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Abstract: 48.2 billion (about 7.4 percent of total world trade). The analysis indicates that Mexico has a large scope for trade promotion from trade facilitation reform: overall increments from domestic reforms are expected to be on the order of 31.8 billion, equivalent to 22.4 percent of total Mexican manufacturing exports for 2000-03. On the imports side, these figures are : "Improved competitiveness is at the top of the agenda for Mexico as it moves to leverage economic progress made over the past decade. The authors evaluate the impact of changes in trade facilitation measures on trade for main industrial sectors in Mexico.

Results from a two-step simulation that uses a computable general equilibrium model and detailed consumption and income household data suggests that trade liberalization benefits people in the poorest deciles more than those in the richer ones.

December 2000 One problem when estimating a Cobb-Douglas production function with micro data is how to deal with the observations that show positive output but do not use some of the inputs. As the log of zero is not defined, one standard procedure is to arbitrarily replace those zero values with "sufficiently small" numbers. But can we do better than that? An alternative approach is presented and applied to Mexican farm-level data. The standard approach for fitting a Cobb-Douglas production function to micro data with zero values is to replace those values with "sufficiently small" numbers to facilitate the logarithmic transformation. In general, the estimates obtained are extremely sensitive to the transformation chosen, generating doubts about the use of a specification that assumes that all inputs are essential (as the Cobb-Douglas does) when that is not the case. Soloaga presents an alternative method that allows one to estimate the degree of essentiality of the production inputs while retaining the Cobb-Douglas specification. By using the properties of translatable homothetic functions, he estimates by how much the origin of the input set should be translated to allow the Cobb-Douglas functional form to capture the fact that the data have a positive output even when some of the inputs are not used. To highlight the empirical importance of the approach, he applies it to Mexican farm-level production data that he gathered. Many households did not use family or hired labor in farm production, or had different capital composition (that is, zero value for non-land farm assets). The estimations provide a clear measurement of the degree of essentiality of potentially non-essential inputs. They also indicate the size of the error introduced by the common "trick" of adding a "small" value to zero input values. This paper--a product of Trade, Development Research Group--is part of a larger effort in the group to explore conceptual and practical issues relative to the effects of international trade policy on individual producers. The author may be contacted at isoloaga@worldbank.org.

Knowledge, lacking weight and other physical attributes and being intangible, is a hidden factor of production, making economies grow "weightless." But knowledge is also imbedded in technology. If, becaue of low productivity, poor countries keep buying low-technology machines, will they remain stuck in a low-technology, low-growth trap?

One problem when estimating a Cobb-Douglas production function with micro data is how to deal with the observations that show positive output but do not use some of the inputs. As the log of zero is not defined, one standard procedure is to arbitrarily replace those zero values with quot;sufficiently smallquot; numbers. But can we do better than that? An alternative approach is presented and applied to Mexican farm-level data.The standard approach for fitting a Cobb-Douglas production function to micro data with zero values is to replace those values with quot;sufficiently smallquot; numbers to facilitate the logarithmic transformation. In general, the estimates obtained are extremely sensitive to the transformation chosen, generating doubts about the use of a specification that assumes that all inputs are essential (as the Cobb-Douglas does) when that is not the case.Soloaga presents an alternative method that allows one to estimate the degree of essentiality of the production inputs while retaining the Cobb-Douglas specification. By using the properties of translatable homothetic functions, he estimates by how much the origin of the input set should be translated to allow the Cobb-Douglas functional form to capture the fact that the data have a positive output even when some of the inputs are not used.To highlight the empirical importance of the approach, he applies it to Mexican farm-level production data that he gathered. Many households did not use family or hired labor in farm production, or had different capital composition (that is, zero value for non-land farm assets).The estimations provide a clear measurement of the degree of essentiality of potentially non-essential inputs. They also indicate the size of the error introduced by the common quot;trickquot; of adding a quot;smallquot; value to zero input values.This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to explore conceptual and practical issues relative to the effects of international trade policy on individual producers. The author may be contacted at isoloaga@worldbank.org.

In Colombia, Mexico, and Morocco, firms' past exposure to foreign knowledge through exports, imported imputs, and foreign direct investment does not help to predict current product quality or productive efficiency.

In Cameroon, neither a major devaluation nor a major simplification of the tax structure systematically affected profit margins. But trade liberalization, substantial tariff reductions, clearly signaled change to manufacturers. And devaluation shifted relative prices dramatically in favor of exportable goods.

"Most researchers focus on the political economy (interest group pressures) approach to analyzing why customs unions are formed, but terms-of-trade effects were also important in formation of the common market of the Southern Cone (Mercosur). Terms-of-trade externalities among Mercosur's members have been internalized in the common external tariff--Cover.

Knowledge, lacking weight and other physical attributes and being intangible, is a hidden factor of production, making economies grow "weightless." But knowledge is also embedded in technology. If, because of low productivity, poor countries keep buying low-technology machines, will they remain stuck in a low-technology, low-growth trap? Barba Navaretti and Soloaga examine the impact on productivity of technologies imported by a sample of developing and transition economies in Central and Eastern Europe and the Southern Mediterranean𕇬onomies becoming increasingly integrated with the European Union. They depart from earlier studies of technology diffusion by focusing on the technology embodied in the machines imported. Earlier work focused mostly on spillovers from foreign research and development conveyed through trade, without controlling for the characteristics of the goods imported. The authors jointly estimate the choice of foreign technology and its impact on domestic productivity for a set of manufacturing sectors. They proxy the technological level of the machines imported by using an index relating the unit value of the machines imported by a given country to the unit value of similar machines imported by the United States. At any point in time between 1989 and 1997, there is a persistent (even increasing) gap between the unit values of the machines imported by the United States and those imported by the sample of developing countries. Although developing economies buy increasingly productive machines, the technology embodied in the machines persistently lags behind that in the machines purchased by the United Statesőso far as unit values are good proxies of embodied technologies. Barba Navaretti and Soloaga also find that productivity growth in manufacturing depends on the types of machines imported in a given industry. So although the optimal choice for developing countries is to buy cheaper, less sophisticated machines, given local skills and factor prices, this choice has a cost in long-run productivity growth. If productivity is low, countries buy low- technology machines, but doing so keeps them in a low-technology, low-growth trap. This paperᔚ product of Trade, Development Research Groupőis part of a larger effort in the group to assess the role of trade in technology diffusion.