Transcript on average

Pressures from globalisation: are
trade restrictions the answer?
L Alan Winters
Professor of Economics, University of Sussex
CEPR, IZA, GDN
Manufacturing does matter for exports and
productivity
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Manufacturing Share of Economy
Share %
GDP pc PPP, 1990
$10K PPP, 1990
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Share of Manuf. in Economy
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Share of Manufactures in Merch. Exports
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Competition: Global
• E.g. Wood and Mayer (2009)
• China implied a 8-15% increase in world
unskilled labour abundance
• Everyone else’s comparative advantage
changed
• Their Manufactures/primaries ratios fell by:
• 7-10% for output
• 10-15% for exports
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Who is affected?
• Consumers (Broda & Romalis)
– Inflation for lowest 10% 6ppt lower than average
– Correlates with imports from China
• Producers:
– Competition for incumbents – static and dynamic
responses
– Intermediates for all (incl. potential)
– Outsourcing and value chains (new opportunities)
– Aggregate output (growth)
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Conditional Effects
• Heterogeneity of country studies
• Chang, Kaltani & Loayza (2009, JDE)
– Interactions of openness with
education
telecoms
financial depth inflation
governance
lab mkt flex
firm entry flex firm exit flex
– Weaker effects in poorer countries; middle-income
countries strongly positive effects
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Effects of Labour Market Regulation
(Bolaky-Freund; JDE 2008)
Less regulated half
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2013
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More regulated half
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Productivity
• Selectivity
• Competitive pressure
• Imported inputs (Amiti & Koenings (2007,
AER) and AER P&P 2009
• Learning by Exporting (Fernandes & Isgut,
2005, WB; Blalock & Gertler, 2004, JDE)
• Learning to Export (Iacovone, 2009, WB)
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Mexican Firms – Chinese Exports
(Iacovone, Rauch and Winters – JIE 2013)
•
•
•
•
Firm sales and existence
Huge growth of competition 1994-2004
Impact via both domestic and export markets
Effects strong but highly unequal
– At plant…as well as at product level
– Larger (more productive) plants less hurt…“core”
products less impacted than “marginal” ones
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Heterogeneity of Competition Effects
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Why the Resistance?
• Trade is heavily redistributive
– There will always be losers; as always
– Even gains unevenly distributed
– Losses may not be randomly assigned
– Special interest groups
• Hence the politics are difficult
– Time periods long
– Distribution - internally and relative to foreigners
– No guarantees → risks
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Where do we go from here?
• Vast majority of growth policy is not trade
policy; don’t obsess about it
• But trade policy is relatively simple technically
• Treat trade policy as decision, not a hypothesis
test
– No guarantees,
– Balance of evidence and priors
– Costs of different errors
– Cost of uncertainty
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Distribution of growth increments
Percent change in growth over liberalisation
12
Kneller et
al (2008)
number
10
8
Sample of
47 events
6
4
2
M
or
e
7
6
5
4
3
2
1
0
-1
-2
0
percent p.a.
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Cost of error
• ‘We know of no credible evidence … that
suggests that trade restrictions are
systematically associated with higher growth
rates’
Rodriguez and Rodrik (2001, p.317)
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Industrial Policy: Traditional
• Support for specific sector
• Initial losses balanced by future gains?
– Need super-normal profits in future
– i.e. out-compete existing producers
• Why not private capital markets?
– Capital market failure?
– Product or factor market failure – i.e. an
externality
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Externalities
• Dynamic (static externalities require permanent
policy not temporary relief)
• Firms can’t appropriate benefits of:
• Learning
– Others copy techniques (hard or soft), market
research, export market development
• Training (firm-specific training excluded)
– Workers, once trained, move to rivals
• Establishing national reputation
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Subsidies do not solve Externalities
• Increase incentive (speed and effort) to
innovate but also to imitate – net effect
uncertain
• Similarly for training workers
• Does not reduce incentive to cheat on national
quality reputation
• Information required huge for any intervention
• Support relaxes pressure for scale (excess
entry) and/or efficiency
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Industrial Policy: Rodrik (2007)
• ‘stimulate specific economic activities and
promote structural change’ ; ‘not about
industry per se’
• Horizontal vs. vertical policies
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Aims
• Curing pervasive market failures e.g.
– Credit markets (micro-finance)
– Spillovers in technology adaptation
– Agglomeration
– Human capital policy
• Tradables hardest hit by these or institutional
failures
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Practical Challenges of Industrial Policy
• Informational requirements
• Rent-seeking, corruption
– distort decisions
– waste resources
• But these afflict other policies too and we still
pursue those -
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Guiding Principles for Industrial Policy
1. Knowledge about constraints and spill-overs
is widely diffused
2. Business will ‘game’ any system
3. Beneficiary is society, not government or
business
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Responses
1. ‘Embedded autonomy’ for bureaucracy
–
–
i.e. close relations with business, but independent
Processes of revelation and discovery required
2. Sticks and carrots
– Performance/behaviour criteria; use market
– Failures are natural; let them fail
3. Accountability
– Of business to bureaucracy, bureaucracy to
politicians
– Monitoring, transparency, autonomous agencies
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To sum up:
•
•
•
•
Big changes are afoot
Openness boosts income on average
Productivity effects seem strong
Policy governed by balance of probabilities
and costs – no guarrantees
• Traditional industrial policy – flawed
• ‘Horizontal’ policies may be useful, but hard to
implement – politically and practically
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THANK YOU
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What’s special about now?
• Growth and consumption aspirations
– Global media
• Cheaper trade → higher returns to success
– Correspondingly lower to failure
• Global value chains
– Trade is central
– Competition to get investment
• Only very large can afford to stand aloof
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