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Recent data show that the institutional content of preferential trade agreements has evolved over time. Although pre-1990s preferential trade agreements mostly focused on tariff liberalization, recent agreements increasingly contain deep provisions in diverse areas, such as intellectual property rights, investment, and standards. At the same time, there has been a remarkable increase in the internationalization of production through foreign direct investment and outsourcing. This paper employs the Antràs and Helpman (2008) model of contractual frictions and global sourcing to study how deep trade agreements affect the international organization of production. The paper constructs new measures of the depth of preferential trade agreements and of vertical foreign direct investment to test the theory. Consistent with the model, the analysis finds evidence that the depth of trade agreements is correlated with vertical foreign direct investment, and that this is driven by the provisions that improve the contractibility of inputs provided by suppliers, such as regulatory provisions. Because this implication of the model is specific to the so-called “property rights” theory of the multinational firm, the findings provide empirical support to this approach vis-à-vis alternative theories of firm boundaries.

This paper views tariff-cutting formulas as a potential solution to the free-rider problem that arises when market opening is negotiated bilaterally and extended on a most-favored-nation basis. The negotiators in the Doha Agenda chose formulas that are ideal from an economic efficiency viewpoint in that they most sharply reduce the highest and most economically-costly tariffs. When the political support that gave rise to the original tariffs is considered, however, this approach appears to generate very high political costs per unit of gain in economic efficiency. The political costs associated with the formulas appear to have led to strong pressure for many, complex exceptions, which both lowered and increased uncertainty about members’ market access gains. Where tariff cuts focus on applied rates, it seems likely that a proportional cut rule would reduce the political costs of securing agreements. However, detailed examination of the Doha proposals with their product exceptions suggests that negotiators are likely to find cuts with exceptions politically attractive but economically costly when cuts are based on bound tariffs with different degrees of binding overhang.

The recent emergence of a persistent deficit in Indonesia s trade balance has triggered concerns over reliance on imports. Notably, imports of intermediate inputs and capital goods have been on the rise over the last decade. Apart from firms partaking in the emergence of global production networks, firms imported intermediates for various reasons, including value, variety, and quality. Concerns may arise about the impact that an increase in reliance on imported inputs may have on domestic jobs, and value added. A careful examination of sector and firm level data from the Indonesian manufacturing sector reveals that: (1) the growth of intermediates imports roughly matches the growth of Indonesian GDP, implying a relatively stable reliance on imported inputs. (2) Users of imported inputs in Indonesia are exceptional performers: they grow faster in terms of output, value added and employment, they are more productive, and they pay higher wages. (3) The increased availability of imported inputs has contributed to improved product quality in Indonesian manufacturing. Larger shares of imported inputs in total inputs, as well as lower tariffs on inputs, are associated with a higher probability of producing high quality goods. (4) Firms product diversification processes have been boosted by lower tariffs on inputs, and by increased usage of imported versions. In light of these results, this note argues that facilitating the import of intermediate products can help the Indonesian economy to diversify, avoid being stuck in low-skilled processing or around natural resource based manufacturing, and to climb up the value chain. Such an approach, however, is not sufficient in isolation and active policies are needed to increase firms absorptive capacities and workers skills.

The issue of measuring product variety has received relatively little attention due to its inherent difficulty. In the language of index numbers, an expansion in the range of inputs or outputs is a 'new goods' problem: a good that is newly available will have an observed price and quantity, but no corresponding price or quantity the year before. The availability of this new good will yield a welfare gain to consumers, as well as a productivity gain to firms buying the new input. In this paper we show how product variety can be measured in the case of a CES aggregator function. This paper is organized as: after reviewing the literature on the 'new goods' problem in section two, then discuss how to measure export variety in section three. In sections four and five discuss the empirical applications to export variety growth in Mexico and China. Regression results relating trade liberalization to industry export variety are presented in section six, and conclusions are given in section seven.

This paper analyzes the economic effects of agricultural price and merchandise trade policies around the world as of 2004 on global markets, net farm incomes, and national and regional economic welfare and poverty, using the global economy wide Linkage model, new estimates of agricultural price distortions for developing countries, and poverty elasticity's approach. It addresses two questions: to what extent are policies as of 2004 still reducing rewards from farming in developing countries and thereby adding to inequality across countries in farm household incomes? Are they depressing value added more in primary agriculture than in the rest of the economy of developing countries, and earnings of unskilled workers more than of owners of other factors of production, thereby potentially contributing to inequality and poverty within developing countries (given that farm incomes are well below non-farm incomes in most developing countries and that agriculture there is intensive in the use of unskilled labor)? Results are presented for the key countries and regions of the world and for the world as a whole. They reveal that, by moving to free markets, income inequality between countries will be reduced at least slightly, all but one-sixth of the gains to developing countries will come from agricultural policy reform, unskilled workers in developing countries the majority of whom work on farms will benefit most from reform, net farm incomes in developing countries will rise by 6 percent compared with 2 percent for non-agricultural value added, and the number of people surviving on less than US$1 a day will drop 3 percent globally.

This article assesses the impact of the world price-depressing effect of agricultural subsidies and border protection in Organization for Economic Co-operation and Development (OECD) countries on developing economies' exports, imports, and welfare. Developing economy exporters are likely to benefit from reductions in such subsidies and trade barriers, whereas net importers may lose as world prices rise. A simple partial equilibrium model of global trade in commodities that benefit from domestic support or export subsidies is developed to estimate the relevant elasticities. Simulation results suggest that a 50 percent reduction in border protection will have a much larger positive impact on developing economies' exports and welfare than a 50 percent reduction in agricultural subsidies. Although there is significant heterogeneity across developing economies, the results suggest that efforts in the Doha round of World Trade Organization (WTO) negotiations should be directed at substantially reducing border protection.