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Estimating Trade Restrictiveness Indices. DECRG-Trade The World Bank October 2004. Motivation:. Input to Global Monitoring Report. Request by GMR: Comparison of trade restrictiveness across countries Any patterns across regions/time? Two indicators: restrictiveness of own trade policy

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estimating trade restrictiveness indices

Estimating Trade Restrictiveness Indices

DECRG-Trade

The World Bank

October 2004

motivation
Motivation:

Input to Global Monitoring Report.

Request by GMR:

  • Comparison of trade restrictiveness across countries
    • Any patterns across regions/time?
  • Two indicators:
    • restrictiveness of own trade policy
    • restrictiveness vis à vis Low Income Countries (LIC)
two classic problems
Two classic problems:
  • Trade policy takes many different forms
    • How can one aggregate tariffs, quotas, agricultural subsidies, etc..?
  • Trade policy is determined at the tariff line level
    • How can one summarize 5000 different tariffs in one aggregate measure?

The OTRI addresses these two problems with sound theoretical approaches, and not ad-hoc criteria.

1 how to measure the restrictiveness of different trade policy instruments
1) How to measure the restrictiveness of different trade policy instruments?

1) Focus on tariff data

  • And hope that all other instruments are (perfectly) correlated.

2) Focus on trade data (import, export shares)

  • It summarizes the impact of all trade policies…
  • But also taste, macroeconomic shocks, rainfalls….

3)Measure all instruments with a common metric

- IMF’s TRI: ad-hoc criteria.

- AVE of NTBs: theoretically sound.

.

2 which aggregation procedure
2) Which aggregation procedure?

1) Simple averages?

2) Import-weighted averages?

3) Frequency ratios?

3) IMF’s TRI?

4) GDP weighted for regional groups?

No. All are a-theoretical

  • We follow Anderson and Neary (IER, 2003)
    • Import-volume Equivalent index:
      • What is the equivalent uniform tariff that would keep aggregate imports at their observed levels?
inputs to the gmr
Inputs to the GMR
  • Three background papers:
    • Estimating OTRIs (for 94 countries)
    • Estimating of AVE of NTBs (for 94 countries)
    • Estimating import demand elasticities (117 countries)
  • Output includes three datasets:
    • OTRIs (aggregate and bilateral) for 94 reporters.
    • AVEs of Core NTBs and Agricultural domestic support for at the 6 digit of the HS for 94 countries.
    • Import demand elasticities for more than 117 countries at the six digit level of the HS.
slide7
Plan
  • Methodologies
    • Estimating MTRIs
    • Estimating AVEs
    • Estimating Elasticities
  • Data sources
  • Results
    • Elasticities
    • AVEs
    • MTRIs
  • Extensions
estimating otri

1. Methodologies

Estimating OTRI
  • What is the uniform tariff (equivalent) that would keep aggregate imports at their current level?
  • Tc is a weighted-average of protection at the tariff line level (Tn,c). Weigths depend on:
    • Import shares:
    • Import demand elasticities
estimating aves of ntbs
Estimating AVEs of NTBs
  • First we estimate the impact of NTBs on imports (Leamer, 1990, Harrigan, 1993, Trefler, 1993).
    • By country and by HS 6 digit tariff line (Leamer’s comparative advantage approach).
  • Then, we convert the import-quantity impact into price or tariff equivalents (AVEs):
    • Moving along import demand curves using estimates of import demand elasticities.
estimating import demand elasticities
Estimating Import Demand Elasticities
  • GDP function approach (Kohli, 1991) and Harrigan, 1997).
  • Imports are inputs into domestic production, given exogenous world prices, productivity and endowments.
  • Close links to trade theories -- general equilibrium effects of the reallocation of resources as prices or endowments change
  • Kohli – aggregate level; Harrigan – industry level
  • Here: tariff line level (HS 6-digit)
2 data sources
2. Data Sources

Import Demand Elasticities:

Trade data (COMTRADE) - HS6 1988-2002 - 117 Countries.

WDI for factor endowments

Between 1000 and 4500 HS products for each country

Total number of import demand elasticities estimated is about 320,000

AVEs of NTB:

Core NTB (Price control, Quantity control, etc..)

Domestic Subsidies (WTO notifications)

UNCTAD Data (TRAINS) – HS6 (mostly around 2000)  94 Countries (EU counts as one)

OTRI

WTO’s IDB 

OECD Tariff and Trade CD-ROM. Unctad’s AVEs of specific tariffs.

94 Countries (EU counts as one).

MTRI estimated at the bilateral level (10,000 different MTRI)

3 results
3. Results
  • Import Demand Elasticities:
  • -Very precisely estimated.
  • -Larger for homogenous goods (i.e., larger for metal than machinery)
  • -Smaller as we aggregate the level at which we estimate them
  • Larger in large and poor countries
  • AVEs of NTBs:
  • Average increases with GDP per capita
  • Contribution to overall level of protection increases with GDP per capita
  • When present they are more restrictive than tariffs:
    • in 77 percent of tariff lines where core NTBs are present
    • in 45 percent of tariff lines where agricultural domestic support is present
  • OTRI:
  • Peaks in middle income countries
  • Peaks against middle income countries
  • Higher in agriculture
  • LIC face higher OTRI in some markets in spite of preferential schemes.
4 extensions
4. Extensions
  • Include cross-price effects in OTRI calculation.
  • Estimate standard errors of AVEs.
  • Include broader set of preferences.
  • Include AVEs of technical regulations.
  • Regular updates?
  • Others?