nep-int New Economics Papers
on International Trade
Issue of 2022‒10‒10
24 papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Global Sourcing and Multinational Activity: A Unified Approach By Pol Antràs; Evgenii Fadeev; Teresa C. Fort; Felix Tintelnot
  2. International trade and the transmission of temperature shocks By Osberghaus, Daniel; Schenker, Oliver
  3. The WTO and vaccine supply chain resilience during a pandemic By Chad P. Bown
  4. Economic analysis based on input-output tables: Definitions, indicators and applications for Latin America By Durán Lima, José Elías; Banacloche, Santacruz
  5. Outward FDI, restructuring, performance upgrading and resilience: Firm-level evidence from Portugal By Natália Barbosa
  6. Revisiting the knowledge-capital model of foreign direct investment: New multi-country evidence By Kox, Henk L.M.
  7. U.S. Market Concentration and Import Competition By Mary Amiti; Sebastian Heise
  8. Foreign Demand Shocks to Production Networks: Firm Responses and Worker Impacts By Emmanuel Dhyne; Ayumu Ken Kikkawa; Toshiaki Komatsu; Magne Mogstad; Felix Tintelnot
  9. The Impact of FDI Income on Income Inequality in Home Countries By Joyce, Joseph
  10. Firm adaptation in COVID-19 times: The case of Portuguese exporting firms By João Capella-Ramos; Romina Guri
  11. Keep calm and trade on: China's decisive role in agricultural markets under turmoil By Kuhn, Lena; Jaghdani, Tinoush Jamali; Prehn, Sören; Sun, Zhanli; Glauben, Thomas
  12. Globalisation and the Decoupling of Inflation from Domestic Labour Costs By Emanuel Kohlscheen; Richhild Moessner
  13. Climate Risks and FDI By Grace Weishi Gu; Galina Hale
  14. NAFTA and Drug-Related Violence in Mexico By Eduardo Hidalgo; Erik Hornung; Pablo Selaya
  15. Monthly Report No. 03/2022 By Vasily Astrov; Vladislav L. Inozemtsev; Nina Vujanović
  16. A Measure of Countries’ Distance to Frontier Based on Comparative Advantage By Ulrich Schetter
  17. Global Uncertainty and International Migration to Western Europe By Hippolyte d'Albis; Ekrame Boubtane; Dramane Coulibaly
  18. Climate Policy, Irreversibilities and Global Economic Shocks By Anwesha Banerjee; Stefano Barbieri; Kai A. Konrad
  19. Tax Elasticity of Border Sales: A Meta-Analysis By Huynh, Dat; Sokolova, Anna; Tosun, Mehmet S.
  20. The impact of a rise in transportation costs on firm performance and behaviour By Catarina Branco; Dirk C. Dohse; João Pereira Santos; José Tavares
  21. Filling the "decency gap"? Donors' reaction to the US policy on international family planning aid By Nathalie Ferrière
  22. Production Networks and International Fiscal Spillovers By Michael B Devereux; Karine Gente; Changhua Yu
  23. The Development of Al in Multinational Enterprises - Effects upon Technological Trajectories and Innovation Performance By Matheus Eduardo Leusin
  24. Incentives, Globalization, and Redistribution By Ferey, Antoine; Haufler, Andreas; Perroni, Carlo

  1. By: Pol Antràs; Evgenii Fadeev; Teresa C. Fort; Felix Tintelnot
    Abstract: Multinational firms (MNEs) accounted for 42 percent of US manufacturing employment, 87 percent of US imports, and 84 of US exports in 2007. Despite their disproportionate share of global trade, MNEs’ input sourcing and final-good production decisions are often studied separately. Using newly merged data on firms’ trade and FDI activity by country, we show that US MNEs are more likely to import not only from the countries in which they have affiliates, but also from other countries within their affiliates’ region. We rationalize these patterns in a unified framework in which firms jointly determine the countries in which to produce final goods, and the countries from which to source inputs. The model generates a new source of scale economies that arises because a firm incurs a country-specific fixed cost that allows all its assembly plants to source inputs from that country. This shared fixed cost across plants creates interdependencies between firms’ assembly and sourcing locations, and leads to non-monotonic responses in third markets to bilateral trade cost changes.
    JEL: F1 F12
    Date: 2022–09
  2. By: Osberghaus, Daniel; Schenker, Oliver
    Abstract: We examine how the adverse impacts of weather shocks are distributed through the trade network. Exploiting a rich, theoretically derived, fixed effects structure, we find significant negative short-run effects of high temperature on exports. A month with an average temperature above 30 êC implies export losses of around three percent. These effects are increasing in the labour-intensity of exports. Using our structural Gravity model, we assess the general equilibrium incidence of these temperature shocks. We find that equilibrium adjustments reduce the economic costs by around 20 percent, but significant costs arise also for countries not directly exposed to high temperatures.
    Keywords: International trade,Temperature,Extreme weather,Structural Gravity
    JEL: F14 F18 Q54
    Date: 2022
  3. By: Chad P. Bown (Peterson Institute for International Economics)
    Abstract: Cross-border supply chains and international trade enabled the manufacturing and delivery of billions of vaccine doses to inoculate the world against COVID-19. At the same time, the pandemic revealed how the World Trade Organization (WTO) must change to become more useful in the face of a public health emergency. This paper describes the market failures--especially on the supply side--justifying the domestic subsidies and contracting arrangements used to accelerate vaccine research and development and to increase the scale of vaccine production to save lives, livelihoods, and economic activity during a pandemic. It highlights tradeoffs associated with the US subsidies and the priority-rated contracts written through the Defense Production Act under Operation Warp Speed. This case study reveals a rich environment in which cross-border supply chains exacerbate input shortages in ways that constrain vaccine production, highlighting the need for the WTO to embrace new forms of international policy coordination for pandemic preparedness and response. As part of a pandemic treaty, the paper proposes a plurilateral agreement on vaccine supply chain resilience that would include novel and enforceable disciplines for export restrictions, provisions to trigger coordinated subsidies across countries to jointly scale up vaccine output- and input-production capacity, and market surveillance initiatives on supply chain transparency.
    Keywords: WTO, Agreement on Subsidies and Countervailing Measures, export restrictions, advance market commitments, COVID-19 vaccines, input shortages, Defense Production Act, priority-rated contracts, pandemic treaty
    JEL: F13
    Date: 2022–09
  4. By: Durán Lima, José Elías; Banacloche, Santacruz
    Abstract: This manual summarizes the theoretical bases of the input-output model applied in the economic analysis of countries and groups of countries (subregions). The input-output tables developed by the Regional Integration Unit of the International Trade and Integration Division of the Economic Commission for Latin America and the Caribbean (ECLAC) will be of use to government experts for conducting their own calculations and analyses, following and adapting the guidelines and recommendations contained the manual to design specific public policies. Some indicators suggested in the document include the intensity of imported inputs in production and exports, forward and backward production linkages, import dependency analyses, the domestic value added in exports or imported content by trade partner, and extensions and applications related to export employment and CO2 emissions. This manual can also serve as a useful aide for academics, researchers and students in understanding sometimes elusive and complex literature.
    Date: 2022–08–29
  5. By: Natália Barbosa
    Abstract: This paper assesses the causal relationship between outward foreign direct investment (FDI) and various sides of firm performance, using micro data from Portuguese manufacturing firms during 2006-2012 and 2017-2020. Our analysis shows that the learning effects for Portuguese parent firms depend on the underlying outward FDI strategy. In particular, those learning effects seem to be mostly visible when firms engage in vertical outward FDI. Further, vertical or horizontal outward FDI appear to enhance the integration of Portuguese firms into the global economy through increased export intensity. Overall, the findings supports the argument that outward FDI can indeed be at root of upgrading performance and firm’s restructuring in a small, open and peripheral economy such as Portugal. Nonetheless, the capability to be resilient and deal with sudden and external shocks - such as COVID-19 pandemic - is not supported by the available preliminary data.
    Keywords: Productivity. Scale. Outward FDI. Portugal. Firm-level data. Difference-in-difference. COVID-19 pandemic
    JEL: D24 F23
    Date: 2022–09
  6. By: Kox, Henk L.M.
    Abstract: The knowledge capital (KC) model explains the international distribution of foreign direct investment (FDI). It assumes that firms own knowledge assets that may also be exploited via foreign subsidiaries. Do countries with much outward FDI indeed have a relative abundance of proprietary knowledge assets? This has not yet been adequately tested due to a lack of data on knowledge assets. Our paper proposes a new testing procedure. It extends the KC model by a module that formalises the encapsulation of publicly created knowledge into firm-owned knowledge assets. We use a large new dataset for public and private knowledge creation in 200 countries, covering the period 2000-2020. National knowledge assets do indeed explain patterns of outward FDI, and the role of public knowledge assets of the firm's origin countries is of paramount importance. Robustness tests show the stability of these findings. National KC assets also have an impact on inward FDI, but much weaker than their impact on outward FDI. Our results support the original KC model and extends its explanatory power.
    Keywords: foreign direct investment, knowledge capital assets, empirical test, world-wide
    JEL: D22 D83 F23 O31 O34
    Date: 2022–09–14
  7. By: Mary Amiti; Sebastian Heise
    Abstract: Many studies have documented that market concentration has risen among U.S. firms in recent decades. In this paper, we show that this rise in concentration was accompanied by tougher product market competition due to the entry of foreign competitors. Using confidential census data covering the universe of all firm sales in the U.S. manufacturing sector, we find that rising import competition increased concentration among U.S. firms by reallocating sales from smaller to larger U.S. firms and by causing firm exit. However, this increase in concentration was counteracted by the expansion of foreign firms, which reduced domestic firms’ share of the U.S. market inclusive of foreign firms’ sales. We find that once the sales of foreign exporters are taken into account, U.S. marketconcentration in manufacturing was stable between 1992 and 2012.
    Keywords: market concentration, markups, import competition, international trade
    JEL: F14 F60 L11
    Date: 2022–08
  8. By: Emmanuel Dhyne; Ayumu Ken Kikkawa; Toshiaki Komatsu; Magne Mogstad; Felix Tintelnot
    Abstract: We quantify and explain the firm responses and worker impacts of foreign demand shocks to domestic production networks. To capture that firms can be indirectly exposed to such shocks by buying from or selling to domestic firms that import or export, we use Belgian data with information on both domestic firm-to-firm sales and foreign trade transactions. Our estimates of firm responses suggest that Belgian firms pass on a large share of a foreign demand shock to their domestic suppliers, face upward-sloping labor supply curves, and have sizable fixed overhead costs in labor. Motivated and guided by these findings, we develop and estimate an equilibrium model that allows us to study how idiosyncratic and aggregate changes in foreign demand propagate through a small open economy and affect firms and workers. Our results suggest that the way the labor market is typically modeled in existing research on foreign demand shocks—with no fixed costs and perfectly elastic labor supply—would grossly understate the decline in real wages due to an increase in foreign tariffs.
    JEL: E1 F1 F12 J31 J42 L11
    Date: 2022–09
  9. By: Joyce, Joseph
    Abstract: Income generated by foreign direct investments (FDI) has grown since the 1990s, and now represents a substantial portion of many countries’ current accounts. Some of these flows are routed through Special Purpose Entities in financial centers that multinational firms use to minimize their tax liabilities. We use IMF and OECD data to evaluate the impact of this income on the income share of the top 1% of households in the multinationals’ home countries. We distinguish between FDI equity income and FDI interest income arising from intra-firm lending. We also consider separately the effects in advanced economies and countries that serve as financial centers. FDI equity income contributes to the income share of the top 1% of households in advanced economies, while FDI interest income has no impact in these economies. Similar results are recorded when we use the OECD non-SPE data. As a result, total FDI income reinforces the income share of the top 1% of households in these countries. While there is some evidence of a similar impact by FDI equity income on the top 1% income households in the financial centers, this result is not apparent when non-SPE income data are used.
    Keywords: FDI income, multinational firms, inequality
    JEL: F21 F23
    Date: 2022–09–14
  10. By: João Capella-Ramos; Romina Guri
    Abstract: The COVID-19 crisis has severely impacted firms across the world, with some showing greater resilience than others. Engaging in international markets, in particular, increases firms’ exposure to such a global adverse shock, while also providing firms with opportunities for resilience-enhancing responses to the crisis. Operating in a small open economy, Portuguese firms were particularly vulnerable to disruptions in international trade and global value chains. In this paper we investigate how Portuguese exporting firms have adapted their business activities on the back of the COVID-19 crisis, and whether these adaptations depended on their intrinsic characteristics, notably firm size. Furthermore, we analyse the role of government support measures taken in response to the COVID-19 crisis in the adaptation processes of both exporting and domestic firms. We use the recently available Fast and Exceptional Enterprise Survey – COVID-19 (‘Inquérito Rápido e Excecional ’Empresas’, COVID-IREE) and complement it with balance sheet data from the Integrated Corporate Accounts System (‘Sistema de Contas Integradas das Empresas’, SCIE), covering a sample of approximately 7,000 Portuguese firms. The results suggest that exporting firms were more likely to adapt their business activities in the face of the COVID-19 crisis. We also found evidence that the adaptation processes of exporting firms tended to be multi-dimensional, operating through different adaptation mechanisms, and contingent upon firm size. The results also suggest that government support measures have enhanced the likelihood of both exporting and domestic firms to adapt, providing evidence of their effectiveness and highlighting the importance of firm-oriented policies that promote economic resilience.
    Keywords: COVID-19, firm adaptation, exporting firms, internationalisation, digitalisation
    JEL: H53 H72 O47 O52
    Date: 2022–09
  11. By: Kuhn, Lena; Jaghdani, Tinoush Jamali; Prehn, Sören; Sun, Zhanli; Glauben, Thomas
    Abstract: International agricultural trade is key to improving global food security. It ensures access to more diversified foods (e.g. Krivonos and Kuhn 2019 ), acts as a safety net against local production shortfalls (Glauben et al. 2022) and helps make use of regional climatic or resource-related production advantages. While local production and short supply chains can reduce transport costs, they do not necessarily equate to resilient food systems or lower carbon footprints (Stein and Santini 2022). Currently, though, international agricultural trade is facing supply chain disruptions and rising world market prices resulting from the ongoing Covid-19 pandemic, increasing global food demand and extreme weather events. Both are threatening already strained food security, in particular in import-dependent, low-income regions. Geopolitical risks, such as the China- US trade war and Russia's invasion of Ukraine, are further rattling the food market. As the world's largest consumer of agricultural goods, China's trade strategies influence world markets, with ripple-down effects for consumers around the world, particularly in the Global South. This policy brief aims at shedding light on China's current market actions, and the likely short- and mid-term developments and their impacts. We argue for moderation in response to short-term shocks. Excessive mobility and trade restrictions as well as extreme stockpiling should be avoided. These harm the trade system's overall capacity to resist further and more serious global challenges related to population growth and climate change.
    Date: 2022
  12. By: Emanuel Kohlscheen; Richhild Moessner
    Abstract: We provide novel systematic cross-country evidence that the link between domestic labour markets and CPI inflation has weakened considerably in advanced economies during recent decades. The central estimate is that the short-run pass-through from domestic labour cost changes to core CPI inflation decreased from 0.25 in the 1980s to just 0.02 in the 2010s, while the long-run pass-through fell from 0.36 to 0.03. We show that the timing of the collapse in the pass-through coincides with a steep increase in import penetration from a group of 10 major manufacturing EMEs around the turn of the millennium. This signals increased competition and market contestability. Besides the extent of trade openness, we show that the intensity of the pass-through also depends in a non-linear way on the average level of inflation.
    Date: 2022–08
  13. By: Grace Weishi Gu; Galina Hale
    Abstract: Climate-related risks have increased in recent decades, both in terms of the frequency of extreme weather events (physical risk) and implementation of climate-change mitigation policies (transition risk). This paper explores whether multinational firms react to such risks by altering their presence in countries that are more affected. We measure this by examining foreign direct investment (FDI) dynamics at different levels of aggregation as well as at firm level. We propose a theoretical framework for firm production location choice that explicitly incorporates transition and physical risks. The model predicts a reduction in FDI resulting from both physical and transition risks but an ambiguous interaction effect of these risks with emission productivity of the firm. In an extensive empirical analysis we find some support for model predictions, but overall we do not find consistent evidence for statistically significant effects of physical and transition risks on FDI. However, firm-level evidence suggests that firms that are more exposed to climate risks react more negatively to physical climate risk following Paris Climate Accord. We also find that FDI outflows following extreme weather events from affected countries are smaller for industries with higher emission productivity. Our theory and empirical results point to the importance of accounting for heterogeneity in emission productivity when analyzing effects of climate risks.
    JEL: F21 F23 F64
    Date: 2022–09
  14. By: Eduardo Hidalgo (University of Cologne, Albertus-Magnus-Platz, 50923 Cologne, Germany); Erik Hornung (University of Cologne, Albertus-Magnus-Platz, 50923 Cologne, Germany); Pablo Selaya (University of Copenhagen, Øster Farimagsgade 5, 26.2.25, 1353 Copenhagen, Denmark)
    Abstract: We study how NAFTA changed the geography of violence in Mexico. We propose that open borders increased trafficking profits of Mexican cartels and resulted in violent competition among them. We test this hypothesis by comparing changes in drug-related homicides after NAFTA's introduction in 1994 across municipalities with and without drug-trafficking routes. Routes are optimal paths connecting municipalities with a recent history of drug trafficking with U.S. ports of entry. On these routes, homicides increase by 27% relative to the pre-NAFTA mean. These results cannot be explained by changes in worker's opportunity costs of using violence resulting from the trade shock.
    Keywords: Violence, NAFTA, Free Trade, Mexico, Illegal Drug Trafficking, Conflict
    JEL: K42 F14 D74 O54
    Date: 2022–09
  15. By: Vasily Astrov (The Vienna Institute for International Economic Studies, wiiw); Vladislav L. Inozemtsev; Nina Vujanović (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: Chart of the Month Russia losing half of its foreign reserves by Vasily Astrov Russia’s war economy by Vladislav Inozemtsev Following the harsh economic sanctions imposed by the West, the war-time economic policy adopted by Russia will shape its economy for at least the next six months. It involves, among other things, the discriminatory treatment of foreigners and foreign-based entities from ‘unfriendly countries’, the creation of a de facto two-tier banking system, a separation of the rouble and foreign currency markets, and possibly the expropriation of foreign-owned property. It will not, however, forestall the most serious economic crisis in the history of modern Russia. EU investment in China past, present and ways ahead by Nina Vujanović Its significant economic reforms and the opening up of its markets have rendered China one of the largest trade players in the world. However, EU FDI in China has been relatively modest. The preferential treatment received by state-owned enterprises and conditions stipulating the transfer of technology remain major obstacles to FDI. Implementation of the Comprehensive Agreement on Investment with the EU and the Regional Comprehensive Economic Partnership agreement with other Asian and Pacific countries may, however, change EU investment patterns in China in the future. Monthly and quarterly statistics for Central, East and Southeast Europe
    Keywords: foreign exchange reserves; economic sanctions; banking sector; foreign exchange; stock market; foreign property; foreign direct investment; Comprehensive Agreement on Investment; FDI regulatory restrictiveness
    Date: 2022–03
  16. By: Ulrich Schetter (Center for International Development at Harvard University)
    Abstract: This paper presents a structural ranking of countries by their distance to frontier. The ranking is based on comparative advantage. Hence, it reveals information on the productive capabilities of countries that is fundamentally different from GDP per capita. The ranking is centered on the assumption that countries’ capabilities across products are similar to those of other countries with comparable distance to frontier. It can be micro-founded using standard trade models. The estimation strategy provides a general, non-parametric approach to uncovering a log-supermodular structure from the data, and I use it to also derive a structural ranking of products by their complexity. The underlying theory provides a flexible micro-foundation for the Economic Complexity Index (Hidalgo and Hausmann, 2009).
    Keywords: distance to frontier, economic complexity index, gravity model, log-supermodularity, monotonic eigenvector, product complexity ranking
    JEL: O11 O47 F10 F14
    Date: 2022–09
  17. By: Hippolyte d'Albis (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Ekrame Boubtane (CERDI - Centre d'Etudes et de Recherche en Droit de l'Immatériel - UP1 - Université Paris 1 Panthéon-Sorbonne - Université Paris-Saclay, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Dramane Coulibaly (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This article quantifies the effects of increasing global geopolitical uncertainty on the size of migration flows to Western Europe. Uncertainty is measured by the number of victims of terrorist attacks worldwide. The effect on migration flows is quantified through the estimation of vector autoregressive models on a panel of 15 European countries and on France, thanks to an original migration dataset. The estimations suggest that the flows of permanent migrants are generally reduced by global terrorism. In particular, the increase in uncertainty that followed the attacks of September 11, 2001, caused an 8% drop in flows to Europe and a 19% drop in flows to France. The effect of global uncertainty on the flow of asylum seekers depends on the country: on average in Europe, asylum applications increase with terrorism, but for France, they decrease with terrorism. This difference can be explained by the geographical position and border control policies of France.
    Keywords: Uncertainty,Terrorism,Migration,September 11,2001
    Date: 2022–09
  18. By: Anwesha Banerjee; Stefano Barbieri; Kai A. Konrad
    Abstract: Global systematic economic shocks may affect the Nash equilibrium contributions to international climate mitigation. We study how this effect depends on the flexibility countries have to adjust to these shocks. The kind of rigidities countries face because of technological irreversibilities plays a crucial role. Under the plausible assumption of “prudence,†higher global uncertainty tends to reduce equilibrium climate contributions if irreversibilities in the level of climate policy choices exist. And, if countries are committed to allocating a proportion of income to climate protection, rigidities may increase welfare. Thus, exercising the option to perfectly adjust oneís contributions to shocks may be another form of free riding.
    Keywords: Global Warming, Climate Protection, Irreversibilities Climate Policy, Global Income Shocks, International Public Goods, Option Value
    JEL: Q54 H41 Q55
    Date: 2022–06
  19. By: Huynh, Dat (University of Nevada, Reno); Sokolova, Anna (University of Nevada, Reno); Tosun, Mehmet S. (University of Nevada, Reno)
    Abstract: When regions in close proximity have different tax rates, residents may engage in cross-border shopping and take advantage of tax differentials. The extent of this activity can be captured by the tax elasticity of border sales (TEBS). We collect 749 estimates of TEBS reported in 60 studies, and conduct the first meta-analysis of this literature. We show that the literature is prone to selective reporting: positive estimates of TEBS are systematically discarded—this biases the mean reported estimate away from the 'true' underlying effect. Reported estimates also vary widely; we construct 29 control variables that capture empirical strategies used to obtain them, and employ Bayesian Model Averaging to pin down the sources of this variation. We find that sales of food, retail and fuel are more elastic compared to sales of tobacco and other individual 'sin' products; that while the cross-border shopping is prominent in the US, it is much less prevalent in Europe and other countries.
    Keywords: cross-border shopping, taxation, tax elasticity, meta-analysis, Bayesian Model Averaging
    JEL: H71 H73 H26 H22 R12 H31
    Date: 2022–08
  20. By: Catarina Branco; Dirk C. Dohse; João Pereira Santos; José Tavares
    Abstract: This paper uses micro-level data encompassing the universe of Portuguese private firms for the period 2006-2016 to analyse the effect of the introduction of tolls on previously toll-free highways. To establish causality, we rely on a natural experiment which resulted from Portuguese authorities being forced to in- crease these transportation costs in some highways during the sovereign debt crisis. Difference-in-differences results show a 10.7% decrease of turnover in firms located in affected municipalities vis-Ã -vis firms in the remaining areas, on average. Firm profits were also severely hit and reduced by more than 15%. Both sales and purchases to/from the internal market and abroad (especially to/from EU countries) were affected. Furthermore, employment reduced 2% in treated areas. Importantly, our findings do not uncover induced inter-regional firm migration, suggesting that the tolls have induced a substantial net loss to the Portuguese economy.
    Keywords: Road tolls, Turnover, Expenses, Value Added, Exports, Imports, Competitiveness, Portugal
    JEL: R48 L25 R12
    Date: 2022–09
  21. By: Nathalie Ferrière (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)
    Abstract: I study the reaction of donors to the US allocation of family planning aid. Family planning offers an interesting case to understand donor interactions. First, projects are relatively similar from one donor to another, easing substitution between donors. Second, one donor, the US, dominates the sector but its foreign policy on family planning has undergone several changes, related to domestic debates on abortion. European donors clearly express their position against these changes and pledge to substitute the US. Exploiting the timing of the Mexico City Policy to instrument the US allocation, I find that, on average, other donors do not react to the US. Donors only react in countries where abortion is on request suggesting that budget constraints do not allow donors to compensate for the US withdrawal in all countries.
    Keywords: Family planning,Foreign Aid,Global Gag Rule,Donors coordination
    Date: 2022–07–19
  22. By: Michael B Devereux (Vancouver school of economics, University of British Columbia, NBER - The National Bureau of Economic Research, CEPR - Center for Economic Policy Research - CEPR); Karine Gente (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); Changhua Yu (China Center for Economic Research, National School of Development, Peking University)
    Abstract: This paper analyzes the impact of fiscal spending shocks in a dynamic, multi-country model with international production networks. We first derive a decomposition of the effects of a fiscal spending shock on the GDP of any country. This decomposition defines the response as the sum of a Direct, Income, and Price effect. The Direct Effect depends only on structural parameters and is independent of assumptions about monetary policy, wage setting, or capital mobility, while the Price Effect is zero in the aggregate across countries. We apply this decomposition to an analysis of fiscal spillovers in the Eurozone, using the production network structure from the World Input Output Database (WIOD). We find that fiscal spillovers from Germany and some other large Eurozone countries may be large, and within the range of empirical estimates. Without international production network linkages, spillovers would be only a third as large as predicted by the baseline model. Finally, we explore the diffusion of identified government spending shocks at the sectoral level, both within and across countries, using an empirical measure of the response, based on the theoretical decomposition. The empirical estimates are strongly consistent with the theoretical model.
    Keywords: Production Network,Fiscal Policy,Spillovers,Eurozone,Nominal Rigidities
    Date: 2022–07–13
  23. By: Matheus Eduardo Leusin
    Abstract: This paper investigates how the development of AI-related inventions by Multinational Enterprises (MNEs) affects their technological trajectories and innovative performance. I combine a matched-pair analysis with an extension of the Difference-in-Difference method to analyse these effects over a novel panel dataset of MNEs. This dataset links over 30 thousand MNEs to more than 10 million patents that these companies owned directly or indirectly (i.e., through their subsidiaries) in the period from 2011 to 2019. The results indicate that MNEs introducing AI-related inventions increase the relatedness of subsequent inventions by about 10 per cent compared to a control group. These results are robust when accounting for a self-selection bias. AI is thus being used to reinforce the existing technological trajectories, rather than to disrupt them. The results also suggest that the number of subsequent inventions is about 40 per cent higher for MNEs that introduce AI during the observation period compared to the control group, without significant effects on the intensity of R&D expenditures per invention. It is argued that this increase in innovative performance is linked not only to knowledge dynamics created by learning about AI but also by AI's technical potential to be used for learning.
    Keywords: Technological trajectory; Relatedness; Artificial Intelligence; Innovative performance
    JEL: D22 O14 O33 L25
    Date: 2022–02
  24. By: Ferey, Antoine (LMU Munich and CESifo); Haufler, Andreas (LMU Munich and CESifo); Perroni, Carlo (University of Warwick and CESifo)
    Abstract: We offer a new explanation for why taxes have become less redistributive in many countries in parallel with an increase in income concentration. When performance-based contracts are needed to incentivize effort, redistribution through progressive income taxes becomes less precisely targeted. Taxation reduces after-tax income inequality but undermines performance-based contracts, lowering effort and raising pre-tax income differentials. Product market integration can widen the spread of project returns and make contract choices more responsive to changes in the level of taxation, resulting in a lower optimal income tax rate even when individuals are not inter-jurisdictionally mobile.
    Keywords: performance contracts; market integration; redistributive taxation;
    JEL: D63 F15 H21
    Date: 2022–09–09

This nep-int issue is ©2022 by Luca Salvatici. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.