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YOUNG LEADERS TRAINING
PROGRAM
for Sustainable Development in Asia and the
Pacific
30 June-15 July 2006
Kangwon National University
Chunchon, Korea
Introduction to Methodologies
in
Development and Trade
Analysis
LECTURER
• Prof Tran Van Hoa
•
Director, Vietnam and ASEAN+ Research Program
• Centre for Strategic Economic Studies
• Victoria University, Melbourne, Australia
• Honorary Professor
•
•
National Economics University, Vietnam
National Advanced Training Institute (NATI)
• Ministry of Trade, Vietnam
• Consultant/Mentor
•
•
AusAID-Cardno, Australia
• Email: [email protected]
Website: http://www.staff.vu.edu.au/CSESBL/
VARIOUS USES
– Research
– Teaching
– Training
– Policy
– National and International Networks
FAST CHANGING WORLD: CURRENT
GLOBAL ISSUES
1
2
3
4
5
6
Issue 1: Global Economy
Issue 2: Global Knowledge
Issue 3: Global Commerce and Industry
Issue 4: Marching Globalisation
Issue 5: Need of Global Competitiveness
Issue 6: WTO and FTA Foundation: Global
Pure Competitive Market
GLOBAL GOVERNANCE
Finance (IMF)
Commerce (GATT, GATS and WTO)
Justice (The Hague)
War and Peace (United Nations)
REGIONAL TRADE AND DEVELOPMENT
ISSUES IN ASIA
Miracle (60-mid 90) and Crisis (97) Years in Asia
IMF Policy Failures in Asia Crises (Mexico to Indonesia)
Slow WTO Negotiations (Doha, agriculture)
Fast (post-98) Recovery of Crisis Economies in Asia
Benign Neglect of Crisis Asia from NAFTA and EU
Support from World’s 2nd Largest Economy
REGIONAL TRADE AND DEVELOPMENT
ISSUES IN ASIA
Recent Economic Integration
Developments:
Rise of Plurilateral FTA (LAFTA, 05)
Rise of Bilateral FTA (AIFTA, AEFTA, 05)
Emergence of New Asian Regionalism (ASEAN+3,
00)
Emergence of East Asia Regionalism (EAS, 05)
Emergence of South Asia Regionalism
SAARC (85), SAFTA (05)
ASIAN REGIONALISM AND FREE TRADE
AGREEMENTS
•
•
Asian Regionalism and FTAs are not new
(eg, East Asia proposed by Japan in 1940s)
•
Proliferation of plurilateral and bilateral
FTAs in Asia and Oceania in recent years.
ASIAN REGIONALISM AND FREE TRADE
AGREEMENTS
• EXAMPLES
Current:
AFTA, TAFTA, AUSFTA, JSFTA,
ASFTA, ASEAN+3,
Proposed:
ASEAN+5, ASEAN+India,
ASEAN+EU, Australia+Emirates,
Australia+China, Australia+Japan
ASIAN FREE TRADE AGREEMENTS
• The Foundation of Asian FTAs:
Proximity (Gravity)
Affinity in Consumption and Production
Political Compatibility
Strategic Regional Cooperation
ISSUES IN FTAS
•
Mechanics of FTAs:
Liberalisation of trade, investment, services,
business and tourism
•
Benefits:
•
Trade, economic, political in the medium & long
term
ISSUES IN FTAS
• Challenges/Costs:
Country interests, NTMs, cultures, histories,
religions, national, regional & global crises, current
rising oil prices, global competition, exchange rates,
etc
• Ideology vs Realism:
Research-based policy versus policy-based (biased)
research
ROLE OF POLICY REFORM AND
SHOCKS IN REGIONAL FTAS
• Gains from FTAs are affected positively by policy
reforms & negatively by shocks
• EXAMPLES:
•
•
•
•
South Korea economic reform
China investment policy
Tsunami in South East Asia
Gulf and Iraq wars
Cointegration/unit root taxonomy of policy
reforms and shocks
GRADUAL
SUDDEN
Temporary
Long lasting
Temporary
Long lasting
Examples:
Doi Moi
China SOE reform
Gulf War, SARS, avian
flu
ROLE OF NTMS IN REGIONAL FTAS
• Non-Tariff Barriers or Measures (NTMS)
• 40% of LDC Exports Affected (UNCTAD)
• % of Australia/Vietnam Trade Affected if NTMs
Prevail?
• % of US/Vietnam Trade Affected if NTMs
Prevail?
• % of Australia’s Exports/Investment to China
Affected if NTMs Prevail?
CHARACTERISING NTMS
•
•
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•
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Lack of transparency
Poor intellectual property-rights enforcement
Quarantine
Customs procedures
Administrative import requirements
Burdensome regulations and standards, and
CHARACTERISING NTMS
• Restricted mobility of business people.
– Pervasive
– Currently Difficult to Quantify
– Politically Sensitive
– But Measurable?
HOW TO BEST MEASURE
GAINS/LOSSES FROM FTAS AND WTO?
The Economic/Commerce Policy Scene
Policy Components:
Y: Target, X=Instruments
Expected Action:
Y  X : Directional Causal Linkage
Lucas Critique: Y -> X and Y <- X
HOW TO BEST MEASURE
GAINS/LOSSES FROM FTAS AND WTO?
Advanced Impact Methodologies
The Keynesian (1940)-SNA93 (1993)
Y = ΠX + V
The Johansen CGE/GTAP (1960)
dlogY =  dlogX
HOW TO BEST MEASURE
GAINS/LOSSES FROM FTAS AND WTO?
The Cross-Section Gravity Theory (1999)
The Panel Regression (Dollar, EJ, 2004)
The Generalised Gravity Theory (TVH, 2002)
Advanced Impact Methodologies
MORE DETAIL
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The Keynesian (1940)-SNA93 (1993)
AY + BX = U,
A-1AY + A-1BX = A-1U or
Y = -A-1BX + A-1U
Y = ΠX + V
then with A  0
or
Reduced Form
Advanced Impact Methodologies
MORE DETAIL
• The Johansen CGE/GTAP (1960)
•
• dlogY =  dlogX
• Using Euler-Gauss Algorithm to solve
Advanced Impact Methodologies
MORE DETAIL
• The Cross-Section Gravity Theory (Frankel
& Romer, 1999)
•
• logT = a1 + a2logY + a3logG + u
•
• The Panel Regression (Dollar, EJ, 2004)
•
• logT = a1 + a2LOG(Y) + a3LOG(G) + u
where LOG(Y)=Vector of Y, etc
Advanced Impact Methodologies
MORE DETAIL
• The Generalised Gravity Theory (TVH,
2002)
•
•
•
Y = Y(T,S)
T = T(Y,S,FDI,X,Z)
Arbitrary Function
Arbitrary Function
• Specifying No Specific Functional Form and
Allowing Circular Causality and Temporal Shocks
• or Policy Change
Advanced Impact Methodologies
MORE DETAIL
•
Using Planar Taylor Series Expansion
•
•
•
•
dY
= (Y/T) dT + (Y/S) dS
dY/Y = T(Y/T)(dT/TY) + S(Y/S)(dS/SY)
= E1 dT/T + E2 dS/S,
or
Y% = E1 T% + E2 S% + U.
E1=Elasticity of Y on T, etc. And, similarly for T.
HOW TO BEST EMPIRICALLY MEASURE
GAINS/LOSSES FROM FTAS AND WTO
WITH COMPREHENSIVE TRADE, POLICY
CHANGE & SHOCKS?
• A trilogy of recent stories (research projects) in
ASEAN+3 (China, Japan, Korea) FTA (2001)
incorporating trade, investment, services, policy
reform and shocks
• Case Study 1: China
CHINA TRADE WITH THE WORLD
CHINA GAINS FROM MULTILATERAL FTA
(WTO 2001): More Exports
40
30
XY
20
IMY
10
Year
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
0
19
85
Exports and Imports/GDP
China's Gains from WTO Membership
GROWTH MODELLING EVALUATION:
China Growth and China-Japan Trade
GROWTH MODELLING EVALUATION:
China Growth and China-ASEAN Trade
HOW TO CARRY OUT A RESEARCH ON
THE CAUSES OF TRADE IN ASEAN+3
• A Graphical Analysis
–
–
–
–
–
Trade Causes Growth?
What Causes Trade?
Find the Causes of Trade
Alternative Approaches
Some Case Studies
Reliability of Merchandise Trade Proxy in
Models on China’s Trade with its Five Major Trading Partners
Openness (Exports+Imports)/GDP
1981 to 2002
Model
China-ASEAN
Correlation
Coeff
0.98
RMSE
3.83
Mean
Error
0.00
Um
0.00
Us
0.01
Uc
0.99
China-Japan
China-US China-EU China-Australia
0.98
3.6
0.96
3.23
0.97
4.15
0.94
6.42
0.00
0.00
0.01
0.99
0.00
0.00
0.02
0.98
0.00
0.00
0.01
0.99
0.00
0.00
0.03
0.97
_____________________________________________________________________
Notes. Ub+Us+Uc = 1. See Pindyck and Rubinfeld (1998) for further detail on these evaluation criteria. The estimates
are based on TSP calculation.
SUBSTANTIVE EMPIRICAL
(ECONOMETRIC) FINDINGS 1
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Table 1
Impact of Trade, Services, FDI, Policy Reform and Shocks on China’s Growth
Generalised Gravity Theory in Flexible Structural Form
1981 to 2001
China-ASEAN
China-Japan
China-US
Variables
OLS
2SLS
2SHI
OLS
2SLS 2SHI
OLS
2SLS 2SHI
__________________________________________________________________________________________
Constant
9.30** 9.24** 8.93**
9.74** 9.40** 8.23**
9.78** 9.41** 8.80**
Openness/GDP
0.03** 0.03** 0.03**
0.02@ 0.02@ 0.02@
0.04@ 0.05@ 0.05@
Services/GDP
0.01
-0.01
-0.01
0.003 -0.003 -0.003
-0.004 -0.02 -0.02
FDI/GDP
0.04** 0.05** 0.04**
0.04** 0.05** 0.04**
0.04** 0.05** 0.04**
Stock Crash 87
1.12@ 1.18*
1.14*
1.44 1.68* 1.58*
1.13
1.43@ 1.34@
China Turmoil 89
-6.97** -6.96** -6.73**
-7.42** -7.28** -6.83**
-7.46** -7.29** -6.82**
Gulf War 91
4.90** 4.70** 4.54**
4.45** 3.92** 3.68**
4.83** 7.53** 4.17**
China Reform 93
2.15** 2.32** 2.24**
2.33** 2.75** 2.58**
2.15** 4.46** 2.21**
Asia Crisis 97
-2.84** -2.79** -2.69**
-2.67** -2.56** -2.40**
-2.75** 2.36* -2.50**
R2
0.97
0.73
0.99#
0.96
0.91 0.98#
0.96
0.95
0.98
F
43.07** 39.57** 4.80**
25.57** 21.88** 5.49**
25.84** 21.06** 5.13**
DW
1.71
1.77
1.32&
2.10 2.15
1.36&
2.19
2.17
1.32&
SUBSTANTIVE EMPIRICAL
(ECONOMETRIC) FINDINGS 2
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China-EU
China-Australia
Variables
OLS
2SLS
2SHI
OLS
2SLS
2SHI
_______________________________________________________________________________________________________
Constant
10.37**
10.10** 9
.35**
9.72**
9.61**
8.75**
Openness/GDP
-0.009
-0.003
-0.003
0.01
-0.004
-0.004
Services/GDP
0.009
0.009
0.008
0002
0.003
0.003
FDI/GDP
0.04**
0.05**
0.04**
0.05**
0.06**
0.05**
Stock Crash 87
0.41
0.72
0.67
1.36
1.02
0.93
China Turmoil 89
-7.17**
-7.25**
-6.72**
-7.59**
-7.02**
-6.40**
Gulf War 91
4.48**
4.35**
4.04**
4.56**
3.58**
3.26**
China Reform 93
2.66**
2.72**
2.55**
2.56**
3.35**
3.05**
Asia Crisis 97
-2.80**
-2.75**
-2.55**
-2.76
-2.59**
-2.36**
R Square
0.95
0.94
0.97#
0.95
0.93
0.97#
F
19.54**
18.64**
3.20**
19.88**
14.74
5.49**
DW
2.44
2.40
1.35&
2.24
2.42
1.21&
HOW TO MEASURE
REGIONAL/SECTORAL GAINS/LOSSES
FROM FTAS?
• The Required Share Data
– Global
– National
– Regional
– Sectoral, etc
REGIONAL/SECTORAL GAINS/LOSSES
FROM FTAS?
• Modelling National Gains/Losses
• Modelling Regional/Sectoral Gains/Losses
Modelling More Disaggregated Activities
Urban and Regional Productivity/Wages
Income Inequality
Employment/Unemployment
Education and Jobs
IMPACT OF NTMS
• An Important Current Research Subject for WTO
and FTA Impact
AUSTRALIA TRADE WITH THE WORLD
AND ITS FUTURE & STRATEGY
Figure 1: Australia's Exports to the World
140
$ Billion
120
100
2002
80
2003
60
2004
40
20
0
ALL
EAST ASEAN NAFTA
ASIA
EU
INDIA OTHER OECD APEC
Trading Blocs
Figure 2: Australia's Imports from the World
160
140
$ Billion
120
100
2002
80
2003
60
2004
40
20
0
ALL
EAST ASEAN NAFTA
ASIA
EU
INDIA OTHER OECD APEC
Trading Blocs