Introduction

This paper was published by the World Bank Group examines the impact of industrial policies on international trade. It highlights the importance of understanding the effects of these policies, particularly in the context of Preferential Trade Agreements (PTAs). The study aims to investigate the relationship between industrial policies and trade growth rates, focusing on the role of PTAs in shaping these effects.

Data and Empirical Strategy

The paper uses a large dataset covering trade flows between 1995 and 2015. The dependent variable is the growth rate of trade from origin country i to destination country j of product k (included in sector s) between years t and t−1. The main explanatory variables include a new industrial policy measure (IP) potentially affecting product k, implemented by destination country j at time t, and an indicator variable for the presence of a PTA (PTAijt) between countries i and j entered into force at time t.

Main Findings

The paper presents the main results in several tables, including robustness checks and explorations of heterogeneity across regions and sectors. The baseline results show that industrial policies implemented by non-members of PTAs have a negative impact on trade growth rates, while those implemented by members of PTAs and deep PTAs have a positive impact. The coefficients are larger in size when using the log of trade levels instead of trade growth rates.

Robustness Checks

The study conducts several robustness checks to ensure the reliability of the results. These include excluding potential outliers, using alternative specifications, and exploring heterogeneity across sectors and regions. The robustness checks confirm the main findings and provide additional insights into the effects of industrial policies on trade growth rates.

Heterogeneity Across Regions

The paper examines heterogeneity across regions by including interaction terms between the industrial policy variable and regional indicators. The results show that the effects of industrial policies vary across regions, with some regions experiencing more significant positive or negative impacts.

Heterogeneity Across Sectors

The study also explores heterogeneity across sectors by including interaction terms between the industrial policy variable and sector indicators. The results highlight significant differences in the effects of industrial policies across sectors, with some sectors experiencing more pronounced positive or negative impacts.

Challenges and Recommendations

Data Challenges:

1. The dataset used in this study is based on trade flows between 1995 and 2015. The quality of the data may be affected by the accuracy of the trade data and the completeness of the industrial policy measures.
2. The dataset covers trade flows between 1995 and 2015, which may not be representative of the current trade environment.

Methodological Challenges:

1. The study uses a baseline regression equation to model the relationship between industrial policies and trade growth rates. However, the choice of specification may influence the results.
2. The study conducts several robustness checks to ensure the reliability of the results. However, the robustness checks may not fully capture the complexity of the relationships between industrial policies and trade growth rates.

Policy Recommendations:

1. The study suggests that membership in PTAs can have a positive impact on trade growth rates. Therefore, policymakers may consider joining PTAs to increase trade growth rates.
2. The study highlights the importance of industrial policy measures in shaping trade growth rates. Policymakers may consider implementing industrial policy measures that promote trade growth rates.
3. The study shows that the effects of industrial policies vary across sectors. Policymakers may consider implementing sector-specific industrial policy measures to promote trade growth rates in specific sectors.

Summary

This paper offers a detailed analysis of the impact of industrial policies on international trade, using a large dataset and a robust empirical strategy. The study reveals that the effects of these policies vary across regions and sectors, with non-members of the Partnership for Trade Agreements (PTAs) experiencing negative impacts and members of PTAs and deep PTAs experiencing positive impacts. The findings have significant implications for policymakers and scholars interested in understanding the complex relationships between industrial policies and international trade. The paper concludes that industrial policies implemented by destination countries significantly influence trade growth rates.

Download the Full paper here