DOES ECONOMIC INTEGRATION INCREASE
TRADE MARGINS ? EMPIRICAL EVIDENCE FROM
LATIN AMERICA
Luis Marcelo Florensa
Laura Márquez-Ramos
María Luisa Recalde
María Victoria Barone
Objectives
• To analyze the effects of economic integration in
Latin America on the extensive and intensive
margins of trade
• To distinguish
– The effects of different levels of integration
– Short versus long term effects
– The effects on different sectors
• primary goods and agricultural manufactures
• industrial manufactures
• mineral fuels, lubricants and related materials
Background
• A number of studies use the gravity equation to
analyze the effect of EIAs on international trade
(Carrère, 2006; Magee; 2008 and MartinezZarzoso et al. 2009)
• Recalde and Florensa (2009), and Recalde et al.
(2010) also use the gravity equation for the case
of the Mercosur
• The dependent variable is the total value of
exports (or imports) between two countries and
the existence of EIA is modeled by including a
dichotomous variable among the explanatory
variables
Background
• Hummels and Klenow (2005): the extensive
margin accounts for 60% of export growth in
larger economies
• Hillberry and McDaniel (2003): both margins
coexist in the US after the creation of NAFTA
Background
• Bensassi et al. (2011): North African countries
have enjoyed a significant increase in exports
associated with Euro-Med agreements, operating
through the intensive margin for Algeria and
Tunisia, and through both the extensive and
intensive margins for Egypt and Morocco.
Diverse trade patterns could be at the origin of
these differences
• Baier et al. (2011): Short-term effects are
reflected mainly in the intensive margin, while in
the long-term the most important effect is
reflected on the extensive margin. BBF did not
perform an analysis considering/comparing
particular integration agreements or regions
Methodology
• Aspects to consider:
– Endogeneity of the EIA variables
• Use of panel econometric techniques to avoid endogeneity
biases
– “Multilateral resistance” terms
• Inclusion of bilateral FE, importer-time and exporter-time FE
– Length of the period
• Use of panel econometric techniques to capture short versus
long-term effects (1962-2005)
– Distinguish between EM and IM
• Use of the methodology developed in Hummels and Klenow
(2005)
Methodology
• Xijt -- value of the aggregate trade flow from country i to country j in
year t,
• Yit(jt) -- GDP in country i (j) in year t,
• DISTij -- bilateral distance between the economic centers of i and j
• CONTIGij --dummy variable assuming the value 1 if the two
countries share a common land border
• COMLANGij -- dummy variable assuming the value 1 if the two
countries share a common language
• EIAijt– indicates the level of integration between the two countries in
year t
•
is exporter i´s (importer j´s) non-linear and
unobservable multilateral price/resistance term.
•
error term.
Methodology
• Extensive Margin: measure of the fraction of all products
that are exported from i to j in year t, where each
product is weighted by the importance of that product in
world exports to j in year t
• XmWjt -- value of world´s exports to country j in product m
in year t
• MWjt -- set of all products exported by the world to
country j in year t
• Mijt -- set of all products exported from i to j in year t
Methodology
• Intensive Margin: the market share of country i in country
j´s imports from the world within the set of products that i
exports to j in year t
• Xmijt -- value of exports from i to j in product m in year t
Methodology
• Property 1: the product of the two margins equals the ratio of
exports from i to j relative to country j total imports
Where denotes j´s imports from the world.
• Property 2: Taking the natural logs…
The log of the value of trade flows from i to j in the year t can
be decomposed linearly into logs of the extensive margin, the
intensive margin and the value of j´s imports from the world
The process of LA integration
• Some important dates for the regional integration in Latin
America:
– LAIA (Montevideo Treaty, 1980) aims to establish an economic
preferential system within the LA region.
• Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay,
Peru, Uruguay and Venezuela.
– Mercosur (Asuncion Treaty, 1991) signed by Argentina, Brazil,
Paraguay and Uruguay.
– CAN (Andean Community, 1969)
• Bolivia, Colombia, Ecuador and Peru
11
The process of LA integration
• Chile and Mexico have signed the highest number of
bilateral agreements in the region
• Chile has undergone the most far-reaching liberalization
process in the Latin American region, and together with
Mexico seems to have liberalized relatively more within
other integration agreements such as the NAFTA and
the EU, than within LAIA (Florensa et al, 2011)
• An important number of developed countries had signed
non reciprocal agreements with developing countries
(Generalised System of Preferences)
• 1: To study whether the EIAs signed by
LAIA members have positively affected
trade margins and whether the deepest
EIAs have had a greater impact on trade
margins.
– BBF explored the effects on the margins of trade of
alternative types of EIAs and found that deeper
integration agreements have a larger impact on trade
flows than shallower agreements
• 2: Relative effect of EIAs on trade
margins.
– BBF found that the effect of EIAs on the
intensive margin is higher in magnitude than
the effect on the extensive margin (in the
current period)
• 3: Differential “timing” effect of EIAs on
trade margins. To test whether positive
effects are more persistent over time
among deeper level of integration.
– BB argues that EIAs are likely to have
delayed impacts on trade flows, because they
are “phased-in” over 5 to 10 years, delaying
the full implementation of liberalization
• 4: The effect of trade agreements differs for
different sectors
– Chaney (2008) shows that the EM and the IM are
affected in different directions by the elasticity of
substitution. The impact of trade barriers is strong in
the intensive margin for high elasticities of substitution
(homogeneous products), whereas the impact is mild
on the EM
• 5: Differential “timing” effect of EIAs on trade
margins differs by type of product
– Effect 1: Trade margins might be more time-sensitive
to changes in trade liberalization in primary goods
and agricultural manufactures, as LAIA countries
have a comparative advantage in agriculture
– Effect 2: Trade liberalization might be fostering the
development of the industrial manufacturing sector to
a greater extent in the long term.
Data
• Exporting countries: Argentina, Bolivia, Brazil, Chile, Colombia,
Ecuador, Mexico, Paraguay, Peru, Uruguay and Venezuela
• Importing countries: 161
• Period: 1962-2005
• Bilateral trade flows
– Trade data for the period 1962-2000 -- NBER- United Nations trade data
set (http://cid.econ.ucdavis.edu/data/undata/undata.html)
– Trade data for the period 2001-2005 -- WITS (COMTRADE)
(https://wits.worldbank.org/)
– 4-digit Standard Industrial Trade Classification (SITC)
Gravity variables are obtained from CEPII (http://www.cepii.fr)
•
• Variable of interest –the level of economic integration agreement
(source: BB (http://www.nd.edu/~jbergstr/) and WTO :
–
–
–
–
–
(0) there is no EIA
(1) agreement is asymmetrical or one-way (NRPTA)
(2) two-way preferential trade agreements (PTA)
(3) free trade agreements (FTA)
(4) customs unions (CU)
Model specification
Specification 1
Specification 2
Specification 3
Results
Table 1. Main results for Specification 1 and 2. All goods.
Specification 1: All goods
NRPTA
L5.NRPTA
L10.NRPTA
PTA
L5.PTA
L10.PTA
FTA
L5.FTA
L10.FTA
CU
L5.CU
L10.CU
Nº of obs.
R2
Specification 2: All goods
TRADE(1) EM(2)
IM(3)
-0.322***
-0.043
-0.280** -0.291**
-0.014
-0.078
0.180*** -0.258*** -0.183*
0.13
0.232**
0.112
0.824***
0.351*** 0.473*** 0.585***
0.316*
39739
0.68
39739
0.45
0.120
39739
0.45
TRADE (4) EM (5)
0.085
0.09
28700
0.70
IM (6)
-0.207** -0.084
-0.013
0.000
Specification 2: All goods
TRADE (7) EM (8)
-0.304**
0.003
-0.086
-0.089
-0.094 -0.211*
0.152*
-0.022 -0.054
-0.017
-0.064
0.148
0.037
-0.154
0.244* -0.051
0.619***
0.342*** 0.244* 0.435***
-0.159
0.475*** 0.029
0.173
28700
28700 21838
0.52
0.51
0.65
-0.189**
-0.023
-0.167
-0.149*
-0.148
0.098
-0.097
-0.434***
0.184
0.313**
-0.510***
-0.068
21838
0.58
IM (9)
-0.115
0.026
0.081
-0.063
0.094
-0.115
0.135
0.383***
0.435*
0.122
0.539***
0.242
21838
0.55
Notes: ***, **, * indicate significance at 1%, 5% and 10%, respectively. T-statistics are provided below
every coefficient
Results
Table 2. Main results for specification 3. All goods.
TRADE(1) EM(2)
IM(3)
Difnrpta
-0.014
0.045
-0.06
Difnrptalong
0.061
0.004
0.057
Difpta
0.141
0.134
0.007
Difptalong
0.064
-0.003
0.066
Diffta
0.189
0.042
0.147
Difftalong
0.103
-0.160
0.262
Difcu
0.269
0.206
0.063
Difculong
0.034
-0.333**
0.367*
Observations 21838
21838
21838
R2
0.49
0.46
0.40
Notes: ***, **, * indicate significance at 1%, 5% and 10%, respectively. Tstatistics are provided below every coefficient
Results
Table 3. Main results for specification 1. Sectors 1, 2 and 3.
Primary goods and agricultural
Industrial manufactures
manufactures
Mineral fuels, lubricants and
related materials
Trade(1)
EM (2)
IM(3)
Trade(4)
EM (5)
IM(6)
NRPTA
0.223*
0.066
0.157
-0.262**
0.07
-0.332*** 1.118*** 0.618**
0.501
PTA
0.259***
0.203*** 0.056
-0.334*** -0.047
0.201
-0.248
FTA
0.501***
0.107
0.055
0.054
0.546*
0.445**
0.1
CU
1.113***
0.533*** 0.580*** 0.474***
0.042
0.433***
1.053*** 0.924*** 0.129
Obs
33424
33424
33424
33200
33201
33200
8753
8754
8753
R2
0.67
0.45
0.39
0.77
0.53
0.53
0.66
0.54
0.55
-0.297*** 0.037
0.393*** 0.108
Trade(7) EM (8)
IM(9)
Notes: ***, **, * indicate significance at 1%, 5% and 10%, respectively. T-statistics are provided below
every coefficient
Results
Table 4. Main results for specification 2. Sectors 1, 2 and 3.
Primary goods and
Industrial manufactures
agricultural manufactures
Trade(1) EM (2)
IM(3)
Trade(4) EM(5)
Mineral fuels, lubricants and
related materials
IM(6)
Trade(7) EM(8)
IM(9)
1.040**
NRPTA
0.131
-0.196** 0.327*** -0.292**
-0.111
-0.18
1.101*
L5.NRPTA
-0.039
0.156
-0.195
0.242
0.198
0.044
-1.627** 0.149
-1.775***
L10.NRPTA -0.351*
-0.239
-0.112
0.072
-0.177
0.249
-0.128
-0.092
-0.036
PTA
0.078
-0.209** 0.287**
-0.418*** -0.189** -0.229*
-0.164
-0.244
0.08
L5.PTA
-0.229
-0.155
0.131
0.11
0.02
-0.33
0.226
-0.556
L10.PTA
0.423*** 0.339*** 0.084
-0.155
0.058
-0.213** 0.077
0.984*** -0.907**
FTA
0.315**
-0.14
-0.142
0.159
0.968
-0.222
1.190**
L5.FTA
-0.279
-0.246** -0.034
-0.354
L10.FTA
-0.074
0.455*** 0.017
0.061
0.141
-0.247** 0.388**
0.177
0.532
1.040*** 0.540*** 0.501**
-0.085
0.138
-0.223
0.515
1.271*** -0.756
CU
0.659*** 0.234*
0.425**
0.274*
0.235*
0.039
1.041
0.65
0.39
L5.CU
-0.111
-0.236
0.125
0.139
-0.372** 0.511*** -0.218
0.233
-0.451
L10.CU
0.634**
0.112
0.523**
0.05
-0.135
0.185
0.085
0.319
-0.235
Nº of obs.
17517
17517
17517
17549
17549
17549
3223
3223
3223
R2
0.62
0.53
0.43
0.72
0.66
0.63
0.71
0.64
0.63
Notes: ***, **, * indicate significance at 1%, 5% and 10%, respectively. T-statistics are provided below every coefficient
Results
Table 5. Main results for specification 3. Sectors 1, 2 and 3
Primary goods and
agricultural manufactures
Industrial manufactures
Mineral fuels, lubricants and
related materials
Trade(1) EM(2)
IM(3)
Trade(4) EM(5)
IM(6)
Trade(7) EM(8)
IM(9)
-0.007
-0.166
0.159
-0.151
0.141
-0.292*
0.074
0.165
-0.091
DIFNRPTALONG -0.212
0.074
-0.287
0.276
0.098
0.178
-0.722
-0.1
-0.622
DIFPTA
0.056
-0.05
0.105
-0.2
0.061
-0.261** -0.992
-0.5
-0.493
DIFPTALONG
-0.19
-0.117
-0.073
0.185
0.257** -0.072
-0.207
-0.303
0.096
DIFFTA
0.067
-0.098
0.165
0.019
-0.102
0.121
0.355
-0.068
0.423
DIFFTALONG
-0.161
-0.1
-0.061
0.246
-0.004
0.249
1.039
0.158
0.881
DIFCU
0.035
-0.329** 0.364*
0.11
0.136
-0.026
0.125
0.118
0.008
DIFCULONG
-0.099
-0.239
0.14
0.118
-0.165
0.283
-0.07
-0.083
0.014
Nº of obs.
17517
17517
17517
17549
17549
17549
3223
3223
3223
R2
0.43
0.43
0.39
0.49
0.58
0.53
0.65
0.61
0.58
DIFNRPTA
Notes: ***, **, * indicate significance at 1%, 5% and 10%, respectively. T-statistics are provided below
every coefficient
Conclusions
•
This paper analyzes the consequences of LA integration on trade margins
over the period 1962-2005 and for different sectors.
•
Our results show that the signed EIAs have positively affected the intensive
and extensive margins of trade.
The deepest integration agreements have a larger impact on trade margins
than shallower ones.
The effect of EIAs on the intensive margin is higher in magnitude than the
effect on the extensive margin.
Positive effects are more persistent over time in the intensive margin than in
the extensive margin among deeper integration agreements.
Deeper EIAs have a greater effect in the case of primary goods and
agricultural manufactures in the short term.
Trade margins are more time-sensitive to regional trade liberalization in the
sector of industrial manufactures in the long term but only in PTAs.
Our results support the limited impact of shallower agreements. It seems
that further deeper agreements which may lead to greater continuity in time
and depth in the level of commitment and concessions could be a good
strategy to follow in Latin America.
•
•
•
•
•
•
Further research
• To analyze the effects of the different
types of EIAs on other types of products
and different time periods (for example,
before and after the Latin American crises)
Thank you very much!