IMF Conference on Trade and Developing Countries

The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.

Abstract

The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.

Zhiwei Zhang

Developing countries find themselves confronted with new challenges and opportunities as a result of the stop-and-go nature of the World Trade Organization’s Doha Round. This and other critical issues were the focus of a conference on trade and developing countries held at IMF headquarters in Washington on April 28, 2005. Hosted by the IMF Research Department’s Trade and Investment Division, the conference was attended by economists from the IMF, World Bank, U.S. International Trade Commission, and academia.

Peter Neary of University College Dublin opened the conference by discussing how to use index numbers to measure the restrictiveness of trade regimes. Based on a series of papers that Neary coauthored with James Anderson, the presentation clarified the kinds of questions that index numbers are designed to answer, proposed the methods underpinned by theoretical models to construct the indexes, and examined the pros and cons of different approaches to implementing these methods. Neary’s discussant, James Cassing of the University of Pittsburgh, questioned some of Neary’s results and pointed out that the same restrictive trade regime could produce different values of the Anderson-Neary index depending on the nature of domestic distortions.

Neary’s presentation was followed by two papers on the effect of trade reforms: “Trade Liberalization, Intermediate Inputs and Productivity” by Mary Amiti of the IMF and Jozef Konings of Catholic University of Leuven; and “Trade and Growth in the Presence of Distortions” by James Cassing of the University of Pittsburgh and Stephen Tokarick of the IMF. The first paper used Indonesia as a case study to analyze the effects of reducing tariffs (both on inputs and final goods) on firm productivity. It found that the benefits from lower tariffs on intermediate inputs are significantly higher than those from reducing output tariffs, with firms that import inputs enjoying the largest gains due to improved access to foreign intermediate goods. The discussant, Andrei Levchenko of the IMF, suggested that an interesting extension of the paper would be to analyze why some firms choose to import their inputs while others do not.

In the second paper, Cassing and Tokarick argued that, regardless of the ambiguous effect of higher tariffs on economic growth, small countries cannot improve their welfare by enhancing trade protection. This in turn implies that focusing exclusively on a country’s growth rate could be misleading. The discussant, Will Martin of the World Bank, suggested that the framework of the paper be used to evaluate the impact of differential rates of growth on sectoral total factor productivity.

The next paper—”When Do Externally Mandated Reforms Work? The Case of Trade Conditions in IMF Programs,” by Shang-Jin Wei and Zhiwei Zhang of the IMF—examined the conditions under which trade reforms in IMF-supported programs are more likely to function effectively. The authors found that taking into account a country’s willingness to reform (“ownership”) is indeed important, and that trade conditionality has no effect on openness in the absence of such ownership. The discussant, Simon Johnson, suggested that it would be useful to disentangle the effect of countries’ capacity to reform (institutions) from their willingness to reform (ownership).

In the final paper, “Rags in the High Rent District: Rhetoric and Reality in the Elimination of Textile and Clothing Quotas,” Joseph Francois and Julia Woerz of the Tinbergen Institute examined the effects of the end on January 1,2005, of the 10-year phase-out period of textile and clothing quotas. They found that the phase-out was so backloaded that very few adjustments had taken place, with one consequence being delays in the integration of China and India into the global textile sector. This means that the potential still exists for substantial additional increases in exports from China and India after 2005. Clinton Shiells of the IMF, the discussant, pointed out that the analysis might overestimate the impact of quota elimination, because the residual-based method used is subject to an omitted variable bias.

IMF Research Bulletin, June 2005
Author: International Monetary Fund. Research Dept.