nep-int New Economics Papers
on International Trade
Issue of 2019‒09‒09
35 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Belt and Road Initiative and Chinese Firms’ Outward Foreign Direct Investment By Shu Yu; Xingwang Qian; Taoxiong Liu
  2. Multinationals, Intrafirm Trade, and Employment Volatility By Kozo Kiyota; Toshiyuki Matsuura; Yoshio Higuchi
  3. Subsidies in Global Value Chains or Where Does the Money Go? By Flaig, Dorothee; Boysen-Urban, Kirsten
  4. Services Liberalization and Export Diversity: Theory and Evidence from Chinese Firms By Bai, Zhuoran; Meng, Shuang; Miao, Zhuang; Zhang, Yan
  5. The Textbook Case for Industrial Policy: Theory Meets Data By Dominick G. Bartelme; Arnaud Costinot; Dave Donaldson; Andrés Rodríguez-Clare
  6. Trade relations and Export Orientation Prospects of Georgian Economy on EU market By Lela Bakhtadze; Teimuraz Sartania
  7. Impact of Tighter Controls on Japanese Chemical Exports to Korea By Nobuhiro Hosoe
  8. Losing Preferential Access to Third Countries After Brexit - What is at Stake? By Freund, Florian; Pelikan, Janine; Banse, Martin
  9. Entry, Trade, and Exporting over the Cycle By George A. Alessandria; Horag Choi
  10. Misallocation Under Trade Liberalization By Yan Bai; Keyu Jin; Dan Lu
  11. Tariff Pass-through in Wholesaling: Evidence from Firm-level Data in Japan By Youngmin BAEK; HAYAKAWA Kazunobu; TSUBOTA Kenmei; URATA Shujiro; YAMANOUCHI Kenta
  12. Welfare State vs. Market Forces in a Globalization Era By Assaf Razin; Efraim Sadka; Alexander Horst Schwemmer
  13. Searching for an Appropriate Ad Valorem Equivalent for TRQs: The Case of CETA By Döbeling, Tatjana; Pelikan, Janine
  14. Trade Liberalization, Selection and Technology Adoption with Vertical Linkages By Antonio Navas; Antonella Nocco
  15. Do Value-Added Taxes Affect International Trade Flows? Evidence from 30 Years of Tax Reforms By Youssef Benzarti; Alisa Tazhitdinova
  16. Imported intermediates, technological capabilities and exports: Evidence from Brazilian firm-level data By Torres Mazzi, Caio; Foster-McGregor, Neil
  17. Bilateral Trade Imbalances By Alejandro Cunat; Robert Zymek
  18. Trade and Capital Flows: Substitutes or Complements? An Empirical Investigation By Belke, Ansgar H.; Domnick, Clemens
  19. Skill, Innovation and Wage Inequality: Can Immigrants be the Trump Card? By Gouranga Gopal Das; Sugata Marjit; Mausumi Kar
  20. Migration, Innovation, and Growth: An African Story? By Mbaye, Linguère Mously; Tani, Massimiliano
  21. The Outlook for Dairy Exports under the New Japan-EU Free Trade Agreement (JEFTA) By Berndt, Marvin; Hess, Sebastian
  22. Public and Foreign Investment Spending in the Argentine Case.A Cointegration Analysis with Structural Breaks, 1960-2015. By Miguel D. Ramirez
  23. Skills Scarcity and Export Intensity By Carlo Perroni; Davide Suverato
  24. Global Value Chains and the Innovation of the Chinese Mobile Phone Industry By Yuqing Xing
  25. Linkages between Globalisation, Carbon dioxide emissions and Governance in Sub-Saharan Africa By Simplice A. Asongu; Rexon T. Nting; Joseph Nnanna
  26. The Environmental Effects of FDI: Evidence from MENA Countries By Imad Moosa
  28. Chinese Agricultural Foreign Direct Investment in Dairy: Could Germany Become a Chinese Cash Cow? By Robinson, Douglas Michael; Lakner, Sebastian; Otter, Verena
  29. The interdependence of domestic and international success: the case of the UEFA Champions League By Moreno-Ternero, Juan D.; Weber, Shlomo
  30. A theory of economic unions By Gino Gancia; Giacomo A. M. Ponzetto; Jaume Ventura
  31. The Impact of Brexit on Islamic Stock Markets Employing MGARCH-DCC and Wavelet Correlation Analysis By Cikiryel, Burak; Masih, Mansur
  32. Bias and Consistency in Three-way Gravity Models By Martin Weidner; Thomas Zylkin
  33. Dominant-currency pricing and the global output spillovers from US dollar appreciation By Georgios Georgiadis; Ben Schumann
  34. The Brexit Vote, Productivity Growth and Macroeconomic Adjustments in the United Kingdom By Ben Broadbent; Federico Di Pace; Thomas Drechsel; Richard Harrison; Silvana Tenreyro
  35. Putting Global Governance in its Place By Dani Rodrik

  1. By: Shu Yu (University of Rochester); Xingwang Qian (SUNY Buffalo State); Taoxiong Liu (Tsinghua University)
    Abstract: This paper studies the impact of China’s “Belt and Road Initiative” (BRI) on Chinese firms’ outward foreign direct investment (OFDI). Overall, the BRI positively impacts on Chinese OFDI activities. However, both the direction and the magnitude of this impact depend on the host countries’ willingness to participate in the BRI. The BRI promotes more OFDI to developing countries that welcome China’s economic engagement and alters the effect of Chinese domestic push factors on its OFDI patterns. In addition, Chinese firms in construction and infrastructure, manufacturing, and trade-related sectors are more responsive to the BRI than firms in other sectors.
    Keywords: Belt and Road Initiative; Outward FDI
    JEL: F21 F23
    Date: 2019–08–10
  2. By: Kozo Kiyota (Keio Economic Observatory, Keio University); Toshiyuki Matsuura (Keio Economic Observatory, Keio University); Yoshio Higuchi (Faculty of Business and Commerce, Keio University)
    Abstract: This paper examines the theoretically ambiguous relationship between the volatility of employment growth and the foreign exposure of firms. We employ unique Japanese firm-level data over the period 1994-2012. This allows us to investigate any differences in this relationship across multinational firms and trading and nontrading firms, manufacturing and wholesale trade, and intrafirm and interfirm trade. One major finding is that in manufacturing, employment volatility increases as the share of intrafirm exports to total sales increases. In contrast, in wholesale trade, employment volatility declines as the share of intrafirm imports to total imports increases. One possible interpretation of these results is that the transmission of foreign supply and demand shocks could be through not only manufacturing, but also wholesale trade firms. Further, a higher share of intrafirm trade could magnify foreign demand shocks in manufacturing, and could mitigate foreign supply shocks in wholesale trade.
    Keywords: Employment volatility, Multinational firm, Intrafirm trade, Wholesale trade
    JEL: F1 F16 L25
    Date: 2019–08–09
  3. By: Flaig, Dorothee; Boysen-Urban, Kirsten
    Abstract: Domestic support to agriculture constitutes an important part of European Union (EU) policies. With trade and especially in the framework of global value chains (GVCs) the question arises as to what extend each part of the value chain benefits from a subsidy. We track subsidy flows by combining techniques of value added decomposition originating from GVC analysis with detailed agricultural domestic support data for the EU. This allows us not only to track subsidy flows inside the EU, but also those that are incorporated in exports to the rest of the world. EU domestic support is often blamed to hurt African farmers. To get an idea on the importance of this argument from the demand side, we analyse the contribution of European agricultural domestic support for final demand in African countries. Results show that EU subsidies are “traded” substantially within the EU, but an unneglectable share is also captured by non-EU countries.
    Keywords: Agricultural and Food Policy, International Relations/Trade
    Date: 2019–08–26
  4. By: Bai, Zhuoran; Meng, Shuang; Miao, Zhuang; Zhang, Yan
    Abstract: During the last decades, we observe a liberalization trend in the services sector globally. Using the Chinese exporting firm data, this paper studies how multi-product firms adjust their export strategies in response to the services trade liberalization across export destination countries. Our study finds a highly significant positive relation between the services trade liberalization in the destination countries and each firm's export diversify, which is measured as the product scope, the Herfindahl-Hirschman style index, or the value skewness across varieties,export product switch. Our empirical analysis further finds that firms increase the relatedness of their exporting varieties towards the OECD countries, but reduce it towards the non-OECD countries. With a conventional multi-product firm model, we explore the mechanisms behind all our empirical findings.
    Keywords: Services trade Liberalization; Export Diversity; Chinese Data
    JEL: F13 F14
    Date: 2019–08–01
  5. By: Dominick G. Bartelme; Arnaud Costinot; Dave Donaldson; Andrés Rodríguez-Clare
    Abstract: The textbook case for industrial policy is well understood. If some sectors are subject to external economies of scale, whereas others are not, a government should subsidize the first group of sectors at the expense of the second. The empirical relevance of this argument, however, remains unclear. In this paper we develop a strategy to estimate sector-level economies of scale and evaluate the gains from such policy interventions in an open economy. Our benchmark results point towards significant and heterogeneous economies of scale across manufacturing sectors, but only modest gains from industrial policy, below 1% of GDP on average. Though these gains can be larger in some of the alternative environments that we consider, they are always smaller than the gains from optimal trade policy.
    JEL: F1 F10 F11 F12 F13 F14 F17
    Date: 2019–08
  6. By: Lela Bakhtadze (Ivane Javakhishvili Tbilisi State University; Department of International Economics and Economic Teaching History); Teimuraz Sartania (Ivane Javakhishvili Tbilisi State University / PhD Student)
    Abstract: On the basis of country`s economic increase, analysis of employment and export potential, in the article, there are revealed the challenges of global economy and evaluated the competitiveness of economy of Georgia. There are studied the reasons causing negative balance of foreign trade. On the basis of generalization of increase theories oriented on the export, there are assessed the significance of offer the manufacture of new export products and service relating the export products and the intensity of their sell, extension of export geography and increase of export potential of the country. Besides, there is confirmed the state`s role in increase of production`s efficiency by rational distribution of resources. There are worked out the references regarding the acceleration and improvement of trade and economic relations between the Georgia and EU during the process of integration in EU.
    Keywords: trade relations, economic growth, export potential, competitiveness, export-oriented growth.
    JEL: F00
    Date: 2019–07
  7. By: Nobuhiro Hosoe (National Graduate Institute for Policy Studies, Tokyo, Japan)
    Abstract: The Japanese Ministry of Economy, Trade and Industry announced recently that they will terminate preferential treatment in the licensing of specific chemical products for export to South Korea. This announcement evoked concern that the impact on Korean semiconductor and electronics industries, which rely heavily on imports from Japan, might cause a serious supply shortage in the global semiconductor market. To assess the economic impact of tighter export controls, this study simulates: (a) imposition of an export tax on chemical products; and (b) a productivity decline in the electronics sector in Korea, using a world trade computable general equilibrium model. The results of these simulations indicate that such a productivity decline would cause only slight harm to the Japanese and world economies, aside from the electronics sector in Korea, and that an export tax would significantly distort trade patterns and undermine the welfare of Japan and Korea in a similar magnitude. However, welfare loss normalized for GDP size would be far smaller in Japan than in Korea.
    Date: 2019–09
  8. By: Freund, Florian; Pelikan, Janine; Banse, Martin
    Abstract: This article takes a closer look into the pending question of how the UK might be affected by losing preferential access to Third Countries in the wake of Brexit. Although, as the formal date of divorce comes closer possibilities of losing these beneficial trade terms are not very present in the public debate. This is puzzling since as an EU member the UK has 40 trade agreements with over 70 non-European countries, covering about 15 % of its trade but legally those contracts are only valid for EU members and leaving the EU while retaining the status quo enshrined in the trade agreements would contradict with the MFN principle. Simulations of a ‘hard’ and a ‘soft’ Brexit scenario with a CGE model reveal that the additional loss in GDP is due to these changing trade relations with Third Countries are in the range of 2.5 % and 7.8% % of the total loss. Since most of the loss is associated with a changing trade environment with EFTA and Turkey the UK - if it aims to continue these deals - should focus its negotiation resources on these regions first. On the other hand the EU losses of a Brexit would be lower if the UK and Third Countries impose new tariffs on their trade flows since this would redirect trade flows toward the EU.
    Keywords: Institutional and Behavioral Economics, International Relations/Trade
    Date: 2019–08–26
  9. By: George A. Alessandria; Horag Choi
    Abstract: We study how international trade and the exporting decisions of establishments affect establishment creation over the business cycle in a general equilibrium model. The model captures two key features of establishment and exporter dynamics: i) new establishments start small and grow over time and ii) exporters tend to be bigger and more productive than non-exporters and remain so for some time. When the cost of creating establishments fluctuates with aggregate productivity, we find the model can generate procyclical fluctuations in the stock of domestic establishments and importers similar to the data. Without international trade, entry is weakly countercyclical and too smooth. The model also generates fluctuations in the stock of importers, exporters, and domestic establishments of similar magnitude to those in the data. With an entry margin, we also find that output is hump-shaped following a productivity shock since investments in creating establishments and exporters generate an incentive to delay accumulating physical capital. This hump is stronger in an open economy model and strongly increases the value of creating new establishments in a boom.
    JEL: E32 F41
    Date: 2019–08
  10. By: Yan Bai; Keyu Jin; Dan Lu
    Abstract: This paper incorporates firm-level distortions into a Melitz model and characterizes welfare under misallocation. We derive an analogue to the well-known ACR result in an economy with distortions. We highlight a channel through which trade can reduce welfare by exacerbating misallocation. A key statistic to infer welfare is the gap between input and output shares. Using Chinese manufacturing data for quantitative analysis, we show that trade integration can lead to a 18% welfare loss coming from a reduction in allocative efficiency. The overall gains to trade is substantially smaller than implied by standard calculations.
    JEL: E23 F12 F14 L25 O47
    Date: 2019–08
  11. By: Youngmin BAEK; HAYAKAWA Kazunobu; TSUBOTA Kenmei; URATA Shujiro; YAMANOUCHI Kenta
    Abstract: Tariff pass-through is a vital issue for considering who and to what extent the trade liberalization benefits. This paper empirically examines the tariff pass-through in wholesaling by employing the wholesale firm-level data in Japan. We found that importing wholesalers significantly raised their margin ratio (i.e., (sales – procurements) / sales) against tariff reduction. On average, a 1% reduction of tariffs raised the margin ratio by around 0.25 percentage point. This rise is equivalent to the rise of sales prices to procurement prices by around 0.34%. For comparison purposes, we also analyzed tariff pass-through for the import and consumer prices and found that a 1% reduction of tariffs raised import prices (export prices for exporters) by 0.49% and decreased consumer prices by 0.08%. In sum, wholesalers in importing country enjoy the smaller part of tariff rent than producers in exporting country but the larger part than consumers in importing country.
    Date: 2019–08
  12. By: Assaf Razin; Efraim Sadka; Alexander Horst Schwemmer
    Abstract: Globalization radically changes income distribution and triggers intense international tax competition. Therefore, globalization entails an extensive restructuring of the welfare state. We analyze a parsimonious model of an open economy, in its trade and finance transactions with the rest of the world, governed by voter-majority-controlled welfare state. We analyze the interactions between taxation, provision of social benefits, and globalization. We demonstrate how these interactions are grounded on trade-related and macro-related fundamentals, familiar from a standard open-economy model: (i) Degree of trade border frictions, (ii) Degree of international finance frictions, (iii) Relative factor abundance that determines the capital intensity of the country’s exports; and, (iv) Domestic savings and productivity of domestic investment, which determines whether the country is a financial capital exporter or importer. We address the issues of whether the welfare state enhances (or inhibits) the trade and financial openness driven by diminished border effects; whether globalization chips away at the generosity of the welfare state; and, whether the welfare state efficiently spreads out the gains from globalization from winners to losers.
    JEL: F0 F15
    Date: 2019–08
  13. By: Döbeling, Tatjana; Pelikan, Janine
    Abstract: Tariff-rate quotas have become an increasingly popular policy instrument in contemporary trade agreements; however, the real effect of this policy tool is often not very clear. One way to consider tariff-rate quotas in policy impact assessment is the calculation of ad valorem equivalents. Ad valorem equivalents can be used with little effort to compare different policies, summarize them or use them in large-scale modelling analyses. Such an ad valorem equivalent can be calculated with the help of the fill rate of the quota. For newly applied trade agreements that are phased in over a longer period of time, the fill rates of quotas are, however, not known. This makes a prefixed model necessary. We set up a demand driven model and compare different options for calculating ad valorem equivalents of tariff-rate quotas using the example of the trade agreement between Canada and the EU. We find that a marginal tariff can serve as a good ad valorem equivalent because it produces the same imports, welfare and prices as the quota. In our case study, it is also sufficiently robust in the sensitivity analysis, especially if a simplified version of it is being used.
    Keywords: International Relations/Trade
    Date: 2019–08–26
  14. By: Antonio Navas; Antonella Nocco
    Abstract: This paper analyses the role played by vertical linkages on the effects of trade liberalization on technology adoption and their consequences on average productivity and welfare in a trade model with heterogeneous firms. We find that the strength of vertical linkages shapes the effects that trade liberalization produces on firms’ survival and technology upgrading decisions, having an impact on the average productivity of the economy and, ultimately, on welfare.
    Keywords: trade liberalization, heterogeneity, selection, technology adoption, vertical linkages
    JEL: F10
    Date: 2019
  15. By: Youssef Benzarti; Alisa Tazhitdinova
    Abstract: This paper uses all Value Added Tax (VAT) changes across all EU Member States from 1988 to 2016 to estimate the effect of VATs on trade flows. We find small elasticities of trade flows with respect to VATs, in spite of some of the VAT changes being substantial. We estimate substantially smaller responses of trade flows to VATs compared to the responses of trade flows to tariffs estimated in the trade literature. This finding holds across different time periods, countries and types of reforms. Our results imply that VATs are unlikely to distort trade flows.
    JEL: F1 F14 H2 H25
    Date: 2019–08
  16. By: Torres Mazzi, Caio (UNU-MERIT); Foster-McGregor, Neil (UNU-MERIT)
    Abstract: This paper explores how technological capabilities influence the relationship between imported inputs and the export performance of firms. We apply threshold regression techniques to a representative dataset of Brazilian firms and find a strong positive influence of innovation skills on the relationship between imported intermediates and export revenues. We further find that the complementarities between importing and exporting are stronger for firms that export products with a higher scope for quality differentiation. We also observe that technological capabilities are directly correlated with export performance, confirming the view that innovation positively influences firms' international competitiveness. This relationship is not found to be significant for firms that export products with a low scope for quality differentiation and that export to lower income non-OECD markets. Overall, our results suggest that technological capabilities and the quality of imported inputs not only benefit firms directly but also complement each other in enhancing export competitiveness.
    Keywords: imports, exports, productivity, innovation, technological capabilities, Brazil
    JEL: F14 O31 O33 O47
    Date: 2019–08–28
  17. By: Alejandro Cunat; Robert Zymek
    Abstract: Bilateral trade imbalances are determined by aggregate trade imbalances, production and expenditure patterns, and trade barriers. We calibrate a dynamic many-sector trade model to match the recent sectoral trade and production shares of 40 economies and the rest of the world. Through a variance decomposition and counterfactuals, the model allows us to assess the relative importance of these determinants for the observed variation in bilateral imbalances. Large pairwise asymmetries in residual trade “wedges” are needed for the model to match the data. These account for roughly 60% of the variation, with most of the rest due to differences in production and expenditure patterns. Aggregate trade imbalances play a minor role. A counterfactual trade policy which eliminates trade-wedge asymmetries would have sizeable effects on bilateral trade patterns and welfare. However, it would leave aggregate trade balances virtually unchanged.
    Keywords: trade imbalances, trade wedges, gravity
    JEL: F15 F20 F32 F40
    Date: 2019–08
  18. By: Belke, Ansgar H. (University of Duisburg-Essen); Domnick, Clemens (University of Duisburg-Essen)
    Abstract: This paper examines the linkages between the trade of goods and financial assets. Do both flows behave as complements (implying a positive correlation) or as substitutes (negative correlation)? Although a classic topic in international macroeconomics, the empirical evidence has remained relatively scarce so far, in particular for the Euro area where trade and financial imbalance played a prominent role in the build-up of the European sovereign debt crisis. Consequentially, we use a novel dataset, providing estimates for financial flows and its four main categories for 42 countries and covering the period from 2002-2012, to test the so-called trade-finance nexus. Since theoretical models stress that both flows might be influencing each other simultaneously, we introduce a novel time-varying instrumental variable based on capital control restrictions to estimate a causal effect. The results of the gravity regressions support theories that underline the complementarity between exports and capital flows. When testing the trade-finance nexus for different types of capital flows, the estimated coefficient is most pronounced for foreign direct investment, in line with theories stressing informational frictions. Robustness checks in the form of different estimation methods, alternative proxies for capital flows and sample splits confirm the positive relationship. Interestingly, the trade-finance nexus does not differ among countries belonging to the EMU, the European Union or among core and peripheral Euro area countries.
    Keywords: capital flows, economic integration, Heckscher-Ohlin paradigm, interaction between trade integration and capital mobility, trade
    JEL: F14 F15 F21 F41
    Date: 2019–08
  19. By: Gouranga Gopal Das; Sugata Marjit; Mausumi Kar
    Abstract: With the ensuing immigration reform in the US, the paper shows that targeted skilled immigration into the R&D sector that helps low-skilled labor is conducive for controlling inequality and raising wage. Skilled talent-led innovation could have spillover benefits for the unskilled sector while immigration into the production sector will always reduce wage, aggravating wage inequality. In essence, we infer: (i) if R&D inputs contributes only to skilled sector, wage inequality increases in general; (ii) for wage gap to decrease, R&D sector must produce inputs that goes into unskilled manufacturing sector; (iii) even with two types of specific R&D inputs entering into the skilled and unskilled sectors separately, unskilled labor is not always benefited by high skilled migrants into R&D-sector. Rather, it depends on the importance of migrants’ skill in R&D activities and intensity of inputs. Inclusive immigration policy requires inter-sectoral diffusion of ideas embedded in talented immigrants targeted for innovation. Empirical verification using a VAR regression model in the context of the USA confirms the conjectures, and the empirical results substantiates our policy-guided hypothesis that skilled immigration facilitates innovation with favorable impact on reducing wage-gap.
    Keywords: H1B, immigration, innovation, wage gap, skill, R&D, policy, RAISE Act, VAR
    JEL: F22 J31 O15
    Date: 2019
  20. By: Mbaye, Linguère Mously (African Development Bank); Tani, Massimiliano (University of New South Wales)
    Abstract: This chapter brings new evidence on the relationship between short-term labour mobility, as proxied by tourism flows, and innovation in Africa. Using data from 34 African countries over the period 2011-2016 sourced from the World Bank’s Enterprise Survey, we find that short–term mobility positively contributes to innovation, making this a potentially effective channel for economic development alongside established determinants such as investments in R&D, foreign direct investments, and trade. Short-term labour mobility thus emerges in Africa, too, as a prospective policy lever to generate new productive knowledge and promote sustainable economic growth.
    Keywords: Africa, innovation, business visits, labour mobility, migration
    JEL: J61 O15 O33
    Date: 2019–08
  21. By: Berndt, Marvin; Hess, Sebastian
    Abstract: What new export opportunities for the European dairy sector can be expected from JEFTA? Existing studies are based on computable general equilibrium (CGE) models, which have to present trade flows in a relatively aggregated manner. This study applied a structural gravity model to disaggregated dairy trade data. The results offer a forecast of the development in Japanese imports from the EU28 with regard to the 15 most important dairy products, after taking tariffs according to reduction schedules and the implementation of respective quotas under JEFTA into account. Simulated changes in trade flows ranged from 2.0 % to 73.2 % relative to the trade pattern in 2017 and depending on trade product category. The three most important products account for 82.7% of the overall increase: 040610 “Fresh cheese and curd” for 34.9 %, 040620 “All cheese, grated or powdered” for 31.2 % and 040690 “Other cheese” for 16.6 %.
    Keywords: Agricultural and Food Policy, International Relations/Trade
    Date: 2019–08–26
  22. By: Miguel D. Ramirez (Department of Economics, Trinity College)
    Abstract: This paper examines whether public investment spending and inward foreign direct investment (FDI) enhance labor productivity growth in Argentina. It presents a simple modified production function that explicitly includes the positive or negative externality effects generated by increases in the stock of public or FDI capital. The paper estimates a dynamic labor productivity function for the 1960-2015 period that incorporates the impact of public and private investment spending, education expenditures (at all levels), the labor force, and export growth. It tests for both single and two-break unit root tests, as well as performs cointegration tests with an endogenously determined shift over the 1960-2015 period. Cointegration analysis suggests that a long-term relationship exists among the relevant variables. The error correction (EC) models suggest that (lagged) increases in public investment spending and education have a positive and significant effect on the rate of labor productivity growth. In addition, the model is estimated for a shorter period (1970-2015)to capture the impact of inward FDI flows. The estimates suggest that (lagged) FDI flows have a positive and significant impact on labor productivity growth, while increases in the labor force have a negative effect. From a policy standpoint, the findings call into question the politically expedient policy in many Latin American countries, including Argentina during the 1990s and 2000s, of disproportionately reducing public capital expenditures on education and infrastructure to meet reductions in the fiscal deficit as a proportion of GDP. The results give further support to pro-investment and pro-growth policies designed to promote public investment spending and attract inward FDI flows.
    JEL: C22 O10 O54
    Date: 2019–09
  23. By: Carlo Perroni; Davide Suverato
    Abstract: We describe a model of trade with input based product differentiation and non-proportional trade costs that is capable of predicting a positive correlation between firms’ export intensity, the price of their exports, and the wages they pay to their workers. These correlations arise in the model solely from comparative input scarcity and independently of any productivity differentials: in equilibrium, firms that employ workers with comparatively scarcer skills, other things equal, export a larger proportion of their output, pay higher wages and charge higher prices.
    Keywords: export intensity and wages, input based product differentiation
    JEL: F12 F16 E24
    Date: 2019
  24. By: Yuqing Xing (National Graduate Institute for Policy Studies, Tokyo, Japan)
    Abstract: Global Value chains (GVC) provide a new channel of innovation for firms participating in value chains or utilizing the value chain strategy to grow. Upgrading to high value added segments of GVCs step by step is a linear model of innovation. Our analysis on the Chinese firms involved in the value chain of the iPhone shows that the Chinese mobile industry has climbed up ladders of the iPhone value chain and performed relatively sophisticated tasks beyond simple assembly. In addition, by examining foreign value added and technology embedded in the smartphones of OPPO, Xiaomi and Huawei, we argue the Chinese smartphone vendors primarily follow a non-linear model of innovation, jumping directly to brand development before acquiring sufficient technology capacity. They have been focusing on incremental innovations and product differentiation by taking advantage of available technology platforms. The value chain strategy enabled them to overcome technology deficiency effectively and opened a short-cut to catch-up foreign rivals and evolve into leading smartphone makers in both domestic and foreign markets.
    Date: 2019–08
  25. By: Simplice A. Asongu (Yaoundé/Cameroon); Rexon T. Nting (London, UK); Joseph Nnanna (The Development Bank of Nigeria, Abuja, Nigeria)
    Abstract: This study investigates linkages between environmental degradation, globalisation and governance in 44 countries in Sub-Saharan Africa using data for the period 2000-2012. The Generalised Method of Moments is employed as empirical strategy. Environmental degradation is proxied by carbon dioxide emissions whereas globalisation is appreciated in terms of trade openness and net foreign direct investment inflows. Bundled and unbundled governance indicators are used, namely: political governance (consisting of political stability/no violence and “voice & accountability†), economic governance (encompassing government effectiveness and regulation quality), institutional governance (entailing corruption-control and the rule of law) and general governance (a composite measurement of political governance, economic governance and institutional governance). The following main finding is established. Trade openness modulates carbon dioxide emissions to have positive net effects on political stability, economic governance, the rule of law and general governance.
    Keywords: Carbon dioxide emissions; Economic development; Africa
    JEL: C52 O38 O40 O55 P37
    Date: 2019–01
  26. By: Imad Moosa (School of Economics, Finance and Marketing, RMIT)
    Abstract: Empirical work on the environmental effects of FDI has produced a mixed bag of results, with hardly any evidence for MENA countries. A theoretical model is presented, postulating that whether FDI has a positive or negative effect on the environment depends on the position of the underlying country or region on the environmental Kuznets curve. This paper presents results indicating that FDI leads to environmental degradation in MENA countries and that they fall on the rising sector of the EKC. The theoretical model is supported by the empirical results.
    Date: 2019–08–21
  27. By: Rogneda Groznykh (Ural Federal University); Igor Drapkin (Ural Federal University); Oleg Mariev (Ural Federal University)
    Abstract: The research is devoted to analysis of various regional factors that attract foreign direct investment. Taking into account that foreign direct investment can give a possibility to solve different social and economic problems, the main objective of the study is to reveal factors that promote foreign direct investment to regions of Russia. In the research two types of regions are considered: mining and non-mining. It is proposed that mining regions in Russia attract more foreign direct investment compared to non-mining ones. Therefore we provide econometric estimation on the database for 83 Russian regions for period from 2001 to 2017 using fixed-effects regression estimation. According to the results of the research a range of recommendations can be developed in order to enlarge foreign direct investment inflows.
    Keywords: foreign direct investment inflows, Russian regions, mining region, education, roads density, railway density
    JEL: F21
    Date: 2019–07
  28. By: Robinson, Douglas Michael; Lakner, Sebastian; Otter, Verena
    Abstract: With a view to food security and sovereignty objectives, China is following an extensive strategy in outward foreign direct investments (OFDI) into the agribusiness sectors of industrialized countries in the recent decade. In light of this strategy, remarkable investments have been made in New Zealand’s dairy sector, currently provoking the scepticism of this nation’s policy makers and practitioners. The corresponding tentative support of such investments in New Zealand may bring Chinese investors into the situation to search for alternative target countries. Even though Germany is the largest dairy producer in the EU and a significant exporter of dairy products to China, it has yet to come into focus for these investments. However, there is little existing research examining Chinese OFDI in dairy or other agribusiness sectors in developed economies. To close this gap, this study aims to gauge the attractiveness of the German dairy industry for Chinese investment by the use of a case-specifically adapted PESTEL framework, considering factors which may act as either incentives or dampers. The assessment of these factors is conducted on the basis of an extensive systematic literature review and a descriptive analysis of secondary data. By focusing on Chinese entrance into the agriculture sector in a developed economy, this study offers insights for managers and policy makers, which may be applicable to dairy industries in other economies and other agricultural sectors in Germany and abroad.
    Keywords: Agribusiness, Agricultural Finance
    Date: 2019–08–26
  29. By: Moreno-Ternero, Juan D.; Weber, Shlomo
    Abstract: This article explores interdependence of domestic and international success in sports where leading clubs enter international competitions while competing in their domestic leagues. Taking as starting point the success of Spanish football teams in the UEFA Champions League during the 2008-2018 decade, we provide a stylized game-theoretical model in which national competitions determine the level of competitive balance therein. We rationalize the hypothesis that intermediate levels of competitiveness within domestic competitions are instrumental in achieving international success.
    Keywords: competitive balance; domestic competitions; international competitions; Nash equilibrium; UEFA Champions League
    Date: 2019–08
  30. By: Gino Gancia; Giacomo A. M. Ponzetto; Jaume Ventura
    Abstract: After decades of successful growth, economic unions have recently become the focus of heightened political controversy. We argue that this is partly due to the growth of trade between countries that are increasingly dissimilar. We develop a theoretical framework to study the e§ects on trade, income distribution and welfare of economic unions that di§er in size ad scope. Our model shows that political support for international unions can grow with their breadth and depth as long as member countries are su¢ ciently similar. However, di§erences in economic size and factor endowments can trigger disagreement over the value of unions between and within countries. The model is consistent with same salient features of the process of European integration and statistical evidence from survey data.
    Keywords: Economic unions, non-tariff barriers, European intergation
    JEL: F15 F55 H77 D71 D78
    Date: 2019–08
  31. By: Cikiryel, Burak; Masih, Mansur
    Abstract: Recent literature attract the attention to the issue of whether heterogeneity in stock holding periods has an impact on resulting investor exposures. In this research, we aim to study co-movement dynamics of Islamic equity returns to explain international portfolio diversification opportunities for investors having heterogeneous stock holding periods in the context of Brexit. We employ three recent appropriate methodologies: MGARCH-DCC, Continuous Wavelet Transforms (CWT), and Maximum Overlap Discrete Wavelet Transform (MODWT). The unique contribution of this research is that it is the first study investigating the Brexit effect on Islamic stocks. It would guide Shari’ah investors in their diversification strategies. The results tend to shed light on the effective portfolio diversification benefits in light of shock (Brexit) between UK Islamic stock index and other selected indices varying from country to country depending on investment horizons. This critically confirms the significance of heterogeneity in investment horizons and provides significant implications for portfolio diversification strategies.
    Keywords: Brexit, Islamic stock markets, MGARCH-DCC, CWT, MODWT
    JEL: C58 G11 G15
    Date: 2017–12–15
  32. By: Martin Weidner; Thomas Zylkin
    Abstract: We study the incidental parameter problem in "three-way" Poisson Pseudo-Maximum Likelihood ("PPML") gravity models recently recommended for identifying the effects of trade policies. Despite the number and variety of fixed effects this model entails, we confirm it is consistent for small $T$ and we show it is in fact the only estimator among a wide range of PML gravity estimators that is generally consistent in this context when $T$ is small. At the same time, asymptotic confidence intervals in fixed-$T$ panels are not correctly centered at the true point estimates, and cluster-robust variance estimates used to construct standard errors are generally biased as well. We characterize each of these biases analytically and show both numerically and empirically that they are salient even for real-data settings with a large number of countries. We also offer practical remedies that can be used to obtain more reliable inferences of the effects of trade policies and other time-varying gravity variables.
    Date: 2019–09
  33. By: Georgios Georgiadis (European Central Bank); Ben Schumann (European Central Bank)
    Abstract: Different export-pricing currency paradigms have different implications for a host of issues that are critical for policymakers such as business cycle co-movement, optimal monetary policy, optimum currency areas and international monetary policy co-ordination. Unfortunately, the literature has not reached a consensus on which pricing paradigm best describes the data. Against this background, we test for the empirical relevance of dominant-currency pricing (DCP). Specifically, we first set up a structural three-country New Keynesian dynamic stochastic gen- eral equilibrium model which nests DCP, producer-currency pricing (PCP) and local-currency pricing (LCP). In the model, under DCP the output spillovers from shocks that appreciate the US dollar multilaterally decline with an economy’s export-import US dollar pricing share differential, i.e. the difference between the share of an economy’s exports and imports that are priced in the dominant currency. Underlying this prediction is a change in an economy’s net exports in response to multilateral changes in the US dollar exchange rate that arises because of differences in the extent to which exports and imports are priced in the dominant currency. We then confront this prediction of DCP with the data in a sample of up to 46 advanced and emerging market economies for the time period from 1995 to 2018. Specifically, controlling for other cross-border trans- mission channels, we document that consistent with the prediction from DCP the output spillovers from US dollar appreciation correlate negatively with recipient economies’ export-import US dollar invoicing share differentials. We document that these findings are robust to considering US demand, US monetary policy and exogenous exchange rate shocks as a trigger of US dollar appreciation, as well as to accounting for the role of commodity trade in US dollar invoicing.
    Keywords: Dominant-currency pricing, US shocks, spillovers
    JEL: F42 E52 C50
    Date: 2019–08–16
  34. By: Ben Broadbent (Bank of England; Centre for Macroeconomics (CFM)); Federico Di Pace (Bank of England); Thomas Drechsel (University of Maryland; Centre for Macroeconomics (CFM)); Richard Harrison (Bank of England; Centre for Macroeconomics (CFM)); Silvana Tenreyro (Bank of England; London School of Economics (LSE); Centre for Macroeconomics (CFM); Centre for Economic Policy Research (CEPR))
    Abstract: The UK economy has experienced significant macroeconomic adjustments following the 2016 referendum on its withdrawal from the European Union. This paper develops and estimates a small open economy model with tradable and non-tradable sectors to characterise these adjustments. We demonstrate that many of the effects of the referendum result can be conceptualised as news about a future slowdown in productivity growth in the tradable sector. Simulations show that the responses of the model economy to such news are consistent with key patterns in UK data. While overall economic growth slows, an immediate permanent fall in the relative price of non-tradable output (the real exchange rate) induces a temporary ‘sweet spot’ for tradable producers before the slowdown in tradable sector productivity associated with Brexit occurs. Resources are reallocated towards the tradable sector, tradable output growth rises and net exports increase. These developments reverse after the productivity decline in the tradable sector materialises. The negative news about tradable sector productivity also leads to a decline in domestic interest rates relative to world interest rates and to a reduction in investment growth, while employment remains relatively stable. As a by-product of our analysis, we provide a quantitative analysis of the UK business cycle.
    Keywords: Brexit, Small open economy, Productivity, Tradable sector, UK economy
    JEL: E13 E32 F17 F47 O16
    Date: 2018–08
  35. By: Dani Rodrik
    Abstract: In a world economy that is highly integrated, most policies produce effects across the border. This is often believed to be an argument for greater global governance, but the logic requires scrutiny. There remains strong revealed demand for policy and institutional diversity among nations, rooted in differences in historical, cultural, or development trajectories. The canonical case for global governance is based on two set of circumstances. The first occurs when there is global public good (GPG) and the second under “beggar-thy-neighbor” (BTN) policies. However, the world economy is not a global commons, and virtually no economic policy has the nature of a global public good (or bad). And while there are some important BTN policies, much of our current discussions deal with policies that are not true BTNs. The policy failures that exist arise not from weaknesses of global governance, but from distortions of domestic governance. As a general rule, these domestic failures cannot be fixed through international agreements or multilateral cooperation. The paper closes by discussing an alternative model of global governance called “democracy-enhancing global governance.”
    JEL: F50
    Date: 2019–08

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