How to formulate research questions?

1. How to formulate research questions? Lucian Cernat International Trade Division lucian.cernat@unctad.org

2. Outline • Trivial points • What is ‘’non-trivial’’ on the trade agenda? • How to translate that into a policy-relevant question?

3. EPA impact analysis • What is envisaged? • Australian proposal: • Coverage: 70% of tariff lines at entry into force, 95% after 10 yrs • "highly traded" products = HS 6digit tariff lines > 0.2% of total imports from RTA partners (or the top 50 imports of each RTA party) • significant exports = HS 6digit tariff lines > 2% of a party's global exports • ACP proposal: S&D – ‘soften and differentiate’, ’policy space’ considerations • EU – somewhere in between

4. ‘Substantially all trade’ PE analysis • SMART simulation model • HS 6-digit level • Looks at different scenarios: • 80% liberalization of current EPA trade flows (the EU proposal) • the Australian proposals: 70/95%, “highly trade products”, “significant exports” • Takes care of different ‘policy space’ objectives mentioned by ACPs: • Avoid import surges • Protect tariff revenues • welfare effects

5. PE results: the case of Tanzaniaa. EU scenario – overall import surge minimization • Only 9 “sensitive” tariff-line level products (second-hand clothing, motor vehicles, electric equipment, rubber products) under the 20% exclusion assumption • Would also comply with Australian coverage requirements (75/95% criterion) • would not comply with “significant exports” criterion (motor vehicles) nor with “highly traded” (all products “sensitive”)

6. PE results: the case of Tanzaniab. EU scenario – line by line import surge minimization • - 486 HS 6digit tariff lines (33%) could be seen as “sensitive” • Would not comply with Australian coverage requirements (75/95% criterion) • would comply with “significant exports” criterion • would comply with the “highly traded” criterion if some 20 “sensitive” tariff lines are liberalized (but they account for more than 50% of total “sensitive” trade

7. Consumer surplus criterion • 383 HS 6digit “priority” products yielding the highest consumer surplus • Would comply with Australian coverage requirements (75/95% criterion) and “highly traded” condition • But the Australian tariff line approach to SAT requirements ill-equipped to promote welfare maximization • E.g. “highly traded products” criterion – would require the inclusion of 100 products with low welfare impact

8. PE results: the case of Tanzaniab. tariff revenue loss minimization • Tariff revenue losses concentrated in only 14 HS 6digit lines • (mostly transport equipment, but also second-hand clothing, proteins, paper products, beer, cereals, etc). • Would comply with Australian coverage requirements (75/95% criterion) • would comply with “significant exports” criterion, except for 1 tariff line (motor vehicles) • would not comply with the “highly traded” criterion

9. Welfare results

10. Exponential increase in RTA formation CRTA deadlock Doha mandate on “fixing” the rules Debate between “hardliners” and S&D proponents 350 Estimated RTAs 300 Total RTAs notified to WTO 250 200 150 Cumulative number of RTAs 100 50 0 2000 1991 1994 1997 1988 2003 1979 1982 1985 1976 1970 1973 1967 1964 1958 1961 Art XXIV – catch me if you can

11. Trivial things • The best ideas for research come often from everyday experiences • Good research ideas are (marginally) novel • So… review the literature! • confirm or refute previous findings • Provide new findings • Is the timing right for this question to be answered?

12. Farm gate prices, 2004 ($/tonne)

13. Primary education and economic growth • Barro (1997): 100 countries, 1960-1995 • Primary education: statistically insignificant effect • However, female education: indirect positive effect • Self and Grabowski (2004) - Granger causality: primary education has a strong impact on growth in India • Research methodology: cross-country vs VAR analysis

14. HIV incidence Arndt and Lewis (2000)

15. EPAs and poverty reduction «  No question in Europe's development and trade policy is more pressing than how we can use trade to help African, Caribbean and Pacific countries build stronger economies that can contribute to poverty reduction and break their dependence on trade preferences and basic commodity trade. » • The European Commission

16. Trade and poverty nexus in EPAs • Literature review: • No study found! • But found: • PE analysis of EPAs – e.g. using Smart model • Hoekman and Olarreaga (2007): • PE analysis of Doha round-> price and quantity changes-> mapped at household consumption and production level, à la Winters (2000) • E.g. Doha « business as usual » (40t-50-tp-40ams, -exp subsidies, TF 2%+) leads to small short-term real income changes of the poor between ±0.x% in several case studies • Reason: low rates of domestic price transmission (e.g. Ethiopia as low as 19%) • The need for complementary policies, e.g. AfT

17. EPAs and AfT • « African, Caribbean and Pacific (ACP) countries are to benefit from EU Development Fund totalling 22 billion Euros from 2008 to 2013 », EU Trade Commissioner Peter Mandelson, has said.“They will also be major beneficiaries of the decision to increase Europe’s spending on aid for trade to 2 billion Euro a year, with priority given to measures that will help implement Economic Partnership Agreements (EPA’s),” he said. Africa News Network, 3 Nov 07

18. AfT analysis • Many papers focus only on trade facilitation: • Gravity model augmented with TF measures, e.g. Persson (2007) – no of days for EU-ACP imp/exp • CGE modelling – proxy for TF: trade-augmenting technical change • But AfT covers: TF and capacity building, supply capacity, TR infrastructure, trade adjustment • Solution: estimate econometrically aid elasticities on trade costs, by type of aid • Use these as policy shocks in CGE modelling

19. Other key issues on the trade agenda? • Trade policies and specific issues: • Agriculture: • Export subsidies, commodity diversification, TBT/SPS • Manufacturing: • Tariff liberalization • NTBs, tariff escalation, preference erosion, standards, etc. • Services: • Mode 4: “trade and labour” issues • Mode 3: trade and FDI issues • Mode 1: e-commerce • Mode 2: consumption abroad (e.g. tourism) • Regionalism: proliferation, systemic issues, WTO compatibility

20. Trade-related sectoral issues • “Trade and…” type of questions: • Trade and competition policy: • E.g. 50 per cent reduction of tariffs in agriculturewould increase world welfare by about $20 billion ($ 13,4 billion for developing countries); in all sectors, will double the amount (Cernat, Laird, Turrini 2003). • But developing countries imported US$ 81 billion of goods from industries which had been affected by price fixing conspiracies during the 1990s (Levenstein and Suslow 2001), i.e. approx. $ 20-25 billion in excessive prices (Jenny 2003).

21. Trade and competition • calculate anticompetitive price effects • Link them with household surveys and consumption patterns • What would be the likely impact of including competition policy issues in EPAs?

22. More interesting questions • Sequencing of domestic and trade reform • Trade reform and the informal market • Trade and supply capacity: • E.g. switching costs from subsistence farming (Cadot, Dutoit, Olarreaga, 2006) • Trade disputes: • e.g. genetically modified products – CGE modelling of GM rice effects on farm productivity plus health benefits for poorest households

23. Even more interesting questions • Climate change, trade and poverty: • « Climate change is already affecting people across Africa and will wipe out efforts to tackle poverty there unless urgent action is taken » BBC News, Oct 2006 • How will climate change affect farming production in Africa ? • Climate change, health and productivity loss? • Biofuels: Land use vs. food security • Migration: remittances are often more important than ODA, and in the case of LDCs more important than FDI; thirds of the total ODA of $18 billion in 2005 • Mode 4 liberalization up to 3% of OECD labour fource would yield a global welfare gain of $150bn (Winters et al, 2005)

24. How to translate all that into a policy-relevant question?

25. 40’000 more kids saved Trade and public health:Malaria • MDG Goal 6: Target2 - Halt and begin to reverse the incidence of malaria and other major diseases • UN Says Mosquito Netting Could Save 500,000 African children a year… • Can trade or trade policy promote health?

26. Conclusions ‘'The most exciting phrase to hear once you have got a good research idea is not "Eureka!" ("I found it!") but rather “will it get funded?"' Any other interesting questions?