nach oben

Empirical Economics

Erschienen in:

29.06.2019

The trade creation effects of Africa’s reciprocal vis-à-vis non-reciprocal trade agreements

verfasst von: Samuel Admassu

Erschienen in: Empirical Economics | Ausgabe 6/2020

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

The advancement of growth through the promotion of exports by granting developing countries preferential terms to rich markets is considered central in global trade policy negotiations. This paper investigates the impact of reciprocal versus non-reciprocal trade agreements on Africa’s trade. The study uses a gravity model with a 5-year-interval comprehensive dataset of 148 countries for the period 1970–2010. The results reveal that African reciprocal trade agreements perform better than non-reciprocal agreements in promoting exports and imports.

Vorheriger Artikel On the pernicious effects of oil price uncertainty on US real economic activities

Nächster Artikel Revisiting the trade effects of the euro: data sources and various samples

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

In fact, the promotion of economic development via preferential terms was an agenda in the Doha’s round of trade negotiations.

The relatively weak performance of non-reciprocal trade agreements is not surprising given the trade realities of Africa. The share of Africa export value in terms of the total world export is a mere 2.4% (IMF DOT dataset). The estimated annual trade loss is equivalent to $70 billion—roughly 21% of GDP and five times the $13 billion received in foreign aid (World Bank 2012).

Given that export is absolutely essential for countries to foster economic growth (Chow 1987; de Piñeres and Ferrantino 1997; Giles and Williams 2000; Moschos 1989), a fruitful future research avenue would be an in-depth study of the impact of trade reciprocity on exports at commodity-level disaggregation.

These agreements include regional General Agreement on Tariff and Trade (GATT) agreements. For example, in the case of Africa, reciprocal regional trade agreements (RTAs) include the EAC, COMESA, ECCAS, CENSAD, SADC, ECOWAS, EU-EPA, PAFTA and PTN.

These include non-reciprocal trade agreements such as the GSP, ACP, EU’s recent Everything But Arms (EBA) initiative, US African Growth and Opportunity Act (AGOA), Cotonou and CBI.

For the small and undiversified economies of sub-Saharan Africa, excessively strict rules of origin can impede the usefulness of preferential agreements (Mold 2005).

The proliferation of non-reciprocal agreements undermines the effort to advance free trade while reciprocal agreements are trade creating because they do not interfere with the current international trade regime (Bhagwati 2008; Özden and Reinhardt 2005).

For non-reciprocal trade agreements, the data are arranged in such a way that the exporter countries are recipients while the importer countries grant preferences.

The random effect is considered less plausible because it assumes a zero correlation between the unobservable and the preferential trade agreement (PTA). Moreover, past empirical studies reveal overwhelming evidence for the rejection of a random-effects gravity model relative to a fixed effects gravity model, using either bilateral-pair or country-specific fixed effect (Baier and Bergstrand 2007; Egger 2000). I also run a Hausman test and find that the p-value equals 0.01 implying the rejection of the random-effects model in favour of the fixed effects gravity model (Baltagi 2008).

Theoretically, simultaneity and measurement errors are also the sources of endogeneity, but prominent studies argue these issues are less serious, compared with endogeneity due to omitted variables (Baier and Bergstrand 2007).

There are some variables (bilateral and multilateral resistance terms) that can potentially affect trade, but these are not observable for the researcher. Because these variables are likely to be correlated with PTAs, they are best controlled by using bilateral fixed effects.

The omitted variable bias arises from disregarding multilateral trade resistance terms as trade choices are established on relative rather than absolute prices (Anderson and Van Wincoop 2003).

The entire effects of trade agreements on export flow cannot be captured in concurrent years only. Trade agreements alter the terms of trade, which tends to have lagged impact on trade volumes. As a result, trade agreements might also have effects a few years after they are phased in.

However, the trade agreements, either reciprocal or non-reciprocal, are very different. For example, the FTA between the USA and Morocco differs greatly from the PAFTA. As a result, the usual 0 and 1 dummies may not account for such issues. A better way to address this is to use a measure that assigns different values—other than 0 and 1—to the different types of trade agreement, which of course is beyond the scope of this study.

Although the RTAs are mainly within Africa, there are a handful of African countries that are also members of a number of cross-regional free trade agreements (FTAs) such as the EFTA, EU, Pan-Arab Free Trade Area (PAFTA) and Protocol on Trade Negotiations (PTN).

The log-linear specification excludes zero trade flows as the log of zero is undefined.

The trade agreement variable dummies are constructed using the ‘Date of Entry into Force’ of the agreement, but they fail to take into account the phase-in effect of the agreements. Two lags of trade agreements are also introduced because most PTAs are typically ‘phased in’ over 10 years.

The finding also reveals that African reciprocal trade agreements perform worse than those in other regions. This is plausible given that the inter-regional trade in Africa stagnated at around 10% among African countries over decades. As a result, the growth-fostering potential of reciprocal trade agreements in Africa is almost untapped, which could otherwise spur growth. For example, according to a World Bank study, African food imports elsewhere have a trade value of up to $52 billion a year. This suggests that broad and deep reciprocal trade agreements in Africa have the potential to enable the region to replace its food imports from outside of Africa.

Zero trade flows may be the result of rounding errors, especially for small or distant countries. Zeros can also be missing observations that are wrongly recorded as zero. These errors depend on the value of the covariates leading to inconsistency of the estimators.

The results shown in Table 3 do not account for zeros and heteroskedastic residuals.

The R² of the first-differenced equation is very small. However, this might not be surprising as it is a regression on residuals. Moreover, a very low R² is observed in prominent studies for such models, such as in Baier and Bergstrand (2007).

However, it contradicts those of Goldstein et al. (2007) and Özden and Reinhardt (2005), who reveal a negative effect of non-reciprocal trade agreements on export.

The GATT/WTO coefficient is not significant in a number of specifications, but this finding is in line with the findings of Rose (2004) and Esteve-Pérez et al. (2018). Studies such as those of Subramanian and Wei (2007), Felbermayr and Kohler (2010) and Bista (2015) indicate a positive effect, but only for some groups of countries, sectors or periods. Nevertheless, there are also studies such as those of Liu (2009) and Gil-Pareja et al. (2016) that indicate that the GATT/WTO has a strong effect.

Admassu S (2019) An empirical analysis of the trade-creation effect of African regional economic communities. Empir Econ 56(3):843–863. https://doi.org/10.1007/s00181-017-1382-7CrossRef

Anderson JE, Van Wincoop E (2003) Gravity with gravitas: a solution to the border puzzle. Am Econ Rev 93:170–192CrossRef

Baier SL, Bergstrand JH (2004) Economic determinants of free trade agreements. J Int Econ 64:29–63CrossRef

Baier SL, Bergstrand JH (2007) Do free trade agreements actually increase members’ international trade? J Int Econ 71:72–95CrossRef

Baltagi BH (2008) Econometric analysis of panel data. Wiley, London

Bartels L (2003) The WTO enabling clause and positive conditionality in the European Community’s GSP program. J Int Econ Law 6:507–532CrossRef

Bhagwati J (2008) Termites in the trading system: how preferential agreements undermine free trade. Oxford University Press, OxfordCrossRef

Bista R (2015) Reconciling the WTO effects on trade at the extensive and intensive margins. Int Econ J 29:231–257CrossRef

Bouët A, Bureau JC, Decreux Y, Jean S (2005a) Multilateral agricultural trade liberalisation: the contrasting fortunes of developing countries in the Doha Round. World Econ 28:1329–1354CrossRef

Bouët A, Jean S, Fontagne L (2005b) Is erosion of trade preferences a serious concern? CEPII Working Paper, No 2005-14

Bouët A, Decreux Y, Fontagné L, Jean S, Laborde D (2008) Assessing applied protection across the world. Rev Int Econ 16:850–863

Bureau JC, Chakir R, Gallezot J (2006) The utilisation of EU and US trade preferences for developing countries in the agri-food sector. TRADEAG Working Paper, No 193/2006

Cadot O, De Melo J, Portugal-Perez A (2007) Rules of origin for preferential trading arrangements: implications for the ASEAN Free trade area of EU and US experience. J Econ Integr 22:288–319CrossRef

Candau F, Jean S (2005) What are EU trade preferences worth for sub-Saharan Africa and other developing countries? CEPII Working Paper, No 2005-19

Chow PC (1987) Causality between export growth and industrial development: empirical evidence from the NICs. J Dev Econ 26:55–63CrossRef

Clark DP, Zarrilli S (1992) Non-tariff measures and industrial nation imports of GSP-covered products. South Econ J 59:284–293CrossRef

de Piñeres SAG, Ferrantino M (1997) Export diversification and structural dynamics in the growth process: the case of Chile. J Dev Econ 52:375–391CrossRef

Egger P (2000) A note on the proper econometric specification of the gravity equation. Econ Lett 66:25–31CrossRef

Esteve-Pérez S; Gil-Pareja S, Llorca-Vivero R (2018) Does the GATT/WTO Promote Trade? After All, Rose Was Right, Working paper http://faculty.haas.berkeley.edu/arose/GATT_WTO_Gil.pdf

Felbermayr G, Kohler W (2010) Modelling the extensive margin of world trade: new evidence on GATT and WTO membership. World Econ 33:1430–1469CrossRef

Gibson P, Wainio J, Whitley D, Bohman M (2001) Profiles of tariffs in global agricultural markets. Agricultural Economic Report, No 796, US Department of Agriculture

Giles AJ, Williams CL (2000) Export-led growth: a survey of the empirical literature and some non-causality results. Part 1. J Int Trade Econ Dev 9:261–337CrossRef

Gil-Pareja S, Llorca-Vivero R, Martínez-Serrano JA (2014) Do nonreciprocal preferential trade agreements increase beneficiaries’ exports? J Dev Econ 107:291–304CrossRef

Gil-Pareja S, Llorca-Vivero R, Martínez-Serrano JA (2016) A re-examination of the effect of GATT/WTO on trade. Open Econ Rev 27(3):561–584CrossRef

Gil-Pareja S, Llorca-Vivero R, Martínez-Serrano JA (2017) The effect of nonreciprocal preferential trade agreements on benefactors’ exports. Empir Econ 52(1):143–154CrossRef

Goldstein JL, Rivers D, Tomz M (2007) Institutions in international relations: understanding the effects of the GATT and the WTO on world trade. Int Organ 61:37–67CrossRef

Grant JH, Lambert DM (2008) Do regional trade agreements increase members’ agricultural trade? Am J Agric Econ 90:765–782CrossRef

Hoekman B, Özden Ç (2005) Trade preferences and differential treatment of developing countries: a selective survey. World Bank Policy Research Working Paper, No 3566

Ingco MD (1995) Agricultural liberalization in the Uruguay Round: One step forward, one step back? World Bank Policy Research Working Paper, No 1500

Liu X (2009) GATT/WTO promotes trade strongly. Sample selection and model specification. Rev Int Econ 17:428–446CrossRef

Manchin M (2006) Preference utilisation and tariff reduction in EU imports from ACP countries. World Econ 29:1243–1266CrossRef

Mitaritonna C, Traore F (2017) Existing data to measure African trade. IFPRI Discussion Paper, No 1618, International Food Policy Research Institute (IFPRI)

Mold A (2005) Non-tariff barriers: their prevalence and relevance for African countries. ATPC Work in Progress, No 25, African Trade Policy Centre

Moschos D (1989) Export expansion, growth and the level of economic development: an empirical analysis. J Dev Econ 30:93–102CrossRef

Ornelas E (2016) Special and differential treatment for developing countries. CESifo Working Paper, No 5823

Özden Ç, Reinhardt E (2005) The perversity of preferences: GSP and developing country trade policies, 1976–2000. J Dev Econ 78:1–21CrossRef

Panagariya A (2002) EU preferential trade arrangements and developing countries. World Econ 25:1415–1432CrossRef

Rose AK (2004) Do we really know that the WTO increases trade? Am Econ Rev 94:98–114CrossRef

Santos Silva JMC, Tenreyro S (2006) The log of gravity. Rev Econ Stat 88:641–658CrossRef

Subramanian A, Wei SW (2007) The WTO promotes trade, strongly but unevenly. J Int Econ 72:151–175CrossRef

World Bank (2012) Africa can help feed Africa: removing barriers to regional trade in food staples, poverty reduction, and economic management for African region. World Bank, WashingtonCrossRef

Titel: The trade creation effects of Africa’s reciprocal vis-à-vis non-reciprocal trade agreements
verfasst von: Samuel Admassu
Publikationsdatum: 29.06.2019
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 6/2020
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-019-01723-3

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Springer Professional "Wirtschaft+Technik"

Weitere Artikel der Ausgabe 6/2020

A note on the stability of the Swedish Phillips curve

State-dependent biases and the quality of China’s preliminary GDP announcements

The effect of the ECB’s conventional monetary policy on the real economy: FAVAR-approach

On the link between the exchange rates and interest rate differentials in China: evidence from an asymmetric wavelet analysis

Conditional growth volatility and sectoral comovement in U.S. industrial production, 1828–1915

On the contribution of international shocks in Australian business cycle fluctuations

Premium Partner