JONG-EUN LEE

OECD, Economic Department

(SEJONG UNIVERSITY, Seoul, KOREA)

Trade disputes and Macroeconomics

Questions I want to answer

Macroeconomic factors matter in initiation of Trade Disputes?

Protectionism vs. case-specific reasonHigh/Middle/Low income countriesWorld vs. national variables

Why is it interesting?

Provide a useful policy perspectives (not dragged by cliché or bored with

theories) Deeper understanding for trade disputes

Coverage

History

Great Depression/ Smoot-Hawley Tariff Act1970s oil crisis/creeping protectionism1980s ArgentinaAsian Financial CrisisDemocrat and RepublicanFinancial crisis in 2008/ tariff, anti-dumping,

subsidies and bailout packages Time to re-embrace globalism

WTO Dispute Settlement Mechanism

Fairness and EnforcementTwo tiersSub-Saharan countries

Real GDP per capita Complainant countries

Total number

of initiation

s

High income

y11456

Antigua and Barbuda[1] , Australia[7],Canada[29], Czech Republic[1],EC[79],Hong Kong, China[1],

Hungary[5],Japan[13],Korea[13],

New Zealand[7],Norway[3],Singapore[1],Switzerland[4], Chinese Taipei[3],United States[90]

[257]

Middle income

11455936 y

Argentina[14],Brazil[24],Chile[11],

Costa Rica[4],Malaysia[1], Mexico[19],Panama[5],Poland[3], Turkey[2],Uruguay[1],Venezuela[1]

[85]

Low income

935y

Bangladesh[1],China[3],Colombia[4],Ecuador[3],Guatemala[6], Honduras[6],India[18],Indonesia[4],Nicaragua[1],Pakistan[3],Peru[2]

, Philippines[5],Sri Lanka[1],Thailand[13] [68]

High incomey11456

Middle income11455936 y

Low income935y

Complainant countriesTotal number

ofInitiations

Antigua and Barbuda[1],Australia[7],Canada[29], Czech Republic[1],EC[79],Hong Kong, China[1],

Hungary[5],Japan[13],Korea[13],New Zealand[7],Norway[3],Singapore[1],

Switzerland[4],Chinese Taipei[3],United States[90]

[257]

Argentina[14],Brazil[24],Chile[11],Costa Rica[4],Malaysia[1], Mexico[19],

Panama[5], Poland[3], Turkey[2],Uruguay[1],Venezuela[1]

[85]

Bangladesh[1],China[3],Colombia[4],Ecuador[3],Guatemala[6], Honduras[6],

India[18],Indonesia[4],Nicaragua[1],Pakistan[3],Peru[2],Philippines[5],

Sri Lanka[1],Thailand[13]

[68]

Year Trade dispute initiations

% change OECD total

real GDP growth%

1995 25 2.5

1996 39 56 3

1997 50 28.20513 3.6

1998 41 -18 2.6

1999 30 -26.8293 3.3

2000 34 13.33333 3.9

2001 23 -32.3529 1.2

2002 37 60.86957 1.6

2003 26 -29.7297 1.9

2004 19 -26.9231 3.2

2005 12 -36.8421 2.5

2006 20 66.66667 2.9

2007 13 -35 2.7

2008 17 30.76923 1.4

total 386

As of 17 December 2008

International Macroeconomic Theory

The Mundell Fleming ModelThe Dornbusch-Fischer ModelComputable General EquilibriumDynamic Stochastic General Equilibrium - New Keynesian DSGE - Real Business Cycle

Previous studies

Grossman and Helpman(1994): political equilibrium where elected gov’t and interest groups interact in trade policy-making

Gawande and Bandyopadhyay(2000) Jallab(2007): Anti-dumping cases with

industry specific variables. ProbitMah and Kim(2006) Jensen(2007)

Probit

titiN

ntitti XXWMDispute ,1,1,1

2110, (1)

High-income Middle-income Low-income

Explanatory variables Change in the probability (p-value)

World Import -2.25e-8(0.104) 6e-10(0.47) 8.62e-9(0.07)*

GDP 4.16e-11(0.01)** -3.36e-12(0.05)* -1.03e-11(0.38)

Production 2.35e-6(0.01)** -5.88e-8(0.41) -1.28e-6(0.01)**

Unemployment 2.79e-6(0.46) -4.82e-7(0.05)* 1.21e-6(0.42)

Real effective exchange rate 6.3e-6(0.00)*** -3.73e-7(0.00)*** -2.68e-8(0.96)

CPI -5.6e-7(0.44) 2.95e-8(0.51) 1.52e-7(0.64)

Balance on goods and services

% of GDP 0.002(0.00)*** -0.00006(0.004)*** -0.0007(0.00)***

Overall balance

% of GDP 0.0007(0.34) -0.00004(0.28) -0.0003(0.27)

R-squared 0.77 0.59 0.67

Conclusion

Macroeconomic environments matter.

High/Middle/Low show different patterns

Nation-wide macro variables more significant than world-wide macro variables.