Narrow Results

This paper highlights the policy aspects of India and China, in the context of consensus building on bilateral trade, which is the cornerstone of diplomatic and political ties between the two countries. India and China have witnessed uninterrupted economic development with a significant rise in bilateral trade because of protrade policies in the last few decades. In this backdrop, this paper examines the dynamic spillovers of India–China’s bilateral trade on the economic growth of the two countries. For the purpose, Autoregressive distributed lag (ARDL) model in multivariate framework is utilized with gross capital formation (GCF) and foreign direct investment (FDI) as two additional explanatory variables. The results highlight that the India–China bilateral trade share has significant long-run impact on the growth of GDP per capita (GDPP) of the two countries, while the impact is more pronounced for China. The growth rates of the two countries are found significantly cointegrated with the variables in question. The results provide important insights in foreign trade patterns, with policy implication for trade and economic co-operations between the two countries.

This paper investigates the economic consequences of a scenario in which the European Union (EU) imposes economic sanctions on Sudan. The idea of the paper is motivated by the deteriorating relations between Sudan and the EU arising from the devastating conflicts in Darfur region and related implications involving the International Criminal Court (ICC). Another factor supporting the idea is the U.S. encouragement of multilateral pressure on the country to change the behavior of the government. The global CGE (Computable General Equilibrium) model of GTAP (Global Trade Analysis Project) and its Africa Database is employed in this paper. The simulation bans importation into the EU from Sudan as well as exportation to Sudan from the EU. The results suggest that both income and expenditure of the Sudanese GDP will decline due to sanctions. The trade balance will witness a surplus due to the big decline in the country's imports, as all imports will fall. However, the major impact is coming from the decreasing EU-sourced imports like light manufacturing, petroleum-coal products, and heavy manufacturing, which represent big shares in the total Sudanese import value. While Sudan is the clear loser, the results show that the East Asian countries, led by China, will gain in this situation. Most of Sudanese trade with the EU seems to be shifting to these countries. However, the 'Rest of Africa' region does not have any welfare losses, while it has gains in some sectors. Domestic output in MENA, Egypt, Kenya, and Ethiopia in some sectors will fall due to the EU sanctions on Sudan, reflecting the regional dimension that sanctions can have.

We analyze the relationship between food security and trade by computing a bilateral import penetration index (BIPI), which gauges the degree to which a country depends on another or a small set of others for food imports. Food trade maps are then drawn by application of a force-directed algorithm that sorts through computed BIPIs, and maps the nodes corresponding to the strength of bilateral ties between country pairs. This shows the network relationships on which traded food supplies depend and vulnerabilities of importers to disruptions in particular suppliers. Results suggest that measures aimed at diversifying supply sources reduce vulnerability.

To shed light on the question of whether or not institutional similarity always increases bilateral trade, we divide institutional quality into the low level (one standard deviation below the mean), medium level (in between minus one and one standard deviation from the mean), and high level (one standard deviation above the mean). By applying the system-GMM estimator, we found that the institutional similarity between the two countries has a trade-boosting effect, except in cases where one or both countries have low-institutional quality. These imply that measures to enhance institutional similarity must be accompanied by policies to promote institutional adaptability.

In this paper we explore the trade effects of bilateral real exchange rate changes between the 50 US states and China over the period of 2005–2012. The empirical results based on state-level trade flows and state-level relative prices suggest that the long-run real exchange rates elasticity of US exports to China is in the range of [–3.77, –2.85] and that of Chinese exports to the US is in the range of [–0.23, –3.34]. We also find that state-level differences in human capital and financial development are significant determinants of their export performances with respect to China. Based on the most optimistic scenario, our results suggest that the RMB needs to further appreciate against the dollar by at least 1.8 percent a year for 16 years for the US to achieve balanced trade with China.

This paper investigates the synchronization of the intra-East Asian business cycles based on regional bilateral trade statistics. By evaluating three macroeconomic fundamentals: real GDP, industrial production, and unemployment, it is found that tighter intra-East Asian trade may most likely lead to more idiosyncratic business cycles and hence lower correlations of economic activity. When using regional trade as an international openness criterion in the theory of Optimum Currency Area, the finding suggests that for the immediate future, the creation of an East Asian monetary/currency union may not be feasible.

This paper derives equations for the value of bilateral trade from two extreme cases of the Heckscher-Ohlin Model, both of which could also represent a variety of other models as well. The first case is frictionless trade, in which the absence of all impediments to trade in homogeneous products causes producers and consumers to be indifferent among trading partners. Resolving this indifference randomly, expected trade flows correspond exactly to the simple frictionless gravity equation if preferences are identical and homothetic or if demands are uncorrelated with supplies, and they depart from that equation systematically when there are such correlations. The second case is of countries that each produce distinct goods, as in the H-O Model with complete specialization or a variety of other models. Expressions are derived for bilateral trade, first with Cobb-Douglas preferences and then with CES preferences. The standard gravity equation with trade declining in distance continues to be a central tendency for these trade flows, with departures from it that are easily understood in terms of relative transport costs. The main lessons from the paper are two. First, it is not all that difficult to justify even simple forms of the gravity equation from standard trade theories. Second, because the gravity equation appears to characterize a large class of models, its use for empirical tests of any of them is suspect.

World trade evolves at two margins. Where a bilateral trading relationship already exists it may increase through time (intensive margin). But trade may also increase if a trading bilateral relationship is newly established between countries that have not traded with each other in the past (extensive margin). We provide an empirical dissection of post-World War II growth in manufacturing world trade along these two margins. We propose a “corner-solutions version” of the gravity model to explain movements on both margins. A Tobit estimation of this model resolves the so-called “distance puzzle”. It also finds more convincing evidence than recent literature that WTO-membership enhances trade.