Subramanian and Wei: The TWO Promotes Trade, Strongly but Unevenly

Subramanian, A, and SJ Wei. 2007. The WTO promotes trade, strongly but unevenly. Journal of International Economics 72, no. 1: 151-175.

"This paper furnishes robust evidence that the GATT/WTO has had a powerful and positive impact on trade. The impact has, however, been uneven. GATT/WTO membership for industrial countries has been associated with a large increase in imports estimated at about 30% of world trade. The same has not been true for developing country members, although those that joined after the Uruguay Round have benefited from increased imports. Similarly, there have been asymmetric effects among sectors, with WTO membership associated with substantially greater imports in sectors where barriers are low. These results are consistent with the history and design of the institution, which presided over significant trade liberalization by the industrial countries except in sectors such as food and clothing; l largely exempted developing countries from the obligations to liberalize under the principle of special and differential treatment; but attempted to redress the latter by imposing greater obligations on developing country members that joined after the Uruguay Round" (1).

They argue that Rose's analysis is incomplete in two distinct ways: firstly, the gravity equation must include country-fixed effects, as earlier identified by Anderson and van Wincoop (2003). Additionally, the study should take into consideration the asymmetric ways in which the WTO has worked to improve trade liberalization post WWII. Making these modifications, they find robust evidence that the WTO improves trade.

Three types of liberalization asymmetries: "...between developed and developing countries; between developing countries that join the WTO before and after the Uruguay Round; and between sectors where the TWO has been effective in bringing down trade barriers and those...where it has been less effective" (3).

Use extended gravity model.

Their DV is different from Rose and is imports instead of total trade, which they "deflate" (8) through the US consumer price index.

"One of our main and robust findings is that industrial country WTO membership is associated with greater trade. In our sample, however, all industrial countries are WTO members. How can we be sure that we are picking up a WTO effect rather than an industrial country effect?" (16-7). They try to minimize this through their covariates, but it's still a possibility.

"There is a separate question of whether industrial country liberalization would have taken place without the GATT/WTO. This paper does not and cannot address this question" (17).

Grabel: Policy Coherence or Conformance?

Grabel, I. 2007. Policy Coherence or Conformance? The New World Bank International Monetary Fund World Trade Organization Rhetoric on Trade and Investment in Developing Countries. Review of Radical Political Economics 39, no. 3: 335.

Policy coherence is explored in this article. It is argued that the term has been abused, and that much of what it is referred to would be better suited by the term "conformance".

"This article has three objectives: (a) to define the concept of coherence and trace its usage in policy debates historically and up to the present; (b) to explore how the concept is being institutionalized or codified through cooperation among the International Monetary Fund, World Bank, and World Trade organization...and through recent bi-and multilateral trade agreements; and (c) to offer the beginnings of a critique of what I see as the use and abuse of the concept. I will argue that the concept of coherence today is code for another and altogether different goal: policy conformance" (336).

These three institutions have worked together to promote trade liberalization in such a coherent way that they may end up working against their original mandates. This is completed partially through the at least tacit, if not explicit, approval of the US.

Coherence should be a concept with no explicit telos, but the policies implemented by these institutions have all ended up moving in a very explicitly direction. "Properly understood, policy coherence should entail an understanding of the uniqueness of diverse national contexts; of path dependence, institutional embeddedness, and stickiness; recognition that there exists multiple paths to development; and respect for national policy space" (340).

Rose: Do we really know that the WTO increases trade?

Rose, AK. 2004. Do we really know that the WTO increases trade? American Economic Review 94, no. 1: 98-114.

This paper explores whether a handful of global trade regimes actually has an impact on international trade flows. "An extensive search reveals little evidence that countries joining or belonging to the GATT/WTO have different trade patterns than outsiders. The GSP [Generalized System of Preferences] does seem to have a strong effect, and is associated with an approximate doubling of trade" (from abstract).

"While theory, causal empiricism, and strong statements abound, there is, to my knowledge, no compelling empirical evidence showing that the GATT/WTO has actually encouraged trade" (1).

"To summarize, I have been unable to find evidence that membership in the GATT/WTO has a strong positive effect on international trade" (12).

Ito: Convergence or Divergence? The Political Functions of the International Trading Regime on the Democratizing and Liberalizing Reforms

K Ito, “Convergence or Divergence?: The Political Functions of the International Trading Regime on the Democratizing and Liberalizing Reforms.”

Reliance on state-based economic decision making was in vogue as the Soviet and Chinese governments consolidated power and developed after WWII. However, this preeminence of bureaucratic decision making began to wane throughout the 1980s. This paper explores to what degree the GATT or WTO affected this transition. "I argue that the international trading regime, especially GATT, didn't lead these socialist and developing states to the liberalizing reforms directly by means of obliging them to abstain from intervening the international trade...At the same time, however, we can identify the indirect functions of the international trading regime which significantly contributed to the democratization and trade liberalization in those states. First, the beneficiaries of state-intervening economic policies in those states, such as the authoritarian political elites and import-competing business sectors, were all the more encouraged for the very permission of protectionist measures by the international trading regime...Second, the international trading regime has facilitated the commerce on goods and services among advanced industrial states, and has contributed to the dramatic increase in the amount and value of international trade" (1-2).

"This paper examines how the international trading regime has legally and politically affected the processes of democratization and liberalization in the developing and (former-)socialist states, with the emphasis placed on the effects of convergence and divergence of policies across those states, to which, I argue, the international trading regime has significantly contributed" (4).

Two different schools of thought are explored vis-a-vis the development and promotion of international trade regimes and their potential effects on units with the system. The first is hegemonic stability theory promoted by Kindleberger (though he didn't use the term). The second is neo-liberal institutionalism, promoted notably by Keohane.

GATT, for example, helped to spread the westerns sphere of influence throughout the Cold War. Specifically, it provided developing countries with large amounts of contingency plans if they were to join the trade regime. GATT restrictions applied most truly to only a handful of industrialized countries.

There were even more indirect effects that the author attributes to GATT. They helped promote policies that exacerbated the need for international institutions in the wake of the global recession threatening in the early 1980s. They also promoted policies that helped to spurn effects of globalization. Finally, they were stanch opponents of authoritarianism and protectionism.

However, after organizations like GATT did provide certain incentives to shy away from state-centered economic planning, there were additional effects that brought about an increased intensity of international trade that then went on to slightly constrain early adopters of the original organization.

While there was convergence around trade policy, this was not entirely uniform. The final section of the paper addresses issues of divergence.

Killick: Principals, Agents and the Limitations of BWI Conditionality

Killick, Tony. (1996). Principals, Agents and the Limitations of BWI Conditionality (Vol. 19, 211-229).

Killick identifies a paradox in BWI conditionality: "the evidence on the specific economic consequences of SAPs…does not point to strong results. Assessment of the impact of SAPs is fraught with difficulty, particularly because we can do no more than simulate the counterfactual" (212). "The following generalizations are among the principal results of the empirical literature on the consequences of BWI adjustment programmes [sic]" (212): Programmes [sic] have limited revealed ability to achieve their own objectives; Programmes [sic] have high mortality or interruption rates; There is little evidence of a strong connection between SAPs and implementation of policy reforms; Programmes [sic] have only modest impact on key policy variables and even less on institutions (213-4).

He then points out that the relatively weak interaction between SAPs and their chances of achieving their goals: "the BWI's over-reliance on conditionality as a means of inducing policy change" (215). "As practiced by the BWIs, the conditionality attached to SAPs is of three different levels of obligation. In diminishing order of commitment, these are (a) preconditions…reforms that must be taken before a BWI is willing to approve a negotiated loan; (b) performance criteria…actions that must be undertaken for governments to be allowed to continue to draw down the agreed loan; and (c) other actions which are less binding in nature" (215).

Recipients of BWI action and conditionality agreements tend to not feel a sense of ownership in the prescriptions that are put forth. Additionally, the punitive measures that are advanced by BWI interests are not always credibly followed. “To sum up, while a good many factors contribute to the paradox of good policies producing weak effects, the BWIs’ over-reliance on conditionality is surely one of the most important” (225).

The future of these programs depend on much, though Killick promotes a few ways in which they may be able to produce more robust results. One thing that can happen, is that BWIs can refuse to help countries who do not appear to be sufficiently interested. Additionally, recipient governments could draft letters of intent that would allow them to show to the BWIs that they are sufficiently interested in making macro-economic policy changes. Also, through the drafting of letters of intent, recipient countries could also begin to tailor the SAPs to their own domestic interests more clearly, fully and thus get over Killick’s earlier problem of ownership.

Milner: Globalization, Development, and International Institutions

Milner, Helen V. (2005). Globalization, Development, and International Institutions: Normative and Positive Perspectives (Vol. 3, 833-854): Cambridge Journals Online.

This text is a call to approach the study of international institutional efficacy from a different angle. In that, the article does much in a very short space. What is says is important, though it is quite general in certain aspects, especially in its treatment of “normative” theory.

Milner begins by wondering how one could begin to truly assess the effectiveness of international institutions like the IMF. Surely a counterfactual must be deployed, but this is problematic in itself. “Counterfactuals cannot be answered directly because they presume a situation which did not occur and rely on speculation about what this hypothetical world would have been like” (834). Researchers are thus left to make inference based on longitudinal comparisons and cross-sectional comparisons of data that is available in situations where certain countries were more or less effected by IMF (for instance) lending.

She also understands that the role of the counterfactual has been criticized by “normative” scholarship. She claims that, “combining normative and empirical scholarship may be unusual, but fruitful” (834). The goals of this paper is to review recent studies on the IMF/WB/WTO, to look at scholarship on international institutions and then to connect this all back to “normative” theory.

She reviews Stiglitz, Easterly, Vreeland, Stone and Pogge. She then looks at the history of international economic institutions since WWII, and the uneven instances and evidence of growth that has arisen out of the less developed world. Milner then explores for reasons that international institutions exist: they constrain great powers, they provide information and improve transaction costs, they allow for reciprocity in international relations and they are a catalyst for domestic political reform.

Then, four sources of institutional problems are identified: Firstly, they have no impact. Secondly, they are controlled by hegemons. Thirdly, they are controlled by private interests, specifically investors. Fourthly, they are not internally accountable.

We are then treated with a brief trek through “normative” scholarship. This specifically focuses on the role that institutions should play in the international system. She looks at Rawls and disagrees with his notion of a national consensus, arguing for a global consensus regarding distribution. Secondly, she puts for the assertion (already mentioned) that counterfactual approaches to understanding theory are lacking in substance and credibility. Finally, she makes the claim that narrowly defined nationalist politics need to change.

She concludes by prescribing that further research in this area should be focus on, “the actual effects of international institutions, rather than debates about whether they are autonomous agents” (849).

Stone: Lending Credibility

Stone, Randall W. (2002). Lending credibility : the International Monetary Fund and the post-communist transition. Princeton, N.J.: Princeton University Press.

Dependent variable: the effect of the institution to elicit control over a recipient country.

The question is whether or not international institutions have the ability to exert control over independent, sovereign countries. Other IR perspectives are concerned whether or not domestic interest groups and issues of distribution will blunt the influence of international institutions. Stone believes that both of these perspectives are partially correct (2).

He then embarks on a project of examining the counterfactual of whether or not IMF policies have had an independent effect on changing the policies of recipient countries. Firstly, he defines the, "effects that IMF intervention is expected to have" (3). Secondly, he advances a statistical methodology to examine to what degree IMF interventions effect policy change. He finds that, if the IMF can not show that they will be able to enforce policy, these policies will not be followed. Thirdly, he attempts to examine his statistical conclusions by looking at case-studies in Eastern Europe in details.

Stone then claims that inflation and GDP growth rates are highly correlated. "The significance of these results is that countries with higher inflation grew more slowly, or declined more rapidly, and attracted less foreign direct investment. Furthermore, it was the poor rather than the relatively wealthy who suffered most from inflation: high inflation caused income inequality to increased" and, "Taming inflation was the most urgent task facing post-Communist countries, because high levels of inflation threatened to derail all other aspects of their reform programs" (7).

Inflation is especially important for Post-Communist countries for the following reasons: inflation, "warps the incentives of firms, preventing industrial restructuring"; "inflation undermines the confidence of international investors"; and; "high inflation leads to a skewed distribution of wealth" (8-9).

"Inflation does not arise primarily because someone benefits from inflation per se; it arises primarily because politicians find it difficult to resist the short-term temptations that lead to inflation" (10). "In principle…the IMF can substitute for entrenched domestic institutions by monitoring compliance with stabilization programs and offering rewards and punishments that tip the balance of incentives in favor of the full-commitment equilibrium" (11). "Under favorable circumstances, a virtuous circle can arise, in which IMF intervention, government policies, and international investment reinforce one another" (11). "The picture becomes somewhat more complex, however, when we consider that the IMF's own credibility is in question" (11). "The conclusions show that the IMF's credibility problem is indeed severe, and consequently the organization's effectiveness is compromised in some of the most important countries. At the same time, this study finds ample evidence that the IMF has exerted significant influence over the economic policies of Post-Communist countries" (12).

Countries that are more interesting to global hegemonic interests can not be expected to be controlled by the conditionality constraints of IMF policies. This is so because they can not be expected to control for inflationary policies when the IMF is a political institution that is controlled by hegemonic institutions. For example, if the US has a direct interest in the Ukraine, it will be less interested in rigorously enforcing issues of conditionality. The argument is that the Ukraine knows that this is the case and will respond in accord.

The credibility of the IMF conditionality is at stake. Stone promotes an agenda that argues that, if IMF conditionality is seen as being credible, i.e., if the sticks are seen as being real and painful, countries will listen to conditionality. However, if the countries do not believe that the conditionality is going to be enforced, they will evade making painful policy changes. Another aspect of his account is that, if a country is sufficiently interesting to global hegemon power and influence, they will also be increasingly able to evade

The remainder of the book is full of case-studies, of which I will not detail here, though they are quite informative.

Goldstein, et. al.: Intstitutions in International Relations

Goldstein, Judith L., Rivers, Douglas, & Tomz, Michael. (2007). Institutions in International Relations: Understanding the Effects of the GATT and the WTO on World Trade (Vol. 61, 37-67): Cambridge Journals Online.

This article attempts to right a wrong. The wrong is the absences of a statistical link between membership in an international institution like the GATT and a decreased level of tariffs. See Milner 2005 and Rose 2004.

Goldstein et. al. deploy a statistical method that attempts to show that, while there is not a direct correlation between GATT membership and decreased trade tariffs, there is an important statistical connection if you broaden the circle of GATT members to measure the degree to which countries are embedded in the international system through agreements, etc.

The authors accomplish this by looking at two factors: institutional standing and institutional embeddedness (38). Standing is seen as being distinct from formal group membership, as some international agreements, “give rights and obligations not only to formal members, but also to territories and groups that never signed the agreement” (39). Goldstein et. al. also looks at member nations who are in negotiation with different international agreements, but who have not accented to full membership. “In summary, these nonmember participants received the core rights of the GATT/WTO, that is, access to other markets on MFN terms, and they reciprocated that right to other members of the organization” (42).

They then use a statistical method that standardized their country data using the gravity model of trade. Their results show that other examinations of this problem were too myopically focused on official, formal GATT/WTO membership while ignoring other variables that would affect country participation. When those additional variables are considered, statistical models will show a causal connection.

The table that sums up the whole project in a 3x3 format is Table 3. This shows the trade interaction between three groups of countries: formal member nations, nonmember participant nations, and non-participant nations. It shows a reduction in trade as the relationships move further away from the trade interactions of formal members and nonmember participants, dropping off whenever there is a trade interaction with non-participants. A table of countries and whether or not their participation is not included with the study, which would be helpful. An additional interesting table is Table 4, which shows the decreasing efficacy of subsequent trade negotiations in increasing trade.