nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2020‒05‒25
six papers chosen by
Martin Berka
Massey University

  1. World Productivity: 1996 - 2014 By Mehrdad Esfahani; John G. Fernald; Bart Hobijn
  2. International Equity and Debt Flows: Composition, Crisis, and Controls By Chang Ma; Shang-Jin Wei
  3. Fiscal expenditure spillovers in the euro area: An empirical and model-based assessment By Mario Alloza; Marien Ferdinandusse; Pascal Jacquinot; Katja Schmidt
  4. Global and domestic financial cycles: variations on a theme By Iñaki Aldasoro; Stefan Avdjiev; Claudio Borio; Piti Disyatat
  5. Trade, Productivity and (Mis)allocation By Antoine Berthou; John Jong-Hyun Chung; Kalina Manova; Charlotte Sandoz-Dit-Bragard
  6. The Dynamics of Outsourcing: From Labor Cost-Saving to Preference-Based Outsourcing By Wan-Jung Cheng; Raymond G. Riezman; Ping Wang

  1. By: Mehrdad Esfahani; John G. Fernald; Bart Hobijn
    Abstract: We account for the sources of world productivity growth, using data for more than 36 industries and 40 major economies from 1996 to 2014, explicitly taking into account changes in the misallocation of resources in labor, capital, and product markets. Productivity growth in advanced economies slowed but emerging markets grew more quickly which kept global productivity growth relatively constant until around 2010. After that, productivity growth in all major regions slowed. Much of the volatility in world productivity growth reflects shifts in the misallocation of labor across countries and industries. Using new data on PPP-based value-added measures by country and industry, we show that about a third of these shifts is due to employment growing in countries, most notably China and India, that benefit from an international cost advantage. Markups are large and rising and impact the imputed misallocation of capital. However, they have little effect on the country-industry technology contribution to global productivity.
    Keywords: Growth accounting; misallocation; productivity; purchasing power parity; world economy
    JEL: F43 O47 O50
    Date: 2020–03–13
  2. By: Chang Ma; Shang-Jin Wei
    Abstract: We propose a theory of endogenous composition of capital flows that highlights two asymmetries between international equity and debt financing. In our model, poor institutional quality leads to an inefficiently low share of equity financing as well as an inefficiently high volume of total inflows. The required optimal capital controls naturally become looser as a country's institutional quality improves. Our story differs in important ways from an alternative narrative focusing on collateral constraint.
    JEL: F3
    Date: 2020–05
  3. By: Mario Alloza (Banco de España); Marien Ferdinandusse (European Central Bank); Pascal Jacquinot (European Central Bank); Katja Schmidt (Banque de France)
    Abstract: The paper describes the main transmission channels of the spillovers of national fiscal policies to other countries within the euro area and investigates their magnitude using different models. In the context of Economic and Monetary Union (EMU), fiscal spillovers are relevant for the accurate assessment of the cyclical outlook in euro area countries, as well as in the debates on a coordinated change in the euro area fiscal stance and on a euro area fiscal capacity. The paper focuses on spillovers from expenditure-based expansions by presenting two complementary exercises. The first is an empirical investigation of spillovers based on a new, long quarterly dataset for the largest euro area countries and on new estimates based on annual data for a panel of 11 euro area countries. The second uses a multi-country general equilibrium model with a rich fiscal specification and the capacity to analyse trade spillovers. Fiscal spillovers are found to be heterogeneous but generally positive among euro area countries. The reaction of interest rates to fiscal expansions is an important determinant of the magnitude of spillovers.
    Keywords: fiscal spillovers, fiscal policy, monetary policy, VAR, DSGE
    JEL: F42 F45 H50 E62 E63
    Date: 2020–05
  4. By: Iñaki Aldasoro; Stefan Avdjiev; Claudio Borio; Piti Disyatat
    Abstract: We compare and contrast two prominent notions of financial cycles: a domestic variant, which focuses on how financial conditions within individual economies lead to boom-bust cycles there; and a global variant, which highlights how global financial conditions affect individual economies. The two notions share a common analytical basis - the "procyclicality" of the financial system. Yet a number of distinguishing features stand out. These include differences in: (i) the underlying components - financial asset prices and capital flows for the global financial cycle (GFCy) versus credit and property prices for the domestic financial cycle (DFC); (ii) their empirical properties - the GFCy has a shorter duration and is primarily linked with traditional business cycles, while the DFC has a longer duration and is predominantly linked with medium-term business cycles; and (iii) the policy focus - "dilemma versus trilemma" for the GFCy, "lean versus clean" for the DFC. Despite these differences, the two cycles tend to come together around crises. Finally, we show that traditional GFCy measures mainly reflect developments in advanced economies and that a simple alternative measure is much more relevant for emerging market economies.
    Keywords: global financial cycle, financial cycle, business cycle, capital flows
    JEL: F30 F40 E32 E50
    Date: 2020–05
  5. By: Antoine Berthou; John Jong-Hyun Chung; Kalina Manova; Charlotte Sandoz-Dit-Bragard
    Abstract: We examine the gains from globalization in the presence of firm heterogeneity and potential resource misallocation. We show theoretically that without distortions, bilateral and export liberalizations increase aggregate welfare and productivity, while import liberalization has ambiguous effects. Resource misallocation can either amplify, dampen or reverse the gains from trade. Using model-consistent measures and unique new data on 14 European countries and 20 industries in 1998-2011, we empirically establish that exogenous shocks to export demand and import competition both generate large aggregate productivity gains. Guided by theory, we provide evidence consistent with these effects operating through reallocations across firms in the presence of distortions. (i) Both export and import expansion increase average firm productivity, but the former also shifts activity towards more productive firms, while the latter acts in reverse. (ii) Both export and import exposure raise the productivity threshold for survival, but this cut-off is not a sufficient statistic for aggregate productivity. (iii) Efficient institutions, factor and product markets amplify the gains from import competition but dampen those from export access.
    Keywords: : International Trade, Productivity, Allocative Efficiency.
    JEL: F10 F14 F43
    Date: 2020
  6. By: Wan-Jung Cheng; Raymond G. Riezman; Ping Wang
    Abstract: Ronald W. Jones (2000) celebrated book has inspired a generation of work that has been devoted to understanding the causes and consequences of outsourcing. While much of this work has focused on the outsourcing versus domestic production decision of the firm with labor cost-saving as the key driver for outsourcing, we further explore how preference-based outsourcing may arise in a dynamic world equilibrium. We address this problem in a North-South model in which the outsourcing decision depends not only on labor costs but also on information about local preferences that arise with outsourcing. As the South develops, demand for manufactured goods becomes more important, so identifying specific tastes of South consumers matters more. As a result, preference-based outsourcing displaces cost-saving outsourcing. Our quantitative analysis indicates that, as both agricultural and manufacturing technologies grow over time, the dynamic world equilibrium switches from the export regime to the cost-saving outsourcing regime, and eventually to the preference-based outsourcing regime.
    Keywords: dynamic outsourcing, learning and taste-matching, organizational choice
    JEL: F21 F23 F43 O19
    Date: 2020

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