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Session Overview
PS-2.01: Trade, foreign direct investments, value chains and innovation network 2
Thursday, 13/Oct/2016:
8:30am - 10:00am

Session Chair: Martin Kang'ethe Gachukia, Riara University
Discussant: Beena Saraswathy, Institute for Studies in Industrial Development (ISID)
Location: Savoy Room-1 (Homann)

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Removal of Trade Restrictions and its Implication for Nigerian Households

Mohammed Isa Shuaibu

Ahmadu Bello University Zaria Kaduna Nigeria

This paper examines the impact of trade liberalization on Nigerian households. A significant contribution of the study and departure from previous related studies carried out for Nigeria is the explicit consideration of household heterogeneity. Predicated on an integrated computable general equilibrium microsimulation model that draws from the trade policy transmission mechanism put forth

by Winters (2002), the paper observes that households benefit from the removal of trade restrictions. Specifically, we provide evidence suggesting that the negative price effect (fall) of reducing trade restrictions translated to increased household demand and consumption expenditure. The reduction of

import duties on agriculture, extractive and services sector had a negative impact on return to factors (labour and capital) while import taxes on manufactures had a positive impact on wages and interest mainly due to sectoral expansion that arose from increased competitiveness of the sector. We conclude that government may consider the use of safety cushion nets to help mitigate the contemporaneous

impact of trade policy changes especially on household income.

Extensive and Intensive Margins of India’s Manufactured Exports: Comparison with China

Lakshmi Aerath, Veeramani C, Prachi Gupta

Indira Gandhi Institute of Development Research, Mumbai, India, India

Should export promotion policies target growth along the extensive margin or intensive margin? By extensive margin, we mean export growth attributable to new products and/or new markets, while intensive margin refers to export growth of existing products in existing markets. Growth along the intensive margin can arise as a result of increase in price or quantity or both. To help answer this question, we undertake a comparative study of manufactured exports from India and China during 2000-2012 by analyzing the role of extensive and intensive margins in export market penetration. We decompose exports into extensive, intensive, price and quantity margins based on the methodology proposed by Hummels and Klenow (2005) using HS 6-digit product level data on manufactured exports provided by UN-COMTRADE. We find that along the extensive margin, the gap between the two countries is getting narrower, as India is clearly catching up with China. However, along the intensive margin, China surpasses India significantly. This has been achieved by decline in prices and quantity expansion. Our results show that lower growth for India is entirely because of lack of intensification of its exports. Further, we analyze the factors responsible for the differential export performance between India and China across various margins using a gravity model of trade. In particular, we examine whether exchange rate and/or FDI explain the differential performance between India and China. This empirical exercise is conducted using an unbalanced panel data set obtained by pooling real exports of manufacturing goods from both India and China to various countries during 2000-2012. Our regression results show that China’s high export growth, predominantly along the intensive margin is neither due to exchange rate nor inward FDI flows. Instead, China’s superior performance is entirely driven by its rich country export bias. Specialization in accordance with true comparative advantage and consequent higher trade orientation with developed country markets is what has enabled China in achieving stupendous growth. Our analysis suggests that India can reap rich dividends by adopting policies aimed at accelerating export growth along its intensive margin. Also, there exists great potential for India to expand and intensify its export relationships with developed countries by focusing on labor-intensive products.

South-south trade in capital goods: The market driven diffusion of appropriate technology

Raphie Kaplinsky, Rebecca Hanlin

Science Policy Research Unit, Sussex University, United Kingdom

This paper addresses technology diffusion as a result of South-South trade in capital goods; taking forward, and updating, arguments from the appropriate technology literature in the 1970s and 1980s. We review capital goods utilised in three sectors of considerable development significance in low and middle income economies (agricultural mechanisation in Tanzania, furniture in Kenya and apparel in Uganda). In each sector, southern-origin equipment is distinctive by comparison with northern-origin capital goods. At observed capacity utilisation rates, southern-origin capital goods are economically efficient, and are accessible and profitable to users and are demonstrably appropriate to operating conditions in these three economies. As a consequence, not only are Chinese-origin capital goods diffusing rapidly in these three economies, but so too are they diffusing in other developing economies. Chinese origin capital goods now account for almost one-third of all capital goods imports in Africa, Latin America and South East Asia, and Indian equipment is also widely utilised in many low and middle income economies. This suggests a wider significance of our findings and calls for policy makers to harness the opportunities provided by market driven south- south trade in capital goods.

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