Three Essays on Export Structure

My dissertation will largely focus on the structure and composition of exports. Trade and export revenue are fundamental to growth and development. Therefore, it is important to examine factors that can improve or undermine trade performance in order develop relevant trade policy recommendations. Export diversification is considered a favorable trade outcome that reduces vulnerability to economic shocks. Many studies have highlighted the importance of export diversification for growth and development across different contexts. However, fewer studies have examined the channels through which export diversification can influence the growth potential of countries. Studies that have examined the margins of trade have not considered how a specific provision of trade agreements may have heterogenous effects on the intensive and extensive margin. Also, to deepen our understanding of aggregate export behavior, it is useful to identify how uncertainty in a destination country affects trade along the intensive and extensive margin. The first chapter will examine the effects of export diversification on the external debt burden of countries. The high levels of external debt held in many developing countries is concerning given its negative implications for long-term growth prospects. Export diversification is associated with a reduction in the concentration of a country’s export basket or the introduction of new and differentiated exports or markets. This is a useful trade strategy because it encourages more stable foreign exchange earnings and improved allocation of resources towards the development of productive export sectors. For LDC’s that are largely dependent on commodity trade, the ability of diversification to stabilize revenue streams can facilitate better economic planning and debt repayment (Mejía, 2011). Several studies have demonstrated that export diversification is capable of minimizing volatility because of its ability to reduce exposure to negative external shocks (Jansen (2004), Joya (2015) and Haddad et al. (2013)). By facilitating a less volatile environment, export diversification can create favorable conditions for the accumulation of savings which can facilitate debt servicing and offset indebtedness in the long-term. I hypothesize that export diversification can help to reduce the debt burden of developing countries primarily via the positive effects on export income stability and foreign exchange earnings. The results suggest that geographical diversification which can help to protect against country specific shocks and reduce export revenue volatility is able to reduce a country’s debt burden in the future. The second chapter will employ bilateral trade data and information on the provisions of trade agreements to determine whether single window provisions have any impact on trade margins. Both the margins of trade and the content of trade agreements have become a significant part of the trade literature in recent times. Trade agreements can have wide ranging benefits. As Robert Koopman, Chief Economist of the World Trade Organization, noted, “Multilateral agreements play a crucial role in lowering trade costs, and ensuring that all economies, particularly the poorest, benefit from trade cost reductions” (WTO, 2017). The provisions of trade agreements can be seen as a means of achieving or assisting with trade facilitation goals. While there is support for the positive effects of single windows on trade and for broader categories of trade provisions on trade margins, there is a lack of any study that examines the effect of having a provision related to the single window mechanism on trade margins. Using a PPML approach in the context of a gravity model, I assess whether the inclusion of single window provisions in trade agreements serves to increase trade flows using a sample of agreements formed between 1995 and 2017. Specifically, my results show a negative and significant impact of the single window provision on the intensive margin. However, when accounting for trade agreement depth in the PPML model I largely find a delayed positive effect of this provision on both overall exports and at the extensive margin for both the first and fifth lag. This demonstrates the possible phase in effects of trade agreements or because of the significant time and resources it takes to introduce a single window system. There appear to be heterogenous effects when countries are grouped by income status. The third chapter seeks to understand how world uncertainty affects the margins of trade. Specifically, it assesses whether the use of a new index of uncertainty, the World Uncertainty Index (WUI) yields findings that diverge from with the existing literature. This research is important because there exist so many measures of uncertainty and results can be sensitive to how these measures are created and the sample of countries included in the analysis. Also, since uncertainty affects all economies, it would be useful to delve deeper into the channel through which exports are affected by this phenomenon and whether this channel differs across country contexts. While the existing literature has shown the negative impact of uncertainty on trade, it would be worthwhile to see whether any new insights can be derived from this new dataset. Using data on the WUI and the bilateral BACI database, I use a panel gravity model to explore the implications of uncertainty for trade margins using a larger sample of countries compared to previous papers. Using an unbalanced dataset of approximately 300,000 observations and around 14,000 distinct country pairs for the period 1995-2018, my study confirms the finding in previous studies that the extensive margin is quite important in explaining the decline in trade flows that occurs due to uncertainty. However, my study offers an additional insight for the uncertainty-trade literature. Specifically, the intensive margin may be more important to this uncertainty-trade relationship. Also, the results confirm that uncertainty can have a strong immediate impact which fades away with time, but a potential delayed effect is expected on existing firms through the intensive margin.