nep-int New Economics Papers
on International Trade
Issue of 2020‒10‒05
37 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. The Optimum Import Tariff in the Presence of Outward Foreign Direct Investment By Paul J.J. Welfens
  2. Quantification of Services Trade Restrictions - A new Approach By Manoj pant; Sugandha Huria
  3. Growing Like China: Firm Performance and Global Production Line Position By Davin Chor; Kalina B. Manova
  4. Automation, trade and multinational activity: Micro evidence from Spain By Katherine Stapleton; Michael Webb
  5. EU-US Trade Post-Trump Perspectives: TTIP Aspects Related to Foreign Direct Investment and Innovation By Andre Jungmittag; Paul J.J. Welfens
  6. The Effect on Foreign Direct Investment of Membership in the European Union By Bruno, Randolph Luca; Campos, Nauro F.; Estrin, Saul
  7. Greater than the sum of its parts? Does Austria profit from a widening network of EU free trade agreements? By Julia Grübler; Oliver Reiter
  8. Globalization, Recruitments and Job Mobility By Davidson, Carl; Heyman, Fredrik; Matusz, Steven; Sjöholm, Fredrik; Zhu, Susan Chun
  9. International trade, trade policy and foreign investment: preliminary considerations on the impact of the COVID-19 crisis By Ivan Oliveira; Fernando Ribeiro; Renato Baumann; Glauco Avellino Oliveira; Luís Felipe Giesteira; Luís Fernando Tironi; André Pinelli Alves
  10. Bilateral effects of non-tariff measures on international trade: Volume-based panel estimates By Dolabella, Marcelo
  11. Imports from China:Threat or Opportunity Analysis of Indian Manufacturing Sector. By Sunitha Raju; V.Raveendra Saradhi
  12. Implications of the EU-Mercosur Association Agreement for Austria - A Preliminary Assess By Franz Sinabell; Julia Grübler; Oliver Reiter
  13. Which States Gained, and Which States Lost, from Australia’s Federation Customs Union of 1902? The Answers of a Theoretical Schema, with an Empirical Check By William Coleman
  14. Gender Empowerment, Supply-Chain Linkages and Foreign Direct Investment: Evidence on Bangladesh By Hiau-Looi Kee; Ana Margarida Fernandes
  15. Agricultural Comparative Advantage and Legislators’ Support for Trade Agreements By Amodio, Francesco; Baccini, Leonardo; Chiovelli, Giorgio; Di Maio, Michele
  16. Migration and Cultural Change By Sulin Sardoschau; Arthur Silve; Hillel Rapoport
  17. Trade and Economic Growth: Theories and Evidence from the Southern African Development Community By Farahane, Matias Jaime; Heshmati, Almas
  18. United States - Latin America and the Caribbean Trade Developments 2020 By -
  20. Tourism and migration: Identifying the channels with gravity models By Jordi Paniagua; María Santana-Gallego
  21. Subsidies and Countervailing Measures in the EU Biofuel Industry: A Welfare Analysis By Patrice Bougette; Christophe Charlier
  22. Globalization and Pandemics By Pol Antràs; Stephen J. Redding; Esteban Rossi-Hansberg
  23. Pharmaceutical Exports and Patents in India – An Empirical Investigation By Bibek Ray Chaudhuri; Sucharita Bhattacharyya; Susmita Chatterjee
  24. Cross-Border Banking in EMDEs : Trends, Scale, and Policy Implications By Feyen,Erik H.B.; Fiess,Norbert Matthias; Bertay,Ata Can; Zuccardi Huertas,Igor Esteban
  25. Unravelling the 'race to the bottom' argument: How does FDI affect different types of labour rights? By Nicole Janz; Luca Messerschmidt
  26. The Importance of Business Travel for Trade: Evidence from the Liberalization of the Soviet Airspace By Söderlund, Bengt
  27. The role of global supply chains in the transmission of weather induced production shocks By Stefan Borsky; Martin Jury
  28. Inflation Threshold Levels and Economic Growth in the Franc Zone Countries By Sanga,Dimitri; Gui-Diby,Steve Loris
  29. Exchange Rates and Endogenous Productivity By Nils Gornemann; Pablo Guerron-Quintana; Felipe Saffie
  30. Trade and Geography By Stephen J. Redding
  31. Quo Vadis, Britain? – Implications of the Brexit Process on the UK’s Real Economy By Kaan Celebi
  32. Making Gravity Great Again By Martin,William J.
  33. Bilateral Tax Competition and Regional Spillovers in Tax Treaty Formation By Kunka Petkova; Andrzej Leszek Stasio; Martin Zagler
  34. International Trade and Innovation Dynamics with Endogenous Markups By Laurent Cavenaile; Pau Roldan-Blanco; Tom Schmitz
  35. Exchange rate policy and external vulnerabilities in Sub-Saharan Africa: nominal, real or mixed targeting? By Fadia Al Hajj; Gilles Dufrénot; Benjamin Keddad
  36. The GTAP Version 10A Data Base with Agricultural Production Targeting Based on the Food and Agricultural Organization (FAO) Data By Chepeliev, Maksym
  37. Inversion-free Leontief inverse: statistical regularities in input-output analysis from partial information By Silvia Bartolucci; Fabio Caccioli; Francesco Caravelli; Pierpaolo Vivo

  1. By: Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: International Economics shows in the field of import tariff analysis that for small open economies the optimum import tariff is zero, while for a large economy the welfare-maximizing import tariff is given by 1/E’ where E’ is the foreign supply elasticity. This result, however, no longer holds if there is foreign direct investment in the respective export sector abroad. The higher the share of outward cumulated FDI in the foreign export sector is, the higher the dampening effect on the traditional optimum import tariff. As cumulated outward FDI has become rather important in the case of US and EU FDI in China, Japan, India and other countries, it is important to reconsider optimum import tariffs. It is argued that outward FDI could also affect optimum import tariffs through a macroeconomic channel, namely the effect of changes in net income from abroad. Since the optimum tariff will affect the real exchange rate, FDI in turn will be affected by the tariff policy – in line with the FROOT/STEIN argument on the real exchange rate affecting international FDI inflows and FDI outflows, respectively. Moreover, both outward FDI in the tradable and non-tradable sectors are relevant. In the US-China tariff conflict under President Trump, the FDI-related aspects have been ignored – and similarly in the UK with respect to No-Deal tariffs vis-à-vis the EU27 - so that import tariffs imposed/announced in several sectors are too high.
    Keywords: import tariff, big economy, optimum tariff, outward foreign direct investment, US and China
    JEL: F13 F15 F21 F23
    Date: 2020–01
  2. By: Manoj pant (Indian Institute of Foreign Trade , New Delhi); Sugandha Huria (Jawaharlal Nehru University , New delhi)
    Abstract: The gradual transformation in the structure of trade with services contributing to almost two-thirds of the global GDP, has made the design and implementation of services trade policy a high-profile issue for many countries. With the process of regulating commodity trade being known, it is expected that most of the future trade negotiations at the WTO will also be centred around services. In fact, a services trade chapter is already being included in some RTAs like TTIP, TPP, India-ASEAN along with the related issue of foreign investment. It is now well known that though the RCEP negotiation’ details are not publicly known, a sticking point is the extension of the agreement to services trade. However, in comparison to the extensive literature available on regulations affecting commodity trade, very limited attention seems to have been paid on assessing services trade restrictiveness. Recently, the OECD has come up with an objective indicator of services trade regulations, known as the OECD STRI. However, its methodology suffers from various theoretical and empirical shortcomings, which makes it inadequate for policy purposes. To this end, the paper proposes a new and theoretically sounder approach for quantifying services trade restrictions, which is both consistent and country neutral.
    Keywords: Services Trade, Regulations, WTO trade negotiations, OECD Services Trade Restrictiveness Index.
    JEL: F13 F14 L80
    Date: 2019–07
  3. By: Davin Chor; Kalina B. Manova
    Abstract: Global value chains have fundamentally transformed international trade and development in recent decades. We use matched firm-level customs and manufacturing survey data, together with Input-Output tables for China, to examine how Chinese firms position themselves in global production lines and how this evolves with productivity and performance over the firm lifecycle. We document a sharp rise in the upstreamness of imports, stable positioning of exports, and rapid expansion in production stages conducted in China over the 1992-2014 period, both in the aggregate and within firms over time. Firms span more stages as they grow more productive, bigger and more experienced. This is accompanied by a rise in input purchases, value added in production, and fixed cost levels and shares. It is also associated with higher pro fits though not with changing profit margins. We rationalize these patterns with a stylized model of the firm lifecycle with complementarity between the scale of production and the scope of stages performed.
    Keywords: global value chains, production line position, upstreamness, firm heterogeneity, firm lifecycle, China
    JEL: F10 F14 F23 L23 L24 L25
    Date: 2020
  4. By: Katherine Stapleton; Michael Webb
    Abstract: We use a rich dataset of Spanish manufacturing firms from 1990 to 2016 to shed new light on how automation in a high-income country affects trade and multinational activity involving lower-income countries. We exploit supply-side improvements in the capabilities of robots over time, as described in patents, that made it technically feasible to automate some specific tasks. We show that, contrary to the speculation that automation will cause reshoring, the use of robots in Spanish firms actually had a positive impact on their imports from, and number of affiliates in, lower-income countries. Robot adoption causes firms to expand production, increase productivity and makes them more likely to start importing from, or opening affiliates in, lower-income countries. The sequencing of automation and offshoring has important consequences for the impact of automation, however. For firms that had not already offshored to lower-income countries, robot adoption made them more likely to start doing so. By contrast, for firms that were already offshoring to lower-income countries, robot adoption had no effect on their value of imports from lower-income countries, but decreased their share of imports sourced from lower-income countries. We show that these findings can be explained in a framework that incorporates firm heterogeneity, the choice between automation, offshoring and performing tasks at home and where automation and offshoring both involve upfront fixed costs, such that their sequencing matters.
    Keywords: Automation; Robotics; Technology; Offshoring; Trade; Multinationals; Global supply chains; Heterogeneous firms; Labour share; Productivity
    JEL: F12 F16 J23 J24
    Date: 2020
  5. By: Andre Jungmittag (Economics and Quantitative Methods at the Frankfurt University of Applied Sciences); Paul J.J. Welfens (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))
    Abstract: The international economic debate on the Transatlantic Trade and Investment Partnership (TTIP) has focused mainly on trade induced real income gains while the FDI related and innovation induced benefits have been largely neglected, although the EU and the US are leading FDI host countries and FDI source countries. Moreover, from a theoretical perspective a knowledge production function has to be considered in order to analyze FDI and innovation dynamics – and this can then be linked to output and economic growth, respectively. It is argued that such a Schumpeterian approach for an open economy is needed to understand deep integration dynamics while the standard CGE model used by Francois et al (2013) leads to an underestimation of deep integration projects such as TTIP. The panel data estimation of knowledge production functions for 20 EU countries between 2002-2012 shows clear empirical evidence that a rise of the number of researchers and of the FDI stock-GDP ratio (or related variables) will raise patent applications. Additionally, a higher per capita income – that could reflect trade related real income gains in the context of TTIP – also contributes to new knowledge and a fortiori to higher GDP. Time series data analysis for Germany indicates additionally that FDI induced higher innovation dynamics will raise output - combining trade benefits and FDI/innovation related real income gains plus transatlantic macroeconomic interdependency effects a real income gain of nearly 2% should be expected for Germany (and the EU). As the Trump Administration is focusing on bilateralism, the US is essentially renouncing a considerable output increase and opportunities to improve its current account; instead the Trump Administration has adopted a policy of protectionism which is likely to undermine trade dynamics and economic growth. In the long run, transatlantic trade perspectives could improve.
    Keywords: Knowledge production function, Innovation, FDI, TTIP, Empirical Analysis, EU
    JEL: F14 F43 O30 O47 O52
    Date: 2019–11
  6. By: Bruno, Randolph Luca (University College London); Campos, Nauro F. (University College London); Estrin, Saul (London School of Economics)
    Abstract: This paper explores the impact of EU membership on foreign direct investment (FDI). It analyses empirically how the effects of such deep integration differ from other forms and investigates what drives these effects. Using a structural gravity framework on annual bilateral FDI data for almost every country in the world, over 1985-2018, we find EU membership leads FDI into the host economy to be about 60% higher for investment from outside the EU, and around 50% higher for intra-EU FDI. Moreover, we find that the effect of EU membership on FDI is larger than from membership of NAFTA, EFTA, or MERCOSUR, and that the Single Market is the cornerstone of this differential impact.
    Keywords: European Union, foreign direct investment, economic integration, Structural Gravity Model, single market
    JEL: F21 F36 O52
    Date: 2020–09
  7. By: Julia Grübler; Oliver Reiter
    Abstract: Political debates and economic analyses often focus on single free trade agreements and their potential economic effects on participating trading partners. This study contributes to the literature by shedding light on the significance of trade agreements in the context of countries’ positions in worldwide trade agreement networks, by combining network theory with gravity trade modelling. We illustrate, both numerically and graphically, the evolution of the global web of trade agreements in general, and the network of the European Union specifically, accounting for the geographical and temporal change in the depth of agreements implemented. Gravity estimations for the period 1995-2017 distinguish the direct bilateral effects of trade agreements from indirect effects attributable to the scope of trade networks and countries’ positions therein
    Keywords: free trade agreements, network effects, trade policy, structural gravity model
    JEL: D58 F13 F14 F43
    Date: 2020–09
  8. By: Davidson, Carl (Department of Economics, Michigan State University); Heyman, Fredrik (Research Institute of Industrial Economics (IFN)); Matusz, Steven (Department of Economics, Michigan State University); Sjöholm, Fredrik (Department of Economics, Lund University); Zhu, Susan Chun (Department of Economics, Michigan State University)
    Abstract: Previous research indicates that exporting firms are willing to pay a premium to poach workers from other exporting firms if experience working for an internationally engaged firm reduces trade costs. Since international experience is less valuable to non-exporters, we would expect to see differences in recruitments between firms that are internationally engaged and those that serve only their domestic market. Moreover, as emphasized in Davidson et al. (2020), increased openness might lead to higher job-to-job mobility if increased globalization increases both the share of exporters as well as the number of workers with skills that make them attractive for other exporters. Using linked Swedish employer-employee data for the period 1997-2013, we do find systematic differences between the way exporters and non-exporters recruit workers: exporters have a relatively high share of recruitments from other exporters as hypothesized. We also find that increased openness correlates positively (negatively) with upward (downward) mobility. The effects are strongest for professionals and managers. Hence, our findings provide empirical support for Davidson et al. (2020).
    Keywords: Globalization; Export; Job-Mobility; Recruitments
    JEL: F16 F66 J60
    Date: 2020–09–11
  9. By: Ivan Oliveira (IPC-IG); Fernando Ribeiro (IPC-IG); Renato Baumann (IPC-IG); Glauco Avellino Oliveira (IPC-IG); Luís Felipe Giesteira (IPC-IG); Luís Fernando Tironi (IPC-IG); André Pinelli Alves (IPC-IG)
    Abstract: This Policy Research Brief seeks to provide a preliminary assessment of the impacts of the COVID-19 health crisis on international trade in goods, and to comment on its effects on both commercial policy and direct foreign investment.
    Keywords: global trade; trade policy; foreign investment; COVID-19; coronavirus
    Date: 2020–05
  10. By: Dolabella, Marcelo
    Abstract: Seeking to deepen the understanding about the relationship between non-tariff measures (NTMs) and international trade, this work estimates bilateral volume effects of imposing NTMs on international trade, focusing on two of the most observed measures: technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures. Estimates were carried out for more than 5,000 products at the 6-digit level of the Harmonized System using a panel for 2001-2015 with NTM data notified by more than 150 member countries of the World Trade Organization (WTO).
    Date: 2020–09–16
  11. By: Sunitha Raju (Indain Institute of Foreign Trade,New Delhi-IN); V.Raveendra Saradhi (Indain Institute of Foreign Trade,New Delhi-IN)
    Abstract: Manufacture imports from China increased from US$ 42.5 billion in 2010-11 to US $ 74.9 billion in 2017-18 thereby raising concerns about the adverse implication on the domestic manufacture sector. The focus of the paper is to assess the impact of imports from China on the manufacturing performance, in terms of output growth, value added growth, labour and capital productivity, capacity utilisation, Employment and Export intensity. A total of 26 industries corresponding to 18 HS chapters have been selected on the basis of imports from China accounting for over 40% of the total imports of that industry. The analysis was carried out separately for imports defined as Capital goods, Intermediate goods and Consumer Goods. Imports from China seem to have had a favourable impact on industry output / value added driven by increasing labour and capital productivities. The estimates reveal that in terms of value, the impact of imports of intermediate goods on output is 163%, while for capital goods it is 93% and consumer goods is 73%. These results negate the general perception of threat from Chinese imports.
    Keywords: China, Imports, International Trade, India, Manufacturing
    JEL: F14 F10 L6
    Date: 2019–01
  12. By: Franz Sinabell; Julia Grübler; Oliver Reiter
    Abstract: This study presents quantitative and qualitative assessments of potential consequences of the trade agreement between the EU and Mercosur countries. It is embedded in a wider Association Agreement and was made public in summer 2019. The focus is on Austria. One objective of the agreement is to liberalise trade and to improve conditions for making investments in order to create jobs and value added and to give consumers in both regions better access to a wide range of products and services. A gravity model analysis shows that average income gains per person are remarkably similar in both regions. However, the economies in Mercosur countries will benefit more than EU Member States economies in relative terms. A second objective of the agreement is to meet targets that go beyond immediate economic benefits, such as to further sustainable development, to prevent environmental deterioration, to avoid social frictions and to smooth adaptation processes. A qualitative comparison shows the advancements compared to other trade agreements and the limitations of trade agreements to address social and environmental concerns. An in depth-appraisal of the provisions for agriculture shows potential benefits and costs for consumers and farmers in both regions.
    Keywords: trade liberalisation, EU, MERCOSUR, gravity model, environment, agriculture
    JEL: F13 F15 F17 F18 Q17
    Date: 2020–08
  13. By: William Coleman
    Abstract: The passage of the Customs Tariff Act of 1902, in the wake of Australian Federation of 1901, simultaneously abolished tariffs on intra-Australian trade, while establishing a tariff wall around the whole of Australia with respect international trade. What were the effects of the establishment of this two pronged trade regimen? Did it benefit each state, as presumably, the earnest Federationist believed? Or did it benefit some states at the expense of the others? The paper uses a simple schematisation of the Australian economy at the beginning of the 20th c to advance some answers. The paper’s schematisation suggests Victoria would have benefitted from the new trade regimen, in consequence of higher prices received for her manufactured exports. And NSW would be worse off, because of the higher prices paid for her imports of manufactures. The model makes no clear cut prediction of the welfare impact on the four smaller states, but identifies some factors which govern whether the impact will be favourable or unfavourable. Finally, the model allows the possibility that NSW may not have been injured, as the rise in price in manufactures might have been large enough to transform NSW into an exporter of manufacturers, and thus ‘another Victoria’. The likelihood of this possibility is a different question. The analysis’ predictions are shown to survive one simple empirical check. The paper concludes by demonstrating that the implications of the analysis are relatively robust to variation in the assumptions made.
    Date: 2020–09
  14. By: Hiau-Looi Kee; Ana Margarida Fernandes
    Abstract: This paper studies foreign direct investment (FDI) spillovers on gender labor market practices of domestic firms, based on a unique firm-to-firm dataset of Bangladesh’s textiles and garment sectors. We look at the female employment of domestic firms that are directly and indirectly related to the FDI firms through supply chain linkages. These domestic firms are either the local suppliers or customers of FDI firms or they share local suppliers and customers with the FDI firms. The estimates show that domestic firms related to FDI firms have significantly more female administrative workers, but not necessarily female non-administrative workers, due to more firm-to-firm interactions participated by the former.
    Keywords: foreign direct investment, women, female labor force participation, supply chain linkages, Bangladesh
    JEL: F1 F2 F6 J2
    Date: 2020
  15. By: Amodio, Francesco; Baccini, Leonardo; Chiovelli, Giorgio; Di Maio, Michele
    Abstract: Does comparative advantage explain legislators’ support for trade liberalization? We use data on potential crop yields as determined by weather and soil characteristics to derive a new, plausibly exogenous measure of comparative advantage in agriculture for each district in the US. Evidence shows that comparative advantage in agriculture predicts how legislators vote on the ratification of preferential trade agreements in Congress. We show that legislators in districts with high agricultural comparative advantage are more likely to mention that trade agreements are good for agriculture in House floor debates preceding roll-call votes on their ratifications. Individuals living in the same districts are also more likely to support free trade. Our analysis and results contribute to the literature on the political economy of trade and its distributional consequences, and to our understanding of the economic determinants of legislators voting decisions.
    Keywords: Comparative Advantage, Trade Liberalization, Politicians, US
    JEL: D72 F14 Q17
    Date: 2020–07–14
  16. By: Sulin Sardoschau; Arthur Silve; Hillel Rapoport
    Abstract: We examine both theoretically and empirically how migration affects cultural change in home and host countries. Our theoretical model integrates various compositional and cultural transmission mechanisms of migration-based cultural change for which it delivers distinctive testable predictions on the sign and direction of convergence. We then use the World Value Survey for the period 1981-2014 to build time-varying measures of cultural similarity for a large number of country pairs and exploit within country-pair variation over time. Our evidence is inconsistent with the view that immigrants are a threat to the host country’s culture. While migrants do act as vectors of cultural diffusion and bring about cultural convergence, this is mostly to disseminate cultural values and norms from host to home countries (i.e., cultural remittances).
    Keywords: migration, cultural change, globalization
    JEL: F22 Z10
    Date: 2020
  17. By: Farahane, Matias Jaime (Eduardo Mondlane University); Heshmati, Almas (Jönköping University, Sogang University)
    Abstract: This paper empirically tests the hypothesis that trade can act as an engine of growth using panel data for the Southern African Development Community (SADC), a regional integration agreement (RIA) organization, the central objective of whose formation was the need to accelerate, foster, and encourage the region's growth. Our results indicate that during the period covered by this study (2005-2017), export expansion stimulated growth, more openness to trade reduced it, and that the formation of SADC had not yet brought about any effects on growth perhaps because of lack of full establishment of the primary instruments for achieving its central objective. These results lead to three conclusions. Firstly, trade through export expansion seems to be a better solution for SADC for achieving the central objective of its formation. Secondly, more openness to trade seems to jeopardize growth. Finally, the formation of SADC has not yet brought about the expected gains from a RIA. In this context, we recommend that policymakers should consider adopting measures aimed at supporting increased trade through promoting export expansion, achieving strong absorption of negative chocks that usually result from trade, and exploring the possibility of establishing all the planned primary instruments for achieving SADC's central objective.
    Keywords: international trade, regional integration agreements, free trade area, customs union, Prebish-Singer Hypothesis
    JEL: F15 F36 F43 O43 O47
    Date: 2020–09
  18. By: -
    Abstract: United States Trade Developments 2020 provides an overview of selected developments in United States trade relations with Latin America and the Caribbean and of measures that inhibit the free flow of goods among countries in the Western Hemisphere. This is an annual report elaborated by the ECLAC Washington Office. This year’s report has a special focus on the effects of the COVID-19 pandemic on trade related issues. Specifically, it provides information on the early impact of the COVID-19 pandemic on U.S. trade and migration flows, supply chains as well as some of the restrictions to the movement of people, goods, services and foreign direct investment that were adopted in response to the pandemic.
    Date: 2020–09–16
  19. By: Sugata Marjit (Centre for Studies in Social Sciences, Kolkata-IN; Centre for Training and Research in Public Finance and Policy, Kolkata-IN; GEP, University of Nottingham, Nottingham-UK; CES- Ifo, Munich-Germany.); Manoj Pant (Indain Institute of Foreign Trade,New Delhi-IN); Sugandha Huria (Jawaharlal Nehru University, New Delhi-IN)
    Abstract: This paper revisits a query regarding the relationship between unskilled immigration and skilled wage. In the recent episode of BREXIT, there is a perception that while people of London, which has a much greater proportion of immigrants’ inflow voted against BREXIT, regions which do not experience substantial inflows have voted in favour. Our simple general equilibrium model introduces a household sector where unskilled people are employed by skilled workers. Without the household sector, immigration of unskilled workers depresses skilled wage. But when we include the household sector, effective skilled wage may increase with a greater inflow of migrant workers. This is also a novel outcome in the theory of trade and factor flows. Our model also argues that though technical progress in a skill/human-capital intensive sector raises wage inequality, it no longer displaces traditional jobs. In fact, the usual negative impact of unskilled immigration on the traditional sector is mitigated by raising the returns to the unskilled workforce.
    Keywords: Immigration, Skilled wage rate, Unskilled wage rate, Household sector, Technical progress
    JEL: F11 F20
    Date: 2019–01
  20. By: Jordi Paniagua (University of Valencia); María Santana-Gallego (Universitat Illes Balears)
    Abstract: As a result of the role played by migrants in supporting host economies, the interest in understanding the impact of migration is growing. However, the literature remains silent on the channels by which migration affects tourism. The present paper aims to isolate the effect of migrant networks on tourism by exploring the role of information, travel costs, and demand for visiting friends and relatives. To this end, a theoretical framework that rests upon a structural gravity model is developed. The model allows not only a better understanding of the relationship between tourism and migration but also to overcome several empirical biases like the omission of multilateral resistance in tourism flows or controlling for endogeneity. The empirical analysis considered a sample of 34 OECD countries as destination/home and 157 origin/countries-of-birth for tourist arrivals/migration stock. A positive and robust effect of migration on inbound tourism is estimated and the three channels proposed to drive this nexus become relevant.
    Keywords: Tourism, Migration, Gravity equation
    Date: 2020–08
  21. By: Patrice Bougette (Université Côte d'Azur; GREDEG CNRS); Christophe Charlier (Université Côte d'Azur; GREDEG CNRS)
    Abstract: In 2019, following several investigations, the European Union decided to impose definitive anti-subsidy (AS) duties on imports of biodiesel from Argentina and Indonesia. While AS duties protect the domestic market and R\&D, this trade defense policy may interfere with environmental preservation. We investigate this issue using an international duopoly model with an environmental externality. We discuss the economic rationale of AS measures in the biodiesel context. We show that the larger the size of the domestic market, the higher the optimal AS level. Second, trade policies are less necessary when firms become more cost-efficient. Third, the sensitivity of AS policies to environmental externalities is ambiguous. Fourth, under certain conditions, the success of the innovation is negatively correlated with the strategic levels of both subsidies and AS policies.
    Keywords: Anti-subsidy, countervailing duties, biodiesel, European Union, trade, environmental impact
    JEL: D43 F18 F13 Q48
    Date: 2020–09
  22. By: Pol Antràs; Stephen J. Redding; Esteban Rossi-Hansberg
    Abstract: We develop a model of human interaction to analyze the relationship between globalization and pandemics. Our framework provides joint microfoundations for the gravity equation for international trade and the Susceptible-Infected-Recovered (SIR) model of disease dynamics. We show that there are cross-country epidemiological externalities, such that whether a global pandemic breaks out depends critically on the disease environment in the country with the highest rates of domestic infection. A deepening of global integration can either increase or decrease the range of parameters for which a pandemic occurs, and can generate multiple waves of infection when a single wave would otherwise occur in the closed economy. If agents do not internalize the threat of infection, larger deaths in a more unhealthy country raise its relative wage, thus generating a form of general equilibrium social distancing. Once agents internalize the threat of infection, the more unhealthy country typically experiences a reduction in its relative wage through individual-level social distancing. Incorporating these individual-level responses is central to generating large reductions in the ratio of trade to output and implies that the pandemic has substantial effects on aggregate welfare, through both deaths and reduced gains from trade.
    JEL: F1 F2 F4 F6 I1
    Date: 2020–09
  23. By: Bibek Ray Chaudhuri (Indian Institute of Foreign Trade,Kolkatta,India.); Sucharita Bhattacharyya (University of Calcutta, India.); Susmita Chatterjee (Maharaja Manindra Chandhra college, Kolkata , India.)
    Abstract: The Indian pharma industry are faced with challenges like slowing exports and rising costs. This has impacted their ability to capture a larger share of global pharmaceutical market. Sustaining the profitability and market share in this sector requires the ability on the part of the firms to obtain patents. Such activity involves huge investments in R&D and knowledge building. Hence it is of utmost importance to ascertain whether obtaining a patent enhance exports of pharma products especially since it is a significant revenue generator. The paper attempts to answer this question through a simultaneous equation approach. The results show that after controlling for the relevant variables impacting the export of pharma products, patents have a significant positive impact on pharma exports.
    Keywords: Exports, Empirical, Simultaneous Equation, Pharmaceutical.
    JEL: F14 C3 L65
    Date: 2019–01
  24. By: Feyen,Erik H.B.; Fiess,Norbert Matthias; Bertay,Ata Can; Zuccardi Huertas,Igor Esteban
    Abstract: Cross-border banking in emerging markets and developing economies has expanded across most World Bank regions and has become large relative to some home and host economies. This paper analyzes recent trends of bank activities of financial groups headquartered in 46 emerging markets and developing economies, as well as the ownership structure of 51 prominent financial groups from emerging markets and developing economies. The data suggest that cross-border groups in most regions have grown in size, geographical reach, range of activities, and group complexity. The increasing relevance and complexity of cross-border banking pose challenges for policy makers in home and host jurisdictions as well as for the groups themselves to maximize the benefits of international financial integration while mitigating the risks. This balance calls for stronger consolidated supervision, more regional coordination and harmonization, and better group-wide corporate governance and controls. However, key challenges include institutional capacity constraints and political factors.
    Keywords: Financial Sector Policy,International Trade and Trade Rules,Macroeconomic Management,Capital Markets and Capital Flows,Multinational&Corporate Governance,Corporate Governance,Civic Participation and Corporate Governance,Capital Flows
    Date: 2020–09–09
  25. By: Nicole Janz (School of Politics and International Relations at the University of Nottingham); Luca Messerschmidt (Hochschule für Politik at the Technical University of Munich (TUM) and the TUM School of Governance)
    Abstract: Does foreign direct investment (FDI) lead to better or worse labour standards in developing countries? We argue that it depends on the type of labour right, and how costly it is to protect it. Governments are likely to follow international pressure and 'climb to the top' of improved labour standards, but only for those rights that do not incur direct costs to foreign investors, such as collective bargaining rights. In contrast, governments engage in a 'race to the bottom' when it comes to rights that bear immediate costs for firms, such as overtime pay. To test our argument, we use novel data to distinguish between the legal protection of (1) fair working contracts, (2) adequate working time, (3) dismissal protections, which are more costly; versus (4) collective worker representation, and (5) industrial action rights, which are relatively cheaper to grant. Our panel data analysis for 138 developing countries (1982-2010) shows that higher FDI is indeed connected to an improvement of `cheap' rights, and to a decline in `expensive' rights protection. These results remain robust across a range of model specifications.
    Keywords: Foreign direct investment; worker rights; developing countries; cash standards; outcome standards
    JEL: G38 J08 J50 J80 K31
    Date: 2020–10
  26. By: Söderlund, Bengt (Department of Economics, Lund University, and)
    Abstract: The strong negative relationship between geographical distance and trade is not well understood. I use the liberalization of the Soviet airspace to estimate the causal impact of business travel cost on trade. The liberalization radically reduced travel time between Europe and East Asia and was associated with a significant increase in trade. I find that the cost of business travel can account for most of the trade frictions (85.3%) that cause trade to sharply decline with distance. A plausible explanation for these results is that face-to-face interaction through business travel is important for trade, and that transporting people is costly.
    Keywords: Trade costs; Air travel; Face-to-face communication
    JEL: F14 F15 R40
    Date: 2020–09–22
  27. By: Stefan Borsky (University of Graz, Austria); Martin Jury (University of Graz, Austria)
    Abstract: In this paper we combine sectoral input-output linkages based on the production network of 172 countries and 12 sectors from 1990 to 2015 and information on extreme weather events to construct an index measuring the intensity of shocks in the supply chain for each sector and country. This index is then used in an econometric model to determine the impact of supply chain disruptions on a sector's export performance. Our results suggest that a one standard deviation increase in our supply chain shock measure reduces a sector's export value by around 11 percent. Finally, we project that, if no additional adaptation were to occur, climate change will additionally reduce a sector's export value by up to 16 percent with a considerable heterogeneity in strength of the effect between the countries and sectors. Knowledge on the role of input-output linkages in the propagation of extreme weather shocks is important to design more resilient supply chains in future.
    Keywords: Supply chain shock propagation; climate change; natural disasters; export.
    JEL: F14 F18 Q54
    Date: 2020–08
  28. By: Sanga,Dimitri; Gui-Diby,Steve Loris
    Abstract: This paper examines the growth-inflation nexus in Franc zone currency unions. It aims at estimating the inflation threshold above which additional inflationary pressures adversely affect economic expansion. It uses cointegration methods that are applied to data from 14 African countries from the Franc zone over 1970-2018. Based on country-level data, the results indicate that it is possible to increase the threshold levels used by regional central banks to 5.4-5.6 percent in the Central African Monetary Union and 4.3-4.5 percent in the West African Monetary Union. Homogeneous cointegration panel data analyses confirm the need to increase the threshold in Central African Monetary Union countries but do not in the West African Monetary Union countries.
    Keywords: Inflation,Economic Growth,Industrial Economics,Economic Theory&Research,International Trade and Trade Rules,Macroeconomic Management
    Date: 2020–09–21
  29. By: Nils Gornemann; Pablo Guerron-Quintana; Felipe Saffie
    Abstract: Real exchange rates (RERs) display sizable uctuations not only over the business cycle, but also at lower frequencies, resulting in large and persistent swings over decades|facts that many business cycle models struggle to match. We propose an international macroeconomics model with endogenous productivity to rationalize these facts. In the model, endogenous growth amplifies stationary uctuations generating persistent productivity differences between countries that trigger low-frequency cycles in the RER. The estimated model effortlessly replicates the empirical spectrum, autocorrelation, and half-life of the RER. In addition, we document that low frequency movements in aggregate trade ows are crucial to discipline the RER cycles. Finally, we validate the model-implied co-movement between relative prices and technology differentials using a panel of cross industry-country data on patent and industry prices.
    Keywords: Real exchange rate; Endogenous growth; RBC
    JEL: F31 F41 F43 F44
    Date: 2020–09–18
  30. By: Stephen J. Redding
    Abstract: This paper reviews recent research on geography and trade. One of the key empirical findings over the last decade has been the role of geography in shaping the distributional consequences of trade. One of the major theoretical advances has been the development of quantitative spatial models that incorporate both exogenous first-nature geography (natural endowments) and endogenous second-nature geography (the location choices of economic agents relative to one another) as determinants of the distribution of economic activity across space. These models are sufficiently rich to capture first-order features of the data, such as gravity equations for flows of goods and people. Yet they remain sufficiently tractable as to permit an analytical characterization of the properties of the general equilibrium and facilitate counterfactuals for realistic policy interventions. We distinguish between models of regions or systems of cities (where goods trade and migration take center stage) and models of the internal structure of cities (where commuting becomes relevant). We review some of key empirical predictions of both sets of theories and show that they have been remarkably successful in rationalizing the empirical findings from reduced-form research. Looking ahead, the combination of recent theoretical advances and novel geo-coded data on economic interactions at a fine spatial scale promises many interesting avenues for further research, including discriminating between alternative mechanisms for agglomeration, understanding the implications of new technologies for the organization of work, and assessing the causes, consequences and potential policy implications of spatial sorting.
    JEL: F1 J4 R1 R4
    Date: 2020–09
  31. By: Kaan Celebi (Frankfurt University of Applied Sciences, Faculty 3: Business and Law, Non-Resident Senior Fellow at the European Institute for International Economic Relations (EIIW) at the University of Wuppertal)
    Abstract: Using the Panel Data Approach (PDA) of Hsiao et al. (2012) in combination with the LASSO method, this article aims to measure the effect of the Brexit process on the United Kingdom’s real economy up to 2019Q2. The results are twofold: Firstly, compared to the existing literature, the PDA improves the measurement of the impact of Brexit on the real economy regarding computation intensity, the feasibility of statistical inference and a wider application area. Secondly, the estimated counterfactuals for the UK show that the Brexit process has played a crucial role in the UK’s economy, leading to lower GDP (growth rates), lower private consumption, lower gross fixed capital formation (GFCF) and higher exports. On average, GDP growth has declined between 1.3 and 1.4 percentage points, whereby the cumulative loss ranges between 48 and 54 billion British pounds. Moreover, private consumption in the UK has declined 4.7 billion British pounds quarterly on average. The predicted counterfactuals show that the impact of the Brexit process on GFCF has begun in 2018Q1, whereby the average treatment effect amounts to -2.9 billion British pounds. The UK’s exports increased since the referendum, most likely due to the depreciation of the British pound post-Brexit. The average quarterly effect of the Brexit process on exports is estimated here at 4.8 billion British pounds.
    Keywords: Brexit, economic policy uncertainty, counterfactual, Panel Data Approach, LASSO
    JEL: C23 C54 E65 F42 O47
    Date: 2020–01
  32. By: Martin,William J.
    Abstract: The gravity model is now widely used for policy analysis and hypothesis testing, but different estimators give sharply different parameter estimates and popular estimators are likely biased because dependent variables are limited-dependent, error variances are nonconstant and missing data frequently reported as zeros. Monte Carlo analysis based on real-world parameters for aggregate trade shows that the traditional Ordinary Least Squares estimator in logarithms is strongly biased downwards. The popular Poisson Pseudo Maximum Likelihood model also suffers from downward bias. An Eaton-Kortum maximum-likelihood approach dealing with the identified sources of bias provides unbiased parameter estimates.
    Keywords: International Trade and Trade Rules,Trade and Services,Economic Conditions and Volatility,Financial Sector Policy,Transport Services
    Date: 2020–09–09
  33. By: Kunka Petkova (Vienna University of Economics and Business); Andrzej Leszek Stasio (European Commission - JRC); Martin Zagler (Vienna University of Economics and Business)
    Abstract: Tax treaties are often seen as a means to mitigate fierce tax competition. We challenge this view by arguing that taxes on passive income reduce effective average tax rates, and induce neighbouring countries to react by reducing bilateral tax rates. As opposed to traditional tax competition, where every foreign investor would benefit from lower tax rates, we show that countries also engage in cutting tax rates for investors from a particular country, leaving taxes for everyone else unaffected. We call this bilateral tax competition, and we test these predictions empirically. We focus on the four treaty withholding tax rates on passive income - portfolio dividends, participation dividends, interest, and royalties - and collect these rates for 3,000 tax treaties and amending protocols signed between 1930 and 2012. We find a positive relationship in the negotiated withholding tax rates of a destination country's tax treaty and destination country competitors' past tax treaties with the same source country. This relationship is strongest for the tax rates on interest and royalties, and varies from an average elasticity between 0.19 and 0.36 with both source and destination country being an OECD member, and an average elasticity up to 0.64 when both countries are tax havens.
    Keywords: tax competition, international taxation, double taxation treaties, withholding taxes, tax treaty formation
    JEL: F50 F53 F68 H29 H39
    Date: 2020–09
  34. By: Laurent Cavenaile; Pau Roldan-Blanco; Tom Schmitz
    Abstract: Lower costs of international trade affect both firms’ innovation incentives and theirmarket power. We develop a dynamic general equilibrium model with endogenous innovation and endogenous markups to study the interaction between these effects. Lower trade costs stimulate innovation by large firms that are technologically close to their rivals. However, as innovators increase their productivity advantage over others, they also increase their markups. Our calibrated model suggests that a fall in trade costs which increases the trade-to-GDP ratio of the US manufacturing sector from 12% (its level in the 1970s) to 24% (its current level) increases productivity growth by 0.12 percentage points and the aggregate markup by 1.70 percentage points. Without the feedback effect of innovation on the productivity distribution, markups would actually have fallen. JEL codes: F43, F60, L13, O31, O32, O33, and O41. Keywords: International Trade, Markups, Innovation, R&D, Productivity.
    Date: 2020
  35. By: Fadia Al Hajj (College of Business Administration - GUST - Gulf University for Science and Technology); Gilles Dufrénot (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, AMU - Aix Marseille Université); Benjamin Keddad (PSE - Paris School of Economics)
    Abstract: This paper discusses the theoretical choice of exchange rate regimes in Sub-Saharan African countries that are facing external vulnerabilities. To reduce instability, policymakers choose among promoting external competitiveness using a real anchor, lowering the burden of foreign debt using a nominal anchor or using a policy mix of both anchors. We observe that these countries tend to adopt mixed anchor policies. We solve a state space model to explain the determinants of and the strategy behind this policy. We find that the mixed targeting policy is a two-step strategy: First, monetary authorities choose the degree of nominal exchange rate flexibility according to the velocity of money, trade openness, foreign debt, degree of exchange rate pass-through and exchange rate target zone. Second, authorities seek to stabilize the real exchange rate depending on the degree of competition in the domestic goods market and the degree of foreign exchange intervention. We conclude with regime-switching estimations to provide empirical evidence of how these economic fundamentals influence exchange rate policy in Sub-Saharan Africa.
    Keywords: regime-switching model,external vulnerabilities,exchange rate policy,Sub-Saharan Africa
    Date: 2020
  36. By: Chepeliev, Maksym
    Abstract: This document describes a new source of inputs, based on FAO data, that allows us to estimate agricultural output targets on 133 regions of the GTAP 10A Data Base. This approach allows to overcome several limitations present under the current agricultural production targeting (APT) processing. First, a significant expansion in the regional coverage is achieved, as the number of regions undergoing APT more than doubles. Second, the detailed commodity classification of the FAO dataset allows for a more accurate mapping to the GTAP Data Base sectors. Third, a better commodity coverage in the FAO data prevents the issue of mapping a processed commodities to the corresponding primary sector. Finally, reliance on the FAO agricultural output data provides a better opportunity for further incorporation of the nutritional accounts to the GTAP Data Base, by lowering inconsistencies between GTAP and FAO agricultural accounting. Comparisons between OECD-based agricultural output (currently used in the GTAP Data Base) and FAO-derived estimates are provided in the document. FAO-based agricultural production targets are incorporated to the GTAP 10A Data Base build stream to produce a special release of the GTAP Data Base. JEL classification: C68, D57, D58, Q10, Q11.
    Date: 2020
  37. By: Silvia Bartolucci; Fabio Caccioli; Francesco Caravelli; Pierpaolo Vivo
    Abstract: We present a baseline stochastic framework for assessing inter-sectorial relationships in a generic economy. We show that - irrespective of the specific features of the technology matrix for a given country or a particular year - the Leontief multipliers (and any upstreamness/downstreamness indicator computed from the Leontief inverse matrix) follow a universal pattern, which we characterize analytically. We formulate a universal benchmark to assess the structural inter-dependence of sectors in a generic economy. Several empirical results on World Input-Output Database (WIOD, 2013 Release) are presented that corroborate our findings.
    Date: 2020–09

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