Wiener Institut für

Internationale

Wirtschaftsvergleiche

The Vienna Institute for

International Economic

Studies

www.wiiw.ac.at

Mahdi Ghodsi

Robert Stehrer

Non-Tariff Measures Trickling

through Global Value Chains

Annual PRONTO Confrence

Vienna, 26-27 February 2016

This paper was produced as part of the project "Productivity, Non-Tariff Measures and Openness" (PRONTO) funded by the European

Commission under the 7th Framework Programme, Theme SSH.2013.4.3-3 "Untapped Potential for Growth and Employment Reducing

the Cost of Non-Tariff Measures in Goods, Services and Investment", Grant agreement No. 613504.

2

NTM Broad Categories:

- Unilateral standards, and qualitative regulations: Technical Barrier to Trade (TBT), Sanitary

and Phytosanitary Measures (SPS)

- Bilateral quantitative and counter measures: Anti Dumping (AD), quantitative restrictions (QR),

safeguard measures (SG), and special safeguards (SSG)

Some quality issues: (e.g. national legal bases, national security, health and environment issues, market

adjustments, etc.)

- Reverse notifications: Specific Trade Concerns (STCs) on TBT and SPS

Global value chains (GVC):

- Trickling through GVC

4-stage methodology:

- Bilateral import demand elasticities

- AVE for NTMs

- Cumulative AVEs in GVCs

- Productivity growth

Introduction

3

1. Complexity of NTMs: Rosendorff (1996), Otsuki et al. (2001), Vandenbussche and

Zanardi (2008), Moore and Zanardi (2011), de Almeida et al. (2012), Beghin et al. (2012),

Sanjuán López et al. (2013), Ghodsi (2015a,b)

2. Elasticity: Kee et al. (2008)

3. AVE for NTMs: Kee et al. (2009), Beghin et al. (2014), Bratt (2014), Grübler, Ghodsi,

and Stehrer (2015)

4. GVC: Gereffi et al. (2005), Gereffi and Sturgeon (2013), Timmer et al. (2013), Antras et

al. (2012), Backer and Miroudot (2013), Rouzet and Miroudot (2013), Miroudot et al.

(2013), Hagemejer and Ghodsi (2014)

5. Productivity growth in GVC: Lumenga-Neso et al. (2005), Nishioka and Ripoll

(2012), Foster-McGregor, Pöschl, and Stehrer (2014)

Literature

4

1. Bilateral import demand elasticities:

- Extending the approach proposed by Kee et al. (2008)

- 𝑠ℎ𝑖𝑗𝑡 𝑝ℎ𝑖𝑗

𝑡 , 𝑝−ℎ𝑖𝑡 , 𝑣ℎ𝑖

𝑡 = 𝑎0ℎ + 𝑎ℎ𝑖𝑗 + 𝑎ℎ𝑡 + 𝑗=1

𝐽𝑎ℎℎ𝑗 ln

𝑝ℎ𝑖𝑗𝑡

𝑝−ℎ𝑖𝑡 𝑎ℎ𝑗 + 𝑚≠𝑙,𝑚=1

𝑀 𝑐𝑛𝑚𝑡 ln

𝑣𝑚𝑖𝑡

𝑣𝑙𝑖𝑡 + 𝑢ℎ𝑖𝑗

𝑡 ,

∀ℎ = 1,… , 𝐻, ∀𝑖 = 1,… , 𝐼, ∀𝑗 = 1,… , 𝐽, 𝜅ℎ𝑖𝑡 = 𝑎ℎ𝑖 + 𝑎ℎ

𝑡 + 𝑎ℎ𝑗 + 𝑢ℎ𝑖𝑡

- 𝜀ℎℎ𝑖𝑗 ≡𝜕𝑞ℎ𝑖𝑗

𝑡 𝑝𝑡 ,𝑣𝑡

𝜕𝑝ℎ𝑖𝑗𝑡

𝑝ℎ𝑖𝑗𝑡

𝑞ℎ𝑖𝑗𝑡 =

𝑎ℎℎ𝑗

𝑠ℎ𝑖𝑗+ 𝑠ℎ𝑖𝑗 − 1, 𝑠ℎ𝑖𝑗

𝑡 < 0; , 𝜀ℎℎ𝑖𝑗𝑡

< −1 𝑖𝑓 𝑎ℎℎ𝑗𝑡 > 0

= −1 𝑖𝑓 𝑎ℎℎ𝑗𝑡 = 0

> −1 𝑖𝑓 𝑎ℎℎ𝑗𝑡 < 0

- where 𝑠ℎ𝑖𝑗𝑡 is the share of import value of product h from country j to country i in the GDP of the

country i at time t; 𝑝ℎ𝑖𝑗𝑡 is the price (unit value) of the imported product; 𝑣𝑚𝑖

𝑡 and 𝑣𝑙𝑖𝑡 refer to the

factors m and l in the production of GDP of country i; and 𝑝−ℎ𝑖𝑡 is the Tornqvist price index (Caves

et al., 1982) of all other goods constructed using the GDP deflator 𝑝𝑡

- Merits in comparison with Kee et al. (2008): efficiency gains using exporter interactions 𝑎ℎ𝑗, and

controlling for other goods’ prices

Methodology

5

2. AVE for NTMs:

- Extending the approach proposed by Kee et al. (2009)

- ln 𝑚𝑖𝑗ℎ𝑡 = 𝛼1ℎ + 𝑘 𝛼1𝑘𝐶𝑖𝑗𝑡𝑘 + 𝛼1ℎ𝑡 ln 1 + 𝑇𝑖𝑗ℎ𝑡 + 𝑖𝑗=1

𝐼𝐽 𝑛=1𝑁 𝜔𝑖𝑗𝛽1𝑛ℎ𝑁𝑇𝑀𝑖𝑗ℎ𝑡 + 𝜔1𝑖𝑗ℎ +

𝜔1𝑡 + 𝜇1𝑖𝑗ℎ𝑡

- 𝑎𝑣𝑒𝑛𝑖𝑗ℎ =1

𝜀𝑖𝑗ℎ

𝜕 ln 𝑚𝑖𝑗ℎ

𝜕𝑁𝑇𝑀𝑖𝑗ℎ=

𝑒𝜔𝑖𝑗𝛽1𝑛ℎ−1

𝜀𝑖𝑗ℎ, ∀𝑛 ∈

𝐴𝐷𝑃, 𝐶𝑉, 𝑆𝐺, 𝑆𝑆𝐺, 𝑄𝑅, 𝑆𝑃𝑆, 𝑇𝐵𝑇, 𝑇𝐵𝑇 𝑆𝑇𝐶, 𝑆𝑃𝑆 𝑆𝑇𝐶

- 𝐵𝑅𝐼𝑖𝑗ℎ = 𝑛 𝑎𝑣𝑒𝑛𝑖𝑗ℎ , ∀𝑛 ∈ 𝑇, 𝐴𝐷𝑃, 𝐶𝑉, 𝑆𝐺, 𝑆𝑆𝐺, 𝑄𝑅, 𝑆𝑃𝑆, 𝑇𝐵𝑇, 𝑇𝐵𝑇 𝑆𝑇𝐶, 𝑆𝑃𝑆 𝑆𝑇𝐶

- where ln 𝑚𝑖𝑗ℎ𝑡 is the natural log of the import quantity of product h to country i from country j at

time t; 𝐶𝑖𝑗𝑡𝑘 is the country-pair characteristics and consists of classical gravity variables and factor

endowments; 𝑇𝑖𝑗ℎ𝑡 is bilateral tariffs; and 𝜔𝑖𝑗 is country-pair dummies.

- Merits in comparison with Kee et al. (2008), Beghin et al. (2014), and Bratt (2014): Intensity of

different types of NTMs during time, variation in NTM impacts across exporters and importers in

addition to products.

Methodology

6

3. Cumulative AVEs in GVCs:

- Three channels of trade policy measures (TPjht):

1. Direct protectionism trade policies (DBRI) in favour of domestic industry

2. Indirect trade policy measures (IBRI) accumulated through backward linkages

3. Trade policy measures (BRI) that the industry is facing while exporting to other destinations

- Having J country-sectors and considering backward linkages using WIOD:

𝐼𝐵𝑅𝐼 = 𝑒 × 𝐵 ×

𝑛=0

𝐴𝑛

′

= 𝑒 × 𝐵 × 𝐼 − 𝐴 −1 ′

where 𝐴𝑛 is the period-averaged of J by J matrices of technical coefficients, 𝑒 is a row vector of

ones, 𝐵 is a J by J matrix of element-by-element multiplication of technical coefficients and

tariffs 𝐵 = 𝐴:× 𝑇

IAVE for nine types of NTMs are calculate in addition to period-averaged IT

Methodology

7

4. Productivity Growth:

- From a simple Cobb-Douglas function 𝑌𝑗ℎ𝑡 = Ψ𝑗ℎ𝑡𝐾𝑗ℎ𝑡𝛼 𝐿𝑗ℎ𝑡

𝛼 , Ψ > 0, 0 < 𝛼 < 1:

- ∆𝑦𝑗ℎ𝑡 = ∆Ψ𝑗ℎ𝑡 + 𝛼∆𝑘𝑗ℎ𝑡

- ∆𝜓𝑗ℎ𝑡 = 𝛾0𝑇𝑃𝑗ℎ𝑡 + 𝛾1𝐻𝑆𝑗ℎ𝑡

- ∆𝑦𝑗ℎ = 𝛽0 + 𝛽1𝑦𝑗ℎ,𝑡0 + 𝛽2∆𝑘𝑗ℎ + 𝛽3𝐻𝑆𝑗ℎ + 𝛽4𝐷𝐵𝑅𝐼𝑖𝑗ℎ + 𝛽5𝐼𝐵𝑅𝐼𝑗ℎ + 𝛽6𝐵𝑅𝐼𝑗ℎ + 𝛾ℎ +

𝛾𝑖𝑗 + 𝜇𝑖𝑗ℎ

- where ∆𝑦𝑗ℎ is the average annual labour productivity growth of industry h in country j from 2002 to

2009 , 𝑦𝑗ℎ,𝑡0 is the initial level of productivity in logarithmic form, ∆𝑘𝑗ℎ is the average annual

growth of capital to labour ratio

Using 𝛾ℎ and 𝛾𝑖𝑗 we control for industrial and country-pair effects

Estimations are divided in to services and non-services categories

Two measures of value added (VA) and gross output (GO) labour productivities are used as dependent variables

First specification covers only BRIs and the second covers all AVEs for 9 NTMs and tariffs

Methodology

8

Data

- WTO I-TIP notifications database on NTMs (Ghodsi, Reiter, and Stehrer, 2015)

- Trade data from UN COMTRADE and TRAINS

- AVEs for tariffs with priority PRF, MFN, and AHS from TRAINS, and WTO

- Gravity data from WDI of the World Bank, PWT, FAO, and CEPII

- PTA from the WTO

- WIOD

Methodology

9

Average indirect BRI on inputs by country

Results

10

Average indirect Tariffs on inputs by country

Results

11

Average indirect TBT on inputs by country

Results

12

Average indirect SPS on inputs by country

Results

13

Average indirect BRIs on world inputs by non-services industries

Results

14

Average indirect BRIs on world inputs by services industries

Results

15

Direct and Indirect BRI Impact on Productivity Growth

Results

Non-services Services

Dep. Var: ∆𝐲𝐣𝐡𝐕𝐀 ∆𝐲𝐣𝐡

𝐆𝐎 ∆𝐲𝐣𝐡𝐕𝐀 ∆𝐲𝐣𝐡

𝐆𝐎

𝒚𝒋𝒉,𝟐𝟎𝟎𝟐 -0.80*** -2.95*** -1.18*** -1.15***

(0.11) (0.23) (0.11) (0.11)

𝑯𝑺𝒋𝒉 20.4*** 20.4*** 0.12 -0.094

(1.09) (1.32) (0.35) (0.35)

∆𝒌𝒋𝒉 9.38*** 4.97*** 19.3*** 9.78***

(0.49) (0.69) (0.87) (0.70)

BRI 0.00026 0.00074

(0.0010) (0.0012)

IBRI 0.29*** 0.32*** -0.55*** -0.37***

(0.024) (0.035) (0.046) (0.045)

Constant 2.75*** 0.78 2.80*** 6.13***

(0.34) (0.55) (0.18) (0.15)

N 25707 25707 29069 29069

R-sq 0.401 0.317 0.451 0.424

adj. R-sq 0.360 0.269 0.418 0.389

Sector FE Yes Yes Yes Yes

Bilateral FE Yes Yes Yes Yes

Robust standard errors in parentheses

* p<0.1, ** p<0.05, *** p<0.01

16

Direct and Indirect Policy Measures Impact on Productivity Growth

Results

Non-services Services

Dep. Var: ∆𝐲𝐣𝐡𝐕𝐀 ∆𝐲𝐣𝐡

𝐆𝐎 ∆𝐲𝐣𝐡𝐕𝐀 ∆𝐲𝐣𝐡

𝐆𝐎

𝒚𝒋𝒉,𝟐𝟎𝟎𝟐 -0.85*** -2.98*** -1.14*** -1.21***

(0.11) (0.23) (0.11) (0.12)

𝑯𝑺𝒋𝒉 20.8*** 20.8*** 0.10 -0.29

(1.12) (1.35) (0.36) (0.36)

∆𝒌𝒋𝒉 9.68*** 5.46*** 19.7*** 10.0***

(0.49) (0.70) (0.89) (0.71)

ADP 0.0076** 0.0062*

(0.0031) (0.0034)

CV -0.029*** -0.012

(0.0088) (0.0083)

QR -0.0055 -0.0044

(0.0039) (0.0044)

SG 0.0012 0.0030

(0.0047) (0.0049)

SPS -0.00087 0.00034

(0.0022) (0.0025)

SSG 0.0022 -0.0038

(0.0067) (0.0082)

TBT 0.00029 -0.00092

(0.0025) (0.0034)

TBTSTC -0.0054* -0.0031

(0.0033) (0.0035)

SPS STC 0.015*** 0.017***

(0.0030) (0.0033)

Tariffs 0.0035 0.0032

(0.0047) (0.0061)

17

Direct and Indirect Policy Measures Impact on Productivity Growth

Results

Non-services Services

Dep. Var: ∆𝐲𝐣𝐡𝐕𝐀 ∆𝐲𝐣𝐡

𝐆𝐎 ∆𝐲𝐣𝐡𝐕𝐀 ∆𝐲𝐣𝐡

𝐆𝐎

IADP 0.64*** 0.29*** 0.91*** -1.47***

(0.061) (0.071) (0.17) (0.17)

ICV -0.099 -0.023 -1.33*** -0.011

(0.093) (0.100) (0.36) (0.30)

IQR 0.15 -0.53** -0.35* -0.91***

(0.22) (0.21) (0.19) (0.25)

ISG -0.086 -0.18 0.61 -1.23**

(0.093) (0.14) (0.57) (0.54)

ISPS 0.58*** 0.70*** -1.31*** -0.89***

(0.048) (0.078) (0.068) (0.071)

ISSG -0.57 0.056 -3.09*** -1.41***

(0.36) (0.51) (0.23) (0.25)

ITBT 0.31*** -0.020 -1.88*** -1.93***

(0.047) (0.044) (0.18) (0.19)

ITBT STC -0.27*** -0.42*** 2.02*** 2.87***

(0.063) (0.10) (0.29) (0.32)

ISPS STC 0.80*** 1.66*** -1.81*** 1.14*

(0.12) (0.18) (0.57) (0.62)

ITariffs -0.092*** 0.44*** 0.45*** 1.16***

(0.034) (0.071) (0.072) (0.076)

Constant 2.66*** 0.56 3.19*** 4.93***

(0.35) (0.54) (0.20) (0.21)

N 25707 25707 29069 29069

R-sq 0.407 0.322 0.456 0.432

adj. R-sq 0.365 0.275 0.423 0.397

Sector Bilateral FE Yes Yes Yes Yes

18

Contributions:

- A new database on bilateral import demand elasticities

- A new database on bilateral AVE for nine types of NTMs

- A new database on indirect bilateral-trade restrictiveness on inputs (IBRI)

- Tracking the impact of nine types of NTMs embodied along the GVC

Finding positive influence of qualitative NTMs on growth of labour productivity

Summary

20

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