Academic Conference 2024 - Programme

Should we stay or should we go? Firms’ decisions on services mode of supply
Holger Breinlich (Surrey)

Services account for one-third of global trade, yet little is known about the impact of trade restrictions on services trade. To make progress in this area, it is crucial to understand through which modes services are traded (cross-border, movement of people, foreign investment or consumption abroad) and how firms substitute among these modes. We provide novel micro-level evidence on firms’ mode choices, combining detailed data on UK firms’ trade and affiliates’ sales. We also estimate the substitution between trade modes using Brexit as an exogenous shock, finding that UK firms increasingly relied on local affiliate sales to serve the EU market after 2016. This shift protected firm-level services exports from expected higher trade barriers after Brexit, but at the cost of lower domestic employment.

UK Trade and Productivity Across Space
Giordano Mion (Nottingham and Essec)

We use a newly constructed database for the UK spanning almost a million firms per year to revisit the importance of agglomeration economies across UK TTWAs and their connection with international trade.

Shock Therapy for a Greener Future: The Dynamics of Firms' R&D Investments
Esther-Ann Boler (Imperial College), Katinka Holtsmark (University of Oslo), Karen Helene Ulltveit-Moe (University of Oslo)

The transition from fossil to clean energy sources requires a large-scale shift in technological development from fossil to clean technologies. This project explores how green research and development in firms that supply inputs to producers of dirty energy (oil), react to a strong negative shock to future expected returns to oil producers. In a theoretical framework of directed technical change, we show that if firms face a cost of adjusting the size of their innovation activity, a negative shock to profitability in dirty energy production may induce exposed firms to shift their activity towards green innovation. In our empirical analysis, we study Norwegian firms supplying intermediates to oil producing companies and propose a novel method of identifying the extent of their exposure to variations in the oil price. We find that firms that are more exposed to the 2014 fall in oil prices increase their clean research and development more than firms that are less exposed to the shock. Our findings have important implications for how to design effective policies that promote environmentally sustainable economic growth.

Trade-Displaced or Trade Stuck? Self-employed workers and adaptation to trade shocks in low-income countries
Romaine Loubes (PSE)

This paper studies the impact of trade shocks on self-employed workers in low-income countries. Using establishment-level census data and job spell-level survey data, I study an import tariff shock affecting self-employed retailers in Rwanda and show that the characteristics of self-employment work in low-income countries imply specific adjustment patterns to trade shocks. I find that the informality and unemployment channels, often put forward in studies of richer countries, are not at play here. Rather, the self-employed have specific margins in the face of a negative earnings shock, such as reallocation of hours across multiple jobs. I summarise these novel results into a simple framework of time allocation with multiple job holdings. The model predicts heterogeneity in adjustment strategies depending on the quality of outside options. Given that women experience worse outside options in the Rwandan labor market, I test the model by looking at gender-specific trajectories, after giving suggestive descriptive evidence. I produce evidence of sizeable heterogeneity in adaptation strategy: in particular, while men shift hours away from affected retail jobs toward other paid occupations, women abandon their other jobs and increase hours worked in retail, even though hourly wages are decreasing in that occupation. The effects are still visible 15 months after the shock. My results stress the need for research on trade shocks and the self-employed, in particular as their increased risk of being stuck in decreasingly lucrative occupations makes targeted trade adjustment assistance policies crucial.

*Trade Policy and Jobs in Vietnam: The Unintended Consequences of Trump’s Trade War
Lorenzo Rotunno (Aix-Marseille School of Economics.), Sanchari Roy (King’s College and CAGE, Warwick.), Anri Sakakibara (King’s College), Pierre-Louis Vézina (King’s College)

We use the US-China trade war as an exogenous shock to export opportunities in Vietnam and examine its effect on Vietnam’s exports and labor markets. We find that Vietnamese exports to the US were around 40 percent higher in 2020 relative to 2017 in sectors hit by US tariffs on Chinese products. This increase is driven by both new export product varieties and increased exports in existing categories. This expansion in export opportunities led to job creation and increased working hours in affected sectors relative to non-affected ones. It also led to an increase in wages, even more so for women workers.

Trade liberalization and informality: Evidence from India
Maxime Berrou (CYU), Maria Bas (CEPR) and Pamela Bombarda (CY)

This paper estimates the effects of trade liberalization on informality in India. We use representative survey data on formal firms, informal firms, and workers over the period 1990-2010, and build various measures of informality for both firms and workers. We then estimate the effects of trade policy changes through a difference-in-differences framework. Our results show the ambiguous effect of trade liberalization on firms’ and workers’ formality status. While import tariff reductions are associated to greater informality levels, input-trade liberalization appears to formalize the economy. Our results are robust to alternative definitions of informality.

Export credit insurance and Firm export performance: Evidence from China’s export promotion program
Yangqing Zhong (Sheffield)

Exporting to foreign markets is a risky business because export firms may have to cope with the issue of trade cost and uncertainty which result in export risk, such as default payment and political uncertainty. Export credit insurance instruments mitigate some of these risks by insuring exporters against commercial and political risks. However, the limited coverage of export credit insurance and its high costs frequently prevent exporters from using this financial tool against export risk, especially for the most vulnerable and credit-constrained exporters, such as Small and Medium Enterprises (SMEs). Often governments provide public support with the help of public export credit agencies against export risk. Export promotion programs, such as China’s export credit insurance (ECI) subsidies, aim to alleviate these problems, facilitating smaller and new exporters' entry into foreign markets, by allowing them to buy credit insurance at a reduced cost. We take advantage of discontinuities around the threshold in the five types of eligibility criteria for ECI subsidies introduced in the Guangdong province in China in 2014 to identify which features of ECI subsidies are connected with better export performance, and to evaluate the causal impact of export credit insurance on firm export performance using a regression discontinuity design (RDD). We use a linear and quadratic order polynomial model with different bandwidths to generate estimated results, which hold in the robustness test with different bandwidths. Our results show that receiving ECI subsidies could boost a firm’s export value, the number of transactions, products, and destinations significantly.

Sovereign default and international trade: The mitigating effects of export credit insurance
Thilo Kroeger (Copenhagen)

This paper provides evidence that export credit insurance can signi cantly mitigate the decline in imports that a country typically experiences after defaulting on its sovereign debt. Moreover, my results suggest that extensive use of export credit insurance could fully counteract the decline in trade even at high levels of default. I show that it is in particular insurance provided by public export credit agencies (ECAs) that leads to the observed mitigating e ects. However, as nonpayment of trade credit increases during periods of sovereign default, ECAs are more e ective in recovering claims than private insurance companies and thus do not distort markets, but are an overall e cient mechanism of risk (re-)allocation.

Distributional and Welfare Effects of Trade Facilitation: Evidence from China
Yumeng Ao (Peking), Jiancong Liu (Bocconi), Jie Shuai (Zhongnan)

This paper investigates how trade facilitation affects firms asymmetrically. We explore China’s “Single Window” reform, which streamlined administrative procedures in international trade, to elucidate within-country distributional effects. Leveraging the by-province roll-out of the reform, we find decreasing per-shipment fixed costs and increasing export value at the aggregate level due to quantity growth. The falling trade costs encourage entry of new firms, intensify competition, thus lead to null, if any negative, impacts on top firms. The consequent declining export prices signify welfare gains to international buyers. Our findings provide vital empirical insights for the real impacts of the trade facilitation reform.

Regulatory Co-Operation in Environmental Services as a Catalyst for Liberalisation
Nicolette Butler (Manchester), Jasem Tarawneh (Manchester)

This paper will examine the challenges and opportunities for regulatory co-operation pertaining to environmental services. The authors will suggest that whilst barriers to environmental services trade can be reduced through positive action within the multilateral trading system as well as through free trade agreements, targeted regulatory co-operation agreements (including the negotiation of mutual recognition agreements) may be more effective and much quicker to implement. For example, the paper will suggest that a greater degree of transparency that could be achieved through the simple publication of market access barriers to environmental services around the world could contribute to the facilitation of the recognition of relevant professional qualifications and the movement of environmental services suppliers across borders. Such efforts could catalyse stalled efforts to liberalise trade in environmental services, which could have positive outcomes for international trade flows as well as climate goals.

Exempting Least Developed Countries from Border Carbon Adjustments: Simple Economically but Complex Legally
Sunayana Sasmal (Sussex), Dongzhe Zhang (Sussex), Emily Lydgate (Sussex), L. Alan Winters (Sussex)

The EU has introduced a Carbon Border Adjustment Mechanism (CBAM) which extends its carbon prices to imported products in some sectors. Other countries are considering imposing similar measures, known generically as border carbon adjustments (BCAs). BCAs are facing a global backlash against the lack of consideration of adverse impacts on developing countries and in particular, least developed countries (LDCs). This article first argues that small overall import volumes support the conclusion that exempting or lessening BCA requirements from LDCs would not undermine developed countries’ climate-related objectives in practical terms. An economic analysis with a focus on the EU and UK’s trade in relation to a CBAM, is performed to support this assertion. However, legally, such an exemption is difficult. These difficulties stem from the complexity of the legal characterisation and objectives of BCAs; their interaction with existing special and differential treatment (SDT) provisions; and the complexity of certain policy options available to enacting members to provide development-based preferential treatment. Our analysis concludes that there is a gap between the normative aims of the SDT provisions to support and differentiate developing countries, and current WTO law and jurisprudence which do not provide adequate space for WTO members to provide preferential treatment without risking allegations of discrimination. In the context of increasing unilateral climate action, an inability to integrate SDT more meaningfully into WTO non-discrimination frameworks will risk further weakening of international cooperation on climate and trade.

Chairs: Viviane Gravey (Queens University Belfast), Ludivine Petetin (Cardiff University)

Reverse Market Access – The UK Internal Market Act’s Use of Market Access Principles for Services Trade and the Impact on Devolved Regulatory Autonomy
Gary Simpson (Queens University Belfast)

The EU’s market access principles (MAPs) were designed to facilitate deeper integration of regulatorily heterogenous markets. In contrast, the UK Internal Market Act 2020 (IMA) seeks to prevent an already largely harmonised market from disintegration.
This makes for an interesting investigation into the nuances which set apart the UK system of devolution in contrast to a “federal” internal market like the EU. It also poses questions surrounding the applicability of MAPs in contrasting constitutional contexts. The IMA will not deepen UK market integration, it is not intended to, its application of MAPs is designed only to prevent the market’s fragmentation. This comes at the expense of devolved autonomy and the de facto recentralisation of regulatory competence.
This paper argues that under the IMA, MAPs are thereby used in the reverse sense.This paper further examines the impact of the IMA’s reverse use of market access principles on regulatory autonomy in devolved services regulation. It does so by analysing the IMA through the lens of the economic theory of legal federalism – a conceptual framework developed to understand decentralised regulatory autonomy, legal diversity, and regulatory competition. Viewed in this light the UK’s current approach to internal market making fails to take into consideration the potential pros and cons of decentralised regulatory policy making. Thus, any legal framework for services market integration ought to consider the complex trade-offs between centralised internal market management and devolved autonomy.

‘Inclusiveness’ in Intra-UK Trade Policy: The Office for the Internal Market
Thomas Horsley (University of Liverpool), Jo Hunt (Cardiff University)

The Office for the Internal Market (OIM) was established by the United Kingdom Internal Market Act 2020 and sits within the Competition and Markets Authority. The OIM’s objective is to support the effective operation of the UK Internal Market.
In this paper, we will reflect on the OIM’s statutory role and emerging organisational practice with reference to the CITP’s four dimensions of inclusiveness regarding trade policy formulation and outcomes: geography, political domains, society and generations.
Firstly, we will engage inclusiveness to explore the Office’s outputs and engagement activities to date, including its provision of economic and technical advice in specific policy areas together with the OIM’s formative efforts to establish its institutional expertise and independence among key stakeholders. Our primary interest, however, is with future developments.
Secondly, we will map out and reflect on the challenges that confront the OIM to deliver inclusivity in intra-UK trade policy within a system of devolved government. In particular, and drawing on the experiences of other independent expert and technical organisations – including for example the Office for Budget Responsibility – we will consider the extent to which (and how) the OIM’s institutional role may develop (and strengthen) over time as a key actor in the management of domestic trade policy post-Brexit.

A Tale of Three Bottles (Deposit Return Schemes): Managing internal markets in Australian, Denmark/EU and the UK
Coree Brown Swan (University of Stirling), Viviane Gravey (Queen's University Belfast) and Ludivine Petetin (Cardiff University)

Internal markets have to balance between fostering tailored policy responses to local needs and diminishing barriers to trade between their different regions/members. Each internal market strike that balance differently. This paper analyses the failed introduction of a Scottish Bottle Deposit Return Scheme for bottles and what it tells us about the design and operationalization of the UK Internal Market in light of two international comparisons which saw a Danish and South Australian scheme accommodated in the EU and Australian internal markets respectively.
It asks whether the failed accommodation of the Scottish scheme is a simple teething problem for the relatively new UK Internal Market (UKIMA) or whether it is revealing of a deep-seated imbalance towards centralization and barrier reduction in UKIMA’s design. Beyond the practical operation of UKIMA, this case raises questions both for the functioning of intergovernmental relations (IGR) in the UK and for environmental policy expansion and policy divergence more generally. Taking stock of how the EU and Australian internal markets have accommodated these, the paper makes suggestions for reducing tensions and smoothing the operation of UKIMA/IGR in the UK as the system takes greater shape.

Non-Tariff Measures, Trade Margins and Firm Heterogeneity
Mustapha Douch (Edinburgh), Jun Du (Aston), Oleksandr Shepotylo (Aston), Dongzhe Zhang (Sussex)

Non-tariff measures (NTMs) influence a firm’s production and trade decisions. We study the impact of NTMs on firm-level trade and document the highly heterogeneous effect of NTMs on the export and import of UK firms in 2012-2018. We calculate ad valorem equivalents (AVE) of NTMs faced by firms of different sizes and exporting to different destinations. We also look at the range of NTMs, including technical and non-technical measures. Our results indicate that while SPS and TBT improve the quality of exports, inspection and licensing fail to address public policy concerns.

International Trade, Volatility, and Income Differences
Roman Merga (IMF)

Developing countries trade less than rich countries. I show that this lack of involvement in trade arises because high domestic volatility discourages exporters’ investments in foreign market access. At the cross-country level, I find that the country’s TFP volatility explains 40% of the relationship between trade and GDP per capita. Using Colombian micro-level data, I document that those exporters facing higher domestic sales volatility export less. New exporters expand less over their life cycle in industries with higher domestic sales volatility. This dampening of the firm-level export expansion path is more severe in products with more variable markups. Motivated by these novel firm-level findings, I developed an international trade model with new exporter dynamics and non-CES demand that account for the novel facts at the firm and the cross-country level. These results suggest that estimated trade frictions using static trade models reflect the consequences of domestic volatility on exporters’ investment decisions to grow into foreign markets. Indeed, my quantitative findings show that the volatility differences across countries are crucial to account for the trade difference between developed and developing economies.

*The US-China Trade War and the Relocation of Global Value Chains to Mexico
Hale Utar (Grinnell), Alfonso Cebreros Zurita (Bank of Mexico), Luis Bernardo Torres Ruiz (Federal Reserve)

Did the 2018/19 US-China trade war trigger adjustment of Global Value Chains (GVCs) and near-shoring to Mexico? We address this question with confidential longitudinal firm-level trade data from Mexico that covers the universe of international trade transactions over 2015-2021. By merging the firm-level customs data with the Ministry of Economy’s registry of GVC firms and constructing firm-level measures of trade policy exposures based on firms’ pre-shock trade at the level of HS 6-digit products destination pairs, we show that increased Chinese import protection in the US has a significant positive impact on Mexican firms’ trade with the US, and this positive impact is entirely driven by GVC firms, and especially those in skill-intensive manufacturing industries. The nature of the impact of the heightened Chinese import tariffs on GVC firms’ sourcing suggests a rise in GVC activities in Mexico with linkages to Asian and US-based GVCs. Our analysis also reveals increased net exports and product offerings of Mexican GVC firms in response to the heightened Chinese
import protection in the US, suggesting increased domestic activities in Mexico. However, we also document a negative impact of the retaliatory tariffs of China, primarily affecting export services and a counterbalancing negative effect of the US tariffs via GVC firms’ inputs from China, highlighting the complex dynamics at play.
Overall, our findings show a reorganisation of GVCs towards Mexico as a consequence of the trade war and provide evidence for the role of trade policy in reshaping GVCs.

Structural Change in the Global Economy
Hayato Kato (Osaka, CESifo), Kensuke Suzuki (Clark), Motoaki Takahashi (University of Mainz, Kiel Institute for the World Economy)

In the last few decades, advanced countries have witnessed a significant decline in their manufacturing sectors along with emerging economies being integrated into the global economy. Even had such globalization not been for, the fall in manufacturing might have been inevitable because of structural change, a stylized fact of economic growth that economies shift from agriculture to manufacturing and then to service. What role does structural change play in determining the impact of globalization? To address the question, we developed a quantitative dynamic general equilibrium model of trade with capital accumulation á la Eaton et al. (2016) and Caliendo and Parro (2015). Our model features nonhomothetic CES preferences developed by Comin et al. (2021), allowing consumers to present varying income elasticities of demand across sectors. We bring the model to the data for the world economy, encompassing three sectors (agriculture, manufacturing, and service) and 24 countries. We calibrate the model’s fundamentals, including trade costs and productivity, and solve the model for the transition path. By applying counterfactual trade costs for different sectors, productivity levels, and preferences to the model, we discuss how these factors collectively shape structural change and its interaction with international trade in advanced countries. Specifically, we show that international trade has heterogeneous impacts on declining manufacturing across countries, providing new insights into the impacts of globalization on advanced economies.

Relocation from China (with Chinese Characteristics)
Jason Garred (Ottawa), Song Yuan (Zhejiang, CAGE Warwick)

The share of Chinese goods in US imports has fallen sharply since 2018, as production for the US market has shifted from China to other countries. Does this trend represent US-China ‘decoupling’, or are other US trade partners playing growing roles as intermediaries in ongoing US-China economic relations? Using disaggregated data, we find that Chinese manufacturing investment and Chinese-produced intermediate inputs have increasingly flowed to third-country ‘winners’ who have simultaneously increased their US import market share. This suggests that relocation of production from China to countries gaining US market share has involved capital and parts from China itself.

Which ICTs promote Global Value Chain Integration? Evidence from firm-to-firm data
Márta Bisztray (KRTK), Balázs Muraközy (Liverpool)

Technology upgrading in general has been shown to be both a precondition for and consequence of integration into Global Value Chains (GVCs), but we know less about the role of specific technologies in this context. This paper focuses on information technologies allowing for automated information sharing with business partners (external AIS). We link unique administrative  firm-to-firm transaction data from Hungary to a panel of detailed ICT surveys to identify firms that sell to buyers which are multinational (MNE) or, more generally, integrated into global value chains. We present a simple model in which suppliers' information technology complements global firms' technology and suppliers choose their information technology endogenously. Using external AIS helps firms in integrating into GVCs: suppliers using external AIS are more likely to be chosen by MNEs, and to acquire new MNE buyers. At the same time, MNE presence is associated with more external AIS introduction, hinting at spillover effects: suppliers are also more likely to introduce external AIS technologies if they have more potential or actual MNE buyers. According to these estimates, promoting AIS introduction may be effective in supporting GVC integration: AIS introduction by a supplier is associated with a 10pp (33% of the baseline probability) increase in the probability of serving an MNE. On the other hand, multinational entry can also promote AIS introduction: a 10pp higher MNE share among potential buyers increases the prevalence of AIS technologies by 16-24%.

Breaking down barriers: The effectiveness of Mutual Recognition Agreements for trusted traders
Wanyu Chung (Birmingham), Robert J.R. Elliott (Birmingham), Yangjun Han (Birmingham), Antonio Navas (Sheffield)

Over 80% of the UK exports happen between trade partners with an Mutual
Recognition Agreement (MRA) for trusted traders, where they are entitled to reduced customs procedures at foreign borders, yet little is known about the efficiency of such trade policy. We entangle this problem using the UK-US MRA and the most widely used trusted trader scheme, the Authorized Economic Operator (AEO). We observe that most firms are indirectly deemed as "safe traders" by using AEO certificated agents and hence extend the heterogeneous firm model a la Melitz (2003) by incorporating administrative costs and highlighting the role of agents. Utilizing transaction-level UK customs data, we empirically confirm our model predictions that an MRA improve firms' participation in exporting and boost their export values through the use of certified agents.

Access to Justice: Intellectual Property Litigation and International Trade
Richard Kneller (Nottingham), Ioannis Papadakis (Sussex)

An important feature of any system of intellectual property rights protection are the legal protections for IP-owners to act for themselves on cases of IP infringement. In this paper we study the effect of a reduction IP enforcement costs on international trade. From a theoretical perspective, the effect on international trade of a change in IP-enforcement are uncertain as both both domestic and foreign IP-owners benefit. To empirically identify the effects of IP enforcement on imports we focus on set of UK reforms (2010 to 2013) that increased access to IP courts thereby benefiting lower-value IP. We use these reforms within a difference-in-differences strategy that leverages between product variation in technological intensity. Our analysis suggests that overall the net effect of these reforms was positive on imports of products with lower-value IP. These results are robust to various test for confounding contemporaneous policy changes, alternative measure of IP and falsification tests using imports for other countries. We also find evidence of heterogeneity associated with the origin of UK imports, with particularly strong positive effects for countries with high levels of domestic IP protection and negative effects for countries with mid- or low-IP protection.