Category Archives: Institutions

New evidence on WTO membership after the Uruguay Round: an analysis at the sectoral level.

Magnus dos Reis (Unisinos), André Filipe Zago de Azevedo (CNPq), and I have a forthcoming paper at Open Economies Review that examines the effects of WTO membership on trade flows, with a special focus on sectoral trade flows. The full paper is available upon request.

Abstract

The creation of the World Trade Organization in 1995 brought several changes to the world trade system, including more stringent accession commitments, separate agreements for agricultural products and for textiles and garment. This study examines the effects of WTO membership on disaggregated sectoral trade flows and their extensive and intensive margins by means of a gravity model estimated by Poisson pseudo-maximum likelihood. We employ a panel dataset on bilateral imports for agriculture, textile, and manufacturing sectors for the 1995–2017 period. Our estimates suggest that WTO membership has succeeded in expanding trade flows for new members. Nevertheless, this growth occurred asymmetrically between developed and developing countries, and among the different types of products. In the period under review, developing countries benefited most from this WTO-promoted increase in world trade, in stark contrast to the findings of the extant literature for 1950–2000. The largest trade growth occurred in the agriculture sector, which is also at odds with earlier findings of growth in manufacturing products only. Furthermore, our results show that the increase in trade due to WTO liberalization took place exclusively in the extensive margin of trade, most of which also happened in the agricultural sector.

 

New Database on Trade Facilitation

The World Trade Organization (WTO) promoted the Agreement on Trade Facilitation (TFA) in order to foster international trade by simplifying cross-border trade procedures, which reduced not only transit time but also costs.  When fully implemented, the TFA is expected to substantially reduce trade costs by 10%-18% (OECD, 2018 ) and at the same time to increase exports by more than 3 trillion dollars per year (WTO, 2015).

UNCTAD just released a real-time database that comprises standardized data from national trade facilitation committees (NTFCs). This allows scholars and practitioners to follow and study the implementation of the commitments made by each country  under the TFA agreement. The video below provides more details on this interesting and promising database.

Labor Provisions in Trade Agreements

A very important question for those concerned with job precarization is whether and how this phenomenon is impacted by globalization and more specifically by international trade. A key hurdle has been the absence of a well organized dataset of the labor provisions included in trade agreements. This would allow not only for a cleaner identification of the effects of trade but also for an estimation of the impact of the labor provisions. Fortunately, the International Labour Organization recently made available a dataset of this type.  It covers more than 100 trade agreements and 140 countries! You can find more about the typology used here, about the dataset here,  and in the video below.

EU and Brexit

The bulk of the negotiations regarding the United Kingdom withdrawal from the European Union were concluded on December 24, 2020. The details are available here: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2531 .At a first glance, this seems to be a reasonable agreement that avoids most of the doomsday scenarios portrayed by many observers. Although there are several details to be worked on, the most important aspect of this agreement, in my opinion, is the creation of a Free Trade Area between the UK and the EU. This FTA should pose little friction on trade flows, unless significant red tape is created. An interesting question is whether this FTA agreement with the EU will facilitate or hamper the other trade agreements that are being negotiated by the UK.

Inflation Targeting

Inflation targeting is a somewhat new approach to the role of Central Banks. This system was implemented in Brazil when I was a senior in college. I still remember the debate on whether inflation targeting was appropriate to a developing country like Brazil and most analysts predicted it wouldn’t last long. That said, inflation targeting has been used for approximately 20 years in Brazil.

There is a book about inflation targeting written by Pierre-Richard Agénor (University of Manchester) and by Luiz Pereira da Silva (BIS).  This book is titled “Integrated inflation targeting: Another perspective from the developing world”. It provides a wealth of information about recent experiences with inflation targeting in developing countries, including discussions about how it performed in light of the global financial crisis and the issues faced by policymakers. This is a very nice manuscript and I strongly recommend to those interested in learning more about inflation targeting.

 

The infancy of Mercosul (or Mercosur)

There are two very interesting books in pdf format about Mercosur by Paulo Roberto Almeida that can be downloaded for free.

The first book is titled “O Mercosul no Contexto Regional e Internacional ” (Edições Aduaneiras, 1993).  It provides some background information about the foreign affairs in the Southern Cone of South America. And it goes over the fundamentals of the Mercosur. This book was written between the conclusion of the main negotiations of Mercosur and the implementation of the Mercosur. Thus, it provides an interesting perspective on the crucial issues and expected impacts of Mercosur, see for instance chapter 10.

The second book was published in 1998, three years after the the implementation of Mercosur. It is titled “Mercosul: Fundamentos e Perspectivas” (São Paulo: Editora LTr, 1998, 160 p.; ISBN: 85-7322-548-3). This book puts the Mercosur in the context of the century-old idea of Latin American Integration. Also, it goes over the implementation of the Mercosur and the first issues experienced by the member countries. Finally, in chapter 9, the author discusses the relationship between Mercosur and the (now defunct) FTAA-Free Trade Area of the Americas.

I strongly recommend these two books for scholars interested in learning more about the ambitious albeit problematic integration agreement that is the Mercosur (or Mercosul…).

The erratic Brazilian trade policy

The recent elections in South America indicate a major change in course for the Southern Cone countries and also for Bolivia. This change is not uniform across countries, and in some cases can be in opposite directions like the cases of Brazil and Argentina. Interestingly, the Brazilian trade policy experienced large changes over time, in part due to balance of payments constraints. Since the 2000s, Brazil did not pay much attention to Mercosur because of its large trade surpluses from the China-induced commodity boom. Nevertheless, the current government in Brazil sees Mercosur as a stumbling block to trade negotiations with other countries. The fundamental question is what are the goals of the current Brazilian trade policy? A key ingredient of any answer to this question is contained in an interesting article by Paulo Roberto Almeida that revisits the history of the Brazilian trade policy. This is a very nice and succinct paper that I recommend to everybody interested in learning more about Brazilian trade policy.

The past of Mercosur (or Mercosul)

The recent presidential elections in South America have raised concerns about the future of Mercosur, or Mercosul for Portuguese speakers. Although it is too early to make any reasonable prediction, it is interesting to note that Mercosur since its inception has been always more than just a trade agreement. This point has been overlooked by many analysts. And perhaps, this is the reason behind the survival of this agreement. An excellent starting point for those interested in learning more about Mercosur is a paper by Paulo Roberto Almeida titled “Regional Integration in Latin America: Historical Developments, Current Challenges, Especially in Mercosur”. This nice paper examines the evolution of the Southern Cone countries’ foreign policies since the early eighties. It goes over the foundation of the Mercosur in 1991 and the conflicts between member countries that that have taken place after 1999.

Harrod, Domar and the History of Development Economics

One of my recollections of the development economics course I took when I was a business school major was about the “Harrod-Domar model” in an undergraduate course about.  I was amazed by the idea that government could foster economic growth. Yes,  I was young and naive. Anyway, for those interested in the history of development economics I strongly recommend Dr. Mauro Boianovsky’s paper titled “Beyond capital fundamentalism: Harrod, Domar and the history of development economics” that was published in the Cambridge Journal of Economics. This amazing paper received the 2019 best paper award by the European Society for the History of Economic Thought. I hope you enjoy reading it as much as I did.

Social Security Reform in Brazil

Since I was a little kid Social Security reform has been discussed in Brazil. It is fair to say that in the early 1980s a huge actuarial deficit was already in place. Since the financial side was still fine, i.e. Social Security contribution revenues were larger than the paid benefits. Additionally, the hyperinflation of this period facilitated financial adjustments. All that was needed to balance the Social Security budget was to adjust benefits by less than the actual inflation rate.

To make matters worse, several significant changes affected the Brazilian economy since the late 1980s. First, the Brazilian Constitution of 1988 changed several Social Security rules for both private sector and public sector workers. These changes, among other nefarious effects, increased substantially the benefits paid without an increase in the contributions. Moreover, the Brazilian Social Security system is a pay-as-you-go system, which makes it very vulnerable to demographic changes. In fact, the fertility rate started to decline rapidly and at the same time life expectancy in Brazil increased considerably since the 1980s. Finally, the end of hyperinflation after the implementation of the Real Plan in July 1994 prevented the use of inflation by government to curb Social Security deficits. As a result, by the end of the 1990s, Social Security had both actuarial and financial deficits.

Several mild reforms have taken place since the mid-1990s, though none of them were able to restrain the ever increasing financial deficit. A new reform is currently being discussed in the Brazilian Congress. It is not clear, at least to me, whether it will be modified (and how) or even if it will be approved by Congress. In this link you can find some of the fiscal forecasts that were used to support the current proposal to reform Social Security.

 

New book about the Brazilian economy

The International Monetary Fund published a new book about the Brazilian economy. It first provides an overview of the Brazilian economy, and then cover  the following important topics: Economic Growth, Social Progress, Fiscal Framework, Challenges to the Monetary and Financial Framework, and Fighting Corruption. This book can be downloaded for free here.

The third chapter (Current Constraints on Growth) is of interest for those trying to understand some of the reasons for the poor performance of productivity growth in Brazil, which many observers suggest to be the key structural problem of the Brazilian economy.

Roberto Campos and the Brazilian Constitution of 1988

Let me talk again about Roberto Campos and the Brazilian institutions. After a heterodox economic plan was implemented in February of 1986, the entire country was happy and enthusiastic. Later in the year, Brazilians voted for state governor and for a new Congress. Most important, the elected members of this new Congress were also in charge of writing a new Constitution for Brazil. Campos was elected deputado federal (a representative in the Brazilian lower chamber).

As I mentioned in a previous post, he was involved with many of the institutional changes that took place in Brazil between 1964 and 1967, including the creation of the Brazilian Central Bank. Unfortunately, his role in the drafting of the new constitution would be a much smaller one. Although many observers claim that the 1988 Constitution represented a move forward in civil and political rights, the majority of the economists believes that it severely reduced the economic freedom in Brazil by given the Brazilian federal government a central role in the country’s economy.

With a tad of melancholy, Roberto Campos  produced several essays about the changes introduced by the 1988 Constitution that were made available in a book titled “A Constituição Contra o Brasil” (The Constitution against Brazil). This book is a must read for those trying to understand the (good or bad) changes  introduced in the Brazilian economy after 1988. A pdf of the book (in Portuguese) is available here.