Trade Policy Space, Economic Growth, and Transitional Convergence in terms of Economic Development

Abstract

The present study proposes a quantitative measure of the concept of trade policy space and investigates its impact on countries' economic growth and transitional convergence in terms of economic development. In this study, trade policy space is considered as the room for maneuver available to a government once its current trade policy departs from the structural domestic and international factors that could influence the trade policy. The transitional convergence is defined as the catch up of a country's real per capita income with the world's average real per capita income.The empirical analysis covering 150 countries from 1995 to 2015 shows that although the trade policy space exerts a positive impact on economic growth, this positive effect depends on countries' structural policies. Furthermore, the study results indicate that the trade policy space exerts a positive and significant effect on transitional convergence, and the greater the trade policy space, the higher is the transitional convergence. JEL Classifications: F13, F14, F63, O40 jei 2 1 According to UNCTAD (2014: Chapter V), North-South Agreements contain a larger number of both WTO-plus and WTO-extra provisions than either North-North or South-South Agreements. These provisions cover coopetition policy, investment and capital movement, government procurement, labor mobility and environmental standards. UNECA (2016) has provided concrete examples on how RTAs such as Economic Partnership Agreements could restrict more policy space than WTO rules. jei 3 trade regime. It's a recent report by UNECA (2015: Chapter 5, p157) stressed that the main concern for Africa in terms of policy space relates to RTAs, which might further limit policy options for industrialization. As several African countries are least developed countries (LDCs), which are favorably treated under the WTO rules, the UNECA report has concluded that the loss of policy space for African economies has so far been relatively insignificant.Van der Ven (2017, p75) debated that the complexity of WTO rules and their economic effect may lead a country, in good faith, to adopt policies that are inconsistent with WTO rules. Based on case studies from three non-LDCs African countries (Ghana, Kenya, and Namibia) on industrial policy priorities and key trade and investment laws and regulation, she concluded that Africa's industrialization is not genuinely restricted by the shrinking of the WTO policy space. Thus, from her perspective, a key impediment to the implementation of industrial policy objectives in Africa was the lack of policy alignment and understanding of the WTO policy space. The Overseas Development Institute (ODI 2007) argues that there are benefits that can be derived precisely from the restriction of trade policy space arising from the constraints imposed by international rules, including international trade obligations. The underlying rationale is that international regulations provide an international commitment (lock in), which is more stable than domestic regulation.While sever...

Can Trade Integration Lead to Economic Development Convergence?

“…The ASEAN countries with the most intense rubber trade with Indonesia are Malaysia, Singapore, Thailand, Vietnam and the Philippines, but among the five ASEAN countries which are Indonesia's rubber trade partners, the most stable are with Malaysia, and Thailand, Vietnam and the Philippines. Meanwhile, with Singapore, the index has experienced instability, from 2005 to 2014 the index has a negative value, this is due to the lack of well-developed rubber trading policy space, as discovered by Sena Kim Gnangnon [3,16], see Figure 2. The fluctuation of the integration of the Indonesian rubber trade with the country of Singapore shows that the intensity of the rubber trade is strongly influenced by the performance of the country's economy in Singapore, especially as seen from the development of its GDP at current prices.…”

“…Economic integration in one region is always preceded by integrating trade between countries, especially in some of its mainstay commodities, through the preparation of regional trade agreements [1][2][3][4]. Trade integration is one form of economic integration in one region and globally.…”

Trade policy space and foreign direct investment inflows

“…Based on this literature and building on the study by Gnangnon (2019a, 2019b), we compute a trade policy space indicator (“De Jure trade policy space”), which is defined as the room of manoeuvre available to a government once its current trade policy is depurated from the impact of domestic and international structural factors. Thus, following Gnangnon (2019a, 2019b), the trade policy space indicator is derived from a regression where the dependent variable is trade policy and the regressors include international structural factors(the level of multilateral trade policy liberalizationand terms of trade) and domestic structural factors (the level of financial openness, i.e. capital account openness; the depth of financial development; the economic development level; the size of the population and the institutional and governance quality).…”

“…Thus, a rise in the values of this indicator reflects greater trade policy space and lower values of this index reflect the fact that the trade policy space is shrinking. The data set used to compute the trade policy space indicator is an unbalanced panel data set comprising 158 countries, including both developed and developing countries (Gnangnon, 2019a, 2019b for further details on the computation of the trade policy indicator, as almost the same panel data used in this study is being used in the current study).…”

“…The current article relies on a quantitative measure of countries’ trade policy space used in Gnangnon (2019a, 2019b) to examine empirically the impact of trade policy space on countries’ FDI inflows. To the best of our knowledge, this is the first study of this nature.…”