Judith M Dean

Decomposing China–Japan–U.S. trade: Vertical specialization, ownership, and organizational form

Judith M. Dean et al. — Thu, 01 Oct 2009 10:36:41 PDT

We use the US International Trade Commission's uniquely detailed 1995–2007 Chinese Customs data to better understand the pattern of trade between China and its two largest trading partners, Japan and the United States. Our review finds that only a small share of these flows can be characterized as arm's length, one-way trade in final goods. Instead, we find extensive two-way trade, deep vertical specialization, concentration of trade in computer and communication devices, and a prominent role for foreign-invested enterprises. While these characteristics define both bilateral relationships, important differences between the two pairs do emerge, suggesting that trade costs influence the method by which multinationals choose to integrate their production with China. Consequently, we argue that dialogue on East Asian trade liberalization should include the possibility of significant production gains for the US from its inclusion in any regional agreements.

Estimating the Price Effects of Non-Tariff Barriers

Judith M. Dean et al. — Fri, 27 Feb 2009 16:39:50 PST

As multilateral negotiations focus more on reductions and removal of non-tariff barriers (NTBs), the importance of quantifying the impact of these barriers has increased. Recent studies have derived ad valorem equivalents for NTBs for a large number of countries and/or products, but the derivation has been indirect, due to either lack of price data or NTB incidence measures. This paper uses city level retail price data to directly estimate the average impact of core NTBs on prices of 47 consumer products, grouped into four separate sectors, for more than 60 countries in 2001. The analysis uses both government self-reported data and a new database of private sector complaint data to assess NTB incidence. A differentiated products model is used to capture imperfect substitutability between products. With city level price data-- including both inter- and intra-country price differences—a more precise distinction can be made between the impact of NTBs and the impact of local distribution costs in raising price. The model is estimated using an instrumental variables approach to incorporate the endogeneity of NTBs. Results suggest that core NTBs are still highly restrictive in many countries and for many traded goods. While NTBs appear to be complements to tariffs, in some sectors the presence of a tariff reduces the price impact of the NTB. Results also suggest that in some sectors, the restrictiveness of NTBs is highly correlated with country income.

Is Trade Preference Erosion Bad for Development?

Judith M. Dean — Fri, 27 Feb 2009 16:27:46 PST

In much of the recent debate about trade preference erosion, opponents have stressed the impact that trade preferences have had on economic development in beneficiary countries. However, lack of quantification of preference margins and preference utilization has inhibited testing such hypotheses. This paper uses HS 8-digit level U.S. data to quantify both preference utilization and tariff preference margins for the CBERA beneficiary countries from 1984-1998. Panel data from 1970-1998 are then used to test the impact of preference erosion on growth and investment in ten beneficiary countries. A two-equation simultaneous model is developed which allows preference erosion to impact growth directly as well as indirectly through investment. Results show that CBERA preferences have been steadily eroding since 1984, while average CBERA preference utilization has risen dramatically since 1984. The panel estimation shows that CBERA preference erosion did discourage investment and growth (both directly and indirectly) in some beneficiary countries. However, increased CBERA utilization stimulated investment and growth, and is likely to have outweighed the effects of preference erosion on development. Preferential access to qualifying apparel imports via the production-sharing program had at least as large an effect as the CBERA. Finally, for all countries, increased openness mattered much more for development than preference erosion.

Quantifying the Value of US Tariff Preferences for Developing Countries

Judith M. Dean et al. — Fri, 27 Feb 2009 16:16:35 PST

In recent debates, trade preference erosion has been viewed by some as damaging to developing countries, and by others as insignificant, except in a few cases. However, little data have been available to back either view. The objective of this paper is to improve our measures of the size, utilization and value of all US non-reciprocal trade preference programs, in order to shed some light on this debate. Highly disaggregated data are used to quantify the margins, coverage, utilization and value of nonagricultural and agricultural tariff preferences, for all beneficiary countries in the US regional programs and in the GSP. Results show that US regional tariff preference programs are generally characterized by high coverage of beneficiary countries’ exports, high utilization by beneficiary countries, and low tariff preference margins (except on apparel). For 29 countries, the value of US tariff preferences was 5% or more of 2003 dutiable exports to the US, even after incorporating actual utilization. Most of this value is attributable to non-agricultural tariff preferences, and to apparel preferences in particular. These results suggest that preference erosion may be significant for more countries than many had thought.

Trade growth, global production, and environmental degradation

Judith M. Dean et al. — Fri, 27 Feb 2009 16:10:58 PST

Measuring Vertical Specialization: the Case of China

Judith M. Dean et al. — Wed, 25 Feb 2009 11:41:36 PST

The explosive growth of Chinese trade may be due to international production fragmentation, but few have assessed these phenomena together, in part, because it is difficult to measure the vertical specialization (VS) of China’s trade. Unique features of China’s processing trade cause both identification of imported inputs and their allocation across sectors to vary by trade regime.This paper estimates theVS of Chinese merchandise exports, addressing these two challenges.A new method to identify Chinese imported inputs is developed, and used to calculate VS by sector and destination.VS estimates based on the official Chinese input–output table are contrasted with those based on a split table, capturing processing and normal exports separately. Last, the paper tests whether Chinese “export sophistication” can be explained by VS.

Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China

Judith M. Dean et al. — Wed, 25 Feb 2009 11:27:44 PST

At the center of the pollution haven debate is the claim that foreign investors from industrial countries are attracted to weak environment regulations in developing countries. Some recent location choice studies have found evidence of this attraction, but only for inward FDI in industrial countries. The few studies of inward FDI in developing countries have been hampered by weak measures of environmental stringency and by insufficient data to estimate variation in firm response by pollution intensity. This paper tests for pollution haven behavior by estimating the determinants of location choice for equity joint ventures (EJVs) in China. Beginning with a theoretical framework of firm production and abatement decisions, we derive and estimate a location choice model using data on a sample of EJV projects, Chinese effective levies on water pollution, and Chinese industrial pollution intensity. Results show EJVs in highly-polluting industries funded through Hong Kong, Macao, and Taiwan are attracted by weak environmental standards. In contrast, EJVs funded from non-ethnically Chinese sources are not significantly attracted by weak standards, regardless of the pollution intensity of the industry. These findings are consistent with pollution haven behavior, but not by investors from high income countries and only in industries that are highly polluting. Further investigation into differences in technology between industrial and developing country investors might shed new light on this debate.

Trade Growth, Production Fragmentation and China's Environment

Judith M. Dean et al. — Wed, 25 Feb 2009 11:07:05 PST

In recent years, China has experienced both rapidly growing trade and serious environmental degradation. The large literature on trade and environment lends some credence to the idea that these are causally related: trade growth for a relatively poor country is thought to shift the composition of industrial output towards dirtier products, aggravating environmental damage. However, much of China’s trade growth is attributable to the international fragmentation of production and the growing dominance of trade in parts and components. This kind of trade could lead to “cleaner” trade if fragmented production occurs in cleaner goods or China specializes in cleaner stages of production within these goods. Using Chinese environmental data on air and water pollution from the State Environmental Protection Agency and highly disaggregated trade data from China Customs, we present evidence that the pollution intensity of Chinese exports fell dramatically between 1995 and 2004. We then explore the possibility that trade fragmentation and foreign investment have played a role. Using the Copeland and Taylor (1994) framework, we develop a reduced form model of the pollution intensity of trade, incorporating standard determinants of a country’s production mix, such as factor proportions, income per capita, and trade policy. We explicitly incorporate the degree to which Chinese exports are fragmented, building on the work of Feenstra and Hanson (1996). We use this model to estimate the influence of increased fragmentation on the pollution intensity of trade over time. The evidence supports the view that increased foreign investment and production fragmentation have contributed positively to the decline in the pollution intensity of China’s trade, as has accession to the WTO and lower tariff rates. Chinese per capita real income growth is also positively associated with the trend toward cleaner trade.