goals of the paper
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Goals of the Paper. Explore the dynamic adjustment to a new WTO Round of Trade Liberalization from 2000 to 2010 Explore how this helps Asia Crisis economies relative to a direct transfer of foreign Aid from OECD economies - PowerPoint PPT PresentationTRANSCRIPT
Goals of the Paper
• Explore the dynamic adjustment to a new WTO Round of Trade Liberalization from 2000 to 2010
• Explore how this helps Asia Crisis economies relative to a direct transfer of foreign Aid from OECD economies
• Explore the impact of incorporating an empirical model of endogenous total factor productivity growth ( Chand (1999))
Key dynamic features
• annual frequency
• physical capital is accumulation is endogenous but subject to adjustment costs
• forward looking agents in goods, factor and financial markets
• full accounting of stock flow relations
• combination of intertemporal optimization by agents plus liquidity constraints
• sticky nominal wages
Some Important Issues
• Trade, capital flows and adjustments in domestic financial markets are central to global adjustment to shocks;
• Agents arbitrage between different assets within countries and across countries - taking into account the adjustment costs of changing the physical capital stock in each sector.
What are Financial Assets?
• Each financial asset represents a claim over real resources – Money over purchasing power – Bonds are claims over future tax collections– Equity is a claim over the future dividend
stream of a firm – Foreign assets are a claim over the future
exports of the debtor country
• Asset values embody expectations of future real activities
Sectors
• Energy
• Mining
• Agriculture
• Durable Manufacturing
• Non-Durable Manufacturing
• Services
The Simulations
A New Millenium Round
• In 2000, it is announced that existing tariffs will be reduced by 1/3 from 2000 to 2010 in most countries
• Tariffs on goods trade are based on the GTAP4 database (see Table 3a)
• For services it is assumed there is a cost reduction based on work by Centre for International Economics (see Table 3b)
Figure 1: Impact of a new WTO Round on Real GDP (OECD Economies)
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
e
USA
Japan
Australia
Korea
ROECD
Figure 2: Impact of a new WTO Round on Real GDP (non OECD)
-0.5
0
0.5
1
1.5
2
2.5
3
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
eli
ne Indonesia
Malaysia
Philippines
Singapore
Thailand
China
India
Taiwan
Hong Kong
Figure 3: Impact of a new WTO Round on Real Consumption (OECD Economies)
-0.2
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
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iati
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fro
m b
as
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USA
Japan
Australia
Korea
ROECD
Figure 4: Impact of a new WTO Round on Real Consumption (non OECD)
-2
-1
0
1
2
3
4
5
6
7
8
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
eli
ne Indonesia
Malaysia
Philippines
Singapore
Thailand
China
India
Taiwan
Hong Kong
Figure 5: Impact of a new WTO Round on Real Exports (OECD Economies)
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
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m b
as
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USA
Japan
Australia
Korea
ROECD
Figure 6: Impact of a new WTO Round on Real Exports (non OECD)
-6
-4
-2
0
2
4
6
8
10
12
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
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fro
m b
as
eli
ne Indonesia
Malaysia
Philippines
Singapore
Thailand
China
India
Taiwan
Hong Kong
Figure 7: Impact of a new WTO Round on Trade Balances (OECD Economies)
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
0.3
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% b
as
eli
ne
GD
P d
ev
iati
on
fro
m b
as
e
USA
Japan
Australia
Korea
ROECD
Figure 8: Impact of a new WTO Round on Trade Balances (non OECD)
-4
-3
-2
-1
0
1
2
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% b
as
eli
ne
GD
P d
ev
iati
on
fro
m b
as
eli
ne
Indonesia
Malaysia
Philippines
Singapore
Thailand
China
India
Taiwan
Hong Kong
Figure 9: Impact of a new WTO Round on Real Effective Exchange Rates (OECD Economies)
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
e
USA
Japan
Australia
Korea
ROECD
Figure 10: Impact of a new WTO Round on Real Effective Exchange Rates (non OECD)
-1.5
-1
-0.5
0
0.5
1
1.5
2
2.5
3
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
eli
ne Indonesia
Malaysia
Philippines
Singapore
Thailand
China
India
Taiwan
Hong Kong
Figure 11: Impact of a new WTO Round on Employment (OECD Economies)
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020% d
ev
iati
on
fro
m b
as
e
USA
Japan
Australia
Korea
ROECD
Figure 12: Impact of a new WTO Round on Employment (non OECD)
-1
-0.5
0
0.5
1
1.5
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
eli
ne
Indonesia
Malaysia
Philippines
Thailand
China
India
Taiwan
Hong Kong
Figure 13: Impact of a new WTO Round on Real Interest Rates (OECD Economies)
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% p
oin
t d
ev
iati
on
fro
m b
as
e
USA
Japan
Australia
Korea
ROECD
Figure 14: Impact of a new WTO Round on Real Interest Rates (non OECD)
-0.5
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0.5
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
eli
ne Indonesia
Malaysia
Philippines
Singapore
Thailand
China
India
Taiwan
Hong Kong
Summary
• Largest gains to countries liberalizing most
• short run losses outweighed by long run gains
• trade impacts /exchange rate adjustments tend to be the opposite in the short run relative to the medium run (role of intertemporal budget constraints)
Direct Aid to Asia Crisis Countries
Aid Simulation• Indonesia, Korea, Thailand and Philippines
receive a direct transfer from the OECD economies such that:– The transfer declines by 10% per year after 2000– Receiving countries are no worse off in terms of
the present value of consumption than under the trade liberalization simulation.
– Donor countries donate in proportion to their share of GDP in the donor total
Figure 15: Impact of Foreign Aid on Real GDP (OECD Economies)
-0.04
-0.03
-0.02
-0.01
0
0.01
0.02
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
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fro
m b
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e
USA
Japan
Australia
ROECD
Figure 16: Impact of Foreign Aid on Real GDP (non OECD plus Korea)
-0.5
0
0.5
1
1.5
2
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
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ne
Indonesia
Malaysia
Philippines
Singapore
Thailand
China
India
Taiwan
Hong Kong
Korea
Figure 17: Impact of Foreign Aid on Real Consumption (OECD Economies)
-0.4
-0.35
-0.3
-0.25
-0.2
-0.15
-0.1
-0.05
01999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
e
USA
Japan
Australia
ROECD
Figure 18: Impact of Foreign Aid on Real Consumption (non OECD plus Korea)
-4
-2
0
2
4
6
8
10
12
14
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
eli
ne
Indonesia
Malaysia
Philippines
Singapore
Thailand
China
India
Taiwan
Hong Kong
Korea
Summary
• Income transfer causes adjustment through the balance of payments
• consumption of receiving countries rise
• consumption of donating countries fall
• trade liberalization is a better way to help crisis economies
Total factor productivity growth in manufacturing endogenous to
the change in tariffs (following the econometric
results of Satish Chand (1999)
Figure 19: Impact with Endogenous Productivity on Real GDP (OECD Economies)
-0.5
0
0.5
1
1.5
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2.5
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3.5
4
4.5
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
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USA
Japan
Australia
Korea
ROECD
Figure 20: Impact with Endogenous Productivity on Real GDP (non OECD)
0
2
4
6
8
10
12
14
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
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fro
m b
as
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ne Indonesia
Malaysia
Philippines
Singapore
Thailand
China
India
Taiwan
Hong Kong
Figure 21: Impact with Endogenous Productivity on Real Consumption (OECD Economies)
-0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
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fro
m b
as
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USA
Japan
Australia
Korea
ROECD
Figure 22: Impact with Endogenous Productivity on Real Consumption (non OECD)
-5
0
5
10
15
20
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
% d
ev
iati
on
fro
m b
as
eli
ne Indonesia
Malaysia
Philippines
Singapore
Thailand
China
India
Taiwan
Hong Kong
Summary
• Making TFP growth endogenous to changes in tariff rates increases the gains from liberalization
• But also accentuates the adjustment process through the balance of payments in the short run
Conclusion
• Dynamics in the sense used in this paper adds a richer story to trade liberalization
• In particular there are many problems - noticeable to policy makers in the real world - which need to be understood
• Many short term results (over a decade) are the opposite of the long term neoclassical results that come from conventional CGE models.