The multilateral nature of balterial trade in the

Transcript:The multilateral nature of balterial trade in the:
The multilateral nature of balterial trade in the age of global value chains (Work in progress) Fei Wang, Zhi Wang and Kunfu Zhu University of International Business and Economics Shang-Jin Wei Columbia Business School and NBER Global Value Chain Training and Research Workshop University of International Economics and Business Beijing, July 29-August 4, 2018 Bilateral Trade Imbalance 2 Motivation Most economists agree that balance of trade is not a good measure of the effect of a country’s trade policy (Lawrence, 2018) and balances of bilateral trade should not be the focus of national policy due to the multilateral nature of international trade (Bergsten, 2006). However, as the bilateral trade balance is frequently headline news and a regular topic in the trade policy debate around the world, an analytical framework that is able to reveal the multilateral characters of bilateral trade in the age of global value chains, would help the public and policy makers to better understand the deeply rooted multilateral nature of many bilateral trade issues such as the role of exchange rate in current account adjustment. Understand the roles of third countries may play in balterial trade balance between two trading partners also help us to better understand the limited role of trade protection policies is able to achieve and the unintended results it may induce in the age of global value chains. 3 The Trade Balance of USA-China and the appreciation of RMB, 2004-2017 How to measure third country effect in balterial trade? The earlier study of such issues started with Hummels, Ishii and Yi (HIY, 2001). They propose using foreign value-added embodied in imported intermediate imports to export production as a measure of vertical specialization (VS) , the first measure of foreign production factor’s role in a country’s export production. A framework that extends HIY to multilateral setting, tracing value added and double counted items in aggregate gross trade flows is proposed by Koopman, Wang and Wei (KWW, 2014). Wang, Wei, and Zhu (2014) extend the KWW method, provides an accounting framework that resembles in spirit that of KWW (2014) at the bilateral, sector, and bilateral sector levels. For this reason, we might label the overall accounting framework as KWWZ method. The Major Contribution of Gross Trade Accounting method proposed by KWWZ Bridge two most important statistics (GDP in national account and Gross trade in custom statistics) and demonstrate the first time in the literature that