Ideas for growth session 2: Trade

The Trade research session was chaired by the IGC Trade Research Programme Director, Andrés Rodríguez-Clare (UC Berkeley). Nina Pavcnik (Dartmouth College) spoke about labour allocations across heterogeneous firms in Vietnam. Her paper makes use of an exceptionally large decline in the United States’ tariff rates towards Vietnamese products that occurred in the early 2000s. This occurred as a result of Vietnam’s trade status with the USA being reclassified, leading to an average tariff decline of approximately 20% (although the individual tariff changes varied dramatically). The transformative effects of this were highlighted, as labour began to shift away from small household-run businesses into larger, more productive firms outfitted for export to the USA and global markets.

Paula Bustos (Center for Research in International Economics) presented on the effects of increases in agricultural productivity in Brazil. She found that the effects of these productivity increases vary depending upon the underlying structure of the specific crop’s market. For example, the effects of productivity increases had significantly differing effects on the amount of labour employed and wages for the soy and maize industries. Part of the underlying reason for this is that these differing crops use different mixes of labour and capital inputs in their productions. Some are more heavily dependent on labour while others are more heavily dependent on capital input (e.g. machinery), which are their respective “factor biases”.

Lorenzo Casaburi (Stanford Institute for Economic Policy Research) presented a paper on road rehabilitation in Sierra Leone looking at the effects of improving the quality of roads on the prices found in local markets. The driving force behind this is the increased linkages between centres of trade as a result of easier travel and transport in between them. He highlighted that, based upon the observed behaviour in these market prices, there appears to be significant costs (“frictions”) associated with comparing prices in between various markets and shopping around. He therefore highlighted that policymakers should work to incentivize traders to visit multiple market centres regularly, allowing for easier comparisons between prices at separate markets. He also noted that improving the quality of these roads did not always lead to price decreases, and the direction of the resulting price movements actually depended upon the structure of the local market, especially with regards to the dynamics of trade between the nearby market centres.

Finally, the session moved onto a lively discussion about the Trade research programme going forward. There was a presentation where the programme’s priority areas were highlighted, which were: (i) product composition, (ii) externalities, (iii) evaluation of industrial policies, (iv) internal trade costs, (v) measurement, and (vi) the winners and losers of trade. In the discussion that ensued, many interesting topics were further raised, such as World Trade Organization (WTO) considerations, regional integration, the secondary effects of trade (e.g. the transfer of knowledge and processes between trading partners), the costs of trade, and various others.