Transcript Political Economy of Development under Trade

Political Economy of Democratic Transition
and Optimal Cooperative Design
The Case Study of Gravity model-FTA
Attakrit Patchimnan, Ph.D.
Democratization and Interstate Cooperation
The Effects of Regime Type on the Establishment of Trade
Agreements, Trade Policies, and the links between
Democracy and Foreign Policy.
Groups of Countries
Democratic Transmission
OECD countries, and NAFTA
Intra-Industry Trade>InterIndustry
ASEAN
??????????
Average AFTA/CEPT Rates
Average Tariffs (CEPT)
16
CEPT level
14
Singapore
Thailand
Vietnam
Brunei
Indonesia
Laos
Malaysia
Myanmar
Philippines
12
10
8
6
4
2
0
1996
1997
1998
1999
2000
2001
Year of Trade Liberalization
2002
Source: ASEAN Secretariat
2003
Current State of Play with the CEPT
(Common Effective Preferential Tariff)
•Temporary exclusion list (TEL)
All items on the TEL would
progressively be moved to the
inclusion list in five annual
installments from 1 January 1996 to
1 January 2000. CEPT tariff rates
would be reduced at least every
three years once products were put
in the inclusion list.
•Unprocessed agricultural
products (UAPs) (SL)
Three categories, treated as follows.
a) Transferred immediately to
normal or fast track inclusion lists
by 1 January 1996 and tariffs
reduced to 0–5 per cent by 1
January 2003.
b) Placed in TEL, then transferred
to the inclusion list in equal
installments from 1 January 1997 to
1 January 2003, with a tariff of 0–5
per cent.
c) Placed in a sensitive list and then
phased into the CEPT inclusion list
by 2010. The precise phasing
arrangements, start dates and final
tariff rates are still to be agreed.
Inclusion List
•Normal track items (IL)
-T > 20 %to be reduced to 0–5 % by 1
January 2003 (2006 for Vietnam).
-T <20 % to be reduced to 0–5 % (by 1
January 2000).
-Members are encouraged to aim for
zero tariffs rather than the 0–5 per
cent range, and to achieve this by
2000 rather than 2003.
•Fast track items
-T> 20 % to be reduced to 0–5 % by 1
January 2000 (2003 for Vietnam).
-T< 20 % to be reduced to 0–5 % by 1
January 1998.
Exclusion List
Exclusion List
,
Sources : CENTER FOR INTERNATIONAL ECONOMICS
•Nontariff barrier
The initial focus was on
quantitative restrictions (QRs),
customs surcharges and
technical standards.
a) QRs on products in the
inclusion list were to be
removed at the outset of AFTA.
As products ,UAPs, are added to
the inclusion list, QRs are to be
removed.
b) Customs surcharges (for
revenue or protective
purposes) were to be removed
by 1 January 1997.
c) Technical measures (for
example, standards) and
product quality, safety,
packaging and labeling
regulations to be eliminated by
1 January 2004.
CEPT 2000
ASEAN free trade agreement (AFTA)
APEC
SAPA
Russian federation
NAFTA
Taiwan Province of China
Canada
The Increasing Problems of
Cooperation in ASEAN 10
AFTA 10
Nepal
Bhutan
Maldives
Pakistan
Sri Lanka
AFTA6
Asymmetric levels of
economic development.
United
States
Japan
Brunei
Darussalam
Indonesia
Malaysia
The divergence of trade
liberalization, macroeconomic
policies, and policy choices
caused by internal and external
shocks.
Mexico
Philippines
Singapore
Korea
Divergence of mixed political
regime types
Peru
India
Bangladesh
Thailand
China
Chile
Hong Kong SAR
TPSEPA
Vietnam
Australia
New Zealand
CER
Cambodia
Lao PDR
Myanmar
Note:
: Bilateral trade agreement
: Regional trade agreement
Sources : IMF
Papua New
Guinea
The problems of collective
actions caused by ineffective
collaboration and coordination.
Degree of Export Dependence in ASEAN free trade area (1993-1996)
Social Networks
Malaysia
Indonesia
1 Malaysia (1993)
0.000
0.116
2 Indonesia(1993)
0.070
0.000
3 Singapore(1993)
0.595
4 Thailand (1993)
Singapore
Thailand
Indonesia
0.440
0.248
0.218
0.051
0.197
0.131
0.000
0.000
0.197
0.191
0.037
0.103
0.152
0.000
0.079
5 Philippines (1993)
0.002
0.020
0.018
0.007
0.000
6 Malaysia (1994)
0.000
0.178
0.514
0.163
0.300
7 Indonesia (1994)
0.085
0.000
0.311
0.169
0.179
8 Singapore(1994)
0.849
0.000
0.000
0.511
0.250
9 Thailand (1994)
0.052
0.189
0.186
0.000
0.143
10 Philippines(1994)
0.002
0.029
0.020
0.033
0.000
11 Malaysia(1995)
0.000
0.413
0.543
0.303
0.348
12 Indonesia(1995)
0.106
0.000
0.333
0.220
0.268
13 Singapore(1995)
1.005
0.000
0.000
0.701
0.356
14 Thailand(1995)
0.073
0.226
0.236
0.000
0.206
15 Philippines(1995)
0.005
0.026
0.025
0.063
0.000
16
Malaysia(1996)
0.000
0.433
0.604
0.273
0.393
17 Indonesia(1996)
0.113
0.000
0.350
0.199
0.320
18 Singapore(1996)
0.919
1.918
0.000
0.664
0.347
19 Thailand(1996)
0.082
0.303
0.181
0.000
0.272
20 Philippines(1996)
0.005
0.046
0.036
0.051
0.000
Trend of Political Regime Type
(1962-2002)
10
8
6
4
Thailand
2
Singapore
-10
2001
-8
1998
-6
Malaysia
1995
-4
1992
-2
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
0
Phillipines
Indonesia
Vietnam
Source: Polity IV Data Set- point measure of democracy and autocracy, if REG ≥ 6 , democracy and REG ≤-6 autocracy, and -5 to +5 are considered
"incoherent polities" that are highly associated with regime instability and volatility
Empirical Perspectives of Democratic
Transition and interstate Cooperation
 Remmer (1998) asserts,
The process of democratization that began in the late 1970s was followed by a
dramatic resurgence of cooperative endeavors, including the revitalization of the
Central American Common Market, as well as the creation of new vehicles for
interstate cooperation, notably NAFTA. (p.26)
Source: Remmer, K.L. (1998). The politics of neo-liberal economic reform in South America, 1980-1994, Studies in
Comparative International Development, 33(2), 3-29.
 Mansfield, Milner, and Rosendorff (2002) assert,
The regime type of states can strongly affect their propensity to cooperate on
economic issues and more democratic countries have displayed a greater likelihood
of concluding trade agreement than other countries, even when holding constant
various political and economic influences .(p.505)
Democratic countries are about twice as likely to form a PTA as autocratic countries,
and that pairs of democracies are roughly four times as likely to do so as autocratic
pairs. These results provide strong evidence that democracies are more
commercially cooperative than other countries. (p. 481)
Source: Mansfield D. E, Milner V. H, Rosendorff B. P. (Summer, 2002). Why democracies cooperate more: electoral control and
international trade agreements. International Organization, 56(3), 477-513.
The regime type serves as an international economic cooperation
Literature Review
Edward D. Mansfield; Helen V. Milner; B. Peter Rosendorff (2000) test the hypothesis on
bilateral trade flows with gravity model from 1960-1985/ 1990, N=30480 observations.
(in-outside, Second Image Theory)
The Result of Study
1) The results of an empirical analysis based on the period 1960-1985/1990 are consistent
with the these predictions.
2) Holding constant various economic and political factors, democratic dyads tend to trade
more freely than dyad composed of a democracy and an autocracy.
 Demo+Auto 15-20% less commerce than a dyad composed of two Demo. from19601985.
 Demo+Auto 40% less commerce than a dyad composed of two Demo by 1990.
Source: Edward D. Mansfield; Helen V. Milner; B. Peter Rosendorff (2000). Free to Trade: Democracies, Autocracies, and International Trade.
The American Political Science Review, 94(2), 305-321.
Xinyuan Dai (2002) highlights some problematic aspects of MMR’s analysis.
The Result of Study
1) He recalculates the aggregate trade barriers and concludes that no clear comparison can
be drawn without considering the preference of decision makers that go into the
institutions.
Source: Dai X. (2002)Political Regime and International Trade: Democratic difference Revisited. the American Political Science Review, 96(1),
159-165).
The MMR Model
Three main Assumptions for MMR Model
The shocks on the world prices and the establishment of protection
level represents an imperfect information.
Domestic shocks have no impacts on world prices since the model
assumes countries are small opening economies.
The voters might become aware of the domestic prices affected by
both the shocks to world prices and poor economic performance.
(the interstate conflicts or violations of trade agreements on
commercial issues)
The four factors that determines the MMR model
Functions of the economy
The polity Conditions of political regime type
The executive’s optimal level of trade protection in order to explain the trade preference of voters
and government.
The Function of Government’s Maximized Level of Import Tariff Settings
Figure 1. The best response functions
t
Leviathan
strategy
t*
1
tm =t0
Nash Equilibrium
_
t (Ideal voters)
t’(Chosen by incumbents)
~
U
^
U
U
_m
Sources: Mansfield D. E.; Milner V. H.; Rosendorff B. P. (Summer, 2002). Why democracies cooperate more: electoral control and
international trade agreements. International Organization, 56(3), p. 486.
The Results of MMR Model
THE NUMBERS OF PROPOSITION
PROPOSITION 1: Comparing Political Regime: Imperfect
Control and Gains for the Executive.
RESULTS OF EACH FUNCTION
•
•
The agreement is preferred by governments, which are
sufficiently democratic and patient.
The more democratic the polity is, the greater the gains
from cooperation.
PROPOSITION 2: Comparing Political Regime: Perfect
Control and Gains for the Executive.
•
The more democratic the polity is, the greater the gains
from cooperation.
PROPOSITION 3: International Games.
•
The probability that two countries form a RTA and WTO
rises with the level of democracy in each country.
Sources: Mansfield D. E.; Milner V. H.; Rosendorff B. P. (Summer, 2002). Why democracies cooperate more: electoral control and
international trade agreements. International Organization, 56(3), 477-513.
Methodology
The data for our test are drawn from a wide range of World Bank, UN COMTRADE, International
Monetary Fund (IMF), Polity IV, International Financial Statistics (IFS), and Industry Trade Data.
The data of bilateral trade in SITC REV.3 (manufactured goods-labor intensive sectors) from
ASEAN-5’s major trade partners, such as, Malaysia, Philippines, Indonesia Singapore, and Thailand,
from 1993-2005.
The panel data analysis (cross section and time-series method) because the advantages of this method
are that panels can capture all relevant relationships among independent and dependent variables
over time, and monitor unobservable bilateral-trade-pairs’ individual effects.
Disputes ij is not included in this inquiry because there is no relationship of disputes in terms of
military conflicts
The objective of Analysis
Hypothesis: the increased probability of interstate cooperation under either RTAij or
WTOij is caused by the rising democratic levels.
The Concept of Neoliberal Intuitionalists (International Institutions).
Model I: A Regression model of RTAij (Regional Trade Agreement)
RTAij = 0 + 1 GDP i+ 2 GDP j + 3 CHECK &BALANCE i + 4 CHECK &BALANCE j +5 REG i +6 REG j + 7
POLARIZATION i +8 POLARIZATION j + 9 DISTANCE ij+ 10 POPULATION i+ 11POPULATION j +  ij
Model II: A Regression model of WTOij (World Trade Organization)
WTO ij = 0 + 1 GDP i+ 2 GDP j + 3  GDP i+ 4  GDP j+5 REG i +6 REG j + 7 DISTANCE ij+ 8
LANGUAGEij+ 9 CONTIGUITY ij+10 PAR_COM i +11PAR_COM j + 12 CHECK &BALANCE i + 13 CHECK
&BALANCE j+ 14 DISTANCE ij+ 15 POPULATION i+ 16 POPULATION j +  ij
Data Descriptions
RTAij = the variable equals 1 if country i and j participate in interstate cooperation or trade liberalization of RTA in year t, and 0 otherwise.
GDPi (GDPj) = Gross Domestic Product of country i (j) in year t, (Size of State)


GDP i (
GDPj) = the changes in the GDP of i and j from year t - 1 to t, (Downturns in the business cycle)
REG i (REGj) = DEMOC – AUTOC in year t,*
LANGUAGE ij = this variable equals 1 if country i and country j use the same language in year t, and 0 otherwise,
POLARIZATION i (POLARIZATION j) = this variable equals 1 if i or j consists of polarization in year t and 0 otherwise,
DISTANCEij = distance between country i and country j in year t,
CONTIGUITYij = this variable equal 1 if country i and country j share the same border in year t, and 0 otherwise,
PARCOM i (PARCOM j) = point measure of level of competitiveness of participation (0-10) in year t,
POLCOM i (POLCOM j) = point measure of level of political competition (0-5) in year t,
CHECK &BALANCE i (CHECK &BALANCE j) = the point measure of level of stability and check& balance (0-5) in year t,
WTO ij = the variable equals 1 if country i and j participate in interstate cooperation of WTO, (country i) and country j in year t, and 0 otherwise.
ij = error term
Table 2.1: Results of Binary Probit Models with Panel Data (RTA ij)
Independent Variables
Constant
(1)
2.07***
(-4.48)
(2)
(3)
(4)
(5)
(6)
2.54***
2.91***
2.51***
2.14***
2.11***
(-4.69)
(-4.6)
(-5.56)
Trade flow
(-3.66)
(-5.35)
2.53E-09**
1.70E-07
(-2.17)
-1.88
Population i
-5.78E-09
-2.23
(-1.93)
(-2.47)
(-1.7)
Population j
-5.62**
-9.95E-09**
-4.61E-09
-5.95E-09
(-2.26)
(-2.17)
(-1.87)
(-5.35)
-1.17**
-1.56**
-1.74**
-1.12*
(-1.78)
(-2.17)
(-2.19)
(-1.48)
-1.17**
-.164**
-1.55**
-1.56*
(-1.78)
(-2.29)
(-2.10)
(-2.11)
-7.49E-09**
-1.37E-08***
-3.55E-09
Language ij
Polalization i
Polalization j
Reg i
Reg j
0.00
0.0058**
(-0.21)
(-1.49)
-0.05
0.009**
(-1.2)
(-2.06)
Change of GDPi
-1.42E-12
(-0.16)
Change of GDPj
-4.08E-14**
(-1.72)
Distance ij
0.00*
0
4.11E-05
(-1.61)
(-0.48)
-0.11
Check & balance i
-0.267**
(-1.78)
Check & balance i
-0.262
(-1.89)
Observations
Number of country
R-squared
145
145
145
145
160
259
5
5
5
5
5
5
0.12
0.2
0.22
0.30
0.13
0.1
Notes Titles: Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1
Table 2.2: Results of Binary Probit Models with Panel Data (WTOij)
Independent Variables
(1)
(2)
(3)
(4)
Constant
0.769
(-0.97)
-4.95E-10
(-0.205)
-3.57E-09
(-1.065)
-0.288***
(-2.481)
-0.2109**
(-1.918)
1.804***
(-3.1)
6.66E-10
-0.28
9.77E-10
(-0.677)
-0.209***
(-2.53)
-2.094***
(-1.96)
0.057
(-0.05)
-9.37E-09
(-1.51)
9.98E-10
(-0.4)
-0.319**
(-2.43)
-2.88**
(-2.35)
0.603**
(-1.75)
0.459**
(-2.35)
1.62E-12
(-1.2)
1.62E-13
0.905**
(-2.056)
-5.92E-09**
(-1.82)
2.84E-09
(-1.28)
Population i
Population j
Check & balance i
Check & balance j
Par_com i
Par_com j
 GDP i
 GDPj
0.188
0.291
(-1.21)
0.016
(-0.76)
-0.472
(-0.382)
(-0.54)
(-0.752)
Contiguity ij
Language ij
(5)
(6)
1.729**
(-2.2)
0.79**
(-0.04)
-0.45***
(-3.40)
-0.32***
(-2.68)
-0.13**
(-1.88)
-0.21**
(-2.34)
0.0007
(-0.49)
GDPi
1.76E-13**
(-2.083)
2.03E-13**
(-2.48)
GDPj
-2.28E-14
(-1.22)
-4.04E-14*
(-1.54)
0.178***
-3.49
-0.052
(-0.78)
0074**
(-1.735)
0.28**
(-2.34)
-0.00***
(-2.82)
160
5
0.08
Reg i
Reg j
Polcom i
Polcom j
0.057*
(1.641)
-0.0846
(-0.944)
0.0689*
(-1.698)
0.2411*
(-1.668)
Distance ij
Observations
160
160
Number of country
5
5
R-squared
0.1
0.06
Notes Titles: Robust standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1
-6.864**
(-3.03)
-0.00
(-0.89)
160
5
0.25
260
5
0.08
0.06**
(-1.69)
0.09**
(-1.92)
160
5
0.06
Concluding Remarks
Thank You