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YOUNG LEADERS TRAINING PROGRAM for Sustainable Development in Asia and the Pacific

YOUNG LEADERS TRAINING PROGRAM for Sustainable Development in Asia and the Pacific. 30 June-15 July 2006 Kangwon National University Chunchon, Korea. Introduction to Methodologies in Development and Trade Analysis. LECTURER. Prof Tran Van Hoa Director, Vietnam and ASEAN+ Research Program

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YOUNG LEADERS TRAINING PROGRAM for Sustainable Development in Asia and the Pacific

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  1. YOUNG LEADERS TRAINING PROGRAMfor Sustainable Development in Asia and the Pacific 30 June-15 July 2006 Kangwon National University Chunchon, Korea

  2. Introduction to Methodologies inDevelopment and Trade Analysis

  3. LECTURER • Prof Tran Van Hoa • Director, Vietnam and ASEAN+ Research Program • Centre for Strategic Economic Studies • Victoria University, Melbourne, Australia • Honorary Professor • National Economics University, Vietnam • National Advanced Training Institute (NATI) • Ministry of Trade, Vietnam • Consultant/Mentor • AusAID-Cardno, Australia • Email: jimmy.tran@vu.edu.au • Website: http://www.staff.vu.edu.au/CSESBL/

  4. VARIOUS USES • Research • Teaching • Training • Policy • National and International Networks

  5. FAST CHANGING WORLD: CURRENT GLOBAL ISSUES 1 Issue 1: Global Economy 2 Issue 2: Global Knowledge 3 Issue 3: Global Commerce and Industry 4 Issue 4: Marching Globalisation • Issue 5: Need of Global Competitiveness • Issue 6: WTO and FTA Foundation: Global Pure Competitive Market

  6. GLOBAL GOVERNANCE Finance (IMF) Commerce (GATT, GATS and WTO) Justice (The Hague) War and Peace (United Nations)

  7. REGIONAL TRADE AND DEVELOPMENT ISSUES IN ASIA Miracle (60-mid 90) and Crisis (97) Years in Asia IMF Policy Failures in Asia Crises (Mexico to Indonesia) Slow WTO Negotiations (Doha, agriculture) Fast (post-98) Recovery of Crisis Economies in Asia Benign Neglect of Crisis Asia from NAFTA and EU Support from World’s 2nd Largest Economy

  8. REGIONAL TRADE AND DEVELOPMENT ISSUES IN ASIA Recent Economic Integration Developments: Rise of Plurilateral FTA (LAFTA, 05) Rise of Bilateral FTA (AIFTA, AEFTA, 05) Emergence of New Asian Regionalism (ASEAN+3, 00) Emergence of East Asia Regionalism (EAS, 05) Emergence of South Asia Regionalism SAARC (85), SAFTA (05)

  9. ASIAN REGIONALISM AND FREE TRADE AGREEMENTS • Asian Regionalism and FTAs are not new • (eg, East Asia proposed by Japan in 1940s) • Proliferation of plurilateral and bilateral FTAs in Asia and Oceania in recent years.

  10. ASIAN REGIONALISM AND FREE TRADE AGREEMENTS • EXAMPLES Current: AFTA, TAFTA, AUSFTA, JSFTA, ASFTA, ASEAN+3, Proposed: ASEAN+5, ASEAN+India, ASEAN+EU, Australia+Emirates, Australia+China, Australia+Japan

  11. ASIAN FREE TRADE AGREEMENTS • The Foundation of Asian FTAs: Proximity (Gravity) Affinity in Consumption and Production Political Compatibility Strategic Regional Cooperation

  12. ISSUES IN FTAS • Mechanics of FTAs: Liberalisation of trade, investment, services, business and tourism • Benefits: • Trade, economic, political in the medium & long term

  13. ISSUES IN FTAS • Challenges/Costs: Country interests, NTMs, cultures, histories, religions, national, regional & global crises, current rising oil prices, global competition, exchange rates, etc • Ideology vs Realism: Research-based policy versus policy-based (biased) research

  14. ROLE OF POLICY REFORM AND SHOCKS IN REGIONAL FTAS • Gains from FTAs are affected positively by policy reforms & negatively by shocks • EXAMPLES: • South Korea economic reform • China investment policy • Tsunami in South East Asia • Gulf and Iraq wars

  15. Cointegration/unit root taxonomy of policy reforms and shocks GRADUAL SUDDEN Temporary Temporary Long lasting Long lasting Examples: Doi Moi China SOE reform Gulf War, SARS, avian flu

  16. ROLE OF NTMS IN REGIONAL FTAS • Non-Tariff Barriers or Measures (NTMS) • 40% of LDC Exports Affected (UNCTAD) • % of Australia/Vietnam Trade Affected if NTMs Prevail? • % of US/Vietnam Trade Affected if NTMs Prevail? • % of Australia’s Exports/Investment to China Affected if NTMs Prevail?

  17. CHARACTERISING NTMS • Lack of transparency • Poor intellectual property-rights enforcement • Quarantine • Customs procedures • Administrative import requirements • Burdensome regulations and standards, and

  18. CHARACTERISING NTMS • Restricted mobility of business people. • Pervasive • Currently Difficult to Quantify • Politically Sensitive • But Measurable?

  19. HOW TO BEST MEASURE GAINS/LOSSES FROM FTAS AND WTO? The Economic/Commerce Policy Scene Policy Components: Y: Target, X=Instruments Expected Action: Y  X : Directional Causal Linkage Lucas Critique: Y -> X and Y <- X

  20. HOW TO BEST MEASURE GAINS/LOSSES FROM FTAS AND WTO? Advanced Impact Methodologies The Keynesian (1940)-SNA93 (1993) Y = ΠX + V The Johansen CGE/GTAP (1960) dlogY =dlogX

  21. HOW TO BEST MEASURE GAINS/LOSSES FROM FTAS AND WTO? The Cross-Section Gravity Theory (1999) The Panel Regression (Dollar, EJ, 2004) The Generalised Gravity Theory (TVH, 2002)

  22. Advanced Impact MethodologiesMORE DETAIL • The Keynesian (1940)-SNA93 (1993) • AY + BX = U, then with A 0 • A-1AY + A-1BX = A-1U or • Y = -A-1BX + A-1U or • Y = ΠX + V Reduced Form

  23. Advanced Impact MethodologiesMORE DETAIL • The Johansen CGE/GTAP (1960) • dlogY =  dlogX • Using Euler-Gauss Algorithm to solve

  24. Advanced Impact MethodologiesMORE DETAIL • The Cross-Section Gravity Theory (Frankel & Romer, 1999) • logT = a1 + a2logY + a3logG + u • The Panel Regression (Dollar, EJ, 2004) • logT = a1 + a2LOG(Y) + a3LOG(G) + u where LOG(Y)=Vector of Y, etc

  25. Advanced Impact MethodologiesMORE DETAIL • The Generalised Gravity Theory (TVH, 2002) • Y = Y(T,S) Arbitrary Function • T = T(Y,S,FDI,X,Z) Arbitrary Function • Specifying No Specific Functional Form and Allowing Circular Causality and Temporal Shocks • or Policy Change

  26. Advanced Impact MethodologiesMORE DETAIL • Using Planar Taylor Series Expansion • dY = (Y/T) dT + (Y/S) dS • dY/Y = T(Y/T)(dT/TY) + S(Y/S)(dS/SY) • = E1 dT/T + E2 dS/S, or • Y% = E1 T% + E2 S% + U. E1=Elasticity of Y on T, etc. And, similarly for T.

  27. HOW TO BEST EMPIRICALLY MEASURE GAINS/LOSSES FROM FTAS AND WTO WITH COMPREHENSIVE TRADE, POLICY CHANGE & SHOCKS? • A trilogy of recent stories (research projects) in ASEAN+3 (China, Japan, Korea) FTA (2001) incorporating trade, investment, services, policy reform and shocks • Case Study 1: China

  28. CHINA TRADE WITH THE WORLD

  29. CHINA GAINS FROM MULTILATERAL FTA (WTO 2001): More Exports

  30. GROWTH MODELLING EVALUATION:China Growth and China-Japan Trade

  31. GROWTH MODELLING EVALUATION:China Growth and China-ASEAN Trade

  32. HOW TO CARRY OUT A RESEARCH ON THE CAUSES OF TRADE IN ASEAN+3 • A Graphical Analysis • Trade Causes Growth? • What Causes Trade? • Find the Causes of Trade • Alternative Approaches • Some Case Studies

  33. Reliability of Merchandise Trade Proxy in Models on China’s Trade with its Five Major Trading Partners Openness (Exports+Imports)/GDP 1981 to 2002 Model China-ASEAN China-Japan China-US China-EU China-Australia Correlation Coeff 0.98 0.98 0.96 0.97 0.94 RMSE 3.83 3.6 3.23 4.15 6.42 Mean Error 0.00 0.00 0.00 0.00 0.00 Um 0.00 0.00 0.00 0.00 0.00 Us 0.01 0.01 0.02 0.01 0.03 Uc 0.99 0.99 0.98 0.99 0.97 _____________________________________________________________________ Notes. Ub+Us+Uc = 1. See Pindyck and Rubinfeld (1998) for further detail on these evaluation criteria. The estimates are based on TSP calculation.

  34. SUBSTANTIVE EMPIRICAL (ECONOMETRIC) FINDINGS 1 • Table 1 • Impact of Trade, Services, FDI, Policy Reform and Shocks on China’s Growth • Generalised Gravity Theory in Flexible Structural Form • 1981 to 2001 China-ASEAN China-Japan China-US • Variables OLS 2SLS 2SHI OLS 2SLS 2SHI OLS 2SLS 2SHI __________________________________________________________________________________________ • Constant 9.30** 9.24** 8.93** 9.74** 9.40** 8.23** 9.78** 9.41** 8.80** • Openness/GDP 0.03** 0.03** 0.03** 0.02@ 0.02@ 0.02@ 0.04@ 0.05@ 0.05@ • Services/GDP 0.01 -0.01 -0.01 0.003 -0.003 -0.003 -0.004 -0.02 -0.02 • FDI/GDP 0.04** 0.05** 0.04** 0.04** 0.05** 0.04** 0.04** 0.05** 0.04** • Stock Crash 87 1.12@ 1.18* 1.14* 1.44 1.68* 1.58* 1.13 1.43@ 1.34@ • China Turmoil 89 -6.97** -6.96** -6.73** -7.42** -7.28** -6.83** -7.46** -7.29** -6.82** • Gulf War 91 4.90** 4.70** 4.54** 4.45** 3.92** 3.68** 4.83** 7.53** 4.17** • China Reform 93 2.15** 2.32** 2.24** 2.33** 2.75** 2.58** 2.15** 4.46** 2.21** • Asia Crisis 97 -2.84** -2.79** -2.69** -2.67** -2.56** -2.40** -2.75** 2.36* -2.50** • R2 0.97 0.73 0.99# 0.96 0.91 0.98# 0.96 0.95 0.98 • F 43.07** 39.57** 4.80** 25.57** 21.88** 5.49** 25.84** 21.06** 5.13** • DW 1.71 1.77 1.32& 2.10 2.15 1.36& 2.19 2.17 1.32&

  35. SUBSTANTIVE EMPIRICAL (ECONOMETRIC) FINDINGS 2 • China-EU China-Australia • Variables OLS 2SLS 2SHI OLS 2SLS 2SHI _______________________________________________________________________________________________________ • Constant 10.37** 10.10** 9 .35** 9.72** 9.61** 8.75** • Openness/GDP -0.009 -0.003 -0.003 0.01 -0.004 -0.004 • Services/GDP 0.009 0.009 0.008 0002 0.003 0.003 • FDI/GDP 0.04** 0.05** 0.04** 0.05** 0.06** 0.05** • Stock Crash 87 0.41 0.72 0.67 1.36 1.02 0.93 • China Turmoil 89 -7.17** -7.25** -6.72** -7.59** -7.02** -6.40** • Gulf War 91 4.48** 4.35** 4.04** 4.56** 3.58** 3.26** • China Reform 93 2.66** 2.72** 2.55** 2.56** 3.35** 3.05** • Asia Crisis 97 -2.80** -2.75** -2.55** -2.76 -2.59** -2.36** • R Square 0.95 0.94 0.97# 0.95 0.93 0.97# • F 19.54** 18.64** 3.20** 19.88** 14.74 5.49** • DW 2.44 2.40 1.35& 2.24 2.42 1.21&

  36. HOW TO MEASURE REGIONAL/SECTORAL GAINS/LOSSES FROM FTAS? • The Required Share Data • Global • National • Regional • Sectoral, etc

  37. REGIONAL/SECTORAL GAINS/LOSSES FROM FTAS? • Modelling National Gains/Losses • Modelling Regional/Sectoral Gains/Losses Modelling More Disaggregated Activities Urban and Regional Productivity/Wages Income Inequality Employment/Unemployment Education and Jobs

  38. IMPACT OF NTMS • An Important Current Research Subject for WTO and FTA Impact

  39. AUSTRALIA TRADE WITH THE WORLD AND ITS FUTURE & STRATEGY

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