Homi Kharas, R. Kyle Peters, Mr. Alan A. Tait, Phiroze Medhora, and Dale Weigel
This paper highlights the sources of payments problems in less developed countries. Growth in the industrial countries has a direct impact on the current account of the developing countries through its influence on both the prices and volumes of their exports. An increase in the real effective exchange rate is clearly a fundamental determinant of a deteriorating current account since, other things being equal, it tends to raise domestic demand for imports and to reduce foreign demand for exports.
Mr. Azim M Sadikov, Mr. Hans P Lankes, Mr. Dustin Smith, Ms. Katrin Elborgh-Woytek, and Mr. Jean-Jacques Hallaert
The paper contributes to the discussion about the revenue implications of trade reform by assessing the approximate fiscal revenue impact of different liberalization formulae under consideration in multilateral trade negotiations for a group of low- and middle-income countries. The study applies a linear optimization framework to data for bound tariffs, applied tariffs, and imports at the HS-6 digit level for 58 developing countries, and simulates results for different sets of import demand elasticities and developing country "flexibilities." While only a small number of countries face a significant impact, results point toward the need for complementary fiscal measures in the countries most affected by revenue loss.
Studies of the impact of trade openness on growth are based either on cross-country analysis-which lacks transparency-or case studies-which lack statistical rigor. We apply transparent econometric methods drawn from the treatment evaluation literature to make the comparison between treated (i.e., open) and control (i.e., closed) countries explicit while remaining within a unified statistical framework. First, matching estimators highlight the rather far-fetched country comparisons underlying common cross-country results. When appropriately restricting the sample, we confirm a positive and significant effect of openness on growth. Second, we apply synthetic control methods-which account for endogeneity due to unobservable heterogeneity-to countries that liberalized their trade regime and we show that trade liberalization has often had a positive effect on growth.
Studies of the impact of trade openness on growth are based either on crosscountry analysis—which lacks transparency—or case studies—which lack statistical rigor. This paper applies a transparent econometric method drawn from the treatment evaluation literature (matching estimators) to make the comparison between treated (that is, open) and control (that is, closed) countries explicit while remaining within a statistical framework. Matching estimators highlight that common cross-country evidence is based on rather far-fetched country comparisons, which stem from the lack of common support of treated and control countries in the covariate space. The paper therefore advocates paying more attention to appropriate sample restriction in crosscountry macro research.