.worldbank.org/)
– 4-digit Standard Industrial Trade Classification (SITC)• Gravity variables are obtained from CEPII (http://www.cepii.fr)• Variable of interest –the level of economic integration agreement
(source: BB (http://www.nd.edu/~jbergstr/) and WTO :– (0) there is no EIA– (1) agreement is asymmetrical or one-way (NRPTA)– (2) two-way preferential trade agreements (PTA)– (3) free trade agreements (FTA) – (4) customs unions (CU)
Model specification
Specification 1
Specification 2
Specification 3
Specification 1: All goods Specification 2: All goods Specification 2: All goods
TRADE(1) EM(2) IM(3) TRADE (4) EM (5) IM (6) TRADE (7) EM (8) IM (9)
NRPTA -0.322*** -0.043 -0.280** -0.291** -0.207** -0.084 -0.304** -0.189** -0.115L5.NRPTA -0.014 -0.013 0.000 0.003 -0.023 0.026L10.NRPTA -0.086 -0.167 0.081
PTA -0.078 0.180*** -0.258*** -0.183* -0.089 -0.094 -0.211* -0.149* -0.063
L5.PTA 0.13 0.152* -0.022 -0.054 -0.148 0.094L10.PTA -0.017 0.098 -0.115FTA 0.232** 0.112 0.120 0.085 -0.064 0.148 0.037 -0.097 0.135L5.FTA 0.09 -0.154 0.244* -0.051 -0.434*** 0.383***L10.FTA 0.619*** 0.184 0.435*
CU 0.824*** 0.351*** 0.473*** 0.585*** 0.342*** 0.244* 0.435*** 0.313** 0.122
L5.CU 0.316* -0.159 0.475*** 0.029 -0.510*** 0.539***L10.CU 0.173 -0.068 0.242Nº of obs. 39739 39739 39739 28700 28700 28700 21838 21838 21838R2 0.68 0.45 0.45 0.70 0.52 0.51 0.65 0.58 0.55
ResultsTable 1. Main results for Specification 1 and 2. All goods.
Notes: ***, **, * indicate significance at 1%, 5% and 10%, respectively. T-statistics are provided below every coefficient
ResultsTable 2. Main results for specification 3. All goods.
TRADE(1) EM(2) IM(3)
Difnrpta -0.014 0.045 -0.06
Difnrptalong 0.061 0.004 0.057
Difpta 0.141 0.134 0.007
Difptalong 0.064 -0.003 0.066
Diffta 0.189 0.042 0.147
Difftalong 0.103 -0.160 0.262
Difcu 0.269 0.206 0.063
Difculong 0.034 -0.333** 0.367*
Observations 21838 21838 21838
R2 0.40 0.49 0.46
Notes: ***, **, * indicate significance at 1%, 5% and 10%, respectively. T-statistics are provided below every coefficient
ResultsTable 3. Main results for specification 1. Sectors 1, 2 and 3.
Primary goods and agricultural
manufacturesIndustrial manufactures
Mineral fuels, lubricants and
related materials
Trade(1) EM (2) IM(3) Trade(4) EM (5) IM(6) Trade(7) EM (8) IM(9)
NRPTA 0.223* 0.066 0.157 -0.262** 0.07 -0.332*** 1.118*** 0.618** 0.501
PTA 0.259*** 0.203*** 0.056 -0.297*** 0.037 -0.334*** -0.047 0.201 -0.248
FTA 0.501*** 0.107 0.393*** 0.108 0.055 0.054 0.546* 0.445** 0.1
CU 1.113*** 0.533*** 0.580*** 0.474*** 0.042 0.433*** 1.053*** 0.924*** 0.129
Obs 33424 33424 33424 33200 33201 33200 8753 8754 8753
R2 0.67 0.45 0.39 0.77 0.53 0.53 0.66 0.54 0.55
Notes: ***, **, * indicate significance at 1%, 5% and 10%, respectively. T-statistics are provided below every coefficient
Primary goods and
agricultural manufactures Industrial manufactures
Mineral fuels, lubricants and
related materials
Trade(1) EM (2) IM(3) Trade(4) EM(5) IM(6) Trade(7) EM(8) IM(9)
NRPTA 0.131 -0.196** 0.327*** -0.292** -0.111 -0.18 1.101* 0.061 1.040**
L5.NRPTA -0.039 0.156 -0.195 0.242 0.198 0.044 -1.627** 0.149 -1.775***
L10.NRPTA -0.351* -0.239 -0.112 0.072 -0.177 0.249 -0.128 -0.092 -0.036
PTA 0.078 -0.209** 0.287** -0.418*** -0.189** -0.229* -0.164 -0.244 0.08
L5.PTA -0.229 -0.155 -0.074 0.131 0.11 0.02 -0.33 0.226 -0.556
L10.PTA 0.423*** 0.339*** 0.084 -0.155 0.058 -0.213** 0.077 0.984*** -0.907**
FTA 0.315** -0.14 0.455*** 0.017 -0.142 0.159 0.968 -0.222 1.190**
L5.FTA -0.279 -0.246** -0.034 0.141 -0.247** 0.388** 0.177 0.532 -0.354
L10.FTA 1.040*** 0.540*** 0.501** -0.085 0.138 -0.223 0.515 1.271*** -0.756
CU 0.659*** 0.234* 0.425** 0.274* 0.235* 0.039 1.041 0.65 0.39
L5.CU -0.111 -0.236 0.125 0.139 -0.372** 0.511*** -0.218 0.233 -0.451
L10.CU 0.634** 0.112 0.523** 0.05 -0.135 0.185 0.085 0.319 -0.235
Nº of obs. 17517 17517 17517 17549 17549 17549 3223 3223 3223
R2 0.62 0.53 0.43 0.72 0.66 0.63 0.71 0.64 0.63
ResultsTable 4. Main results for specification 2. Sectors 1, 2 and 3.
Notes: ***, **, * indicate significance at 1%, 5% and 10%, respectively. T-statistics are provided below every coefficient
ResultsTable 5. Main results for specification 3. Sectors 1, 2 and 3
Primary goods and
agricultural manufacturesIndustrial manufactures
Mineral fuels, lubricants and
related materials
Trade(1) EM(2) IM(3) Trade(4) EM(5) IM(6) Trade(7) EM(8) IM(9)
DIFNRPTA -0.007 -0.166 0.159 -0.151 0.141 -0.292* 0.074 0.165 -0.091
DIFNRPTALONG -0.212 0.074 -0.287 0.276 0.098 0.178 -0.722 -0.1 -0.622
DIFPTA 0.056 -0.05 0.105 -0.2 0.061 -0.261** -0.992 -0.5 -0.493
DIFPTALONG -0.19 -0.117 -0.073 0.185 0.257** -0.072 -0.207 -0.303 0.096
DIFFTA 0.067 -0.098 0.165 0.019 -0.102 0.121 0.355 -0.068 0.423
DIFFTALONG -0.161 -0.1 -0.061 0.246 -0.004 0.249 1.039 0.158 0.881
DIFCU 0.035 -0.329** 0.364* 0.11 0.136 -0.026 0.125 0.118 0.008
DIFCULONG -0.099 -0.239 0.14 0.118 -0.165 0.283 -0.07 -0.083 0.014
Nº of obs. 17517 17517 17517 17549 17549 17549 3223 3223 3223
R2 0.43 0.43 0.39 0.49 0.58 0.53 0.65 0.61 0.58
Notes: ***, **, * indicate significance at 1%, 5% and 10%, respectively. T-statistics are provided below every coefficient
Conclusions• This paper analyzes the consequences of LA integration on trade margins
over the period 1962-2005 and for different sectors.• Our results show that the signed EIAs have positively affected the intensive
and extensive margins of trade.• The deepest integration agreements have a larger impact on trade margins
than shallower ones.• The effect of EIAs on the intensive margin is higher in magnitude than the
effect on the extensive margin.• Positive effects are more persistent over time in the intensive margin than in
the extensive margin among deeper integration agreements. • Deeper EIAs have a greater effect in the case of primary goods and
agricultural manufactures in the short term.• Trade margins are more time-sensitive to regional trade liberalization in the
sector of industrial manufactures in the long term but only in PTAs.• Our results support the limited impact of shallower agreements. It seems
that further deeper agreements which may lead to greater continuity in time and depth in the level of commitment and concessions could be a good strategy to follow in Latin America.
Further research
• To analyze the effects of the different types of EIAs on other types of products and different time periods (for example, before and after the Latin American crises)
Thank you very much!