nep-int New Economics Papers
on International Trade
Issue of 2023‒06‒12
twenty-six papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Assessing the dependency of Finland and the EU on Chinese imports By Kaaresvirta, Juuso; Kerola, Eeva; Nuutilainen, Riikka
  2. Disentangling trade reform impacts on firm market and production decisions By Maria Bas; Caroline Paunov
  3. Strategies of Multinational Companies Entering China in the Era of U.S.-China Competition and Implications for Korea By Hyun, Sang Baek; Moon, Ji Young; Park, Minsuk; Oh, Jonghyuk; Oh, Yun Mi
  4. Input quality and skills are complementary and increase output quality: Causal evidence from Ecuador’s trade liberalization By Maria Bas; Caroline Paunov
  5. Navigating the Waves of Global Shipping: Drivers and Aggregate Implications By Jason Dunn; Fernando Leibovici
  6. Digital de-industrialization, global value chains, and structural transformation: Empirical evidence from low- and middle-income countries By Karishma Banga; Pankhury Harbansh; Surendar Singh
  7. Structural transformation and international trade: Evidence from the China shock By Clément Nedoncelle; Julien Wolfersberger
  8. Prospects of BRICS currency dominance in international trade By C\'elestin Coquid\'e; Jos\'e Lages; Dima L. Shepelyansky
  9. The use of trade data in the analysis of global phosphate flows By Matthias Raddant; Martin Bertau; Gerald Steiner
  10. The effect of changes in the terms of trade on GDP and welfare: a Divisia approach to the system of national accounts By Oulton, Nicholas
  11. Strengthening Regional Value Chain between India and South Korea: Emerging Opportunities for Trade and Investment Cooperation By Kumarasamy, Durairaj
  12. How Have Swings in Demand Affected Global Supply Chain Pressures? By Gianluca Benigno; Hunter L. Clark; William Cross-Bermingham; Ethan Nourbash
  13. Heterogeneous Agents Dynamic Spatial General Equilibrium By Maximiliano Dvorkin
  14. ASEAN’s Medium- to Long-term Trade Strategies and the Direction of RoK-ASEAN Cooperation By KWAK, Sungil; CHO, Seungjin; CHEONG, Jaewan; LEE, Jaeho; SHIN, Mingeum; Park, Nayoun; KIM, So Eun
  15. Financial Crises and the Global Supply Network: Evidence from Multinational Enterprises By Sergi Basco; Giulia Felice; Bruno Merlevede; Martí Mestieri
  16. A North-South agent based model of segmented labour markets. The role of education and trade asymmetries By Fanti, Lucrezia; Pereira, Marcelo C.; Virgillito, Maria Enrica
  17. US-China Decoupling Patterns in Supply Chains and Ecosystems for Semiconductors and AI technologies By Cho, Eun Kyo
  18. International production chains and the pollution offshoring hypothesis: an empirical investigation By Saussay, Aurélien; Zugravu-Soilita, Natalia
  19. Monthly Report No. 11/2022 - FDI in Central, East and Southeast Europe By Olga Pindyuk; Roman Stöllinger; Zuzana Zavarská
  20. Early Childhood Conditions and Adolescent Mental Health By Erten, Bilge; Keskin, Pinar; Pinto, Rodrigo; Xie, Huihua; Zhu, Lianming
  21. Impacts of the Russia-Ukraine War price shocks on the Bangladesh economy: A general equilibrium analysis By Chowdhury, Tahreen Tahrima; Dorosh, Paul A.; Islam, Rizwana; Pradesha, Angga
  22. Profit shifting of multinational enterprises: evidence from the Nordics By Viertola, Marika
  23. Inflation Strikes Back: The Role of Import Competition and the Labor Market By Mary Amiti; Sebastian Heise; Fatih Karahan; Ayşegül Şahin
  24. Immigrant entrepreneurship in Europe: a comparative empirical approach By Rinaldi, Riccardo; Arrighetti, Alessandro; Lasagni, Andrea; Canello, Jacopo
  25. From Dominant to Producer Currency Pricing: Dynamics of Chilean Exports By Jose De Gregorio; Pablo Garcia; Emiliano Luttini; Marco Rojas
  26. How Much Can GSCPI Improvements Help Reduce Inflation? By Ozge Akinci; Gianluca Benigno; Hunter L. Clark; William Cross-Bermingham; Ethan Nourbash

  1. By: Kaaresvirta, Juuso; Kerola, Eeva; Nuutilainen, Riikka
    Abstract: This policy brief provides an overview of Finland's dependency on imports from China in both a national and EU context. As trade figures based on value added only provide a rough notion of China's contribution to final consumption, we also consider import dependence from the goods imports figures of Finnish Customs to assess import dependence directly for specific product groups. As many products of Chinese origin are imported as semifinished goods or components for products finished in another EU country, we break down also the import dependency of the EU on China by specific product groups. We then compare Finland's domestic production of select industrial product groups against comparable imports from China. We analyze Finland's dependence on China for critical raw materials and identify potential alternative sources for key product groups for which Finland and the EU are currently dependent on China.
    Keywords: China, Finland, EU, foreign trade, imports, dependency
    Date: 2023
  2. By: Maria Bas (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Caroline Paunov (OCDE - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development)
    Abstract: This paper disentangles the impacts of trade liberalization on firm market and production decisions. Using firm-product data for Ecuador, we exploit exogenous tariff changes at entry to the World Trade Organization and find positive effects of trade liberalization on revenue total factor productivity (TFP-R). Input-trade liberalization improves firm efficiency, measured by quantity total factor productivity (TFP-Q) and leads firms to raise their markups and to introduce new products following an increase in imported input quality. Output-trade liberalization also improves firm efficiency and raises marginal costs as firms increase input quality and improve the quality of their core products. Firms' markups and product scope decrease. Chinese imports also contributed positively to productivity while the exchange rate's volatility prior to dollarization had reverse effects. We find positive welfare effects as consumers were offered better and cheaper products. Trade liberalization also benefited the more productive firms introduce new or better products while less productive firms were more likely to exit.
    Keywords: Gains from trade, Input and output tariff reduction, Revenue and physical quantity total factor productivity (TFP-R, TFP-Q), Markups, Output and input prices, Firm-product-level data, Ecuador
    Date: 2021–06
    Abstract: With the integration of resources and markets around the world sparked by the trend of globalization, multinational companies have continued to grow at a rapid pace. In particular, global manufacturers have maintained their competitiveness by distributing resources more efficiently while establishing a global value chain with China as their main production hub. However, measures taken by the U.S. to block China’s access to technology and supply chains in some high-tech industries have prompted discussions on reorganization of the global supply chain, placing these multinational companies in an uncertain situation concerning their operations in China. At a time when competition between the U.S. and China is intensifying, it is necessary to look at the response strategies of global companies that have entered China and seek effective countermeasures for Korean companies.
    Keywords: China; Multinational Companies; U.S.-China Competition
    Date: 2023–03–03
  4. By: Maria Bas (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Caroline Paunov (OCDE - Organisation de Coopération et de Développement Economiques = Organisation for Economic Co-operation and Development)
    Abstract: This paper tests for the production complementarity between firms' access to high-quality intermediate inputs and their skill composition and their joint impact on output quality. Using census data at firm-product level for Ecuador for 1997–2007, we exploit exogenous tariff changes at Ecuador's entry to the World Trade Organization to show that input tariff cuts allow firms to upgrade their input quality. Next, we demonstrate by means of within-firm instrumental variable estimations that firms' choices of imported input quality drive their relative demand for skilled labor and the skill premium. Imported input quality and firms' skill-composition jointly boost firms' output quality. Moreover, we show that firms that source domestic inputs produced by industries that import high-quality inputs also upgrade their skills and output quality. Our findings are not driven by our measures of quality, foreign demand shocks (export opportunities), Ecuador's financial crisis, real exchange rate variations, financial liberalization and other industry-level reforms.
    Keywords: Foreign input quality, Input-skill complementarity, Skill intensity and skill premium, Output product quality, Input tariff reductions, Firm-product-level data, Ecuador
    Date: 2021–06
  5. By: Jason Dunn; Fernando Leibovici
    Abstract: This paper studies the drivers of global shipping dynamics and their aggregate implications. We document novel evidence on the dynamics of global shipping supply, demand, and prices. Motivated by this evidence, we set up a multi-country dynamic model of international trade with a global shipping market where shipping companies and importers endogenously determine shipping supply and prices. We find the model can successfully account for the dynamics of global shipping observed in the aftermath of COVID-19 and that accounting for these has important implications for the dynamics of aggregate economic activity.
    Keywords: international shipping; international trade; shipping supply; shipping demand; shipping prices
    JEL: F1 F41 L91
    Date: 2023–02
  6. By: Karishma Banga; Pankhury Harbansh; Surendar Singh
    Abstract: Digitalization and shifting patterns of globalization are fast changing the rules of the game for countries embarking on a path of industrialization. In this study, we empirically examine the impact of digitalization and global value chains on structural transformation using a cross-country panel of 51 economies in the GGDC/UNU-WIDER Economic Transformation Database for the period 1990-2018.
    Keywords: Deindustrialization, Technology, Structural transformation, Global value chains, Industrialization
    Date: 2023
  7. By: Clément Nedoncelle; Julien Wolfersberger
    Abstract: How does international trade affect structural transformation in developing countries? We use data on sectoral allocation of labour and value-added in 46 developing economies over the period 1995-2017 and exploit for identification plausibly exogenous variation in manufacturing imports from China. We find that the so-called 'China shock' largely slows down the transformation of low- and middle-income economies out of agriculture. In our main specification industrialization decreases by 0.49 per cent on average for each additional per cent of manufacturing imports from China.
    Keywords: Developing countries, Industrialization, Structural transformation, Trade
    Date: 2023
  8. By: C\'elestin Coquid\'e; Jos\'e Lages; Dima L. Shepelyansky
    Abstract: During his state visit to China in April 2023, Brazilian President Lula proposed the creation of a trade currency supported by the BRICS countries. Using the United Nations Comtrade database, providing the frame of the world trade network associated to 194 UN countries during the decade 2010 - 2020, we study a mathematical model of influence battle of three currencies, namely, the US dollar, the euro, and such a hypothetical BRICS currency. In this model, a country trade preference for one of the three currencies is determined by a multiplicative factor based on trade flows between countries and their relative weights in the global international trade. The three currency seed groups are formed by 9 eurozone countries for the euro, 5 Anglo-Saxon countries for the US dollar and the 5 BRICS countries for the new proposed currency. The countries belonging to these 3 currency seed groups trade only with their own associated currency whereas the other countries choose their preferred trade currency as a function of the trade relations with their commercial partners. The trade currency preferences of countries are determined on the basis of a Monte Carlo modeling of Ising type interactions in magnetic spin systems commonly used to model opinion formation in social networks. We adapt here these models to the world trade network analysis. The results obtained from our mathematical modeling of the structure of the global trade network show that as early as 2012 about 58 percent of countries would have preferred to trade with the BRICS currency, 23 percent with the euro and 19 percent with the US dollar. Our results announce favorable prospects for a dominance of the BRICS currency in international trade, if only trade relations are taken into account, whereas political and other aspects are neglected.
    Date: 2023–04
  9. By: Matthias Raddant; Martin Bertau; Gerald Steiner
    Abstract: In this paper we present a new method to trace the flows of phosphate from the countries where it is mined to the counties where it is used in agricultural production. We achieve this by combining data on phosphate rock mining with data on fertilizer use and data on international trade of phosphate-related products. We show that by making certain adjustments to data on net exports we can derive the matrix of phosphate flows on the country level to a large degree and thus contribute to the accuracy of material flow analyses, a results that is important for improving environmental accounting, not only for phosphorus but for many other resources.
    Date: 2023–05
  10. By: Oulton, Nicholas
    Abstract: What effect, if any, do changes in the terms of trade have on the level of output (GDP) or welfare? I examine this issue through two versions of a textbook, Heckscher-Ohlin-Samuelson (HOS), two-good model of a small, open economy. In the first version both goods are for final consumption. In the second, one good is an imported intermediate input into the other. In both versions, economic theory suggests that an improvement in the terms of trade raises welfare (consumption) but leaves aggregate output (GDP) unchanged. I then show that a national income accountant applying the principles of the 2008 System of National Accounts (SNA) would reach the same conclusions. This follows from a continuous-time analysis using Divisia index numbers. However in the case where imports are intermediate inputs and competition is imperfect, an improvement in the terms of trade does raise GDP: the size of the effect depends on the size of the markup of price over marginal revenue. I argue that the continuous time Divisia approach is the right framework for national income accounting, even though it can only be implemented approximately in practice. If the aim is to find the best approximation to the Divisia index, then the chained Fisher index (as used in the US and Canadian national accounts) or the chained Törnqvist are better approximations than is the chained Laspeyres (as used in Europe).
    Keywords: Divisia; GDP; Heckscher-Ohlin-Samuelson; SNA; terms of trade; welfare; Wiley deal
    JEL: J1
    Date: 2023–04–20
  11. By: Kumarasamy, Durairaj (Manav Rachna International Institute of Research and Studies)
    Abstract: The changing dynamics of supply chains and their impact on shaping international relations in East Asia have become crucial issues for scholars and policymakers. Asia’s two major economies, India and South Korea, are reassessing their strategy on the changing dynamics of the supply chain. India is to redesign its developmental strategy to establish India-centric supply chains in key industries. India has stressed its endeavour to become a self-reliant economy by introducing a highly ambitious Production-Linked Incentive (PLI) scheme to attract FDI in strengthening and establishing the supply chain linkages in India, whereas South Korea has adopted a strategy to mitigate supply chain-related risk through greater emphasis on developing strong self-reliance and promoting economic diversification by enhancing its economic ties with India. In addition, the pandemic-induced supply chain disruptions further reinforced South Korea toward diversification and resilience of its supply chain. South Korea’s development experience and deep investment relations with India can explore the untapped potential of bilateral trade and investment linkages. To ensure supply chain resilience both India and South Korea focus on critical sectors such as semi-conductors, steels, secondary batteries and chemicals, along with new technology areas like AI, 6G, Digital Infrastructure and renewable energy for cooperation. In this regard, the study explores the trade and investment relationship between India and South Korea and identifies the potential sectors to engage in the sustainable value chain between them.
    Keywords: Strengthening Regional Value Chain; between India and South Korea
    Date: 2023–03–27
  12. By: Gianluca Benigno; Hunter L. Clark; William Cross-Bermingham; Ethan Nourbash
    Abstract: In a January 2022 post, we first presented the Global Supply Chain Pressure Index (GSCPI), a parsimonious global measure designed to capture supply chain disruptions using a range of indicators. The spirit of our index was to isolate supply factors, such as shutdowns in response to the pandemic, that put pressure on the global supply chain. In this post, we describe an auxiliary index, the Net GSCPI, which differs from the GSCPI by not filtering out demand factors. This “net” index is meant to capture global supply chain stress from both the supply and demand sides. Our analysis documents that the net index is currently below its historical average, unlike the original index, due to both the easing of supply constraints and a contraction in global demand.
    Keywords: global supply chain; imbalances; Global Supply Chain Pressure Index (GSCPI)
    JEL: E31 F0
    Date: 2023–02–21
  13. By: Maximiliano Dvorkin
    Abstract: I develop a dynamic model of migration and labor market choice with incomplete markets and uninsurable income risk to quantify the effects of international trade on workers’ employment reallocation, earnings, and wealth. Macroeconomic conditions in different labor markets and idiosyncratic shocks shape agents’ labor market choices, consumption, earnings, and asset accumulation over time. Despite the rich heterogeneity, the model is highly tractable as the optimal consumption, labor supply, capital accumulation, and migration and reallocation decisions of individual workers across different markets have closed-form expressions and can be aggregated. I study the asymmetric impact of international trade on the evolution of employment, earnings, and wealth, and decompose the frictions workers face to reallocate across U.S. sectors and regions into those with a transitory effect and those with long-lasting consequences.
    Keywords: international trade; migration; spatial equilibrium; dynamic Roy models; human capital; wealth; inequality
    JEL: E21 E24 F16 F66 J24 J61 R23
    Date: 2023–03–22
    Abstract: In recent years, the U.S.-China hegemony competition has intensified, dividing the world into two blocs. ASEAN has long culti-vated its position on the international stage by maintaining a certain distance between the United States and China. In that sense, ASEAN is the best partner for Korea to ef-fectively respond to the divided world. Therefore, this study seeks the directions of cooperation with ASEAN in supply chain, digital trade, climate change response, and health and development cooperation in line with changes in the international order.
    Keywords: ASEAN trade strategies; RoK-ASEAN cooperation
    Date: 2023–03–13
  15. By: Sergi Basco; Giulia Felice; Bruno Merlevede; Martí Mestieri
    Abstract: This paper empirically examines the effects of financial crises on the organization of production of multinational enterprises. We construct a panel of European multinational networks from 2003 through 2015. We use as a financial shock the increase in risk premia between August 2007 and July 2012 and build a multinational-specific shock based on the network structure before the shock. Multinationals facing a larger financial shock perform worse in terms of revenue, employment, and growth in the number of affiliates. Lower growth in the number of affiliates operates through a negative effect on domestic and foreign affiliates, and is concentrated in affiliates in a vertical relationship with the parent. These effects built up slowly over time. Negative effects are driven by multinationals with initially more leveraged parents, who reduce relatively more the number of foreign affiliates. These findings lend support to the hypothesis of financial frictions shaping multinational activity.
    JEL: F14 F23 F44 L22 L23
    Date: 2023–05
  16. By: Fanti, Lucrezia; Pereira, Marcelo C.; Virgillito, Maria Enrica
    Abstract: Drawing on the labour-augmented K+S agent-based model, this paper develops a two-country North-South ABM wherein the leader and the laggard country interact through the international trade of capital goods. The model aims to address sources of asymmetries and possible converge patterns between two advanced economies that are initially differentiated in terms of the education level they are able to provide. Education is modeled as a national-level policy differently targeting the three usual levels, that is primary, secondary and tertiary. After being educated and entering the labour force, workers face a segmented market, divided into three types of job qualification, and the resulting position levels inside firms, i.e., elementary, technical and professional occupations. The three resulting labour market segments are heterogeneous in terms of both requested education level and offered wages. To address the role of trade and education, we experiment with different education-policy and trade settings. Ultimately, we are interested in understanding the coupling effects of asymmetries in education, which reverberate in segmented labour markets and differentiated growth patterns. Notably, our focus on capital-goods trade, rather than consumption goods, allows us to assess a direct link between productive capabilities in producing complex products and country growth prospects.
    Keywords: Agent-Based Model, Education, International Trade, Technology Gap, Labour Market
    JEL: C63 J3 E24 O1
    Date: 2023
  17. By: Cho, Eun Kyo (Korea Institute for Industrial Economics and Trade)
    Abstract: The sharp confrontation between the US and China in high-tech industries continues. Securing and protecting the competitiveness of advanced technologies such as semiconductors and artificial intelligence (AI) are emerging as key issues in external economic security, and the US government continues to check technologies in China through various means. In addition, the US has recently strengthened direct technical sanctions on China, and these have taken the form of export controls and investment restrictions, and has sought to check China through technological cooperation with US allies, as well. These sanctions against China and tech alliances with allies are likely to lead to an anti-globalization “blocification” that severs and separates high-tech supply chains, technologies, market ecosystems, and standards into two separate, opposed camps. Korea, which is highly dependent on the external economy in the high-tech sector, needs to be able to respond to a situation in which supply chains, technologies, standards, markets, and ecosystems of the US and China reside in separate blocs for a considerable period of time to come. This study analyzes the emerging supply chain blocs of both the US and China, in terms of technologies and ecosystems, focusing on the semiconductor and AI. It identifies the implications for industry carried by the analysis, and describes prospects for future developments.
    Keywords: high-tech industries; high-tech competition; economic security; US-China conflict; semiconductors; artificial intelligence; trade conflict; technological cooperation; technological alliances; blocification; Korea
    JEL: F50 F51 F52 F59 F69 H56
    Date: 2023–04–27
  18. By: Saussay, Aurélien; Zugravu-Soilita, Natalia
    Abstract: Most analyses of the impact of heterogeneous environmental policy stringency on the location of industrial firms have considered the relocation of entire activities – the well-known pollution haven hypothesis. Yet international enterprises may decide to only offshore a subset of their production chain – the so-called pollution offshoring hypothesis (POH). We introduce a simple empirical approach to test the POH combining a comprehensive industrial mergers and acquisitions dataset, a measure of sectoral linkages based on input-output tables and an index score of environmental policy stringency. Our results confirm the impact of relative environmental policy stringency on firms’ decisions to engage in cross-country M&As. Our findings also indicate that environmental taxation have a stronger impact on international investment decisions than standards-based policies. Further, we find that transactions involving a target firm operating in a sector upstream of the acquirer are more sensitive to environmental policy stringency, especially when that sector is highly pollution-intensive. This empirical evidence is consistent with the pollution offshoring hypothesis.
    Keywords: FDI; pollution offshoring; global supply chain; firm location; environmental regulation; Centre for Climate Change Economics and Policy grant (ES/R009708/1);Climate SOLSTICE project JUST-DECARB (ES/V013971/1);PRINZ (ES/W010356/1); Leverhulme Early Career Fellowship (ECF/2021/536); Grantham Foundation for the Protection of the Environment; Elsevier deal
    JEL: D20 F23 Q28
    Date: 2023–02–23
  19. By: Olga Pindyuk (The Vienna Institute for International Economic Studies, wiiw); Roman Stöllinger (The Vienna Institute for International Economic Studies, wiiw); Zuzana Zavarská (The Vienna Institute for International Economic Studies, wiiw)
    Abstract: ​This issue of the wiiw Monthly Report replaces our earlier series of the wiiw FDI Report. FDI in Central, East and Southeast Europe Chart of the month Growing role of China as investor in CESEE by Olga Pindyuk Russia’s war in Ukraine causes a reversal of FDI trends by Olga Pindyuk Russia’s war in Ukraine interrupted the recovery of FDI in CESEE and has prompted significant shifts in the FDI structure. Russia has witnessed the large-scale divestment of foreign capital, and FDI inflows into EU-CEE have also suffered; meanwhile, in the second quarter the Western Balkans and Turkey recorded higher inflows on an annual basis. Some parts of the CESEE region may be able to benefit from accelerated green transition and the relocation of companies away from the war zone. No sign of functional upgrading in EU-CEE countries so far by Roman Stöllinger and Zuzana Zavarská The types of greenfield FDI projects that the EU countries of Central and Eastern Europe (EU-CEE) have been able to attract over the past two decades are consistently different from those in the Western EU member states. Greenfield FDI coming into EU-CEE is heavily skewed toward routine production activities; meanwhile FDI in the remaining activities involved in the production process homes in on other EU countries. This pattern of functional specialisation by EU-CEE is sub-optimal and requires a rethinking of FDI policy to enable functional diversification. Monthly and quarterly statistics for Central, East and Southeast Europe
    Keywords: greenfield investments; FDI inflows; FDI stocks, functional specialisation, fabrication activities, headquarter activities
    Date: 2022–11
  20. By: Erten, Bilge (Northeastern University); Keskin, Pinar (Wellesley College); Pinto, Rodrigo (University of California, Los Angeles); Xie, Huihua (Chinese University of Hong Kong); Zhu, Lianming (Osaka University)
    Abstract: We investigate how early life circumstances induced by trade liberalization affect adolescent mental health in China, exploiting variation in tariff uncertainty faced by prefecture economies pre-2001. Our model differs from the classic difference-indifferences design in that it considers a moderator variable determining the intensity with which the treatment affects the outcomes. Our findings show that children born in prefectures more exposed to an exogenous change in international trade policy experienced a significant decline in the incidence of severe depression during adolescence. We find that the estimated relationships are robust to controls for initial prefecture attributes and other policy changes. Improvements in parental income, early childhood investments, and care provision in formal early childhood education programs are likely operative channels of impact.
    Keywords: China, trade reform, mental health, early life investments
    JEL: F16 I15 J13 C21
    Date: 2023–04
  21. By: Chowdhury, Tahreen Tahrima; Dorosh, Paul A.; Islam, Rizwana; Pradesha, Angga
    Abstract: The spike in global commodity prices caused by the Russia-Ukraine war has had major adverse impacts on many developing countries, including Bangladesh, that still depend heavily on energy and food imports. Although the Bangladesh economy has rebounded after the COVID-19 pandemic, the latest global trade shock has threated to increase food insecurity and poverty. This study utilizes the Bangladesh RIAPA economywide model to assess the impact of increases in global commodity prices and explores potential policy interventions to reduce negative impacts. Simulation results show that increases in international commodity prices create a GDP loss of 0.36 percent and an increase of three million in the number of poor (mainly rural poor). Energy price shocks account for most of this decline in real GDP (0.28 percent). The fertilizer subsidy helps spur agriculture production which leads to an increase in crop GDP by 0.78 percent and total agricultural GDP by 0.43 percent. Changes in policy could help mitigate the effects of these price shocks. In particular, petroleum subsidies would help increase production in both agriculture and services, leading to a 0.3 percent increase in household consumption, considerably more than the gain under a targeted cash transfer policy of equal cost. However, given that the petroleum subsidy does not specifically target the poor, it only reduces poverty by a fraction of what a targeted cash transfer would. Moreover, as illustrated by the experiences of other countries, increases in a fuel subsidy, once introduced, are likely to be very difficult to reverse. This suggests that if the major policy goal is to reduce poverty, a direct cash transfer would be more effective than the other policy options considered here. Combining these policies, however, would be even more effective than any single intervention, reducing poverty incidence by around 2.5 million people, and thereby preventing nearly all of the potential increase in poverty resulting from global price shocks.
    Keywords: BANGLADESH; SOUTH ASIA; ASIA; commodities; prices; developing countries; economics; shocks; food insecurity; poverty; policy intervention; gross domestic product; agricultural production; household consumption; subsidies; fuels; cash transfers; general equilibrium model; Russia-Ukraine War; global price
    Date: 2023
  22. By: Viertola, Marika
    Abstract: This paper studies how Nordic multinational enterprises (MNEs) react to tax incentives generated by international corporate income tax rate differences and shift profit to low tax countries. A firm level panel data set containing ownership and accounting information is used to study profit shifting within the time period of 2012-2017. Applying a panel data adjusted Hines-Rice approach including firm and year fixed effects results in statistically significant tax semi-elasticity estimates between -0.7 to -1.3. The results are confirmed by several robustness checks as well as by applying the newest methods in two-way fixed effects literature. This suggests that MNEs with ultimate owners located in the Nordic countries seem to react to tax rate differences by shifting profit. Additionally, the MNEs within the euro area seem to engage more heavily in profit shifting.
    Keywords: multinational firms, profit shifting, international corporate taxation, tax avoidance, Business taxation and regulation, F23, H25, H26, fi=Verotus|sv=Beskattning|en=Taxation|,
    Date: 2023
  23. By: Mary Amiti; Sebastian Heise; Fatih Karahan; Ayşegül Şahin
    Abstract: U.S. inflation has recently surged, with inflation reaching its highest readings since the early 1980s. We examine the drivers of this rise in inflation, focusing on supply chain disruptions, labor supply constraints, and their interaction. Using a calibrated two-sector New Keynesian DSGE model with multiple factors of production, foreign competition, and endogenous markups, we find that supply chain disruptions combined with a rise in the disutility of work raised inflation by about 2 percentage points in the 2021-22 period. We show that the combined shock increased price inflation in the model by 0.6 percentage point more than it would have risen if the shocks had hit separately. This amplification arises because the joint shock to labor and imported input prices makes substituting between labor and intermediates less effective for domestic firms. Moreover, the simultaneous foreign competition shock allows domestic producers to increase their pass-through into prices without losing market share. We then show that the benefit of aggressive monetary policy in the model depends on the source of the rise in inflation. If the rise in inflation is demand-driven, then aggressive monetary tightening can contain inflation without a recession later. In contrast, aggressive policy can have a large negative effect on the labor market when inflation is driven by supply chain and labor market disruptions. We use aggregate and industry-level data on producer prices, wages, and input prices to provide corroborating evidence for the key amplification channels in the model.
    JEL: E24 E31
    Date: 2023–05
  24. By: Rinaldi, Riccardo; Arrighetti, Alessandro; Lasagni, Andrea; Canello, Jacopo
    Abstract: The aim of this paper is to use a multi-country approach to assess the role played by individual characteristics and local labor market conditions in influencing migrants’ self-employment decisions. The empirical investigation exploits data from the EU Labor Force Survey for the 2005-2016 period and focuses on two countries (Italy and the UK) characterized by significantly different labor market dynamics. Our findings suggest that the impact of individual characteristics is similar across countries, whereas the role of the local economic environment changes significantly, resulting in different migrant entrepreneurship patterns. These findings appear to be consistent with the most recent strand of literature, suggesting that while individual characteristics of self-employed migrants are similar across countries, national and regional differences play a key role in determining migrants’ entrepreneurial propensity.
    Keywords: migrant, entrepreneurship, regional economics
    Date: 2023
  25. By: Jose De Gregorio; Pablo Garcia; Emiliano Luttini; Marco Rojas
    Abstract: We revisit a central question for international macroeconomics: The response of export prices and quantities to movements in the exchange rate (ER). We use a comprehensive dataset for Chile and study how the effects vary over time with the currency of invoicing and the destination of exports. For prices, we find that the short-run effects of bilateral ER movements vanish when we control for U.S. dollar ER, which supports the dominant currency paradigm. The longer the horizon, the larger the role is played by bilateral ER movements, which lends support to producer currency pricing. The dynamics do not depend on the invoicing currency. We find consistent results for quantities, supporting the view that bilateral exchange rate movements contribute to macroeconomic adjustment through exports. We also find that U.S. dollar fluctuations, holding bilateral exchange rates constant, show results suggestive of relevant supply and demand effects.
    Date: 2023–01
  26. By: Ozge Akinci; Gianluca Benigno; Hunter L. Clark; William Cross-Bermingham; Ethan Nourbash
    Abstract: Inflationary pressures—their determinants and evolution—continue to dominate policy discussions. In this post, we provide a simple framework to analyze the determinants of different measures of inflation and use it to lay out a risk-scenario analysis. We find that global supply factors captured by the New York Fed’s Global Supply Chain Pressure Index (GSCPI) are strongly associated with inflationary developments measured by the producer price index (PPI) and by the c0nsumer price index (CPI). Under the assumption that the GSCPI falls back to its historical average over twelve months, our model would project a substantial easing of consumer price inflation over 2023 to below 4.0 percent. The normalization of the GSCPI would then be consistent with a return of inflation to levels consistent with a soft-landing scenario.
    Keywords: inflation; Global Supply Chain Pressure Index (GSCPI); oil price
    JEL: E31 E52 F0
    Date: 2023–02–22

This nep-int issue is ©2023 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.