Foreign Trade Review

Sage Publications, Inc.
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Latest documents

  • The Causal Relationship Between Foreign Debt and Economic Growth: Evidence from Commonwealth Independent States

    This study investigates the relationship between external borrowing and economic growth in the Commonwealth Independent States during the period 1995–2018. Autoregressive distributed lag (ARDL) model is employed to determine the co-integration relationship among the series and then vector error correction model (VECM) is used to analyse the causality between external debt and income. The obtained results suggest that there is a negative long-term unidirectional causal relationship running from external debt to GDP presenting a strong evidence of existence of debt overhang hypothesis. The possible reasons for this unidirectional causal relationship can be explained by poor management of provided financial resources and incomplete governance in economic transition process along with structural rigidities and immature institutions in these countries which, in the long term, resulted in insufficient capital charged to service external debt. The policymakers in these post-Soviet countries should not use foreign loans to capitalise the deficits in the economies; instead, they should be more determined in employing these funds in the areas that will create national value-added production and, thus, future income. JEL Classification: C10, F34, H63

  • Impact of India-ASEAN Free Trade Agreement: An Assessment from the Trade Creation and Trade Diversion Effects

    This article investigates the impacts on the India–Association of Southeast Asian Nations (ASEAN) Free Trade Agreement (IAFTA) on trade creation and trade diversion. The gravity model is employed, where multilateral resistance terms are included. A panel data set of 45 countries that included India, ASEAN-10 nations and India’s top 34 trading partners in 2018 were used for the period from 1996 to 2018. The article explored that IAFTA leads to a trade creation in total bilateral trade in terms of exports and imports. The analysis further explored that the import creation effect was higher than that of the export creation effect.

  • Wage Inequality and Unemployment in the Presence of Imported Intermediate Goods: A Theoretical Analysis

    This article develops a static three-sector and five-factor competitive general equilibrium model of a small open economy: sector 1 is the rural agricultural sector, which produces products using informal or unorganised unskilled labour and land as inputs; sector 2 is the urban manufacturing, final-goods-producing sector that produces products with the help of unskilled labour, who get unionised wages, and capital; and sector 3 is the service sector, which uses skilled labour with formal wages, capital and sophisticated hi-technology-intensive imported intermediate goods produced abroad as inputs. We show that an exogenous increase in capital inflow or an increase in tariff on imported intermediate input reduces the skilled–unskilled wage inequality and lowers unemployment as long as the return to capital is unaltered and output adjustments absorb the entire shock of the two policies. Such capital inflow increases rural wage and reduces unemployment via the Harris Todaro mechanism but interestingly does not allow the skilled wage to increase. Thus, two critical policy targets can be accommodated at the same time. JEL Codes: F13, J31, J46

  • Tracking Greenfield FDI During the COVID-19 Pandemic: Analysis by Sectors

    We study the trends and fluctuations in greenfield foreign direct investment (GFDI) during the first wave of the COVID-19 pandemic crisis on a global scale. We analyse the data of a data set of GFDI provided by fDi Markets (Financial Times) to understand the contraction of GFDI during the first three quarters of the year 2020, taking into account the sector of the investment and the host and home country. We analyse both the long-run trends and the quarter-over-quarter changes in GFDI to capture its fluctuations before and during the first wave of the COVID-19 crisis and the 2008 global financial crisis. Our findings cast light on which countries’ and industries’ GFDIs were most affected by the pandemic crisis and draw a comparison to the global financial crisis. To our surprise, many services industries have shown unexpected resilience of GFDI due to the flexibility for remote work. On the contrary, GFDI in the manufacturing industries, as well as the extractives and the utility industries, has shown a dramatic decline during the pandemic. These contractions raise questions of stability and resilience of the global supply chains these industries are a part of. JEL Codes: F21

  • Book review: Rajib Bhattacharyya (Ed.), The Gains and Pains of Integration and Trade Liberalization: Lessons from Emerging Economies

    Rajib Bhattacharyya (Ed.), The Gains and Pains of Integration and Trade Liberalization: Lessons from Emerging Economies. UK: Emerald Publishing, 2020, $105, 296 pp. ISBN: 9781838670047.

  • Evaluating the Effect of Digital Transformation on Improvement of Service Trade in West Africa

    Digital revolution is instrumental to the wave of globalisation and transformation of the global economy. But the pace of digital transformation and service trade is low in the West African region. This article investigates the effect of digital transformation on the development of service trade in the region. This research captured digitisation in two standpoints: internet penetration rate and mobile subscription rate. The Im-Pesaran-Shin unit-root test affirms that the model is appropriate for panel autoregressive distributed lag estimation method. Adopting pool mean group estimator, the results attest for the existence of cointegrations in the model. The estimations reveal that the effect of digitisation on service trade is a long-run phenomenon. While the result is robust with export, it is not consistent with import. The long-run positive impact of digitisation on service export ranges from 0.087% to 0.159%, depending on the proxy for digitisation. The overall short-run effect is not statistically significant in export and not robust in import. It is reportedly consistent in some countries but not robust with some others. The region needs to rally in adopting and adapting to the new face of technology to improve service trade. JEL Codes: C23, F14, O33

  • Free Trade vis-à-vis Morality: Revisiting the Public-Morals Exception Clause in the World Trade Organization

    The most sanctified obligation of the World Trade Organization (WTO) is the promotion and facilitation of international trade and liberalisation of the world economy. Although WTO members are committed to the WTO principle of free flow of goods and services among its members, the WTO permits its members to retain certain regulatory powers under its system to impose trade-restrictive measures based on certain exceptions, like, among other things, public morality under Article XX(a) of the General Agreement on Tariffs and Trade (GATT, 1994). Nevertheless, the question remains: what is public morality for a WTO member, and how far may this clause be invoked in defence of adopting trade-restrictive measures? Recently, the WTO panel on the US tariff case revived the long-standing debate on international trade versus public morality. Is a WTO member free to choose any trade-restrictive measure under the cloak of public morality? Then, what mechanism has the WTO panel/AB (Appellate Body) envisaged to check WTO members from adopting any trade-restrictive measure based on public morals? This article tries to answer these questions by analysing previous WTO disputes related to trade and morality. Against this background, this article looks back at the history of the public-morals exception clause, revisits previous WTO case laws on the public-morals exception and tries to ascertain the precise meaning of public morality—how the WTO Dispute Settlement Body (DSB) checks and balances two conflicting principles, that is, the right to regulate and the principle of free trade—and whether WTO has successfully developed a coherent jurisprudential approach to deal with contradictory interests, that is, trade versus morality. JEL Codes: F, F1, F13

  • Growth Behaviour of India’s Export of Services, 1975–2018

    Trade in services has made phenomenal strides in the globalisation era with the advent of a technology revolution, fragmentation in production processes and rapid digitisation. The case of India has been exemplary, as she bypasses her sluggish growth in goods exports to emerge as a world leader in commercial services. By churning out positive net exports since 2003, this trade sector has considerably eased the country’s unfavourable current-account position. Further, the relatively robust performance of the country’s service exports in the face of the Great Recession of 2008–2009 has ignited speculations over its suitability as an instrument of sustainable economic growth. Though the stupendous growth of India’s export of services is well documented, not much has been said regarding consistency in this growth. Our study identifies that against the backdrop of key macroeconomic developments, the growth performance of the country’s real export of services has undergone vivid variations. The long-term trend of these exports, though increasing, is choppy. We identify three structural regimes in the course of these exports: 1975–1993, 1994–2004 and 2005–2018. We conscientiously deduce that the phenomenal growth of real service exports that accrued in the 1990s has been slowly wearing out post 2005. The slowdown has both cyclical and structural elements to it and corresponds to the changing cyclicality of service exports, subduing demand, slowing global value chains (GVCs) and post-crisis mood of protectionism. JEL Codes: F14, C32, E32

  • Services Trade: The Great Gender Equaliser?

    Standing at 24% in 2018, India’s female labour force participation is only half of the global average (48%). At the same time, India has one of the widest gender wage gaps in the world and women are less likely to be employed in the formal sector compared to men. This article focuses on how international trade affects relative wages and formal employment between men and women in India. Using the Revealed Symmetrical Comparative Advantage index, sectors of comparative advantage and disadvantage are identified and matched to Indian labour force surveys that contain information on sectoral employment and earnings. We find that sectors of comparative advantage in services have the lowest gender wage gap, with women earning 24% less than their male counterparts, while women in manufacturing earned on average 40% less than male workers. Using the Oaxaca–Blinder decomposition, we find that the total gender wage gap in sectors of comparative advantage in services are minor while it is quite substantial in manufacturing, regardless of comparative advantage status. The article concludes that services trade goes hand in hand with a smaller gender wage gap as women leverage their skills better in services than in manufacturing. JEL Codes: F16, F14

  • Who Gains from Services FDI—Host or Home Economies? An Analysis of Disaggregated Services FDI Inflows and Outflows of 24 European Economies

    This study focuses on a sample of 24 European economies to examine the spillovers from disaggregated services foreign direct investment (FDI) on economic growth. We study the impact of 20 disaggregated services FDI inflows and outflows, respectively, on their host and home country services sector and overall growth. We find that both financial services and business services FDI are beneficial for growth in both host and home countries. Financial services FDI works though financial holding companies and home countries benefit especially from investment in foreign banks, which provides access to credit. Business services FDI works though management holding companies and home countries benefit, especially from investment in computer activities, which provides access to specialised human capital and high-value knowledge assets. The positive spillovers to home countries provide evidence for arguing against protectionism. JEL Codes: F2, F21, F43

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