Research

Substantial tariff reductions and increased usage of non-tariff measures (NTMs) have been key dynamics of global trade policy in recent decades. We use highly disaggregated data on applied most favored nation tariffs, NTMs, and trade to investigate how International Monetary Fund (IMF) conditionality as a form of external pressure to reduce tariffs contributed to this dynamic in developing countries. Our results show that structural adjustment programs (SAPs) effectively lowered tariffs without increasing the usage of NTMs. A typical three-year program containing tariff conditionality decreased tariff rates in the range of 2.0 to 3.8 percentage points in total. Furthermore, IMF programs reduced NTM initializations significantly. We also show that tariff conditionality was more effective in initiating tariff cuts for countries without previous greater globalization efforts than being a “catalyst” for ongoing liberalization efforts. 

In several African regions, economic integration has successfully reduced tariff protection by freezing the opportunity to raise applied tariffs against fellow integration partners above those promised. We examine whether these regional tariff commitments have come at the expense of adverse side-effects on the prevalence of non-tariff trade barriers. Comparing the effects of applied tariff overhangs – the difference between MFN bound tariffs and effectively applied tariffs – towards all vis-à-vis African trading partners on SPS and TBT notifications of 35 African WTO members from 2001-2017, we find no general relationship between tariff overhangs and import regulation in our preferred model setting. Larger tariff overhangs specific to intra-African trade relations, however, increase the probability of SPS measures and TBT and thereby contrast with the common assumption of the former functioning as a flexible policy valve. We see the nature of Africa’s formal trade relations as an explanation for these findings. While regional tariff commitments have not only significantly moved African countries away from multilateral commitments, they have also sharply reduced their tariff policy space within Africa, thus seemingly leaving regulatory policy as one of the few legitimate options to level the playing field with the by far closest market competitors. 

Economic diversification plays a crucial role in fostering economic growth. Export diversification policies attempt to defy an existing comparative advantage in low value-added goods to promote transformation. Many structural, general policy, and traderelated determinants of export diversification have been identified as important in the literature. This paper provides a literature review on the determinants of export diversification, and applies Bayesian Model Averaging (BMA) to tackle model uncertainty stemming from the vast number of possible determinants. The paper assesses the relevance and impact of up to 46 factors for export diversification of up to 47 African countries and 123 trading partners from 1995 to 2018. It finds that exporter, importer and bilateral characteristics are important determinants. Notably, African countries' structural features and trade policies significantly determine diversification. The analysis shows further that the trading partner’s characteristics also can impact diversification patterns. The findings highlight the potential of the African Continental Free Trade Area (AfCFTA) to foster export diversification. Additionally, the findings suggest that the goal to diversify exports at the extensive and intensive margins might not be achievable via the same policy options, or might even be competing policy goals in the short run. Lastly, education, the quality of institutions, and a better-developed service sector as non-trade policy variables are important for diversification.

While recent preferential trade agreements (PTAs) cover an increasingly broad range of policy areas beyond their traditional competence for reducing bilateral tariffs, little is known about the implications of this new emphasis on interactions with other trade-related policy measures. We approach this gap by examining the effectiveness of bilateral aid for trade (AfT) in deep North-South PTA relations. To this end, we use a structural gravity model for bilateral panel data of 29 OECD DAC countries and 144 developing countries from 2002-2015 and find that the marginal effect of AfT decreases as the policy areas of a PTA expand. Further investigation of the underlying mechanisms suggests that the observed trade-off between PTA depth and AfT effectiveness may be due to compliance with the non-tariff provisions contained in deep PTAs. We find two lines of reasoning plausible. First, compliance efforts appear to consume large fractions of AfT and thus reduce AfT available for potentially more effective projects, as we do not observe an alignment of AfT in deep PTAs. Second, since we also observe heterogeneity in interactions across donors, depending on their specific project portfolios, AfT provided by high-income PTA partners could well be used to redirect exports to third countries with comparatively fewer bilateral obligations. Donor countries should therefore carefully weigh compliance costs to developing countries against the non-trade benefits of common deep PTAs, and accurately identify financial and technical assistance needs together with their PTA partners 

Black Economic Empowerment (BEE) is a policy that aims to empower black people and, thus, decrease racial inequality in South Africa. The program puts reformation pressure on firms and might strongly influence firm performance. This paper examines how BEE affects turnover, profits, and labor productivity of (large) firms listed in South Africa. We use an extensive dataset covering a major share of listed firms between 2004 and 2019. The analysis employs fixed-effects regressions and instrumental variable approaches to account for endogeneity. Overall, we find that BEE has a positive impact on firms' sales, a positive but not robust impact on labor productivity, and no impact on profits. After accounting for heterogeneity in BEE scorecards applied, the positive effect of BEE on turnover and labor productivity becomes less pronounced. We conclude that BEE had a slightly positive effect on firm performance in the best case but also did not harm firms in the worst case. Thus, this study disproves the critique that BEE harms businesses, at least on the sample of listed firms. However, we propose that the policy should be further adapted to reduce the cost of compliance and focus on areas that bring structural change in South African companies, like the skills development dimension.