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Estimating Trade Restrictiveness Indices

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

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  1. Estimating Trade Restrictiveness Indices DECRG-Trade The World Bank October 2004

  2. 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)

  3. 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.

  4. 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. .

  5. 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?

  6. 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.

  7. Plan • Methodologies • Estimating MTRIs • Estimating AVEs • Estimating Elasticities • Data sources • Results • Elasticities • AVEs • MTRIs • Extensions

  8. 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

  9. 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.

  10. 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)

  11. 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)

  12. 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.

  13. 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?

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