As countries turn more to regionalism as a means of forwarding co-operation on trade rules and other areas of policymaking, rules on investment are increasingly being incorporated into regional trade agreements (RTAs). We analyse the economic consequences of including investment provisions in trade agreements by creating an index of the extensiveness of investment provisions in RTAs and then using that index in a gravity model framework of trade and investment. The results indicate that investment provisions are positively associated with trade and, to an even greater extent, investment flows. Further, we observe an insignificant effect of bilateral investment treaties on investment flows, suggesting either that substantive investment provisions in RTAs impact trade and FDI flows more profoundly, or that the combination of substantive investment rules and provisions liberalising other parts of the economy jointly impact trade and investment more significantly. The report also includes case studies that confirm that the relationship between investment and other provisions in trade agreements is complex and depends on many factors.
This technical paper analyses the role of business services in selected OECD and non-OECD economies using recently published input-output tables for 32 countries in or close to the year 2000. Business services have long been recognised as important drivers in the global economy, and this study reinforces that view with a comprehensive, quantitative cross-country analysis of how the manufacturing and business services sectors interact in the production process. Our analysis suggests that access to a wider variety of business services improves productivity in manufacturing. In small OECD and developing countries, the gains from trade in business services come primarily from access to a broader and more specialised business services supplier base than the domestic economy can sustain. In the largest OECD countries, gains from trade in business services stem mainly from lower costs of imported services and, to a lesser extent, an increase in variety.
The search for balanced, sustainable growth clearly involves the unwinding of large and persistent global imbalances. Much of the attention in the rebalancing debate has centred on how shifts in monetary and fiscal policies affect current account imbalances. This paper goes beyond macroeconomic management considerations and exchange rate realignments to assess how one type of structural policy reformnamely trade and traderelated policy reformsmay facilitate global rebalancing. In addition, the paper analyses how might various rebalancing scenarios, even if they do not explicitly include major trade policy reforms, impact global trade. Our analysis suggests that a coordinated response involving macroeconomic, exchange rate and structural reforms, including trade policy reforms, are needed to address imbalances in the global economy. Trade is a part of the solution since trade policy distortions reduce the benefits from trade and, through their effects on relative prices, jointly influence economic incentives on both the trade balance and net national savings sides of the national savings-investment identity. In particular, since some imbalances stem from the asymmetric pattern of remaining protectionism in goods and services sectors, a balanced approach to trade policy reform could facilitate the global adjustment process.
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