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World Economy

Impact factor: 0.872 5-Year impact factor: 1.244 Print ISSN: 0378-5920 Online ISSN: 1467-9701 Publisher: Wiley Blackwell (Blackwell Publishing)

Subjects: Business, Finance, Economics, International Relations

Most recent papers:

  • Do WTO+ commitments in services trade agreements reflect a quest for optimal regulatory convergence? Evidence from Asia.
    Anirudh Shingal, Martin Roy, Pierre Sauvé.
    World Economy. October 18, 2017
    Literature examining WTO+ commitments in services trade agreements (STAs) has not considered the role of services regulation. We bridge this gap using a sample of 15 South/South‐East Asian countries, given the burgeoning trend of Asian economies towards services preferentialism and the largely WTO+ nature of their preferential services commitments. Our empirical findings suggest that Asian trading dyads with regulatory frameworks that are more similar and more trade restrictive tend to undertake higher levels of WTO+ commitments in their STAs. There is also evidence in our results, including by modes of supply, for WTO+ commitments in Asian STAs being driven by goods trade complementarities, alluding to supply chain dynamics in the region. Such results support the hypothesis that the heightened “servicification” of production generates a demand to lower services input costs arising from regulatory incidence and heterogeneity.
    October 18, 2017   doi: 10.1111/twec.12574   open full text
  • Does US quantitative easing affect exchange rate pass‐through in China?
    Puyang Sun, Xinyu Hou, Jingjia Zhang.
    World Economy. October 17, 2017
    In this paper, we show theoretically and empirically that the US quantitative easing (QE) policy results in lower exchange rate pass‐through into the destination prices of Chinese exporters. In addition, the more the exchange rate in the export destination appreciates than the Chinese yuan, the stronger this effect becomes. Our model combines various marginal effects of QE policy on the destinations of Chinese exporters and variable markups of export firms due to strategic complementarities. The model predicts that the impact of US QE policy on the pass‐through of Chinese exporters depends on its spillover on the exchange rate between China and the export destination of different firms. We provide strong support for the model predictions using Chinese firm‐product‐level data with information on export destinations. The baseline result and the heterogeneity we find in the response of exchange rate pass‐through of Chinese exporters to US QE policy remain robust to alternative measures of samples and controls.
    October 17, 2017   doi: 10.1111/twec.12576   open full text
  • Sourcing patterns of export‐platform foreign affiliates: The case of Japanese affiliates in Mexico.
    Keisuke Kondo.
    World Economy. October 13, 2017
    This study investigates the sourcing patterns of Japanese export‐platform foreign affiliates in Mexico, which mainly export to the United States and Canada. We propose a novel approach to estimate intermediate input elasticities of exports by sourcing country. We find that, on average, Japanese export‐platform foreign affiliates in Mexico source intermediate inputs from third countries, including the United States and Canada, rather than from Japan and Mexico, suggesting that Japanese export‐platform foreign affiliates in Mexico are mainly integrated into the vertical production networks back and forth between Mexico, the United States and Canada. In turn, Japanese foreign affiliates selling domestically in Mexico source intermediate inputs not only within the North American Free Trade Agreement countries but also from Japan. In addition, we find that export‐platform foreign affiliates in Mexico use more labour‐intensive production than do foreign affiliates selling domestically in Mexico. This suggests that saving labour costs is one of the motives for export‐platform foreign direct investment in Mexico.
    October 13, 2017   doi: 10.1111/twec.12579   open full text
  • The economic impact of the Trans‐Pacific Partnership: What have we learned from CGE simulation?
    John Gilbert, Taiji Furusawa, Robert Scollay.
    World Economy. October 10, 2017
    The Trans‐Pacific Partnership (TPP) trade agreement, if were it to be successfully implemented, would be one of the largest regional agreements ever seen. It is the only exemplar to date of a “mega‐regional” FTA for which negotiations have been successfully concluded, and a landmark in evolving approaches to Asia–Pacific integration. As such, quantitative assessments of its potential effects are of considerable interest. One of the most widely used techniques for evaluating the economic impact of regional trading agreements is numerical simulation with computable general equilibrium, or CGE, models. There have now been a large number of papers written that use CGE methods to analyse the potential economic impact of the TPP agreement under varying theoretical and policy assumptions. In this paper we provide a synthesis of the key results that have emerged from the literature, and introduce some new simulation results of our own to anchor the discussion.
    October 10, 2017   doi: 10.1111/twec.12573   open full text
  • China's exports, export tax rebates and exchange rate policy.
    Zhenhui Xu.
    World Economy. October 05, 2017
    This paper examines the relationship between China's exports, export tax rebates and exchange rate policy. It offers an explanation for why China's exports continued to rise under RMB real appreciations during the Asian financial crisis. Based on a traditional export demand model, we test our hypothesis that the counteracting effects of China's export tax rebate policy have diminished the effectiveness of real exchange rates in facilitating the resolution of trade imbalances under the current pegged exchange rate regime. We find evidence that RMB real appreciations during the crisis negatively affected China's exports, but the negative effects were mitigated by the positive effects of export tax rebates. We also find evidence of a long‐run relationship between China's exports and the other explanatory variables. The empirical evidence suggests that under the pegged exchange rate regime with limited adjustments, real exchange rate movements alone cannot resolve China's external imbalances. The policy implication of this study is that China needs to redirect its decades‐long export‐oriented development strategy to one that emphasises domestic demand‐oriented development and to replace the current pegged exchange rate regime with a market‐oriented more flexible exchange rate regime.
    October 05, 2017   doi: 10.1111/twec.12570   open full text
  • In search of spatial interdependence of US outbound FDI in the MENA region.
    Anjum Siddiqui, Asim Iqbal.
    World Economy. October 05, 2017
    The paper investigates the spatial interdependence of US MNE investments in the MENA region. Given the variations in resource endowments, governance structures and degree of infrastructure availability in MENA countries, one would expect these variables to affect an MNE's choice of FDI location. We do find that domestic non‐spatial factors such as own country inflation and governance measured by bureaucratic quality as well as infrastructure affect a host country's inward FDI. We also found that only one measure of natural resource endowment; that is, oil and gas exports were instrumental in attracting FDI. This non‐spatial result is generally robust and invariant to the two methodologies employed in this study, that is the spatially autoregressive (SAR) model and the spatial Durbin model (SDM). We found that neighbouring countries’ infrastructure availability measured either by “electricity used” or “energy used” affected FDI inflows in a host country. However, this spatial impact was found only in the SDM model. The spatial effects of neighbouring countries’ economic and political conditions and resource endowments were, however, not observed on a host country's inward FDI. The insignificance of both the surrounding market potential and the spatially weighted FDI suggests a purely horizontal motive of MNE investments in the MENA region.
    October 05, 2017   doi: 10.1111/twec.12571   open full text
  • Factor allocation, economic growth and unbalanced regional development in China.
    Guanchun Liu, Yuanyuan Liu, Chengsi Zhang.
    World Economy. September 29, 2017
    On the basis of development accounting techniques and a factor misallocation framework, we use panel data of 30 Chinese provinces from 2000 to 2013 to assess how factor allocation affects economic growth and unbalanced regional development in China. In particular, we decompose economic growth into three parts, namely sector productivity (SP), factor market efficiency (FME) and factor endowment (FE). We then conduct counterfactual analyses to investigate the short and long‐run roles of factor allocation in the income distribution across provinces. The results show that SP, FME and FE can explain 23%, 8.5% and 68.5% of economic growth, while labour, capital and energy reallocation account for aggregate productivity growth of about 47%, −4.8% and −0.1%. Furthermore, when the factors are efficiently allocated, transferring labour (capital, energy) from agriculture (service, industry) to the other sectors will increase the income per capita by 29.5% and 42.5% in the short and long term. Meanwhile, efficient factor allocation accounts for 32% and 29.7% of aggregate productivity and reduces the income variation across provinces by 25.5% and 23% in the short and long run, respectively.
    September 29, 2017   doi: 10.1111/twec.12572   open full text
  • Trade Policy Review for China: The world's top exporter with “new normal” economic growth.
    Xufei Zhang.
    World Economy. September 25, 2017
    This paper has evaluated the WTO trade policy review, and added more information and recent data to examine more closely China's economy and trade. Major trade policies during 2014–16 were summarised as the Belt and Road Initiative, policies facilitating trade and new adjustments to support and promote cross‐border e‐commence. After evaluating data on China's trade and economic performance, it discussed three challenges the Chinese government needs to deal with in the near future.
    September 25, 2017   doi: 10.1111/twec.12569   open full text
  • China's economic growth and convergence.
    Jong‐Wha Lee.
    World Economy. September 17, 2017
    Using cross‐country panel data, this study identifies and discusses major factors contributing to China's strong growth in the past four decades. China's low initial per capita income relative to its own long‐run potential, combined with sound policy factors including a high investment rate, strong human capital, high trade openness and improved institutions, enabled the economy to converge with advanced economies in terms of income level. The shift‐share analysis with industry‐level data shows that strong labour productivity growth in the manufacturing sector largely contributed to China's overall labour productivity growth. Although labour reallocation from agriculture to the services sector made a positive contribution to aggregate labour productivity growth, labour productivity growth in the services sector itself was negative over the 1980–2010 period. China's average potential GDP growth is predicted to decline significantly in the coming decade, to 5%–6% and fall further to 3%–4%—due to the convergence effect and structural problems—unless China substantially upgrades its institutions and policy factors and improves productivity, particularly in its services sector.
    September 17, 2017   doi: 10.1111/twec.12554   open full text
  • Transparency in non‐tariff measures: An international comparison.
    Lili Yan Ing, Olivier Cadot, Janine Walz.
    World Economy. September 17, 2017
    We construct an index of non‐tariff measures (NTM) transparency based on notifications to the WTO under the sanitary and phytosanitary and technical barriers to trade agreements, the existence of a trade portal giving ready access to trade‐relevant regulations, the existence of NTM data collected under the MAST classification, and the results of an experiment conducted between 2015 and 2016 where we asked for specific regulations concerning the import of a particular product on behalf of a private company. The resulting country ranking shows that OECD countries are, by and large, the most transparent, but also shows that ASEAN countries score well compared to other developing countries.
    September 17, 2017   doi: 10.1111/twec.12552   open full text
  • Korea's growth‐driven trade policies: Inclusive or exclusive?
    Moonsung Kang, Innwon Park, Dong‐Eun Rhee.
    World Economy. September 14, 2017
    We attempted to find whether the Korea's growth‐driven trade policies during the period of its industrialisation has contributed to output growth together with income distribution by qualitatively analysing the performance of trade policies interacting with the multilateral trading system over time. In addition, we conducted a regression analysis to investigate the effect of Korea's trade growth on inclusive growth during its industrialisation period covering the period of 1976–2011. We found that the recent reform policies reported in the WTO's Trade policy review for Korea in 2016 have attempted to achieve more balanced distribution of gains from trade but not enough to lead the Korean economy to a well‐balanced welfare state. More specifically, we found the positive effects of international trade on inclusive growth driven by strong output growth effect, not by the effect on income distribution. Even though income distribution measured by Gini indices has been worsened after the East Asian financial crisis, we could not find significant evidence that Korea's rapid international trade growth has been responsible for the deteriorating income inequality.
    September 14, 2017   doi: 10.1111/twec.12556   open full text
  • Aid, trade and migration: How do bilateral flows interact?
    Audrey Menard, Aurore Gary.
    World Economy. September 13, 2017
    This paper takes as its point of departure the European Commission's position, set out in 2005, which laid clear emphasis on aid and trade as tools for controlling immigration. We attempt to subject this position to empirical investigation. We exploit data on bilateral aid, trade and migration flows between developed and developing countries, for the period 2000–10, adopting an instrumental variable approach to address the endogeneity issue due to potential simultaneity bias. Our results establish that increasing aid and trade with developing countries is likely to fail to contain immigration, at least in the short run. The pattern of results is consistent with the hypothesis that promoting development in migrant‐sending countries, or cooperating with such countries to control migration outflows, is not sufficient to lessen immigration. Increasing visa restrictions and controls at borders is generally controversial; still, the results imply that policymakers cannot attain their short‐term immigration goals with the so‐called smart solutions of aid and trade.
    September 13, 2017   doi: 10.1111/twec.12550   open full text
  • Trade policies for a small open economy: The case of Singapore.
    Xiaoping Chen, Yuchen Shao.
    World Economy. September 11, 2017
    This paper discusses the trade policies and practices of Singapore based on the latest WTO trade policy review. Though Singapore's trade policies have been effective and contributing to its remarkable economic performance, it also faces problems and new challenges in the modern globalisation era. Reviewing Singapore's policies also provides guidance for other small open economies.
    September 11, 2017   doi: 10.1111/twec.12555   open full text
  • Population ageing and inequality: Evidence from China.
    Xudong Chen, Bihong Huang, Shaoshuai Li.
    World Economy. September 10, 2017
    Population ageing has significant economic and social costs, and this paper studies its impacts on inequality, both theoretically and empirically. First, we build a two‐period overlapping generation model with uncertain lifetime and find that population ageing has the overall effect of increasing income and consumption inequality within the society. For empirical analysis, we use household data from China Health and Nutrition Survey to assess the age effect on income and consumption inequality in China, and confirm the results predicted by the theoretical model.
    September 10, 2017   doi: 10.1111/twec.12551   open full text
  • Was it different the second time? An empirical analysis of contagion during the crises in Greece 2009–15.
    Graham Bird, Wenti Du, Eric Pentecost, Thomas Willett.
    World Economy. September 10, 2017
    Over the period between end‐2009 and end‐2015, Greece experienced two discernible financial crises. This paper undertakes a correlation analysis of risk premia to investigate the nature and extent of contagion from these crises to other selected Eurozone countries. A commonly expressed view is that the effects of the second crisis were more muted since the systemic risks were seen by markets as being lower. However, using a rolling correlation model, a Dynamic Conditional Correlation GARCH (DCC‐GARCH) model and a t‐copula model we find that this is not the case. Broadly speaking, the contagion effects of the second crisis were at least as large as those associated with the first one.
    September 10, 2017   doi: 10.1111/twec.12553   open full text
  • Does globalisation affect the shadow economy?
    Aziz N. Berdiev, James W. Saunoris.
    World Economy. September 06, 2017
    We investigate the impact of globalisation on the shadow economy using panel data for 119 countries. Our evidence suggests that globalisation matters in mitigating shadow development. More specifically, we find that political globalisation reduces the shadow economy, whereas economic and social globalisations have limited statistical support after controlling for important factors that affect the size of the shadow economy. Overall, these results are robust after accounting for an alternative measure of the shadow economy, outliers, endogeneity and alternative model specifications.
    September 06, 2017   doi: 10.1111/twec.12549   open full text
  • Foreign ownership and the export and import propensities of developing‐country firms.
    Dominik Boddin, Horst Raff, Natalia Trofimenko.
    World Economy. September 05, 2017
    This paper uses micro‐data from the World Bank Enterprise Surveys 2002–06 to investigate how foreign ownership affects the likelihood of manufacturers in developing countries to export and/or import either directly or indirectly. Applying propensity score matching to control for differences across firms in terms of labour productivity and other characteristics, we find that foreign ownership raises the propensity of a firm to export by over 17 and the propensity to import by more than 13 percentage points. The effects are even bigger for countries with the lowest per capita income and institutional quality.
    September 05, 2017   doi: 10.1111/twec.12547   open full text
  • Global value chain perspective of US–China trade and employment.
    Guijun Lin, Fei Wang, Jiansuo Pei.
    World Economy. September 03, 2017
    Employment impact of trade is an issue of long debate. Recent literature seems to focus on partial equilibrium analysis of the jobs destruction in the US due to import competition from low‐cost countries, particularly from China. However, as noted in World Investment Report 2011 (WIR, 2012), indirect employment generated by trade can be substantial, in addition to jobs directly generated by trade, to which end a general equilibrium model is more relevant. Just as in a relay game, it makes little sense to award or punish only the last runner. In this paper, a global value chain approach is adopted to examine the effects of the US–China trade on employment. By using a recently constructed world input–output data, it is made possible to account for jobs created along the value chain process. It is found that China's exports to the US and to the world had created more job opportunities for its trade partners than any other countries in the world. Further, China's exports to the US and to the world tended to generate more employment opportunities for the US services sector, while US exports created more manufacturing jobs for the Chinese workers. Finally, in both countries’ exports the typical value chain products such as electrical and optical equipment were the most effective creators of jobs for both countries. In line with recent work of global value chains, our work sheds light on the employment effects of interconnected trade and provides an alternative interpretation for the impact of the US–China trade on employment.
    September 03, 2017   doi: 10.1111/twec.12545   open full text
  • An empirical analysis of the Renminbi: Exchange rates and cross‐border trade settlement.
    Weidong Huo, Fuhua Deng, Jiandong Chen.
    World Economy. August 29, 2017
    We introduce a gravity model to the currency choice for cross‐border trade settlement and the Heckman selection model to estimate the impact of the exchange rate on the cross‐border trade settlement of the Renminbi (RMB). We analyse bilateral exchange rates using panel data of China and 182 RMB settlement countries, or areas, from 2009 to 2014. We find that, regardless the choice stage or scale stage of RMB cross‐border trade settlement, the appreciation of the RMB does not necessarily promote RMB cross‐border trade settlement. This result holds when we take geographic differences into account and split the settlement of cross‐border trade into merchandise and service trade. We further investigate the channels through which exchange rate influences the cross‐border trade settlement of RMB, and we find that the appreciation of RMB impedes enterprises from choosing RMB as their settlement currency by reducing the scale of export to RMB settlement areas, whereas it speeds up RMB cross‐border trade settlement by increasing the scale of China's import from RMB settlement areas. We find that China's economic strength supports the development of RMB cross‐border trade settlement. However, the geographical distance between China and the RMB settlement areas may inhibit cross‐border trade settlement in RMB.
    August 29, 2017   doi: 10.1111/twec.12548   open full text
  • Country size and trade in intermediate and final goods.
    Kwok Tong Soo.
    World Economy. August 18, 2017
    This paper documents a negative relationship between country size and the share of final consumption goods in total exports. A model is developed, based on the division of labour and comparative advantage, to explain this relationship. Labour is used to produce traded intermediate inputs which are used in the production of traded final goods. Large countries gain relatively more from comparative advantage than from the division of labour, while the opposite is true for small countries. As in the data, large countries export a smaller share of final goods and a larger share of intermediate goods than small countries. It is shown that the model developed in the paper yields the same results as a model based on monopolistic competition.
    August 18, 2017   doi: 10.1111/twec.12538   open full text
  • The downside of globalisation: Why it matters and what can be done about it.
    Sir Paul Collier.
    World Economy. August 18, 2017
    Globalisation is currently facing populist opposition that may result in a costly increase in protectionism. However, these pressures arise because the adverse effects of globalisation have been ignored. Some of these effects follow directly from elementary economic theory yet have been dismissed by cavalier misunderstandings of welfare economics. An increase in international trade has the potential to make everyone better off, but if those who gain do not actually compensate those who lose, the mere fact that they could do so is not a basis for concluding that the change has enhanced welfare. Other adverse effects can only be understood from recent advances. The link between social interaction and generosity implies that there can be costs to greater trans‐national social connectivity. The interaction of trade with spatial agglomeration can produce powerful transfers, requiring new compensation mechanisms for those who lose. Economists would critique populist misunderstandings more effectively if they also addressed these genuine grievances.
    August 18, 2017   doi: 10.1111/twec.12543   open full text
  • The impact of intergenerational transfers on wealth inequality in Japan and the United States.
    Yoko Niimi, Charles Yuji Horioka.
    World Economy. August 16, 2017
    Our paper sheds light on the implications of intergenerational transfers for wealth inequality by examining whether or not individuals who receive intergenerational transfers from their parents are more likely to leave bequests to their children than those who do not using microdata for Japan and the United States. The estimation results show that the receipt of intergenerational transfers from parents and/or parents‐in‐law increases the likelihood of individuals leaving bequests to their children in both Japan and the United States, which in turn is likely to contribute to the persistence or widening of wealth disparities. However, such a tendency is found to be stronger among less better‐off households in both countries, and this may help alleviate the disequalising effect of intergenerational transfers on the distribution of wealth, at least to some extent.
    August 16, 2017   doi: 10.1111/twec.12544   open full text
  • Intellectual returnees as drivers of indigenous innovation: Evidence from the Chinese photovoltaic industry.
    Siping Luo, Mary E. Lovely, David Popp.
    World Economy. August 14, 2017
    We offer new evidence on indigenous innovation and intellectual returnees by estimating the relationship between patenting activity by Chinese photovoltaic firms and the presence of corporate leaders with international experience. Our research approach combines data from three sources: the industrial census, international and domestic patent records, and leadership biographical information. Using non‐linear methods, we find robust evidence that returnees positively influence patenting activity and promote neighbouring firm innovation. Our analysis suggests that market liberalisation and industry policy influence patent application counts. Controlling for R&D expenditures, we find that firms with returnees in leadership roles do more patenting.
    August 14, 2017   doi: 10.1111/twec.12536   open full text
  • Does the US EXIM Bank really promote US exports?
    Natasha Agarwal, Zheng Wang.
    World Economy. August 14, 2017
    This paper investigates the impact of US Export‐Import Bank (EXIM) on US exports particularly in the wake of international competition from foreign national export credit agencies (ECAs). We employ a gravity framework on a country‐industry‐year‐level panel data set that matches EXIM authorisations with US bilateral exports. Our results depict the general ineffectiveness of the Bank in promoting exports within and across industries. Some heterogeneities behind the general finding are also uncovered: industries other than aerospace parts and products are more likely to benefit from EXIM authorisations, and EXIM authorisations to larger businesses seem to be more effective in encouraging exports. Furthermore, we find no evidence that EXIM encourages US exports by offsetting foreign ECA competition. These results are neither affected by competing countries’ membership to the OECD Arrangement nor by the size of American firms that received EXIM support. Our results cast doubt on the ubiquitously positive claims made by the Bank and its supporters, yet also provide policy lessons for countries that are either in the inception stages of establishing their own ECAs or are now placing greater importance on ECA financing in encouraging exports.
    August 14, 2017   doi: 10.1111/twec.12537   open full text
  • Robustness of the KOF index of economic globalisation.
    Giray Gozgor.
    World Economy. August 09, 2017
    The KOF indices of globalisation are the most used globalisation measures in international economics literature, but it uses the nominal trade openness measure to construct the globalisation index. In this paper, we use real trade openness instead of nominal trade openness and recalculate the KOF economic globalisation index over the period 1970–2013. Using the panel data regressions for 146 countries, we revisit the economic globalisation–economic growth nexus to investigate the robustness of the KOF economic globalisation index. We consider several possibilities in model specifications, and the results show that using nominal trade openness measure in calculating the KOF globalisation index is statistically robust. In addition, the KOF economic globalisation index in logarithmic form introduces a more robust outlook in the panel data regressions—a lower bias is emerged by considering different trade openness measures to calculate the globalisation level.
    August 09, 2017   doi: 10.1111/twec.12546   open full text
  • Heterogeneous firms, financial constraints and export behaviour: A firm‐level investigation for China.
    Xiaobing Huang, Xiaolian Liu, Holger Görg.
    World Economy. August 09, 2017
    We study the impact of access to finance on exports using Chinese firm‐level data. We distinguish two modes of external finance, namely bank loans and issuing stocks to shareholders. We not only consider the impact either of these has individually on export behaviour, but also their interaction. We build the two external sources, as well as internal finance, into a heterogeneous firm‐type model, which allows us to investigate the relationship between financial constraints and firms’ exports. We examine the model's predictions empirically using a comprehensive longitudinal firm‐level data set from China. Our empirical results are consistent with the theoretical predictions. Firms who have more interest expenditure or can issue stocks to their shareholders have higher propensity to export and export more. Moreover, the more financial options a firm has, the better a firm performs in terms of export volume and export propensity.
    August 09, 2017   doi: 10.1111/twec.12540   open full text
  • The exchange rate susceptibility of European core industries, 1995–2010.
    David Leuwer, Bernd Süssmuth.
    World Economy. August 04, 2017
    This study investigates reactions to real exchange rate changes in the German, French and UK automobile and mechanical engineering sectors using monthly data from 1995 to 2010. Our findings indicate that EUR/US$ appreciations hamper exports, but do not necessarily imply an aggravated business climate or export order‐book assessment. This does not apply to the GBP/US$ and corresponding time series for the UK. First and foremost, our fixed coefficient and time‐varying parameter VAR model estimates confirm the extraordinary role of the German key sectors, while currency union membership seems to play a minor role at best. Overall, the exchange rate susceptibility is less profound than claimed by lobbies and held as popular belief.
    August 04, 2017   doi: 10.1111/twec.12541   open full text
  • The impact of the yuan‐dollar exchange rate on Mexican manufacturing exports to the US: A cointegration approach.
    Víctor Cuevas.
    World Economy. August 02, 2017
    This paper makes use of three econometric methods and three time intervals to evaluate the long‐term effects of several key variables on Mexican manufacturing exports to the US. The evidence across econometric techniques and sample periods systematically indicates that: (i) a real depreciation of the yuan‐dollar exchange rate reduces Mexican manufacturing exports by lowering the price of Chinese goods in the US market; (ii) a depreciation of the peso‐dollar real exchange rate generates a strong supply‐side effect due to the high import content of Mexican manufacturing exports, which ultimately leads to lower (rather than higher) sales in the US; and (iii) external demand and labour productivity are positively related to manufacturing exports, whereas real wages are negatively related. Therefore, a falling external demand for Mexican manufacturing products or a real depreciation of the Chinese currency could, to some extent, be offset by increasing labour productivity faster than wages. These findings reflect two fundamental problems of the Mexican economy: (i) low investment in high‐quality formal instruction and proper training programs, which gives rise to severe bottleneck points for faster labour productivity growth and (ii) excessive reliance of the export‐oriented manufacturing industry on foreign suppliers of intermediate inputs.
    August 02, 2017   doi: 10.1111/twec.12542   open full text
  • North‐South foreign direct investment and bilateral investment treaties.
    Rod Falvey, Neil Foster‐McGregor.
    World Economy. August 01, 2017
    Bilateral investment treaties (BITs) have become increasingly popular as a means of encouraging foreign direct investment (FDI) from developed to developing countries. We adopt a difference‐in‐difference analysis to deal with the problem of self‐selection when estimating the effects of BITs on FDI flows from a sample of OECD countries to a broader sample of lesser developed countries. Our results indicate that forming a BIT with a developed country significantly increases FDI inflows to developing countries. We further find that the development of new FDI flows and the reinvigoration of deteriorating FDI relationships accounts for the majority of the increase in FDI flows due to BIT formation.
    August 01, 2017   doi: 10.1111/twec.12539   open full text
  • Carbon policy and the structure of global trade.
    Edward J. Balistreri, Christoph Böhringer, Thomas F. Rutherford.
    World Economy. July 27, 2017
    Alternative perspectives on the structure of international trade have important implications for the evaluation of climate policy. In this paper, we assess climate policy in the context of three important alternative trade formulations. First is a Heckscher‐Ohlin model based on trade in homogeneous products, which establishes the traditional neoclassical view on comparative advantage. Second is an Armington model based on regionally differentiated goods, which is a popular specification for numerical simulations of trade policy. Third is a Melitz model based on monopolistic competition and firm heterogeneity. This heterogeneous‐firms framework is adopted in many contemporary theoretic and empirical investigations in international trade. As we show in this paper, the three alternative trade formulations have important implications for the assessment of climate policy with respect to competitive effects for energy‐intensive production (and hence carbon leakage) as well as the transmission of policy burdens across countries.
    July 27, 2017   doi: 10.1111/twec.12535   open full text
  • Associating Turkey with the Transatlantic Trade and Investment Partnership: A costly (re‐) engagement?
    Serdar Altay.
    World Economy. July 27, 2017
    Policy debate on the implications of the Transatlantic Trade and Investment Partnership (TTIP) for Turkey has focused almost exclusively on “how” Turkey can/will take part in a forthcoming transatlantic deal. Turkey's association with a TTIP has largely been conceived as an inevitable and beneficial policy choice to re‐engage Ankara with the Atlantic alliance and emerging transatlantic trade framework. The arguments for extending TTIP to Turkey have mostly been built upon a conventional understanding of preferential trade agreements. The debate has not provided a comprehensive assessment of costs and benefits for Turkey's exclusion from or joining TTIP as it dismissed multiple dimensions of the “deep integration” agenda which underpined the transatlantic talks. This paper intends to contribute to the “why” debate with a thorough analysis of critical issues on the transatlantic agenda by evaluating economic and policy implications of TTIP both for exclusion and association scenarios together with associated compliance and adjustment costs.
    July 27, 2017   doi: 10.1111/twec.12533   open full text
  • Does real exchange rate depreciation increase productivity? Analysis using Korean firm‐level data.
    Bo‐Young Choi, Ju Hyun Pyun.
    World Economy. July 25, 2017
    We examine the effects of real exchange rate (RER) depreciation shocks on firm productivity. Using the firm‐level data of Korean manufacturing industries for 2006–13, we distinguish between yearly RER movement and persistent RER depreciation during 2007–09 and analyse how each affects productivity. We find the positive effect of RER depreciation on productivity among exporters, and this positive effect increases with higher export exposure. However, the positive productivity gain disappears when the depreciation persists. Our findings suggest that while immediate depreciation leads to productivity upgrade via price competitiveness and scale expansion, persistent depreciation nullifies the productivity gain by slackening the innovation effort.
    July 25, 2017   doi: 10.1111/twec.12532   open full text
  • Do venture capitalists function the same: The evidence from the Chinese newest stock market, ChiNext.
    Hamid Beladi, Chi Chur Chao, May Hu.
    World Economy. July 25, 2017
    We examine the role of venture capitals (VC) in Chinese entrepreneurial firms surrounding their initial public offerings (IPOs) on ChiNext. We find VCs are more likely to invest in entrepreneurial firms close to their registered location. Unlike developed countries, Chinese VCs cannot significantly improve firms' corporate governance and operating performance on ChiNext. These results indicate these VCs are more free‐riders rather than value‐added investors. The empirical findings suggest Chinese government should restructure ChiNext or reform primary market regulations to encourage VCs to make more value‐added activities and improve the financing environment of small to medium‐sized enterprises. VCs are still new on the ChiNext.
    July 25, 2017   doi: 10.1111/twec.12534   open full text
  • The great trade collapse and the Spanish export miracle: Firm‐level evidence from the crisis.
    Peter S. Eppinger, Nicole Meythaler, Marc‐Manuel Sindlinger, Marcel Smolka.
    World Economy. July 23, 2017
    We provide novel evidence on the microstructure of international trade during the 2008 financial crisis and subsequent global recession by exploring a rich firm‐level data set from Spain. The focus of our analysis is on changes at the extensive and intensive firm‐level margins of trade, as well as on performance differences (jobs, productivity and firm survival) across firms that differ in their export status. We find no adverse effects of the financial crisis on foreign market entry or exit, but a considerable increase in the export intensity of firms after the financial crisis. Moreover, we find that exporters were more resilient to the crisis than non‐exporters. Finally, while exporters showed a significantly more favourable development of total factor productivity after 2009 than non‐exporters, aggregate productivity declined substantially in a large number of industries in Spanish manufacturing. We also briefly explore two factors that might help explain the surprisingly strong export performance of Spain in the aftermath of the great trade collapse: improved aggregate competitiveness due to internal and external devaluation and a substitutive relationship between domestic and foreign sales at the firm level.
    July 23, 2017   doi: 10.1111/twec.12530   open full text
  • Yen or Yuan? The law of one price and economic integration in Asia.
    Vinh Q. T. Dang, Yu (Alan) Yang, Kenneth S. Chan.
    World Economy. July 19, 2017
    Using highly comparable local retail prices of 146 goods and services across 18 Asian countries over 1990–2014, we analyse price dispersion and test convergence to the law of one price (LOP) for these prices around three price benchmarks—Asia‐average, Japan and China prices—to gain insight about market integration in overall Asia as well relative integration of Asian economies to Japan and China. Cross‐Asia price dispersion around China‐price benchmark, for both tradables and non‐tradables, diminishes significantly over the sample period whereas that around Japan‐price benchmark increases considerably, particularly after the 2008 crisis. There is convergence to the LOP for about half of goods and services in China‐ and Asia‐average price benchmarks. The percentage of convergent prices is significantly smaller in Japan‐price benchmark. Direct estimates of the convergence speed parameter also confirm these observations. Overall, our results show evidence of increasing economic integration in Asia in the last two decades. The process of price convergence appears to be driven by the emergence of China as the centre of economic gravity in the region. There is much room for improvement as economic integration in Asia is still far below that in Europe in the 1990s or USA in the 1980s.
    July 19, 2017   doi: 10.1111/twec.12529   open full text
  • Developing inland China: The role of coastal foreign direct investment and exports.
    Puman Ouyang, Shunli Yao.
    World Economy. July 19, 2017
    The design of China's foreign direct investment (FDI) and export promotion policies has intrinsic elements not helpful with the original policy intent to generate spillovers to the wide Chinese economy. Applying panel estimation models to Chinese provincial‐level data for 1993–2008, we examine the impacts of China's coastal FDI and exports on its inland regions. We find that the coastal FDI has overall positive inter‐regional impacts, while the coastal exports do not. Cooperative joint ventures generate positive impacts, but little for wholly foreign‐funded enterprises and even negative for equity joint ventures. The inter‐regional impacts do not exhibit any significance and robustness across exporters' ownership status. We attribute these counter‐intuitive findings to the protectionist behaviours of state‐owned enterprises in equity joint ventures and the prevalence of processing exports.
    July 19, 2017   doi: 10.1111/twec.12527   open full text
  • Technical change and income inequality in China.
    Xun Zhang, Guanghua Wan, Chen Wang, Zhi Luo.
    World Economy. July 19, 2017
    The purpose of this paper was to explore the inequality–technical change relationship. Different from earlier studies, we aim to gauge the impact of technical change on the overall inequality, not just a particular component of inequality. This is achieved by establishing that the labour share of income is negatively correlated with overall inequality as indicated by the popular Gini coefficient and by modelling the labour share of income as a function of technical change. The empirical model of labour share of income is estimated using 1978–2012 provincial panel data from China. The main estimation results show that technical change in China had been mostly capital‐biased. It contributed to the successive reductions in China's labour share of income and thus rapid rises in income inequality.
    July 19, 2017   doi: 10.1111/twec.12531   open full text
  • A computable general equilibrium model of international sanctions in Iran.
    Mohammad Reza Gharibnavaz, Robert Waschik.
    World Economy. July 10, 2017
    We detail recent international sanctions against the Iranian economy and its government imposed by a subset of developed countries. The effects of these sanctions on the Iranian economy in general and upon upper and lower‐income rural and urban Iranian households, as well as the Iranian government, are modelled using a computable general equilibrium (CGE) model. We supplement the Global Trade Analysis Project 8 data set using income and expenditure shares from the Urban and Rural Household Income and Expenditure Survey from the Statistical Centre of Iran (SCI). The model is calibrated to simulate the effects of international sanctions as closely as possible. We use endogenous trade taxes to simulate the effects of sanctions on Iranian oil and petrochemical exports and Iranian imports of petroleum products, metal products and motor vehicles. Our study finds that international sanctions reduced aggregate Iranian welfare by 14%–15%. Rural households in Iran suffered welfare losses which were almost double those experienced by urban households, and the poorest urban and rural households experienced the largest welfare losses, in the order of 5%–10%. But the government of Iran sees a decrease in real revenue of 40%–50%, due to the large negative effect of sanctions on the Iranian oil sector.
    July 10, 2017   doi: 10.1111/twec.12528   open full text
  • Asymmetric response of the US–India trade balance to exchange rate changes: Evidence from 68 industries.
    Mohsen Bahmani‐Oskooee, Sujata Saha.
    World Economy. July 10, 2017
    The relationship between the trade balance and the exchange rate continues to attract attention by international economists and has entered into new territory, mostly due to advances in econometric methods. The introduction of asymmetric error‐correction modelling and asymmetric cointegration using the nonlinear ARDL approach of Shin et al. (Festschrift in Honor of Peter Schmidt: Econometric methods and applications, Springer, 2014, 281) as compared to the symmetric and linear ARDL approach of Pesaran et al. (Journal of Applied Econometrics, 2001, 16, 289) has led us in a new direction to discover relatively better results. We apply these methods to the bilateral trade balance model of each of the 68 industries that trade between India and the USA. The nonlinear approach not only provides more support to the J‐curve effect, but also yields support in favour of short‐run and long‐run asymmetric effects of exchange rate changes in most of the industries.
    July 10, 2017   doi: 10.1111/twec.12521   open full text
  • Determinants of workers’ remittances: An empirical investigation for a panel of eleven developing Asian economies.
    Hrushikesh Mallick.
    World Economy. July 06, 2017
    We explore the key motives of migrant workers’ remittances from abroad for 11 major Asian migrant‐sending countries. Using panel regressions, we find that relative higher growth rate, interest rate and capital market returns of home over the host, investment, financial deepening at home have significant impact on remittance inflows into Asia, along with higher per capita incomes and international crude oil prices. With incorporation of per capita incomes and lagged impact of remittances, we observe an emergence of consumption motives to remit. Therefore, we conclude that both investment and altruistic motives are the driving forces for remittances inflows into the Asian economies.
    July 06, 2017   doi: 10.1111/twec.12519   open full text
  • The role of imports for exporter performance in Peru.
    Martha Denisse Pierola, Ana Margarida Fernandes, Thomas Farole.
    World Economy. July 06, 2017
    Using highly disaggregated firm‐level customs data for imports and exports in Peru over the 2000–12 period, we explore the relationship between imports of intermediate inputs and firm export performance. The evidence shows that greater use, variety and quality of imported intermediate inputs are significantly correlated with higher export levels and growth, greater market diversification and higher export quality at the firm level, even after controlling for unobserved firm heterogeneity. Exporter–importers exposed to higher tariffs, and non‐tariff measures import less in total and exhibit lower import variety, whereas those using an advance customs clearance procedure designed to facilitate imports exhibit higher imports and a more diversified bundle of inputs.
    July 06, 2017   doi: 10.1111/twec.12524   open full text
  • The demand for safe assets in emerging economies and global imbalances: New empirical evidence.
    Rudiger Ahrend, Alessandro Saia, Cyrille Schwellnus.
    World Economy. July 05, 2017
    Recent economic theory has singled out mismatches between the supply and the demand of safe financial assets in emerging countries as drivers of international capital flows and, ultimately, global current account imbalances. This paper assesses empirically the contribution of such “search for safe assets” to the size and composition of emerging economies’ international asset portfolios. Excess demand for safe assets in financially less‐developed countries would imply that these countries hold disproportionately high shares of their total portfolios in foreign assets. Moreover, financially less‐developed countries would hold disproportionately high shares of their foreign portfolios in financially developed countries, which are the major producers of ostensibly safe assets. This paper finds little empirical support for these predictions. Financially less‐developed countries allocate a larger proportion of their total holdings to domestic assets. Even when focusing on their foreign portfolios, there is no evidence of a general bias towards the assets of financially developed countries. Overall, asset mismatches do not appear to explain the asset allocation of financially less‐developed countries.
    July 05, 2017   doi: 10.1111/twec.12526   open full text
  • How did investor‐state dispute settlement get a bad rap? Blame it on NAFTA, of course.
    Greg Anderson.
    World Economy. July 03, 2017
    In the short history of the US bilateral investment treaty (BIT) programme, there have been no instances of dispute settlement cases initiated against the United States by firms from BIT countries. The NAFTA experience changed that. Where other studies have only hinted at the reasons for NAFTA controversies, this paper makes clear three causal factors: (i) changing patterns and intensity of FDI, (ii) the application of those rules to developed countries amid those changing FDI patterns and (iii) ambiguities in ISDS rules themselves. The paper explores these and traces the ways in which lessons of the NAFTA have been instrumental in changing the pursuit of investment protection agreements. BITs used to be uncontroversial, but the NAFTA focused attention on reforms to ISDS that maintain the utility of BITs in the governance of FDI, without creating a legal structure for simply challenging the state.
    July 03, 2017   doi: 10.1111/twec.12515   open full text
  • Privatisation and the unusual case of Belarusian accession to the WTO.
    Edward J. Balistreri, Zoryana Olekseyuk, David G. Tarr.
    World Economy. July 02, 2017
    The accession negotiations of Belarus to the WTO are unusual since, due to its obligations in the Eurasian Economic Union, WTO accession is not expected to impact its tariffs or formerly substantial trade‐distorting agricultural subsidies. Nonetheless, we estimate that WTO accession will increase welfare by 9.9% of consumption in Belarus. We show that inclusion of: (i) foreign direct investment; (ii) reduction in non‐discriminatory barriers against services providers; and (iii) our model with imperfect competition and endogenous productivity effects together produce estimated gains eleven times larger than a model of perfect competition with only cross‐border trade in services. Our analysis is enabled by our production of a data set on both discriminatory and non‐discriminatory barriers in services and their ad valorem equivalents. Based on a new data set on labour productivity by sector and type of ownership, in our central model, we estimate that privatisation will increase welfare by 35.8% of consumption. We find substantial variance in the estimated gains from privatisation depending on model assumptions, but all the estimates of the impacts of privatisation indicate substantial welfare gains.
    July 02, 2017   doi: 10.1111/twec.12520   open full text
  • Globalisation, inequality and redistribution: Theory and evidence.
    Giray Gozgor, Priya Ranjan.
    World Economy. June 29, 2017
    This paper constructs a simple theoretical model to study the implications of globalisation for inequality and redistribution. It shows that when globalisation increases inequality, a policymaker interested in maximising the sum of welfares of all agents increases redistribution. Empirically, the paper examines the effects of globalisation on inequality and redistribution in a panel data set of 140 countries for the period from 1970 to 2012. It finds that both inequality and redistribution have been increasing with globalisation. The results are robust to the inclusion of many different controls and the exclusion of outliers.
    June 29, 2017   doi: 10.1111/twec.12518   open full text
  • Granting preferential market access in services sequentially versus jointly with goods.
    Peter H. Egger, Anirudh Shingal.
    World Economy. June 28, 2017
    Despite the cost and resource‐effectiveness of joint trade negotiations and complementarities between goods and services‐trade flows, more than 12% of the 132 WTO‐notified services‐trade agreements (STAs) in force until August 2015 were entered into effect sequentially to goods‐trade accords. This stylised fact motivates our study of the determinants of joint versus sequential negotiation/accession of goods and services accords, a subject hitherto unexplored in the growing literature on the determinants of STA membership. Our results suggest larger marginal effects of fundamental economic, geographic, institutional, doing business and services regulatory factors on the propensity of joint negotiation/accession compared to STA formation alone. Moreover, cultural‐distance variables are only found to affect the likelihood of joint preferential liberalisation of goods and services trade, without influencing STA‐only membership.
    June 28, 2017   doi: 10.1111/twec.12523   open full text
  • The great trade collapse and Indian firms.
    Pavel Chakraborty.
    World Economy. June 27, 2017
    The collapse in global trade during the 2008–09 crisis has been widely studied using the developed nation(s) data. I use firm‐level data from Indian manufacturers to show that: (a) Indian firms experience strong negative demand shocks concerning their exports to the USA and the EU, the effect being significantly higher in case of the USA. Results assert that 1% increase in the exposure towards the crisis‐affected zones (the USA and the EU combined) reduces an average Indian manufacturing firm's export earnings by 1.17%–1.36%; (b) trade in consumer non‐durables and durables are the two most affected sectors, impact being higher for the latter; (c) evidence in support of similar effects throughout the size distribution of firms, with the effect being highest for small or the most vulnerable firms; (d) drop in demand, as a result of the 2008–09 crisis, only affects the high‐exposure industries. My results are robust to IV analysis and a variety of checks.
    June 27, 2017   doi: 10.1111/twec.12517   open full text
  • Sharing contracts' marginalisation, adverse selection and markup calculation.
    Fayçal Amrani.
    World Economy. June 23, 2017
    This paper proposes a new approach to explain the dominance—in the Islamic banking market—of markup contracts at the expense of sharing ones. We show that the dual pricing practised in this market produces an additional—or artificial—dimension of adverse selection, which is causing the sharing contracts' marginalization. We suggest specialized use of two Islamic contractual categories as a device for eliminating artificial adverse selection. We suggest also an endogenous calculation of the markup, that is independent of the interest rate, based on the financing cost unification. This approach allows the deduction of default and liquidity risk premiums.
    June 23, 2017   doi: 10.1111/twec.12510   open full text
  • Dynamic spatial panel estimates of war contagion.
    Fabrizio Carmignani, Parvinder Kler.
    World Economy. June 23, 2017
    We estimate the temporal, spatial and “spatio‐temporal” effects of war using a dynamic spatial panel model. Our argument is that it is important to account for both the space and temporal lags concurrently, while instead the existing literature largely tends to focus on one or the other. Key findings are as follows: first, there is evidence that both temporal and spatial effects significantly impact upon the duration of war. Second, we also find that the combined “spatio‐temporal” interaction effect is significant only when excluding contemporaneous spatial lag effect. Third, while stronger for high‐intensity conflict, spatial and temporal effects remain significant also for low‐intensity conflict. Fourth, the spatial effect is stronger in magnitude for interstate wars. Our results point to the importance of regional co‐operation for conflict prevention and peace stabilisation.
    June 23, 2017   doi: 10.1111/twec.12522   open full text
  • Heterogeneous effects of trade liberalisation on firm‐level markups: Evidence from China.
    Xunyong Xiang, Feixiang Chen, Chun‐Yu Ho, Wen Yue.
    World Economy. June 21, 2017
    This paper analyses how trade liberalisation affects the markups of Chinese firms based on firm‐level production data, highly disaggregated transaction‐level product trade data and tariff data at the eight‐digit Harmonised System (HS) level. Our results show that there is a pro‐competition effect of output tariff reduction, that is decreasing output tariffs relate to a lower markup, and that there is a cost‐reduction effect of input tariff reduction, that is decreasing input tariffs relate to a higher markup. Interestingly, there are heterogeneous effects of trade liberalisation on firm‐level markups. The cost‐reduction effect of input tariff reduction is partially offset by the competition effect of new firm entry in more‐concentrated industries. Furthermore, there is a weaker effect of trade liberalisation on processing trade firms and state‐owned enterprises. Finally, our results are robust to the use of an instrumental variable approach to control for the endogeneity of tariffs and sample selection.
    June 21, 2017   doi: 10.1111/twec.12516   open full text
  • Funding development infrastructure without leverage: A risk‐sharing alternative using innovative sukuk structures.
    Obiyathulla Ismath Bacha, Abbas Mirakhor.
    World Economy. June 20, 2017
    Muslim countries of the developing world suffer indebtedness resulting mostly from funding development infrastructure. Faced with a dire need for development infrastructure but with inadequate resources to fund them domestically, these governments often resort to foreign borrowing. As neither foreign banks nor international debt markets would allow for the debt to be in home currency, the funding is invariably denominated in foreign currency. For the borrowing country, in addition to currency exposure such borrowing increases the country's leverage and economic vulnerability. As these countries typically have a narrow economic base with heavy reliance on commodity exports, they are susceptible to the vagaries of commodity price fluctuation. Leverage increases the amplitude of the economy's fluctuation, resulting if not in outright crisis, then, at least in financial distress and depreciating home currency. As a result, when the foreign currency funded project comes on stream, it is burdened with huge accumulated debt which in many cases makes the project unmanageable without further government help through subsidy of operating costs. This further stresses already stretched government budgets and perpetuates indebtedness. This cycle of borrowing, leverage and vulnerability can be broken by innovative use of sukuk. The problem with debt financing is that the servicing requirements are independent of the underlying project's risk or cash flows. This paper presents two sukuk structures based on the risk sharing principles of Islamic finance. Sukuk that have returns linked to the nation's gross domestic product growth if the funded project is non‐revenue generating and linked to earnings of the project if it is revenue generating can avoid the problems above. The pay‐off profile, estimated cost of funds and returns to investors of these sukuk are discussed. When designed in small denomination, such sukuk can enhance financial inclusion, help build domestic capital markets and enable the financing of development without stressing government budgets.
    June 20, 2017   doi: 10.1111/twec.12512   open full text
  • How sukuk shapes firm performance.
    Paul‐Olivier Klein, Laurent Weill, Christophe J. Godlewski.
    World Economy. June 13, 2017
    With the large expansion of Islamic finance in the recent years, sukuk, which are the Sharia‐compliant substitute to conventional bonds, are now becoming more prominent. The aim of this study was to examine the impact of sukuk issuance on firm performance. To do so, we analyse how stock market performance and operating performance (OP) are influenced by issuance of sukuk and bonds on a sample of Malaysian listed companies. We consider the short‐term and medium‐term stock market reaction through the computation of cumulative abnormal returns and buy‐and‐hold abnormal returns. We investigate the impact on OP by performing regressions and by calculating abnormal operating performance (AOP) so that we can compare how issuance affects similar firms. We find that sukuk issuance generates a negative stock market reaction both in the short term and in the medium term. We also find evidence that issuing sukuk hampers OP. The analysis of AOP shows that sukuk issuers have better performance than their matched bond issuers, but that sukuk contributes to reduce the gap in performance over time. Overall, our results support the view that sukuk issuance hampers stock market performance, but that it is not attributable to a signalling effect on the bad financial situation of the issuer. We interpret our findings as evidence of adverse selection taking place on the financed projects and agency problems stemming from the specific sukuk structuring with stock market investors more reluctant to invest in sukuk issuers.
    June 13, 2017   doi: 10.1111/twec.12509   open full text
  • The indirect effects of foreign direct investment on trade: A network perspective.
    Rodolfo Metulini, Massimo Riccaboni, Paolo Sgrignoli, Zhen Zhu.
    World Economy. June 12, 2017
    The relationship between international trade and foreign direct investment (FDI) is one of the main features of globalisation. In this paper, we investigate the effects of FDI on trade from a network perspective, since FDI takes not only direct but also indirect channels from origin to destination countries because of firms’ incentive to reduce tax burden, to minimise coordination costs and to break barriers to market entry. We use a unique data set of international corporate control as a measure of stock FDI to construct a corporate control network (CCN), where the nodes are the countries and the edges are the corporate control relationships. Network measures, as the shortest path length and the communicability, are then computed on the CCN to capture the indirect channel of FDI. Empirically, we find that corporate control has a positive effect on trade both directly and indirectly. The result is robust with different specifications and estimation strategies. Hence, our paper provides strong empirical evidence of the indirect effects of FDI on trade. Moreover, we identify a number of interplaying factors such as regional trade agreements and the region of Asia. We also find that the indirect effects are more pronounced for the manufacturing sector than for primary sectors such as oil extraction and agriculture.
    June 12, 2017   doi: 10.1111/twec.12504   open full text
  • Islamic economics and Islamic finance in the world economy.
    Mansor H. Ibrahim, Nafis Alam.
    World Economy. June 12, 2017
    This paper places the articles in this special issue in the contexts of Islamic economics and finance research. It highlights the foundations of Islamic economics, which are in practice manifested in Islamic finance. Then, the paper brings up three key issues in Islamic finance today – the Islamicity of Islamic banking, real contributions of Islamic finance, and Islamic finance in the present monetary framework. While there are some promising theoretical and empirical findings pointing to positive contributions of Islamic finance, there is still a need for Islamic finance to distinguish itself from the conventional finance and to further demonstrate its real effect.
    June 12, 2017   doi: 10.1111/twec.12506   open full text
  • Bank lending channel in a dual banking system: Why are Islamic banks so responsive?
    Ahmet F. Aysan, Mustafa Disli, Huseyin Ozturk.
    World Economy. June 07, 2017
    We examine the interest rate sensitivity of both deposits and credits at Islamic and conventional banks in Turkey. We find that the bank lending channel is especially operative for Islamic banks. Impulse responses for conventional and Islamic banks reveal that Islamic bank depositors’ sensitivity to policy rate changes is substantially larger than that of conventional bank depositors. Next to heavily dependence on deposit funding, we consider that inertia in Islamic bank deposit rates impedes these banks to keep those depositors who consider the opportunity cost of monetary policy rates is unbearable. On the lending side, we obtain similar results, implying that tight monetary policy leads to a larger contraction in Islamic bank credits. This finding is a reflection of the favourable attitude of Islamic banks towards small and medium‐sized enterprise (SME) financing. When similar relationships are analysed for currency and inflation shocks, we again find larger responses for Islamic banks showing the cyclical nature of SME credits.
    June 07, 2017   doi: 10.1111/twec.12507   open full text
  • Free trade agreement and transport service trade.
    Jaimin Lee, Seong‐Hoon Cho.
    World Economy. June 06, 2017
    This study investigates the effects of free trade agreements (FTAs) on trade in transport services using OECD data from 2003 to 2006. Our analysis found that FTAs had a positive overall impact on transport services for multiple countries (i.e., 26 home and 56 partner countries). The resulting positive overall impact assures that, even with the challenges associated with different layers of services and the obstacles formed by generally low trade openness in the sector, the provisions in FTAs (e.g., national treatment and market access for goods and services) promote transport service trades. Our findings suggest that the provisions in FTAs encourage economic agents to increase engagement in transport services because of expanded openness of the physical movement of goods across international borders.
    June 06, 2017   doi: 10.1111/twec.12501   open full text
  • Is there a link between globalisation and civil conflict?
    Roberto Ezcurra, Beatriz Manotas.
    World Economy. June 05, 2017
    This paper investigates the empirical relationship between globalisation and civil conflict in a sample of 159 countries over the period 1972–2009. To that end, we use a measure of globalisation that distinguishes the social and political dimensions of integration from the economic dimension, thus allowing us to adopt a broader perspective than in most of existing studies. The results show that the inclusion of country fixed effects removes the statistical association between the degree of integration with the rest of the world and the incidence of internal conflict. We present instrumental variables estimates that also show no causal effect of globalisation on civil conflict. These findings do not depend either on the specific dimension of globalisation considered or the measure of conflict used in the analysis. Likewise, the absence of a relationship between globalisation and civil conflict is not driven by countries located in the most conflictive regions in the world.
    June 05, 2017   doi: 10.1111/twec.12514   open full text
  • Stabilising economic growth through risk sharing macro instruments.
    Syed Aun R. Rizvi, Shaista Arshad.
    World Economy. May 31, 2017
    The risk sharing principles of Islamic Finance have ironically been studied and used extensively outside the Muslim World. The development of early European city states was founded on the risk sharing principle. The risk sharing financing helped these city states to develop their infrastructure and rule the scientific and economic landscape of the west. The Western financial system of today still carries traces of risk sharing in the form of venture capital financing, albeit the primary focus has diverted to risk shifting‐based debt financing. Over the past decades, much effort and research has gone into establishing a viable set of Islamic financial institutions. Most Muslim nations are heavily indebted with high reliance on multilateral financing primarily based on high interest rates. This vicious cycle of interest rates and debt has stunted the growth of these nations and worsened the conditions of the masses. This research brings to the forefront the concept of an equity in nature GDP‐linked paper, which allows for enhanced risk sharing‐based sovereign financing. It aims to present empirical proof of the stability this instrument offers in economic growth, for a large sample of developing economies, comprising bulk of Islamic countries. While analysing the empirical work, a strong favourable argument for this instrument is derived for its benefits in stability. Through this study, we endeavour to initiate a thought‐provoking and practical discussion for further development of these instruments for the betterment of developing countries.
    May 31, 2017   doi: 10.1111/twec.12513   open full text
  • Are top managers important for firm performance and idiosyncratic risk? Evidence from sharia vs non‐sharia‐compliant firms in the UK and Pakistan.
    Ali M. Kutan, Iram Naz, Syed Muhammad Aamir Shah.
    World Economy. May 29, 2017
    We examine the impact of top managers on performance and idiosyncratic risk of the sharia‐compliant firms in the UK and Pakistan by constructing a manager–firm matched panel data and then tracking the role of individual top managers across different firms. The results regarding the individual effects on performance by a particular firm show that there exists a significant difference for managers who move from a non‐sharia to a sharia‐compliant firm. However, this difference is not significant for managers who move from a sharia‐compliant firm to another sharia firm. Policy implications of the findings are discussed.
    May 29, 2017   doi: 10.1111/twec.12511   open full text
  • Islamic economics and a third fundamental theorem of welfare economics.
    Hayat Khan.
    World Economy. May 25, 2017
    The discipline of economics started as a moral science but became detached from moral concerns over time to emulate natural science and to adopt positivism. Consequently, mainstream economics assumes people to be sordidly selfish. The teachings of Islam, however, promote social preferences where individuals should be other‐regarding and have preferences over social outcomes. This paper replaces the selfish agent with a social agent and presents the results in a theorem referred to as the third fundamental theorem of welfare economics (TFTWE). The TFTWE states that “when the selfish agents are replaced with the social agents, market outcomes are Pareto optimal, equitable, and unique”. This is an important result which has widespread implications. We show that the TFTWE holds under conditions where the first two fundamental theorems of welfare economics fail and that a Walrasian equilibrium is more likely to exist when selfish preferences are non‐convex. Unlike the popular convention, there is no equity‐efficiency trade‐off. In fact we point to the possibility of reversal in equity‐efficiency trade‐off.
    May 25, 2017   doi: 10.1111/twec.12508   open full text
  • Investigating first‐stage exchange rate pass‐through: Sectoral and macro evidence from euro area countries.
    Nidhaleddine Ben Cheikh, Christophe Rault.
    World Economy. May 23, 2017
    In this paper, we evaluate the first‐stage pass‐through, namely the responsiveness of import prices to the exchange rate changes, for a sample of euro area (EA) countries. Our study aimed to shed further light on the role of microeconomic factors versus macroeconomic factors in influencing the extent of the exchange rate pass‐through (ERPT). As a first step, we conduct a sectoral analysis using disaggregated import prices data. We find a much higher degree of pass‐through for more homogeneous goods and commodities, such as oil and raw materials, than for highly differentiated manufactured products, such as machinery and transport equipment. Our results confirm that cross‐country differences in pass‐through rates may be due to divergences in the product composition of imports. The higher share of imports from sectors with lower degrees of pass‐through, the lower ERPT for an economy will be. In a next step, we investigate for the impact of some macroeconomics factors or common events experienced by EA members on the extent of pass‐through. Using the system generalised method of moments within a dynamic panel‐data model, our estimates indicate that decline of import‐price sensitivity to the exchange rate is not significant since the introduction of the single currency. Our findings suggest instead that the weakness of the euro during the first 3 years of the monetary union significantly raised the extent of the ERPT. This outcome could explain why the sensitivity of import prices has not fallen since 1999. We also point out a significant role played by the inflation in the Eurozone, as the responsiveness of import prices to exchange rate fluctuations tends to decline in a low and more stable inflation environment. Overall, our findings support the view that the extent of pass‐through is comprised of both macro‐ and microeconomic aspects that policymakers should take into account.
    May 23, 2017   doi: 10.1111/twec.12499   open full text
  • Growth is (really) good for the (really) rich.
    Raymundo M. Campos‐Vazquez, Emmanuel Chavez, Gerardo Esquivel.
    World Economy. May 22, 2017
    This paper analyses the relationship between mean income and the income of the rich. Our methodology closely follows that of Dollar and Kraay (Journal of Economic Growth, 2002, 7, 195), but instead of looking at the bottom of the distribution, we focus on the top. We use panel data from the World Top Incomes database, which collects top income data from several countries using tax returns as the raw source. We define the “rich” as earners in the top 10%, 1%, 0.1% and 0.01% of the income distribution. Using data since 1980, we find that economic growth is good for the rich in the sense that the mean income of the top decile of the distribution grows in the same proportion as that of the whole population. However, we also find that the income of earners in the top percentile of the distribution and above grows faster than average income: therefore, economic growth is really good for the really rich. We also find that during economic downturns the average income of top earners responds proportionally less to changes in mean income than during economic expansions. Our results are consistent with the increase in inequality that has been recently observed at the top part of the distribution in many countries, and they are robust to different specifications, country samples and time observations.
    May 22, 2017   doi: 10.1111/twec.12494   open full text
  • Global production sharing: Exploring Australia's competitive edge.
    Prema‐chandra Athukorala, Tala Talgaswatta, Omer Majeed.
    World Economy. May 15, 2017
    Cross‐border dispersion of production processes within vertically integrated global industries (“global production sharing”) has been an increasingly important structural feature of economic globalisation in the recent decades. This paper examines patterns and determinants of global production sharing with an emphasis on how Australian manufacturing fits into global production networks (GPNs). Though Australia is a minor player in GPNs, there is evidence that Australian manufacturing has a distinct competitive edge in specialised, skill‐intensive tasks in several industries such as aircraft, medical devices, machine tools, measuring and scientific equipment and photographic equipment. Specialisation in high‐value‐to‐weight components and final goods within GPNs, which are suitable for air transport, helps Australian manufacturing to overcome the “tyranny of distance” in world trade. Being predominantly “relationship specific,” Australian GPN exports are not significantly susceptible to real exchange rate appreciation.
    May 15, 2017   doi: 10.1111/twec.12495   open full text
  • The macroeconomic role of currency reserve accumulation in emerging markets—The Asian experience.
    Joscha Beckmann, Theo Berger, Robert Czudaj.
    World Economy. May 15, 2017
    The impact of currency reserve accumulation is controversially discussed since reserve accumulation potentially destabilises the international financial system and causes crises due to higher systemic risk. The main aim of this paper is to put the macroeconomic role of currency reserve accumulation for four Asian economies under closer scrutiny. The key question is whether accumulating currency reserves is beneficial from a long‐run perspective. Based on a vector error correction approach, we start by analysing long‐run steady‐state relationships between currency reserves, exchange rates against the US dollar, real GDP and interest rates. Our findings show that cumulated currency reserve shocks significantly affect real GDP. A likely explanation for our finding is that accumulation of reserves has supported growth through providing liquidity and supporting the development of the financial sector for the economies under observation.
    May 15, 2017   doi: 10.1111/twec.12497   open full text
  • Impact of foreign direct investment volatility on economic development in the Indian subcontinent.
    Ranajit Bairagi.
    World Economy. May 09, 2017
    Using annual data over forty years from 1975 to 2014, this study investigates the gross domestic product (GDP) growth and the conditional volatility of foreign direct investment (FDI) in the Indian subcontinent. The study reports the rising trends of both FDI and GDP and documents that the greater‐than‐expected FDI due to innovative shocks or policy innovations positively influences conditional volatility of FDI which, in turn, positively contributes to the economic growth/development. The conditional volatility used in the study is the variance derived from the diagnostically selected exponential GARCH (EGARCH) model. The study also reports the causality of both the FDI and its volatility across borders. More specifically, it reports bidirectional causality of FDI between India and Pakistan but unidirectional causality from Bangladesh to both India and Pakistan. It further documents that this volatility is persistent in all the economies and that it spillovers from both India and Pakistan to Bangladesh. The evidence attributes the economic development in the Indian subcontinent to the economic or policy innovations in attracting FDI. The findings of this study thus contribute to the literature by documenting the contrasting evidence that the volatility along with the trend of FDI contributes to the economic development and by reconciling the contrasting evidence.
    May 09, 2017   doi: 10.1111/twec.12496   open full text
  • The impact of credit constraints on exporting firms: Evidence from the provision and subsequent removal of subsidised credit.
    Mudit Kapoor, Priya Ranjan, Jibonayan Raychaudhuri.
    World Economy. May 02, 2017
    We study the causal impact of credit constraints on exporters using a natural experiment provided by two policy changes in India, first in 1998 which made small‐scale firms eligible for subsidised direct credit, and a subsequent reversal in policy in 2000 wherein some of these firms lost their eligibility. Using firms that were not affected by these policy changes as our control group in each case, we find that credit expansion increased the growth rate of bank borrowing and had a positive effect on exports. The subsequent policy reversal in 2000 had no impact on the growth rate of bank borrowing or on exports.
    May 02, 2017   doi: 10.1111/twec.12498   open full text
  • Habit, prisoner's dilemma and Americans’ welfare cost of working much more than Europeans.
    Maurice Schiff.
    World Economy. April 25, 2017
    Europeans work much less than Americans. Some studies claim this is due to Europe's high taxes and that Europeans would gain by adopting US tax rates and work time. I argue that Americans would gain by reducing work time to Europe's level. Due to historical experience, Europe is able to internalise work‐time‐related negative externalities by enacting restrictive work‐time policies, while the United States is not, resulting in a prisoner's dilemma equilibrium and “overworking trap.” A simple model and work‐time data are used to derive the US welfare gain from reducing work time to Europe's level. Findings are as follows: (i) parameter values are consistent with experimental results on own vs. other people's income value; (ii) the welfare gain's present value is between 80 and 120% of annual welfare; and (iii) a European policy that reduces work time excessively remains beneficial if the reduction is less than twice the optimal one.
    April 25, 2017   doi: 10.1111/twec.12493   open full text
  • A contribution to a multidimensional analysis of trade competition.
    Sandrina Moreira, Nadia Simoes, Nuno Crespo.
    World Economy. April 17, 2017
    International trade grew substantially throughout the last decades and international relations became more important for the economic performance of the countries. Simultaneously, new poles emerged in the international arena leading to growing competition for higher market shares. Therefore, trade competition is a critical dimension of analysis for applied international trade studies. We propose a conceptual framework for measuring this phenomenon by combining some critical previous contributions to build a multidimensional and more comprehensive concept, which defines trade competition as a function of the degree of both structural similarity and total exports overlap. Moreover, structural similarity should take into account three elements: sectoral shares similarity, inter‐sectoral similarity (evaluating how different the distinct sectors are) and intra‐sectoral similarity (proximity in terms of quality ranges exported). Several measures are proposed to empirically capture the concept suggested. Finally, we present an example including the exports of six European economies (Germany, France, the United Kingdom, Greece, Hungary and Sweden) to 124 destination markets (in 2007, 2011, 2015) in order to illustrate the application of the concept and measures suggested.
    April 17, 2017   doi: 10.1111/twec.12492   open full text
  • The feasibility of currency union in Gulf Cooperation Council countries: A business cycle synchronisation view.
    Essahbi Essaadi.
    World Economy. April 06, 2017
    This paper study the feasibility of a monetary union among Gulf Cooperation Council (GCC) countries, by measuring the evolution of economic integration among them. Considering the critical role of crisis and shocks in the integration process within the region, we determine whether GCC countries are characterised by a common business cycle. We suggest a different empirical approach that, unlike previous studies, allows one to endogenously detect structural changes in the comovement process between outputs. We apply a new measure for this region that is based on the time‐varying coherence function. Such a measure not only detects comovement dynamics but also distinguishes these dynamics in terms of short‐ and long‐term cycles. Additionally, we can test whether certain countries tend to be more synchronised. The main finding of this study is that not all GCC countries share a common short‐term business cycle. However, in the long term, all country‐pairs indicate a medium‐level synchronisation in the most recent subperiods. The new role of the United Arab Emirates’ regional trade platform allows it to strengthen long‐term business cycle comovement, thus differentiating it from other GCC country‐pairs that have shown a decline in the last two subperiods.
    April 06, 2017   doi: 10.1111/twec.12490   open full text
  • Competition, firm size and returns to skills: Evidence from currency shocks and market liberalisations.
    Michele Raitano, Francesco Vona.
    World Economy. April 04, 2017
    We investigate the impact of product market competition on returns to skills in Italy using a longitudinal dataset on individual working histories. This impact is identified using three exogenous shocks affecting competition: the unforeseen devaluation of the Lira in 1992, its return to a fixed exchange regime in 1996 and the market liberalisation in the utility and transport sectors in the late 1990s–early 2000s. We analyse how firm heterogeneity and shocks of different types and signs affect the impact of competition on skill premia. We find that opposite shocks have opposite effects: an increase (resp. decrease) in international competition increases (resp. decreases) skill premia. Moreover, international shocks have greater effects on medium sized firms, while domestic liberalisation shocks have greater effects on large incumbents.
    April 04, 2017   doi: 10.1111/twec.12491   open full text
  • Formation of interdependent regional trade agreements and production networks.
    Innwon Park, Soonchan Park.
    World Economy. March 13, 2017
    Production networks (PNs) can be defined as a determinant of trade partnership. Deepening PNs may generate positive welfare effects and lead to a proliferation in the formation of interdependent regional trade agreements (RTAs). This paper theoretically develops the link between PNs and the formation of RTAs and empirically investigates the link by applying a qualitative choice model estimation methodology (probit) with panel data that covers bilateral country‐pairs among 147 countries between 2000 and 2010. We find that the RTA formation has been strongly driven by deepening PNs between members as well as with third countries. We also find that production network‐driven RTA interdependence is member specific.
    March 13, 2017   doi: 10.1111/twec.12489   open full text
  • Bending the rules, breaking the rules: How corruption and lobbying affect the investment market selection of Swedish firms.
    Susanna Thede, Nils‐Åke Gustafson.
    World Economy. February 27, 2017
    There is stark evidence that many policies which influence firm gains from engaging in FDI (such as tax and trade policies) are targeted by lobbying groups and that corruption can be an important determinant of market attractiveness. The scarce research that exists on firm behaviour, corruption and lobbying shows that these activities can be regarded as alternative, and interdependent, influence forms. This paper provides the novel contribution of investigating how the market infiltration of corruption and lobbying affects the firm's investment decision. We identify the interdependent effects using census data for Swedish manufacturing firms that allows a complete identification of the firm's market selection. Our results reveal that these private–public sector links influence the firm's investment decision differently, as market selection is deterred by corruption and stimulated by lobbying, and that they function as substitutes. We show that the stimulating lobbying effect largely can be attributed to its interdependency with corruption, which suggests that firms are more shielded from corruption in lobbying environments. Further investigation reveals that the corruption and lobbying effects are not always representative of larger firms: The largest firms are undeterred by corruption in markets where lobbying forms an integral part of the business environment and larger firms are not stimulated by lobbying in markets largely void of corruption.
    February 27, 2017   doi: 10.1111/twec.12488   open full text
  • Do foreign workers reduce trade barriers? Microeconomic evidence.
    Martyn Andrews, Thorsten Schank, Richard Upward.
    World Economy. February 27, 2017
    This paper provides evidence that foreign workers reduce firms’ trade costs and thus increase the probability that firms export. This informs both the literature on trade costs and the microeconomic literature on firms’ export behaviour. We identify the nationality of each worker in a large sample of German establishments and relate this to the exporting behaviour of these establishments. We allow for the possible endogeneity of an establishment's workforce by instrumenting the share of foreign workers with the regional distribution of foreign workers in the wider labour market. We find a significant effect of worker nationality on exporting which is not driven by the industrial, occupational or locational concentration of migrants. The effect is much stronger for senior occupations, who are more likely to have a role in exporting decisions by the establishment. The relationship is also stronger when we consider exports to particular regions and workers from these regions, consistent with a gravity model in which trade flows from country i to j are a function of migrants from j in i.
    February 27, 2017   doi: 10.1111/twec.12486   open full text
  • Monetary policy spillovers and currency crisis in comparative perspective: East Asia before the 1997 crisis and Eastern Europe after tapering.
    Jong‐Hee Kim.
    World Economy. February 20, 2017
    This paper estimates the possibility of currency crisis in Eastern Europe that can be triggered by monetary policy change in the key currency countries, such as tapering measure. We examine the crisis possibility in the five Eastern European nations—the Czech Republic, Poland, Hungary, Bulgaria and Romania—by performing a comparative analysis with East Asian countries before the 1997 currency crisis. For the analysis, we estimate how much the exchange rate deviates from the estimated equilibrium exchange rate, as well as the synchronicity of currency value towards some of the key currencies by creating market pressure index. The results can be explained in two ways. First, the market pressure in the Eastern Europe after 2012 is smaller than they were in East Asia before 1997. The crisis possibility especially intensifies when more the exchange rate deviates from the equilibrium value. Second, the monetary policy change in the key currency countries does not greatly affect the crisis possibility in Eastern Europe when their local currencies have the strong synchronisation with euro. Therefore, Eastern European countries show strong synchronicity towards the euro, so the crisis possibility may be alleviated if the Eurozone continues its expansionary monetary policy.
    February 20, 2017   doi: 10.1111/twec.12484   open full text
  • Are bilateral and multilateral aid‐for‐trade complementary?
    Bedassa Tadesse, Elias Shukralla, Bichaka Fayissa.
    World Economy. February 16, 2017
    Using the first comprehensive estimates of ad valorem tariff equivalent bilateral trade costs spanning the time period 2002–10, we examine whether the aid‐for‐trade (AFT) inflows reduce bilateral trade costs facing aid recipients. If so, we ask whether the trade costs reduction effects of AFT from bilateral and multilateral sources are complementary. By showing the extent to which the observed trade cost reduction effects of AFT from bilateral (multilateral) sources correlate with the magnitudes of AFT disbursements from multilateral (bilateral) sources, we present plausible explanation for the cross‐country variations in the extent to which AFT promotes trade flows. Our findings have, thus, important policy implications for shaping future discourses on the coordination of disbursements for enhancing the effectiveness of AFT.
    February 16, 2017   doi: 10.1111/twec.12485   open full text
  • Fertiliser subsidy and agricultural productivity in Senegal.
    Abdoulaye Seck.
    World Economy. February 15, 2017
    This paper tackles one of the most complex and multifaceted agricultural policy decisions faced by African governments; that is, whether it makes sense to subsidise fertilisers. It combines a data envelopment analysis to compute efficiency scores and regression analyses that deal with self‐selectivity and endogeneity issues to examine the productive efficiency of farmers who benefited from the subsidy programme in the very atypical irrigated system of the Senegal River Valley. The results based on farm‐level data indicate that the subsidy programme seems to be working, as it appears to be associated with increased efficiency; hence, providing empirical support to the political will to revamp subsidy programmes. The results also suggest various ways to improve the effectiveness of the subsidy programme in conjunction with additional policy options to further unlock the agricultural potentials of the region.
    February 15, 2017   doi: 10.1111/twec.12487   open full text
  • Chinese Migrants and their Impact on Homeland Development.
    Yingqi Wei, Xiaohui Liu, Jiangyong Lu, Jingjing Yang.
    World Economy. January 29, 2017
    This paper aims to systematically examine the impact of Chinese migrants on the economic activities of indigenous Chinese firms from two dimensions: foreign direct investment (FDI) by ethnic Chinese (ECI) and returnees. Using a unique data set for firms in Zhongguancun Science Park, Beijing, we carry out an in‐depth empirical study on the effects of ECI and returnees on indigenous Chinese firms’ productivity, exports and R&D in comparison with the effects of non‐ethnic Chinese FDI. The findings have important policy implications.
    January 29, 2017   doi: 10.1111/twec.12475   open full text
  • Reciprocal Tariff Reductions Under Asymmetric Bargaining Power.
    Florian Freund.
    World Economy. January 17, 2017
    Increasing heterogeneity of participants that form the basis of WTO trade negotiations has raised concerns about unfair treatment of weak countries due to their lack of bargaining power. The WTO responds to these concerns by arguing that the institutional design with its specific rules such as the principle of reciprocity serves to reduce inequalities in bargaining power by giving smaller (weaker) countries more voice. A recent study has challenged this result for a particular type of reciprocity, namely the volume approach. Given the wide discretion of how reciprocal concessions are conducted, I give a more complete picture of how different kinds of reciprocity affect the bargaining outcome of asymmetric countries. It turns out that, while the volume approach amplifies the negative effects of power asymmetries, a tariff formula approach has the ability to reverse this effect. For low symmetries, the Swiss formula does the best job, whereas for larger power differences, a linear formula is best suited to reduce the impact of power asymmetries.
    January 17, 2017   doi: 10.1111/twec.12481   open full text
  • The Determinants of Foreign Direct Investment in Transition Economies: A Meta‐analysis.
    Masahiro Tokunaga, Ichiro Iwasaki.
    World Economy. January 04, 2017
    In this paper, we conduct a meta‐analysis of studies that empirically examine the relationship between economic transformation and foreign direct investment (FDI) performance in Central and Eastern Europe and the former Soviet Union over the past quarter century. More specifically, we synthesise the empirical evidence reported in previous studies that deal with the determinants of FDI in transition economies, focusing on the impacts of transition factors. We also perform meta‐regression analysis to specify determinant factors of the heterogeneity among the relevant studies and the presence of publication‐selection bias. We find that the existing literature reports a statistically significant non‐zero effect as a whole, and a genuine effect is confirmed for some FDI determinants beyond the publication‐selection bias.
    January 04, 2017   doi: 10.1111/twec.12477   open full text
  • Narrow and Broad Perspectives on Trade Policy and Trade Costs: How to Facilitate Trade in Madagascar.
    Salamat Ali, Chris Milner.
    World Economy. December 14, 2016
    Madagascar is a high trade cost and relatively closed economy. The WTO's latest Trade Policy Review (TPR) for the country, like all TPRs, concentrates on border sources of trade costs, those induced by trade policy instruments such as tariffs or implicit taxes imposed by slow and costly customs procedures or trade documentation requirements. This narrow focus for trade policy and facilitation misses the substantive within‐and‐beyond‐the‐border sources of trade costs experienced by traders in a country like Madagascar. This paper illustrates the nature and significance of a narrow and broad view of trade costs and trade facilitation for this relatively remote and ‘internally land‐locked’ economy.
    December 14, 2016   doi: 10.1111/twec.12473   open full text
  • Informality in the Process of Development and Growth.
    Norman V. Loayza.
    World Economy. December 14, 2016
    ‘Informality’ is a term used to describe the collection of firms, workers and activities that operate outside the legal and regulatory systems. It is widespread in the majority of developing countries – in a typical developing economy, the informal sector produces about 35 per cent of GDP and employs 70 per cent of the labour force. This paper studies informality in the context of economic development by presenting a model and projections that link informality, regulations, migration and economic growth. This analytical framework highlights the trade‐offs between formality and informality, the relationship between the different types of informality, and the connection between them and the forces of labour, capital and productivity growth. The paper models the behaviour of the informal sector based on the following fundamental asymmetry: formal firms confront higher labour costs, while informal firms face higher capital costs and lower productivity. Using mandated minimum wages as the policy‐induced distortion, the model first studies the static allocation of formal and informal capital and labour in a modern economy. Second, it opens the possibility of labour migration from a rudimentary economy with ample supply of labour (e.g. rural areas or less advanced neighbouring countries). Third, the model analyses the dynamic behaviour of the formal and informal sectors, considering how they affect and are affected by economic growth and labour migration. Then, the paper presents projections for the size of labour informality, in the modern and rudimentary economies, in the next two decades for a large group of countries representing all regions of the world. The projections are based on the calibration and simulation of the model and serve to discuss its usefulness and limitations.
    December 14, 2016   doi: 10.1111/twec.12480   open full text
  • Simulating World Trade in the Decades Ahead: Driving Forces and Policy Implications.
    Lionel Fontagné, Jean Fouré, Alexander Keck.
    World Economy. December 14, 2016
    Notwithstanding the current slowdown, the geography and composition of international trade are changing fast. We link a macroeconomic growth model and sectoral computable general equilibrium framework in order to project the world economy forward to the year 2035 and assess to what extent current trends in trade are expected to continue. Constructing fully traceable scenarios based on assumptions grounded in the literature, we are also able to isolate the relative impact of key economic drivers. We find that the stakes for developing countries are particularly high: the emergence of new players in the world economy, intensification of South–South trade and diversification into skill‐intensive activities may continue only in a dynamic economic and open trade environment. Current trends towards increased regionalisation may be reversed, with multilateral trade relationships gaining in importance. Hypothetical mega‐regionals could slow down, but not frustrate the prevalence of multilateralism. Continuing technological progress is likely to have the biggest impact on future economic developments around the globe. Population dynamics are influential as well: for some countries, upskilling will be crucial; for others, labour shortages may be addressed through migration. Several developing countries would benefit from increased capital mobility; others will only diversify into dynamic sectors, when trade costs are further reduced.
    December 14, 2016   doi: 10.1111/twec.12479   open full text
  • The Role for Long‐run Target Values of the Exchange Rate in the Bank of Japan's Policy Reaction Function.
    Joscha Beckmann, Michael Kühl.
    World Economy. December 09, 2016
    This paper analyses whether the Bank of Japan (BoJ) had fundamental concepts in mind when carrying out interventions in the foreign exchange market. We start by considering different long‐run fundamental target values based on a monetary exchange rate model and compare them with more ad hoc targets. Based on these findings, we explain the intervention probability for the BoJ after 1991 based on an ordered probit model by accounting for subperiods and asymmetric effects. It turns out that estimated fundamentally based values for the exchange rate provide additional information for the decision to intervene, in particular after 1995. However, short‐run ad hoc targets seem to be very important, in particular from 1991 until 1995, while medium‐run ad hoc targets gain importance at the end of the 1990s. Overall, we find a ‘leaning against the wind’ strategy in the event of overvaluation relies on ad hoc targets while intervention in cases of undervaluation seems to be guided more strongly by deviations from fundamental values.
    December 09, 2016   doi: 10.1111/twec.12448   open full text
  • The Relationship between Political Tensions, Trade and Capital Flows in ASEAN Plus Three.
    Thomas Gawarkiewicz, Yao Tang.
    World Economy. December 07, 2016
    We estimate the effects of political tension on trade and capital flows in ASEAN Plus Three countries in the framework of a gravity model. We quantify political tension through text‐parsing software reading daily Reuters’ articles from 1990 to 2013 and exclude Brunei and Laos due to sparsity of news coverage. Regarding bilateral trade, we find that political conflict, measured by negative reports in Reuters’ articles, seems to only affect bilateral trade between countries that are not both members of the World Trade Organization (WTO). For these countries, a 1 per cent rise in the tension score results in a 0.05 per cent decline in trade. There is weaker evidence that improvement in bilateral relationship, measured by positive reports in Reuters’ articles, is associated with more trade. As for capital flows, while long‐term capital flows, measured by foreign direct investment, appear to be unaffected by short‐term tensions, both a non‐democratic government and a history of war negatively affect FDI.
    December 07, 2016   doi: 10.1111/twec.12478   open full text
  • Strategic Competition in the Asian Mega‐regionalism and Optimal Choices.
    Guijun Lin, Jiansuo Pei, Jin Zhang.
    World Economy. November 29, 2016
    The strategic interactions of mega‐regional blocs such as the Trans‐Pacific Partnership (TPP), the Regional Comprehensive Economic Partnership and even the ‘One Belt and One Road’ (OBOR) in the Asia‐Pacific reflects the dual purposes of large countries as they seek not only the welfare gains from trade liberalisation, but also the leadership in a trading bloc or the right to set the rules. This paper designs two sequential network formation games – a leadership game and a trade liberalisation game, to model this phenomenon and predict the equilibrium result. In the first game, we show how the incorporation of leadership affects the choices among different trading structures. Specifically, we show that the parallel trading blocs emerge as the equilibrium outcome only when there exists large loss from giving up leadership. In the second game, we describe how the globalisation is arrived and conduct numerical simulations to test our theoretical results. The predictions of the game are supported by the real‐world data based on simulation results.
    November 29, 2016   doi: 10.1111/twec.12474   open full text
  • Trademark Protection, Quality Improvement and Exports in Developing Countries.
    Lei Yang, Xiaopeng Yin, Yin He.
    World Economy. November 17, 2016
    Trademarks indicate the inherent quality or other distinguishing features of products. Strong trademark protection can lower consumers' costs of searching for preferred quality characteristics. With weak trademark protection, firms in developing countries may not be willing to provide high‐quality products. With strong trademark protection, firms have an incentive to maintain or improve quality over time in order not to erode the value of their trademarks. By solving the theoretical model, we show that strengthened trademark protection in developing countries may induce domestic firms to become exporters and raise the quality of products on the export market. The welfare analyses show that strengthened trademark protection in developing countries benefits Southern customers and firms producing high‐quality products, but harms firms producing counterfeits and uninformed customers, if firm H charges low prices. Given firm H charges a high price, the strengthened trademark protection only helps firm H and informed customers in the South while leaves the others unaffected.
    November 17, 2016   doi: 10.1111/twec.12468   open full text
  • Reviewing Trade Policy in China During the Transition to Balanced Economic Growth.
    José R. Sánchez‐Fung.
    World Economy. November 15, 2016
    The paper reviews the World Trade Organization's analysis of developments in China's trade policy during 2012–14. The review overlaps with the continuing Great Recession and with China's determination to foster a sustainable rate of economic growth. Developments in the country's trade policy include the launching of the Shanghai pilot free trade zone. China faces a series of trade policy‐related challenges including the complex process necessary to internationalise the renminbi.
    November 15, 2016   doi: 10.1111/twec.12476   open full text
  • European Union Market Access Conditions and Africa's Extensive Margin of Food Trade.
    Fatima Olanike Kareem, Bernhard Brümmer, Inmaculada Martinez‐Zarzoso.
    World Economy. November 09, 2016
    This paper examines the impact of two European Union (EU) market access regulations in the food sector presumed to simultaneously affect firms’ decisions to export food products to the EU. We analysed EU pesticide standards on African exports alongside a complementary non‐tariff measure in the form of a minimum entry price regulation, which aims to protect EU growers of certain fruits and vegetables against international competition. Analysis was based on Africa's exports of tomatoes, oranges, and lime and lemon to the EU between 2008 and 2013, using the gravity model of trade. Our results show that EU market access conditions constitute significant barrier to the formation of new trade relation between the EU and Africa. In addition, initiation of trade relationships is contingent not only on market access conditions but also on domestic market constraints in Africa. These results imply that negotiating preferential entry prices duties and the removal of domestic market restraints as well as strengthening domestic capacity to comply with EU standards to enhance continuous market access for the continent could stimulate food trade along the extensive margin.
    November 09, 2016   doi: 10.1111/twec.12466   open full text
  • Europe's Growth Crisis: When and How Will It End?
    Dominick Salvatore.
    World Economy. November 02, 2016
    This paper analyses Europe's growth problem. Recovery from the recent global financial crisis and ‘great recession’ has been slower than after previous recessions in most advanced countries and areas, especially Europe. But the European growth problem is structural in character and it started much earlier. This paper analyses the structural causes of the European growth problem, evaluates the policies that Europe adopted to overcome it, and concludes that even with the appropriate policies, the prospects for accelerating growth in Europe will be difficult, especially in the context of Brexit and the slowdown of world growth in general.
    November 02, 2016   doi: 10.1111/twec.12460   open full text
  • How Do the Trans‐Pacific Economies Affect the USA? An Industrial Sector Approach.
    Takeshi Yagihashi, David D. Selover.
    World Economy. November 02, 2016
    This paper studies how the Trans‐Pacific region affects the US economy in terms of business cycle transmission. We use a large data set consisting of disaggregated sectoral industrial production indexes from selected countries in the region and employ a factor‐augmented vector autoregression (FAVAR) approach to analyse the transmission of shocks in different industries. We find that a positive output shock in the entire Trans‐Pacific region has positive effects on the majority of US manufacturing sectors. We also find that sectoral shocks in five sectors of the Trans‐Pacific region have a large impact on the overall US economy. Three of the five sectors displayed strong same‐sector responses relative to the overall response, suggesting that vertical production linkages might play a key role in the transmission of shocks. Our results highlight the importance of examining industrial sectors in studying the transmission of shocks in the Trans‐Pacific region.
    November 02, 2016   doi: 10.1111/twec.12471   open full text
  • Understanding the Relationship between Inflation and Growth: A Wavelet Transformation Approach in the Case of Bangladesh.
    Gazi Salah Uddin, Ahmed Taneem Muzaffar, Mohamed Arouri, Bo Sjö.
    World Economy. November 01, 2016
    This paper re‐examines the relationship between inflation and economic growth in developing countries. Both the theoretical and the empirical literature are extremely divided on this issue. We apply a relatively new empirical technique – the continuous wavelet transform – to Bangladesh. Bangladesh is of interest because of its remarkable economic growth and poverty reduction during the last 30 years in combination with, for a developing country, a controlled inflation. The wavelet analysis is a contribution because it displays how the correlation and the lead–lag structure between variables change over timescales, taking into account that growth and inflation can follow several different cycles. Comovements between variables are generally studied in the time domain. Results from studies in the time‐domain study can be sensitive to the frequency of observations. On the other hand, studies in the frequency domain are not easily translated into time domains that can be associated with economic policies. The wavelet methodology finds a balance between time and frequency domains. Our study finds that growth Granger causes inflation at all frequency scales, starting from the short run to the very long run. Inflation, on the other hand, Granger causes growth in the long run but not in the short run. This result has implications for Bangladesh, and as such for similar developing countries, where some policymakers believe that inflation must be kept at very low levels for sustained economic growth.
    November 01, 2016   doi: 10.1111/twec.12429   open full text
  • Who Supports the ECB? Evidence from Eurobarometer Survey Data.
    Etienne Farvaque, Muhammad Azmat Hayat, Alexander Mihailov.
    World Economy. November 01, 2016
    This paper studies the determinants of the support for the European Central Bank (ECB) in the member countries of the European Monetary Union (EMU) and their evolution from 1999 to 2015. Our contribution is to examine micro‐level sociodemographic characteristics from the Eurobarometer surveys jointly with macroeconomic indicators of trust in a central bank in order to evaluate econometrically their relative importance over time. Pseudo‐panel logit estimates reveal that the former have a dynamically stable, and generally stronger influence taken altogether, when compared with the latter. Interestingly, we find that while expected inflation becomes a positive determinant of trust in the ECB after the global financial crisis (GFC), actual inflation gets no statistical significance. Having taken centre stage in the monetary policy debate in the Euro‐area post‐GFC and especially since 2013, excessive disinflation and risk of deflation attracted strong attention by the public and have consequently affected its perceptions about the ECB. Accordingly, our results emphasise forward lookingness of the EMU population with regard to ‘deflation scares’ in determining trust in the ECB, in addition to disentangling the contributions of the key individual‐level sociodemographic factors, and can duly inform ECB's communication strategy.
    November 01, 2016   doi: 10.1111/twec.12472   open full text
  • Networks of Value‐added Trade.
    João Amador, Sónia Cabral.
    World Economy. October 31, 2016
    Global value chains (GVCs) require new methods for evaluating interconnections among countries, which can no longer be accurately appraised by standard bilateral gross trade flows. This paper uses tools of network analysis to examine the evolution of value‐added trade from 1995 to 2011. GVCs are very centralised and asymmetric networks, with a few large economies acting as hubs, which exposes them to the propagation of idiosyncratic shocks. As GVCs expanded, the networks of foreign value added in exports became denser, more complex and intensively connected. The regional dimension of GVCs is still dominant but is progressively giving place to a more global network. Networks of foreign value added in goods exports outpace those of services exports. However, foreign inputs of services are important for exports of both goods and services. There is a striking rise of China as a supplier of value added, while Germany and the United States maintain a central role in GVCs over the whole period.
    October 31, 2016   doi: 10.1111/twec.12469   open full text
  • External Public Debt, Trade Linkages and Contagion During the Eurozone Crisis.
    Eleonora Cutrini, Giorgio Galeazzi.
    World Economy. October 31, 2016
    Against the backdrop of the contagion literature, the paper analyses the impact of financial and trade linkages on sovereign bond spreads in the Eurozone crisis. Using quarterly data for a sample of EMU countries during the period 2000–13, we estimate fixed‐effect panel models with Driscoll and Kraay standard errors that are robust to general forms of spatial and temporal dependence. Our main results can be summarised as follows: first, we suggest that the ‘sudden stop’ of capital inflow towards the peripheral sovereign debt triggered a re‐segmentation of financial markets and economic systems along national borders, with negative implications for risk‐sharing and the efficient allocation of capital. The ‘home bias’ effect – that is the increase in the share of sovereign debt held by domestic banks – worsened the country‐specific risk because the twin crisis (sovereign and banking) began to be conceived as more closely intertwined within countries than before. Second, the structure of international trade helps to account for the geographic scope of contagion, even after controlling for macroeconomic and fiscal vulnerabilities. Finally, the ‘substitution effect’ of public debt securities of stand‐alone emerging countries has affected more the sovereign spreads in the core than in the periphery.
    October 31, 2016   doi: 10.1111/twec.12470   open full text
  • Does Foreign Direct Investment Promote Exports? Evidence from African Countries.
    Abdoul G. Mijiyawa.
    World Economy. October 28, 2016
    This paper empirically examines the effect of foreign direct investment (FDI) inflows on exports in Africa. Using the system‐generalised method of moments estimator for linear dynamic panel data on a sample of 53 African countries and five‐year periods from 1970 to 2009, the paper finds that higher FDI inflows are positively and significantly linked with higher exports of goods and services. A large part of the FDI effect is driven by its spillover effects on exports. The paper also finds the lagged value of exports, a competitive currency, as well as increases in domestic investment and physical infrastructure, to be factors stimulating African exports.
    October 28, 2016   doi: 10.1111/twec.12465   open full text
  • Non‐Tariff Measures, Specific Trade Concerns and Tariff Reduction.
    Gianluca Orefice.
    World Economy. October 19, 2016
    This paper studies the determinants of the recent proliferation of Specific Trade Concerns raised at the WTO on non‐tariff trade measures (NTMs), with a focus on sanitary and phytosanitary (SPS) and technical barriers to trade (TBTs). Even though NTMs are imposed de jure to protect consumers from unhealthy products, they increase trade costs de facto. So, when tariff protection lowers, NTMs become effective barriers to trade and the exporting countries can complain at the dedicated committee at the WTO (STCs). Therefore, we study whether STCs are raised by exporting countries as a consequence of tariff reductions in importing countries, that is when non‐tariff measures become barriers to trade. Using a recent database on STCs over the period 1996–2010, we find empirical evidence that SPS and TBT concerns are raised by exporting country as a consequence of importer's tariff cut.
    October 19, 2016   doi: 10.1111/twec.12447   open full text
  • How Income and Crowding Effects Influence the World Market for French Wines.
    Fabien Candau, Florent Deisting, Julie Schlick.
    World Economy. October 13, 2016
    Wine prices rose rapidly between 2001 and 2011 but have now stagnated. The growth phase could be explained by the increased demand from emerging markets, while the subsequent stagnation may result from the crowding effect caused by the entry of numerous new varieties onto the wine market. The generalised model of ideal variety proposed by Hummels and Lugovskyy combines these two elements, and focusing on French exporters, we find partial support for this explanation at the world level. A 1 per cent increase in GDP per capita (income effect) generated an increase in price of 1.13 per cent between 2001 and 2011. In contrast, a 1 per cent increase in market size (competition effect) reduced prices by 1.10 per cent over the same period. This paper goes further into the analysis of these effects by considering wine exports according to the mode of transport used and indirectly evaluates economies of scale when wine is exported by land, sea or air (via a gravity equation). Economies of scale are observed for transport by plane and ship but not for road. A 10 per cent increase in the value of wine exported by road (plane) leads to a rise (reduction) in transport costs of 0.5 per cent (19 per cent).
    October 13, 2016   doi: 10.1111/twec.12446   open full text
  • China and Global Macroeconomic Interdependence.
    Rod Tyers.
    World Economy. October 12, 2016
    China is transitioning towards more inward‐focussed growth, causing adverse changes in the product and financial terms of trade in the advanced economies. At the same time, international financial markets tussle between tightening forces associated with the US recovery on the one hand and unconventional monetary expansion in Europe and Japan on the other. The way these shocks interact is examined in this paper using a global macromodel with national portfolio rebalancing and asset differentiation and a representation of unconventional monetary policy. Results are found to be sensitive to the contributions of productivity and capital accumulation to China's growth. When these are offered in realistic combination, the effects are deflationary in the United States and China, militating against contractionary US monetary policy. Monetary responses in the United States and China then combine with price targeting regimes in the EU and Japan to expand liquidity globally, amplifying impacts on financial markets and the global distribution of real investment.
    October 12, 2016   doi: 10.1111/twec.12435   open full text
  • Imported Intermediates, Absorptive Capacity and Productivity: Evidence from Ghanaian Manufacturing Firms.
    Luke Emeka Okafor, Mita Bhattacharya, Harry Bloch.
    World Economy. October 11, 2016
    This paper analyses whether the use of imported intermediates improves productivity using firm‐level panel data of manufacturing firms in Ghana covering the period between 1991 and 2002. This includes examining the importance of absorptive capacity (ABC) in enhancing the productivity gains from imported intermediates. We propose lagged relative productivity as a new measure of ABC. For any given period, ABC is defined as the natural logarithm of a firm's total factor productivity (TFP) in the previous period relative to the firm's initial TFP. An alternative measure of ABC considers real value added per worker in lieu of TFP. Overall, we find that firms with high levels of ABC derive productivity gains from the contemporaneous and prior use of imported intermediates, particularly for firms operating in the input‐intensive industries. Our findings are robust to different specifications of the base model and different estimation techniques.
    October 11, 2016   doi: 10.1111/twec.12467   open full text
  • Exporters and Importers of Services: Firm‐Level Evidence on Italy.
    Stefano Federico, Enrico Tosti.
    World Economy. October 10, 2016
    This work contributes to the growing literature on international trade in services at firm level. Our data set provides information on exports and imports of services (excluding transportation and travel) in 2008–09 for almost 3,000 Italian industrial and services firms, divided by partner country and type of service. We report a set of stylised facts on services trade and analyse the choice between export and foreign direct investment in services at the firm level. We find that the export and import of services are highly concentrated in just a few firms. Firm‐level variation in trade is positively correlated with firm size and productivity. Country‐level variation is to a large extent explained by the standard gravity variables: distance strongly reduces trade in services in spite of their intangibility. Smaller and less productive firms choose to export rather than sell through foreign affiliates, although there is some heterogeneity among service types.
    October 10, 2016   doi: 10.1111/twec.12462   open full text
  • Age Structure and Trade Openness: An Empirical Investigation.
    Yukio Fukumoto, Tomoko Kinugasa.
    World Economy. October 10, 2016
    This study focuses on the relationship between age structure and trade openness. We hypothesise that a higher share of the working‐age population in the total population increases trade openness, because the dependent population tends to spend more than the working‐age population on non‐tradable goods such as education and medical services. We estimate the effects of age structure on trade openness using panel data for 85 countries from 1991 to 2010. The empirical results show that the share of the working‐age population has a positive effect on trade openness. An increase in the share of the working‐age population is considered to be one factor that contributed to an increase in trade openness in the sample period.
    October 10, 2016   doi: 10.1111/twec.12464   open full text
  • The Impact of Exports on Economic Growth: It's the Market Form.
    Michael Jetter.
    World Economy. October 07, 2016
    This paper unites explanations about the growth effects from various trade characteristics, proposing the market form into which a country exports as the main driver. Exporting into concentrated world markets (oligopolies or monopolies) leads to higher profit margins, similar to fundamental microeconomic logic. The paper develops an index measuring the average market form of a country's exports. This index produces a positive and statistically significant coefficient in conventional growth regressions. A one standard deviation increase is suggested to raise growth by 0.885 percentage points. This result holds for numerous extensions and seems particularly important for developing economics.
    October 07, 2016   doi: 10.1111/twec.12461   open full text
  • Offshoring and Outsourcing Potentials: Evidence from German Micro‐Level Data.
    Tobias Brändle, Andreas Koch.
    World Economy. October 07, 2016
    This paper provides two indicators that measure: (i) offshoring potentials (cross‐country geographical relocation) and (ii) outsourcing potentials (organisational relocation) separately at the level of jobs, occupations, tasks and industries. We use four waves of the BIBB/BAuA Labour Force Survey in Germany and apply principal component analysis based on a large set of potential determinants of offshoring and outsourcing derived from the literature. Our results show significant variation across these levels in the determinants of both dimensions. We provide a comprehensive empirical classification of the determinants of how easily jobs can be offshored and outsourced. This can serve as a basis for further research to investigate the economic effects of job offshoreability.
    October 07, 2016   doi: 10.1111/twec.12439   open full text
  • Examining Determinants of Foreign Wage Premiums in China.
    Theresa M. Greaney, Yao Li.
    World Economy. October 05, 2016
    We estimate foreign wage premiums for every 3‐digit manufacturing industry in China and discover a wide range of premiums both for ‘foreign’ ownership and for overseas Chinese ownership. Foreign ownership generates larger and more prevalent wage premiums than overseas Chinese ownership, but both produce premiums that respond similarly in estimates of determinants. Using the number of computers per worker to measure firms' technology levels, we find evidence consistent with the hypothesis that foreign firms pay higher wages to reduce the risk of worker turnover and the accompanying technology leakage in 76 to 78 per cent of industries. However, this determinant explains only 5 to 6 per cent of the foreign wage premium. We find the most intensive support for the ‘fair wage’ hypothesis that foreign firms pay higher wages because they are more profitable than domestic firms and workers in more profitable firms expect to be paid more, otherwise they will shirk. This hypothesis explains an average of 8 to 9 per cent of the foreign wage premiums, with support found in 72 to 75 per cent of the industries. When we consider the best combination of explanatory variables to include in each industry's wage regression, we find evidence consistent with our combined hypotheses in most industries, but we still find large residual foreign wage premiums.
    October 05, 2016   doi: 10.1111/twec.12441   open full text
  • Anti‐dumping Duty and Firm Heterogeneity: Evidence from Korea.
    Joo Yeon Sun, Seungrae Lee.
    World Economy. October 04, 2016
    This study examines the imposition of anti‐dumping (AD) duties on imported products in Korea. We use panel data for Korean firms between 2000 and 2012 and estimate the firm‐level productivity of import‐competing firms before and after AD imposition. Using a difference‐in‐difference framework, we compare firm productivity changes in a treatment group that receives AD protection to a control group that does not. In contrast to recent findings on the effects of AD measures, we find that the average protected firms experience productivity loss during the AD protection period. Examining the changes in external market condition and internal resource allocation during the protection period, such loss appears to be more evident inside highly concentrated import‐competing sectors. Further, we find that protected firms are more likely to reallocate their resources abroad via FDI at the expense of domestic production and investment once they receive temporary protection.
    October 04, 2016   doi: 10.1111/twec.12463   open full text
  • Export Competitiveness of Developing Countries and US Trade Policy.
    Shushanik Hakobyan.
    World Economy. October 04, 2016
    This paper examines the impact of the revocation of tariff exemptions on exports of developing countries using data from cases of the Competitive Needs Limits (CNL), a feature of the US Generalized System of Preferences (GSP). Competitive Needs Limits are arguably imposed on ‘super competitive’ GSP beneficiaries who no longer need the preferential treatment, and aim to reserve the GSP benefits for other GSP eligible countries. The findings suggest that being excluded from the GSP as a result of a CNL induces a large and significant drop in US imports from affected countries, both in value and as a share of total US imports, and much of their market share is captured by non‐GSP countries, contrary to the policy objectives of CNLs.
    October 04, 2016   doi: 10.1111/twec.12443   open full text
  • Why do within‐firm–product export prices differ across markets? Evidence from Hungary.
    Holger Görg, László Halpern, Balázs Muraközy.
    World Economy. September 30, 2016
    In this study, we analyse the relationship between distance and f.o.b. export unit values using firm–product–destination data from Hungarian manufacturing. Using 10‐digit Harmonized System data, we show that a doubling of distance is associated with about 7.5 per cent increase in the average product‐level price, from which five percentage points can be attributed to within‐firm–product variation. We run a number of tests to look for heterogeneity in this pattern. Interestingly, the measured effect is very similar for domestic and foreign firms but distance seems to matter somewhat more for EU countries than outside the EU. We do not find much evidence for heterogeneity across product categories based on measures of vertical differentiation. The level of product aggregation matters; the distance coefficient is larger when products are aggregate to the eight or six‐digit level.
    September 30, 2016   doi: 10.1111/twec.12442   open full text
  • Multi Fibre Arrangement and Wage Inequality: Firm and State‐level Evidence from India and a Theoretical Model.
    Mausumi Kar, Saibal Kar.
    World Economy. September 30, 2016
    The phased elimination of Multi Fibre Arrangements (MFA) for textile and apparel has been one of the most compelling trade policy reforms that removed a system of bilateral quotas. The reform brought in significant changes in the industrial structures for exporters from the south, including India. Has the labour‐intensive high‐employment textile and clothing industry in India benefited from this global move towards freer trade? For India, the industry has witnessed unprecedented market concentration of export‐oriented firms. Firm‐level empirical estimate illustrates that workers in the export‐oriented firms in India are adversely affected due to withdrawal of quota. Accumulation of net fixed assets and growth of sales impart positive impact on firm‐level wages that cannot outweigh negative impact due to fall in exports. We also find negative impact of profit on aggregate wage bill for the industry with firms spread over 11 major states in India. We show that the mean deviation of industry‐level wage is positively and significantly associated with mean deviation of the number of factories at the state level and negatively with profit. Finally, a brief analytical exercise obtains conditions under which joint withdrawal of quota and import tariff could raise the aggregate labour income in developing countries, in general.
    September 30, 2016   doi: 10.1111/twec.12437   open full text
  • The Effect of Aggregation Bias: An NTB‐modelling Analysis of Turkey's Agro‐food Trade with the EU.
    Beyhan Bektasoglu, Tanja Engelbert, Martina Brockmeier.
    World Economy. September 30, 2016
    We explore how different data aggregation levels affect the gravity estimates of non‐tariff barriers (NTBs) in the agro‐food sector, and we examine their related impacts on policy simulations of an expansion to the European Union (EU) that would include Turkey. We calculate two sets of ad valorem equivalents (AVEs) of NTBs using the gravity approach to disaggregated and aggregated Central Product Classification data for 15 Global Trade Analysis Project (GTAP) agro‐food sectors. We find that the AVEs of NTBs vary substantially across products and that using aggregated data primarily results in greater effects of NTBs. In a second step, we incorporate the AVEs of NTBs into the GTAP model to evaluate Turkey's EU membership and conclude that aggregation bias has considerable effects on both the estimation of NTBs and the general equilibrium simulation results. Utilising different data aggregation levels leads to a great variability of trade costs of NTBs and, hence, to misleading trade and welfare effects.
    September 30, 2016   doi: 10.1111/twec.12444   open full text
  • Trade Liberalisation and the Wage Skill Premium in Korean Manufacturing Plants: Do Plants’ R&D and Investment Matter?
    Chin Hee Hahn, Yong‐Seok Choi.
    World Economy. September 29, 2016
    This paper examines the effects of output and input tariff reductions on within‐plant wage skill premium in Korean manufacturing plants. We find evidence that output tariff reduction interacts differently with plants’ R&D and investment behaviours, respectively, to affect wage skill premium. More specifically, output tariff reduction increases wage skill premium mostly in R&D‐performing plants while reducing it mostly in plants making positive facility investments. While there is weak evidence that input tariff reduction increases wage skill premium, no such interactive effects are found. One story behind our results is that, although both R&D and facility investments may respond to changes in profit opportunities due to output tariff reductions, R&D raises the relative demand for the skilled workers while facility investment, an activity of increasing production capacity, raises the relative demand for the unskilled workers.
    September 29, 2016   doi: 10.1111/twec.12438   open full text
  • Do High‐Skill Immigrants trigger High‐Quality Trade?
    Giorgia Giovannetti, Mauro Lanati.
    World Economy. September 25, 2016
    This paper investigates the links between product quality and the pro‐trade effect of ethnic networks using a large panel on bilateral stocks of immigrants with information for 19 OECD destination countries and 177 origin countries. In line with the approach of Rauch and Trindade, we classify traded goods according to their quality level and separately estimate pro‐trade elasticity of ethnic networks for each subgroup. We allow for heterogeneity of immigrants according to both the level of per capita income of their country of origin and their education level. Our findings suggest that the trend of the pro‐trade effect of immigrants over quality seems to be driven by the North–South specialisation across varieties for both supply and demand. Indeed, ethnic networks mostly facilitate imports of those varieties for which their countries of origin have a comparative advantage; as for exports, ethnic networks are more effective in promoting exports to their homeland of those varieties for which there is relatively higher demand. We show that the same trend applies to products characterised by the same degree of differentiation according to the classification proposed by Rauch and – given their lower liquidity constraints and advantages in human capital – we find a greater impact of high‐skilled migrants consistent across all quality levels.
    September 25, 2016   doi: 10.1111/twec.12431   open full text
  • Reconsidering Carbon Permits Auction Mechanism: An Efficient Dynamic Model.
    Mingrong Wang, Mingxi Wang, Lihua Lang.
    World Economy. September 15, 2016
    One of major concerns for China and developing countries is the new international trade rule concerning carbon emissions, which one needs to know its suitable mechanism and the possible implication on China's carbon trading market. Precisely, in an emission‐and‐trade scheme, an important question is whether the auction outcome is efficient, since this is closely related with the economic costs of emissions reduction. Due to the unique features of carbon permits, existing auction mechanisms do not seem to be suitable for their distribution. Inspired by the tâtonnement process, this paper proposes a new auction mechanism for them. For both practical application and theoretical extension, the discrete and continuous situations are examined, respectively. The result shows that the proposed auction converges to Pareto optimal equilibria, and that without ties, the equilibrium is unique. For bidders, the straightforward bidding strategy is the most preferred one, in the sense that the strategy makes them avoid the risk of loss. Intuitively, the auctioneer's utility is increasing in the number of bidders, while bidders’ pay‐off is increasing in permits. To a certain extent, the proposed auction mechanism resolves the confliction between efficiency and revenue in the multi‐item auction theory, while it increases people's understanding for carbon emission auction mechanism design.
    September 15, 2016   doi: 10.1111/twec.12436   open full text
  • Service Trade and Occupational Tasks: An Empirical Investigation.
    Andrea Ariu, Giordano Mion.
    World Economy. September 15, 2016
    Using microdata for Belgium, we investigate the relationship between changes in the task content of production and the rise in the number of service exporters. We show that occupational tasks changes display an extremely consistent relationship with participation to service exports: in sectors in which the importance of face‐to‐face communication with customers has increased, the firm‐level likelihood of entering export markets has decreased; instead, the likelihood of exporting increased in sectors in which the sophistication of production and delivery has expanded (following an increase in cognitive tasks). Moreover, our analysis suggests that the change in IT use per se does not strike as being a key underlying force behind the increase in the extensive margin of service exports. These results are robust controlling for comparative advantage, offshoring, trade liberalisation and demand shifts.
    September 15, 2016   doi: 10.1111/twec.12440   open full text
  • Dynamic Global Linkages of the BRICS Stock Markets with the United States and Europe Under External Crisis Shocks: Implications for Portfolio Risk Forecasting.
    Shawkat Hammoudeh, Sang Hoon Kang, Walid Mensi, Duc Khuong Nguyen.
    World Economy. September 13, 2016
    Crisis shocks often lead to changes in the interdependence across stock markets and thus affect risk assessment and management. This paper investigates the extent to which the global financial crisis of 2008–09, which was triggered by the US subprime crisis in 2007, and the European debt crisis that started at the end of 2009, affects the interdependence of the leading emerging markets of the BRICS countries with those of the United States and Europe. Our empirical analysis makes use of the FIAPARCH model combined with the Dynamic Equicorrelation (DECO‐FIAPARCH), which allows for the estimation of market linkage for a large group of countries as a whole, while controlling for asymmetric volatility and long memory. The results reveal the presence of important changes in the time‐varying linkages of the BRICS stock markets with the US and European ones. In particular, the average linkages have significantly been higher between 2007 and the first half of 2012 than the remaining part of the sample, and there is also evidence of a structural change around the Lehman Brothers collapse. We also show the effects of these stylised facts on portfolio risk assessment and forecasting.
    September 13, 2016   doi: 10.1111/twec.12433   open full text
  • Retailers and Consumers: The Pass‐through of Import Price Changes.
    Eike Berner, Laura Birg, Dominik Boddin.
    World Economy. September 08, 2016
    In this paper, we estimate pass‐through rates of import price changes to retail prices across retailers and consumers for apparel purchases in Germany for the period of 2000–07. We find that high‐price retailers do not pass through changes in the import price. Pass‐through rates for low‐price retailers are 53 per cent within three months. Consequently, pass‐through rates for low‐income households are 58 per cent, significantly larger than those for high‐income households. We then present one possible explanation for these observations in a theoretical model with endogenous vertical product differentiation due to bundling an ex ante homogeneous import goods with services. Following an import price change, retailers who sell a cheaper unbundled product change prices to a greater extent than retailers who sell a higher‐priced bundle of product and service.
    September 08, 2016   doi: 10.1111/twec.12432   open full text
  • Financial Development, Financial Structure and Income Inequality in China.
    Guanchun Liu, Yuanyuan Liu, Chengsi Zhang.
    World Economy. August 19, 2016
    Using panel data of 23 provinces during the period 1996–2012, this paper investigates the impacts of financial development and structure on income inequality in different administrative districts (urban, rural and overall) in China. The results produced by the dynamic generalised method of moments estimator provide some evidence for a linear and inverse ‘U‐shape’ relationship between financial development and income inequality, and increasing the relative importance of financial markets to banks helps to reduce income inequality. Furthermore, the results of panel threshold regressions show that the benefits of financial development only occur if the stock market activity has reached a threshold level and disappear if the stock market capitalisation has reached a certain scale. Meanwhile, the impact of the financial structure weakens as the financial development expands and the proportion of financial markets increases. We also find that the impacts of financial development and structure on rural income inequality are stronger than those on urban income inequality.
    August 19, 2016   doi: 10.1111/twec.12430   open full text
  • EU Trade Regulation for Baby Food: Protecting Health or Trade?
    Federica DeMaria, Sophie Drogue.
    World Economy. August 17, 2016
    This paper explores the effect of European Union (EU) food safety regulations on EU imports of baby food. Pesticides and contaminants contribute to various health problems. Children are more vulnerable to the dangers of pesticides and contaminants because as soon as they start eating solids, they consume a limited number of food items, most of which are fruits and vegetables. To protect the health of the most vulnerable part of the population, the EU regulations stipulate that no more than 0.01 mg/kg of any single pesticide residue is permitted in baby food. In this respect, the EU differs from most of its trading partners, the majority of which do not differentiate food safety regulations according to the age of the consumer. The purpose of this paper is to compare the EU regulations on maximum residue limits of pesticides to those of its major competitors through a severity index. This index is then introduced into a gravity equation to assess the impact on EU imports of baby food. We find that the EU regulation had a negative impact on the volume of trade but a positive one on the probability of setting up new trade relationships.
    August 17, 2016   doi: 10.1111/twec.12434   open full text
  • Fixed Export Costs and Trade Patterns: The Case of China.
    Yu Gao, Yin He, Xiaopeng Yin.
    World Economy. August 12, 2016
    Current research on heterogeneous firms does not include firms' choices on trade patterns. This is an important issue in developing countries. The growth in the number of low‐productivity processing firms in developing countries needs further study to show how these firms survive and prosper. In this study, we adopt the idea in Castro, Li, Maskus and Xie that fixed trade costs should be a co‐determinant of a firm's export decisions and it is a substitute for productivity. We use firm‐level data for China, for the period 2000–2006, to show that fixed export costs play a key role in firms' trade pattern decisions. More specifically, firms with low productivity and low fixed trade costs have a significantly higher probability to choose the processing trade pattern. Although the processing trade is often criticised for its low productivity and value added, it has natural advantages in its savings on fixed export costs. Therefore, the exporting firm is able to survive, prosper and contribute to growth in developing regions.
    August 12, 2016   doi: 10.1111/twec.12425   open full text
  • Foreign Acquisitions and Target Firms' Performance in China.
    Qing Liu, Ruosi Lu, Larry D. Qiu.
    World Economy. August 12, 2016
    This paper empirically investigates the effects of foreign acquisitions on several performance measures of Chinese target firms. Using a self‐constructed database that includes information on foreign acquisitions in China and the accounting information of Chinese manufacturing firms from 1998 to 2007, we find that foreign acquisitions significantly improve the productivity, sales and fixed asset investment of the target firms. We address the potential endogeneity issue in the OLS estimation using the difference‐in‐differences technique, with two control groups, namely the would‐be targets and the propensity‐score‐matched targets. We also find that the performance‐enhancing effect of foreign acquisitions becomes stronger when larger technology gaps are observed between the acquirers and the targets. An inverted‐U relationship is observed between the post‐acquisition performance of the target firms and the target firm equity that is held by the foreign acquirers. The performance effects are qualitatively different among vertical, horizontal and conglomerate acquisitions.
    August 12, 2016   doi: 10.1111/twec.12428   open full text
  • Fiscal Rules and Twin Deficits: The Link between Fiscal and External Balances.
    Harald Badinger, Aurélien Fichet de Clairfontaine, Wolf Heinrich Reuter.
    World Economy. August 11, 2016
    This paper investigates the relationship between countries' fiscal balances and current accounts with an emphasis on the role of fiscal rules. The direct effect of fiscal policy on the current account via aggregate (import) demand is potentially amplified by indirect effects, materialising through interest rate effects and intergenerational transfers that reduce savings. On the other hand, the implied positive relation between fiscal and external balances is potentially attenuated by offsetting changes in savings through Ricardian equivalence considerations. We expect this attenuation effect to be stronger in countries with more stringent fiscal rules and test this hypothesis using a panel of 73 countries over the period 1985–2012. As with previous studies, we find a positive effect of fiscal balances on the current account, supporting the twin deficit hypothesis. However, the effect of fiscal balances on the current account depends on the stringency of fiscal (budget balance or debt) rules in place; it is reduced by one‐third on average and virtually eliminated for countries with the most stringent fiscal rules.
    August 11, 2016   doi: 10.1111/twec.12427   open full text
  • Local Content Requirements Versus Tariff Equivalents: How We Measure Matters.
    Dorothee Flaig, Susan F. Stone.
    World Economy. July 29, 2016
    This article develops a mechanism to measure the impact of local content requirements as quantitative restrictions. We compare effects of the novel quantitative approach to the effects of a tariff equivalent, which is more traditionally used to analyse these types of policies. Local content requirements increase output and value added in the affected sector, but at the expense of other sectors, leading to declines in GDP and trade across the economy. Comparing the two modelling approaches, the differences in outcomes are shown to be significant.
    July 29, 2016   doi: 10.1111/twec.12426   open full text
  • Intermediaries, Firm Heterogeneity and Exporting Behaviour.
    Jiangyong Lu, Yi Lu, Yi Sun, Zhigang Tao.
    World Economy. July 29, 2016
    In this paper, we present one of the first work on the relation between firm productivity and exporting behaviour in the presence of intermediaries. Using a standard trade framework à la Melitz (2003, Econometrica, 71, 6, 1695) and Chaney (2009, American Economic Review, 98, 4, 1707), we find that the most productive firms have sales in the home country and also exporting directly to foreign countries, followed by firms with sales in the home country and exporting both directly and through intermediaries, by firms with sales in the home country and exporting through intermediaries, and finally by firms with sales in the home country only. These theoretical predictions are borne out in a data set of 12,679 firms in 29 developing economies during the 2002–06 period.
    July 29, 2016   doi: 10.1111/twec.12423   open full text
  • The Impact of Services Trade Restrictiveness on Trade Flows.
    Hildegunn K. Nordås, Dorothée Rouzet.
    World Economy. July 27, 2016
    This paper uses recent OECD data on services trade restrictions (STRI) to analyse the relationship between services trade policies and cross‐border trade in services. A standard gravity model is enhanced by the STRI indices in a cross‐section regression analysis. Services trade restrictions are negatively associated with both imports and exports of services. The surprisingly strong effect on services exports is probably explained by a negative relationship between the STRIs and sector performance indicators. Consequently, services suppliers from less open countries are less competitive abroad. Bilateral differences in regulation are also found to curtail services trade over and above the impact of the trade liberalisation level. At the margin, regulatory differences have a larger effect on trade flows the lower the level of the STRI.
    July 27, 2016   doi: 10.1111/twec.12424   open full text
  • Does Globalisation Affect Crime? Theory and Evidence.
    Arghya Ghosh, Peter E. Robertson, Marie‐Claire Robitaille.
    World Economy. July 18, 2016
    Globalisation sceptics argue that trade liberalisation has high social costs, including an increase in expropriative behaviour such as civil conflict, coercion of labour and crime. We show that a theoretical relationship between trade and expropriation exists, but the sign differs for developed and developing economies. We verify this empirically using data on crime rates. Specifically, we find that trade liberalisation, as measured by both higher openness and lower import duty rates, tends to increase burglaries and theft in very labour‐abundant countries. For other countries, however, we find that trade liberalisation has either a small negative effect on crime or no effect, depending on the country's capital abundance.
    July 18, 2016   doi: 10.1111/twec.12422   open full text
  • Current Account ‘Core–Periphery Dualism’ in the EMU.
    Roberta De Santis, Tatiana Cesaroni.
    World Economy. July 18, 2016
    Current account (CA) dispersion within European Union (EU) Member States has been increasing progressively since the 1990s. Interestingly, the persistent deficits in many peripheral countries have not been accompanied by a significant growth process able to stimulate a log run rebalancing as neoclassical theory predicts. To shed light on the issue, this paper investigates the determinants of Eurozone CA imbalances, focusing on the role played by financial integration. The analysis considers two samples of 22 OECD and 15 EU countries, three time horizons corresponding to various steps in European integration, different control variables and several panel econometric methods. The results suggest that within the EU group of countries financial integration contributed to explain the CA deterioration in the peripheral countries especially in the post‐EMU period creating an asymmetric behaviour within the EMU. From a financial stability perspective, this ‘divergence’ could hinder the effectiveness of monetary policy. By reducing the apparent benefits of participating in the monetary union, it also raises the risk of a break‐up.
    July 18, 2016   doi: 10.1111/twec.12418   open full text
  • Border Effects Before and After 9/11: Panel Data Evidence Across Industries.
    Zhiqi Chen, Horatiu A. Rus, Anindya Sen.
    World Economy. July 11, 2016
    The paper builds a unique industry‐level panel data set to estimate the border effects associated with US–Canada trade for each year from 1992 to 2005. We first establish the theoretical foundation of our empirical model as a multisector version of Anderson and van Wincoop. Estimates from data aggregated at the province/state level yield border effects that increase slightly in the early 1990s, then decline after the implementation of the North American Free Trade Agreement (NAFTA), but then increase significantly after 2001. Results based on three‐digit NAICS level data reveal higher border effects in the early 1990s and substantial heterogeneity across industries. The results are robust to a variety of specifications and models, and they suggest that the security measures adopted in the aftermath of the tragic events of 11 September 2001 had considerable adverse effects on US–Canada trade.
    July 11, 2016   doi: 10.1111/twec.12413   open full text
  • Trade Diversion as Firm Adjustment to Trade Policy: Evidence from EU Anti‐dumping Duties on Vietnamese Footwear.
    Nguyen Trong Hoai, Nguyen Truong Toan, Pham Hoang Van.
    World Economy. July 08, 2016
    This paper evaluates the impact of the 2006 European Union anti‐dumping (AD) action on Vietnamese footwear in three markets: imports to the EU, footwear producers in Vietnam, and the trade diversionary adjustment of Vietnamese firms in the US market. We find that the AD action reduced Vietnamese imports to the EU by as much as 65 per cent. Given that the EU makes up almost two‐thirds of Vietnam's footwear exports and footwear is among the top four export industries for Vietnam, this reduction is economically significant. Consistent with predictions of our model, we find evidence of trade diversion by Vietnamese producers from the EU to the US market. Our difference‐in‐difference estimates of the AD actions on the value of Vietnamese footwear imports to the United States ranged from 69 to 71 per cent over the period 2004–07 and 69 to 72 per cent in terms of quantity. These results highlight the spillover effects of trade policy in third markets when firms adjust to trade barriers. Our results are robust to triple‐difference specifications where we adjust for trend differences and a series of placebo specifications.
    July 08, 2016   doi: 10.1111/twec.12421   open full text
  • The RMB Debate: Empirical Analysis on the Effects of Exchange Rate Shocks in China and Japan.
    Soyoung Kim, Yoonbai Kim.
    World Economy. July 08, 2016
    For a better understanding of the ongoing debates on the RMB, this paper investigates the effects of exchange rate shocks on output and the current account for China and Japan. We use structural vector auto‐regression models and find that yen appreciation reduces current account surpluses while having no strong effect on output in Japan. RMB appreciation, on the other hand, has an insignificant effect on the current account, although it tends to reduce output in China. For China, dollar pricing with vertical trade integration seems responsible for the insignificant effect on the current account.
    July 08, 2016   doi: 10.1111/twec.12417   open full text
  • Time Zone Effect and the Margins of Exports.
    Rishav Bista, Rebecca Tomasik.
    World Economy. July 06, 2016
    The negative effect of time zone on trade flows has recently been established in the literature. However, thus far, no paper has explored the differing time zone effect on the intensive and extensive margin. Utilising product‐level trade data, this paper examines the impact of time zone differences on the intensive and extensive margin of exports. Furthermore, this paper examines the non‐linear impact of different levels of time zone differences on exports. Using the Poisson pseudo‐maximum likelihood estimation, the results indicate that the time zone differences negatively affect exports primarily via the extensive margin, with no effect on the intensive margin, which suggests that time zone differences act as a fixed cost of exporting. Furthermore, quartile analysis shows non‐linearities in the time zone measure, more specifically that time zones matter more at larger time zone differences. These results can have important policy implications for nations looking to increase their trade presence.
    July 06, 2016   doi: 10.1111/twec.12415   open full text
  • Market‐specific Sunk Export Costs: The Impact of Learning and Spillovers.
    Per Botolf Maurseth, Hege Medin.
    World Economy. July 04, 2016
    Firms may face sunk costs when entering an export market. Previous studies have focused on global or country‐specific sunk export costs. This study analyses the importance of market‐specific sunk export costs (defining ‘market’ as a product–country combination). We also study how market‐specific export costs can be affected by various kinds of learning and spillover effects. We use firm‐level panel data for Norwegian seafood exports distributed on products and countries. The results lend support to the hypothesis of market‐specific sunk costs. We also find evidence of learning and spillover effects, particularly within the same product group.
    July 04, 2016   doi: 10.1111/twec.12420   open full text
  • Tariff Escalation and Vertical Market Structure.
    Hong Hwang, Chao‐Cheng Mai, Shih‐Jye Wu.
    World Economy. June 30, 2016
    Many empirical studies have shown that most countries in the world reveal a specific form of tariff structure, referred to as tariff escalation, which is defined as tariff rates for final products being higher than those for intermediate goods, and the latter are higher than those for raw materials. However, trade theorists have paid scant attention to the causes of tariff escalation. To fill this gap, we set up a vertically related market model with n stages of successive monopolies. We find that a tariff on an imported good can be used to extract not only the profit of the foreign monopolist supplying this good, but also the rents acquired by all the foreign upstream monopolists through its effects on the prices of the upstream intermediate goods. Thus, as the number of production stages in the foreign country increases, the amount of rent captured by the foreign upstream producers rises and a higher tariff rate is therefore needed to extract the rent. This provides a theoretical explanation to the cause of tariff escalation.
    June 30, 2016   doi: 10.1111/twec.12414   open full text
  • Does Institutional Change Spread Across Countries? Explaining Spatial Patterns in Human Rights.
    Gerrit Faber, Michiel Gerritse.
    World Economy. June 30, 2016
    If a country improves its human rights record, will neighbouring countries benefit? Beneficial spillovers could justify intervention by the UN or one of the many other organisations that internationally fight human rights violations. We document that countries’ human rights performances often resemble the human rights situation of their neighbours. However, exploiting time variation in a spatial panel, we find that much of that resemblance is simply determined by the shared geographical location. Changes in neighbouring countries have little influence on local human rights, suggesting that contemporaneous spillovers and interactions are limited.
    June 30, 2016   doi: 10.1111/twec.12416   open full text
  • The Long‐run Relationship Between Trade and Population Health: Evidence from Five Decades.
    Dierk Herzer.
    World Economy. June 28, 2016
    In recent years, the increase in international trade has sparked a debate about the impact of international trade on population health. To date, however, there has been very little econometric research on the relationship between these two variables. This paper examines the long‐run relationship between trade openness and population health for a sample of 74 countries over five decades, from 1960 to 2010. Using panel time‐series techniques, it is shown that international trade in general has a robust positive long‐run effect on health, as measured by life expectancy and infant mortality. This effect tends to be greater in countries with lower development levels, higher taxes on income, profits, and capital gains, and less restrictive business and labour market regulations.
    June 28, 2016   doi: 10.1111/twec.12419   open full text
  • Optimal Regulation of Multinationals under Collusion.
    Bilgehan Karabay.
    World Economy. June 27, 2016
    This paper analyses the optimal collusion‐proof mechanism for the regulation of multinational firms (MNFs) in foreign direct investment (FDI) projects. There is a host country with a profitable investment opportunity. Either a multinational firm (MNF) or a local firm (LF) can undertake this project; nonetheless due to its firm‐specific advantage, and the MNF has the potential to create a larger surplus. The host government faces an informational constraint such that it cannot observe the extra surplus the MNF can generate. Using this set‐up, Karabay (2010) shows that employing foreign ownership restrictions to force a joint venture (JV) can help the host government to partially overcome its information disadvantage. In this paper, we extend Karabay (2010) by studying the host government's optimal regulatory policy when the MNF and the LF can collude. It turns out collusion imposes no cost on the host government and the expected welfare attained in the absence of collusion can still be secured under collusion.
    June 27, 2016   doi: 10.1111/twec.12410   open full text
  • Revisiting the Effective Rate of Protection in the Late Stages of Chinese Industrialisation.
    Bo Chen, Hong Ma, David S. Jacks.
    World Economy. June 27, 2016
    In this paper, we generalise conventional measures of the effective rate of protection by: (i) relaxing their small‐country assumptions; (ii) taking into account multiple stages of production; and (iii) abstracting away from their assumptions on the time‐invariance of the underlying technology using annual IO tables. We apply our new measure to China's structure of tariff protection from 1992 to 2010. When compared to conventional measures, we find its effective rates of protection to be smaller in magnitude and even negative in some sectors. The new measures are also related to industry characteristics in sensible ways, calling into question the applicability of conventional measures in the context of present‐day China.
    June 27, 2016   doi: 10.1111/twec.12408   open full text
  • How Do Exporters React to Changes in Cost Competitiveness?
    Stefaan Decramer, Catherine Fuss, Jozef Konings.
    World Economy. June 21, 2016
    Various international institutions such as the European Commission, the ECB and the OECD often use unit labour costs as a measure of international competitiveness. The goal of this paper was to examine how well this measure is related to international export performance at the firm level. To this end, we use Belgian firm‐level data for the period 1999 to 2010 to analyse the impact of unit labour costs on exports. We find an estimated elasticity of the intensive margin of exports with respect to unit labour costs between −0.2 and −0.4. This elasticity varies between sectors and between firms, with more labour‐intensive firms having a higher elasticity. The microdata also enable us to analyse the impact of unit labour costs on the extensive margin. Our results show that higher unit labour costs reduce the probability of starting to export for non‐exporters and increase the probability of exporters stopping. While our results show that unit labour costs have an impact on the intensive margin and extensive margin of firm‐level exports, the effect is rather low, suggesting that pass‐through of costs into prices is limited. The latter is consistent with recent trade models emphasising that not only relative costs, but also demand factors such as quality and taste matter for explaining firm‐level exports.
    June 21, 2016   doi: 10.1111/twec.12412   open full text
  • What Drives India's Surge in Service Exports?
    Pravakar Sahoo, Ranjan Kumar Dash.
    World Economy. June 15, 2016
    India's prowess in the service sector has been recognised the world over. Sustaining services exports is important not only to sustain India's high growth rate but also to compensate for a consistent deficit in merchandise trade and to maintain stability on the external sector. In this context, we analyse the factors of India's performance in services exports over the past three decades. The results reveal that endowment factors such as human capital, improvement in physical infrastructure and financial development are key drivers for India's surge in services exports along with world demand, exchange rate and manufacturing exports. While factors such as institutions, R&D expenditure, telecommunication, foreign direct investment and financial development significantly impact the export of modern services, traditional services exports are more dependent on infrastructure development, manufacturing exports, world demand and exchange rate. India's economic reforms in the financial sector, FDI, communication so far have helped the services exports, but India needs to focus on supply‐side factors to improve the competitiveness – and thereby volume – of services exports.
    June 15, 2016   doi: 10.1111/twec.12411   open full text
  • Does Trade Liberalisation Trigger Tax Competition? Theory and Evidence from OECD Countries.
    Nelly Exbrayat.
    World Economy. June 09, 2016
    This paper aims at assessing the empirical relevance of new economic geography models of tax competition. We rely on a simple model to specify tax reactions functions, which we estimate with a panel covering (up to) 26 OECD countries over the period 1982 to 2006. We provide striking support for the two main predictions regarding the slope and the constant of the reaction function: national governments seem to adjust their corporate tax rate towards the level chosen in countries that are more populated, and they tend to set higher corporate tax rates when their country enjoys a high real market potential. Through the latter effect, trade integration exerts a positive influence on the level of corporate taxation. However, using a theoretically grounded index of bilateral trade integration, we also show that trade liberalisation gives rise to significant tax interactions in the setting of effective average tax rates in the case of European countries, thus exerting a downward pressure on corporate tax rates.
    June 09, 2016   doi: 10.1111/twec.12405   open full text
  • External Asymmetries in the Euro Area and the Role of Foreign Direct Investment.
    Nicos Christodoulakis, Vassilis Sarantides.
    World Economy. June 02, 2016
    Soon after the introduction of the common currency, a divide emerged between two groups in the Euro area: one comprised of the North European countries achieving external surpluses and the other of the South European countries with large external deficits. This paper shows that different patterns of foreign direct investment (FDI) inflows across the Euro area countries contributed to this divergence. Our theoretical framework shows that if the economy is relatively capital‐intensive in the production of traded (non‐traded) output, FDI will be channelled in greater proportions to the traded (non‐traded) sector, thus improving (deteriorating) the trade balance. Focusing on ten Euro area countries over the period 1980 to 2009, we establish a positive (negative) long‐run effect of FDI inflows on the trade balance in the North (South). In the North, the positive effect stems from the traded sector FDI inflows that were significantly higher in comparison with the South, both before and after the EMU. In contrast, in the South, the increased FDI inflows in the post‐EMU era were dominated by investments in the non‐traded sector. When industry‐level data are employed, a positive (negative) long‐run effect of manufacturing (non‐manufacturing) FDI inflows on the trade balance in the North (South) is further established.
    June 02, 2016   doi: 10.1111/twec.12406   open full text
  • Does Brain Drain Lead to Institutional Gain?
    Xiaoyang Li, John McHale, Xuan Zhou.
    World Economy. June 01, 2016
    A country's endowment of human capital affects its institutions through various channels. This raises the possibility that skilled emigration can leave its mark on a country's institutional development. We explore the impact of emigrant human capital on home country's institutional quality. Using geographical and genetic distance‐based instrumental variables for emigration and a dynamic panel estimation method, we find that human capital emigration helps the home country's political institutions, but hurts economic institutions. The conventional ‘brain drain’ argument, therefore, needs to incorporate the institutional changes due to skilled labour emigration.
    June 01, 2016   doi: 10.1111/twec.12407   open full text
  • Public Opinion Distribution and Party Competition in US Trade Policy.
    Gary Winslett.
    World Economy. May 26, 2016
    Mass public opinion has generally been presumed to have little or no impact on American trade policy. I argue against this presumption. I assert that mass public opinion significantly affects US trade policy by shaping the way the two parties compete over that trade policy. When public opinion is unbalanced, the competition between the parties is likely to resemble a bidding war. When public opinion is balanced but split in a partisan manner the competition is likely to descend into Manichean conflict. When public opinion is balanced but split in a non‐partisan manner, the competition is likely to be characterised by political actors seeking to maintain the support of their core constituencies. To examine this relationship, I investigate three cases: the push to punish China over Tiananmen Square in 1989–90, the ratification of NAFTA in 1992–93 and the process through which President Bush was granted trade promotion authority in 2001–02.
    May 26, 2016   doi: 10.1111/twec.12409   open full text
  • The Skill Structure of Export Wage Premium: Evidence from Chinese Matched Employer–Employee Data.
    Mi Dai, Jianwei Xu.
    World Economy. May 20, 2016
    We study how the wage gap between exporting and non‐exporting firms (export wage premium) differs across skill groups, using unique matched employer–employee data from China. We find robust evidence that exporters pay relatively higher wages than non‐exporters to more educated workers. The differences in export wage premium across education groups are sizable. Further investigations show that the positive correlation between export wage premium and education is more pronounced in sectors with higher scope for quality differentiation. This is consistent with the theory that exporters produce relatively higher quality goods which require relatively higher quality skilled workers.
    May 20, 2016   doi: 10.1111/twec.12397   open full text
  • Growth Effect of Foreign Direct Investment in Developing Economies: The Role of Institutional Quality.
    Cristina Jude, Gregory Levieuge.
    World Economy. May 15, 2016
    This paper investigates the effect of foreign direct investment (FDI) on economic growth conditional on the institutional quality of host countries. We first develop several theoretical arguments to show that institutional heterogeneity may be an explanation for the mixed results of previous empirical studies. Second, using a panel smooth regression model on a large sample of developing countries, we show that FDI has a positive effect on growth only beyond a certain threshold of institutional quality. To benefit from FDI‐led growth, institutional reforms should thus precede FDI attraction policies. Additionally, some reforms seem to promote faster marginal effects of FDI, while institutional complementarities may lead to an incremental effect on growth.
    May 15, 2016   doi: 10.1111/twec.12402   open full text
  • Accounting for the Differences Between Gross and Value Added Trade Balances.
    Arne J. Nagengast, Robert Stehrer.
    World Economy. April 29, 2016
    One of the main stylised facts that has emerged from the recent literature on global value chains is that bilateral trade imbalances in gross terms can differ substantially from those measured in value added terms. However, the factors underlying the extent and sign of the differences between the two measures have so far not been investigated. Here, we propose a novel decomposition of bilateral gross trade balances that accounts for the differences between gross and value added concepts. The bilateral analysis contributes conceptually to the literature on double counting in trade by identifying the trade flow in which value added is actually recorded for the first time in international trade statistics. We apply our decomposition framework to the development of intra‐EU‐27 trade balances from 1995 to 2011 and show that a growing share of intra‐EU bilateral trade balances is due to demand in countries other than the two direct trading partners. The latter accounted for 25 per cent of the total variance of intra‐EU gross bilateral trade balances in 2011, which marks a considerable rise from 3 per cent in 1995.
    April 29, 2016   doi: 10.1111/twec.12401   open full text
  • Wage and Price Dynamics in China.
    Carsten A. Holz, Aaron Mehrotra.
    World Economy. April 27, 2016
    We study wage‐price dynamics in Mainland China with a novel data set using province‐level data from 1994 to 2010. We find that the growth in labour costs in China is not passed through fully to final prices, neither in the tradable goods sector nor in the economy as a whole. This probably reflects the strong pressure on profit margins from a highly competitive environment, especially in manufactured goods. These findings have potential implications for global price developments, given China's relevance in global supply chains.
    April 27, 2016   doi: 10.1111/twec.12399   open full text
  • Economic Effects of the Syrian War and the Spread of the Islamic State on the Levant.
    Elena Ianchovichina, Maros Ivanic.
    World Economy. April 27, 2016
    This paper uses a global computable general equilibrium framework with new detail on six Levant countries – the Arab Republic of Egypt, Iraq, Jordan, Lebanon, the Syrian Arab Republic and Turkey – to quantify the direct and indirect economic effects of the Syrian war and the advance of the Islamic State on the Levant. Syria and Iraq bear the brunt of the direct economic costs, while the other Levant countries lose in per capita but not in aggregate terms as the inflows of refugees increase the size of their populations. The war has undermined progress towards deeper regional trade integration, thus adding to varying degrees to the direct costs sustained by the Levant economies and, in the cases of Syria and Iraq, doubling their welfare losses. All Levant countries are foregoing opportunities to expand intra‐Levant trade and the associated gains in economic efficiency. The average welfare effects are not indicative of the distributional effects of war within countries.
    April 27, 2016   doi: 10.1111/twec.12400   open full text
  • Workers’ Participation in Training and Import Competition: Evidence from the USA.
    Vasilios D. Kosteas.
    World Economy. April 26, 2016
    Merging industry‐level data on imports into the NLSY79 cohort data, we examine the relationship between rising imports and the amount of time workers in the US manufacturing sector spend in training events. A simple theoretical model shows the effect of foreign competition may depend on the type of training. Controlling for both industry and individual fixed effects, we find that rising imports lead workers to spend less time in training for the purpose of career advancement. There is some evidence this effect is stronger for less educated and lower ability workers.
    April 26, 2016   doi: 10.1111/twec.12403   open full text
  • Labour Demand, Offshoring and Inshoring: Evidence from Swedish Firm‐level Data.
    Linda Andersson, Patrik Karpaty, Selen Savsin.
    World Economy. April 21, 2016
    The objective of this paper was to analyse effects on firm–level relative demand for skilled labour due to imports of intermediates (offshoring) and exports of intermediates (inshoring). The study is based on a data set of Swedish manufacturing firms, 1997–2002, using trade flows in intermediate goods and services, respectively. Descriptive data show that goods inshoring is much larger than goods offshoring, while the reverse is true for services. There is, however, a strong increase in services inshoring over the study period. Controlling for potential endogeneity in offshoring and inshoring, our results indicate that there is a positive effect of services offshoring on the skill composition of workers in Swedish firms, while no such causality can be established from inshoring.
    April 21, 2016   doi: 10.1111/twec.12396   open full text
  • Structural Transformation and Comparative Advantage: Implications for Small Open Economies.
    Unjung Whang.
    World Economy. April 21, 2016
    Data from the last half‐century show that revealed comparative advantage in agriculture (manufacturing) is negatively (positively) associated with the rate of decline in labour share in agriculture. Motivated by this finding, the author constructs and calibrates a simple open‐economy model, where there is learning‐by‐doing in manufacturing and industry‐supplied inputs to agricultural production. This paper focuses on the effects of comparative advantage and learning‐by‐doing on structural transformation and calibrate the model to the US and the UK data to estimate key parameters of the model. Quantitative experiments show that holding constant other factors a small difference in a country's comparative advantage can account for a large variation in structural transformation for open economies, which does not require nearly as much differential productivity growth as in closed‐economy models.
    April 21, 2016   doi: 10.1111/twec.12398   open full text
  • Capital Freedom, Financial Development and Provincial Economic Growth in China.
    Bengt Söderlund, Patrik Gustavsson Tingvall.
    World Economy. April 13, 2016
    For more than three decades, China has managed to combine rapid economic growth with a strictly regulated financial sector. The discrepancy between economic and financial development has raised the question of whether China might be an exception to the so‐called finance–growth nexus. This study examines the relationship between finance and growth at the provincial level in China using a new set of measures of capital freedom and financial development. The results indicate that capital freedom and financial development are associated with both higher income and growth rates. In particular, we find that the marketisation of financial institutions and strengthening of legal and government institutions have a particularly strong impact on income and growth in low‐income provinces.
    April 13, 2016   doi: 10.1111/twec.12391   open full text
  • Aggregation Issues of Foreign Direct Investment Estimation in an Interdependent World.
    Helen Naughton, Pehr‐Johan Norbäck, Ayça Tekin‐Koru.
    World Economy. April 06, 2016
    This paper attempts to understand foreign direct investment (FDI) heterogeneity and offers useful insights about aggregation issues in FDI estimations by carrying out a spatial econometric analysis using affiliate‐level data on sales activities of Swedish multinational corporations around the globe. The results indicate that the multilayered nature of aggregation in FDI matters for empirical analysis. Affiliate‐level host‐country and third‐country sales activity provides evidence of a negative spatial lag or substitution of FDI in space, broadly supporting the export‐platform theory. For exports back to Sweden, we find a positive spatial lag suggesting agglomeration of production activities and vertical specialisation. The sequential aggregation from affiliate level to firm and country level provides evidence of a severe scale problem particularly in export‐platform FDI. This aggregation bias is likely present in many of the country‐level analyses in previous literature.
    April 06, 2016   doi: 10.1111/twec.12388   open full text
  • Does Economic Diplomacy Work? A Meta‐analysis of Its Impact on Trade and Investment.
    Selwyn J. V. Moons, Peter A. G. Bergeijk.
    World Economy. March 29, 2016
    We review the literature on economic diplomacy and provide a meta‐analysis of 32 empirical studies published in 1986–2011 that deal with the trade and investment impact of economic diplomacy (embassies, consulates, other diplomatic facilities, investment and export promotion offices, trade and state visits). Controlling for differences in research design, methodology, time frame and manner of data, we find a positive and significant effect of economic diplomacy on international economic flows with the exception of state visits and that this is true in a sample of 627 t‐statistics analysed with OLS and for a larger sample of 963 reported significance levels analysed with logit thus illustrating robustness with respect to sample and estimation technique. Our analyses show that reported effects of economic diplomacy on trade and investment in individual studies are sensitive to model specification. The primary studies that investigate only one source country are less likely to report significant positive effects. Compared to other sciences, economic studies are less likely to report significantly positive effects of economic diplomacy. Primary studies lump embassies and consulates (general) into one indicator miss that these instruments differ significantly. Embassies, consulates and agencies should thus be included as separate instruments in future research.
    March 29, 2016   doi: 10.1111/twec.12392   open full text
  • What Do Demand and Supply Shocks Say About Caribbean Monetary Integration?
    Samuel Braithwaite.
    World Economy. March 24, 2016
    This study seeks to ascertain whether the member states of the Caribbean Community (CARICOM) share similar supply and demand shocks. If so, an argument can be made for the suitability of said countries being part of a currency union. The results show that no significant correlation exists for the majority of countries studied, and as such no economic justification for the monetary union can be made based on the methodology used. However, the Eastern Caribbean Currency Union (ECCU), whose members are a part of CARICOM, is supported by the results.
    March 24, 2016   doi: 10.1111/twec.12393   open full text
  • Has China Displaced its Competitors in High‐tech Trade?
    Cong S. Pham, Xuan Nguyen, Pasquale Sgro, Xueli Tang.
    World Economy. March 22, 2016
    This paper empirically investigated the extent to which China displaced its competitors in high‐tech exports using disaggregated data for the period 1992–2013. To address the endogeneity problem, we used a comprehensive set of instruments for Chinese high‐tech exports in relevant markets, including China's GDP and distances to those markets. Results of our IV regressions revealed that in most of the high‐tech sectors, Chinese exports had displaced the exports of its developing competitors such as India, South American exporters like Brazil and Mexico, and South‐East Asian countries like Malaysia, Singapore, Thailand and Vietnam, especially in the period prior to the 2007–08 global financial crisis. Yet, Chinese exports had been associated with more high‐tech exports of developed exporters like OECD countries, South Korea and Japan. Our findings suggest that while China became the world's top high‐tech exporter, its high‐tech exported products had been substitutes to those of other developing and emerging economies but complementary to that of developed economies.
    March 22, 2016   doi: 10.1111/twec.12390   open full text
  • How Could the South Respond to Secular Stagnation in the North?
    Joerg Mayer.
    World Economy. March 18, 2016
    Developed countries face the risk of a sustained lack of aggregate demand, that is, secular stagnation. Demand‐oriented growth models emphasising the balance‐of‐payments constraint raise concerns about attendant adverse growth impacts on developing countries from reduced export growth. These concerns are well‐founded, albeit less serious than the simplest versions of these models would imply. Relaxing their assumptions and emphasising cumulative causation forces from domestic‐demand growth and relative price effects indicates how developing countries can combine export and domestic‐demand based strategies and how changed policies can maintain rapid growth while reducing the income elasticity of import demand.
    March 18, 2016   doi: 10.1111/twec.12389   open full text
  • The Global Economic Crisis and The Effect of Immigrant Workers on Native‐born Employment in Europe.
    Vincent Fromentin, Olivier Damette, Benteng Zou.
    World Economy. March 18, 2016
    The debate regarding the economic effects of employing immigrants has attracted renewed interest in European countries since the economic crisis. We provide an approximation of the labour market effects of immigrant workers in four European countries during the global economic crisis after briefly analysing native and foreign‐born worker conditions for the most recent period. Our analysis focuses on the correlation between the stock of immigrant workers and the number of native labour market workers across several segments of the labour market using a simple model approach. Using Eurostat and LFS (Labour Force Survey) data, we estimate a structural dynamic model using the generalised method of moments (GMM) to examine adjustment dynamics in the labour market and labour market segment and worker educational levels, countries of origin and genders. Overall, the empirical results suggest that immigrant labour force effects on native‐born worker employment rates have been persistent and but weak throughout the business cycle. These effects are globally positive, and immigrant origins do not appear to change the nature of their impact. We offer some explanations for these findings related to dual labour markets and to differences in levels of substitution among native and immigrant workers.
    March 18, 2016   doi: 10.1111/twec.12394   open full text
  • Caribbean Diversification and Development.
    Preeya Mohan.
    World Economy. March 16, 2016
    Small Island Developing States generally adopt diversification as their primary development strategy, often with little success. Nevertheless, there is no empirical study specifically focusing on the pattern of diversification of these countries in relation to their development. The objective of this paper was to study the export diversification pattern by the intensive (a more equally spread export basket) and extensive (an increase in new export lines) product margin of 21 Caribbean countries in relation to their level of development using panel data. The results show that despite their limited ability to diversify, Caribbean countries, as has been found for other parts of the world, first diversify and subsequently respecialise though at a substantially lower level of income than other countries and that the intensive margin plays a greater role in this process.
    March 16, 2016   doi: 10.1111/twec.12387   open full text
  • Buy Local? Governmental Incentives to ‘Inform’ Consumers.
    Martin Richardson, Frank Stähler.
    World Economy. February 25, 2016
    This paper considers governmental incentives to provide information to local consumers about the relative merits of local versus foreign goods. We construct a model in which a local firm in a small, open economy competes in its domestic market with imports. Consumers are willing to pay an idiosyncratic premium for the local product, drawn from some support that the importing country government can affect through a costly information campaign. We examine incentives to undertake such a campaign in autarky and in the case of trade. We show, inter alia, that while a national welfare‐maximising government will always wish to shift this distribution upwards, it may not wish to reduce the variance of valuations, and that the optimal response of a foreign government will be to increase any support it offers to its exporters. Furthermore, falling world prices generally reduce the attractiveness of such a campaign both to a welfare‐maximising government and to one that cares only for domestic profits.
    February 25, 2016   doi: 10.1111/twec.12384   open full text
  • An ‘Algorithmic Links with Probabilities’ Concordance for Trademarks with an Application Towards Bilateral IP Flows.
    Nikolas Zolas, Travis J. Lybbert, Prantik Bhattacharyya.
    World Economy. February 16, 2016
    Trademarks (TMs) shape the competitive landscape of markets for goods and services in all countries. As a key element of branding, they can inform consumers about the quality and content of goods and services. Yet, researchers are largely unable to conduct rigorous empirical analysis of TMs in the global economy because TM data and economic data are organised differently and cannot be analysed jointly at the industry or sector level. We propose an ‘algorithmic links with probabilities’ (ALP) approach to match TM data to economic data and enable joint analysis with these data. Specifically, we construct a NICE class‐level concordance that maps TM data into trade and industry categories forward and backward. This concordance allows researchers to analyse differences in TM usage across both economic and TM sectors. We apply this ALP concordance for TMs to characterise patterns in TM registrations across countries and industries and to investigate some key determinants of international technology flows by comparing bilateral TM registrations and bilateral patent grants. We find that international patenting and TM flows are jointly determined by trade‐related influences with significant differences in intellectual property usage across industry sectors and income levels.
    February 16, 2016   doi: 10.1111/twec.12382   open full text
  • India's Grain Security Policy in the Era of High Food Prices: A Computable General Equilibrium Analysis.
    Wusheng Yu, Jayatilleke Bandara.
    World Economy. February 08, 2016
    This study uses a computable general equilibrium model to evaluate the fiscal and welfare costs of the market stabilisation and insulating food policy of India during the 2007–08 global food crisis. We demonstrate that domestic food grain price stabilisation through simultaneously subsidising consumers and producers and restricting exports entailed huge fiscal costs and equally large welfare costs to India, an outcome that is almost always the worst as compared to the alternative policy mixes examined in this study. While the most market‐oriented domestic and trade policy alternatives that would generate better welfare effects and the least fiscal costs may not be feasible due to political economy considerations, we argue that there exist some ‘middle‐ground’ policy mixes featuring partial relaxations of domestic subsidies on either food grains or fertilisers and/or less restrictive border policies, which are superior in terms of their welfare effects and fiscal costs and might also be politically feasible. These findings have important implications on the ongoing debates on India's food security policy, particularly in relation to the discussion on its National Food Security Act.
    February 08, 2016   doi: 10.1111/twec.12383   open full text
  • Two‐Way Migration between Similar Countries.
    Udo Kreickemeier, Jens Wrona.
    World Economy. January 28, 2016
    We develop a model to explain two‐way migration of high‐skilled individuals between countries that are similar in their economic characteristics. High‐skilled migration results from the combination of workers whose abilities are private knowledge, and a production technology that gives incentives to firms for hiring workers of similar ability. In the presence of migration cost, high‐skilled workers self‐select into the group of migrants. The laissez‐faire equilibrium features too much migration, explained by a negative migration externality. We also show that for sufficiently low levels of migration cost the optimal level of migration, while smaller than in the laissez‐faire equilibrium, is strictly positive. Finally, we extend our model into different directions to capture stylised facts in the data and show that our baseline results also hold in these more complex modelling environments.
    January 28, 2016   doi: 10.1111/twec.12377   open full text
  • Preference Erosion – The Case of Everything But Arms and Sugar.
    Thomas Kopp, Sören Prehn, Bernhard Brümmer.
    World Economy. January 25, 2016
    While the European Union's Everything But Arms (EBA) agreement has granted unlimited preferential access to the European market for the least developed countries (LDCs) since 2001, the sugar sector has been exempted for the first years. Only from 2009 on, the LDCs were entitled to export an unlimited amount of sugar to the EU, receiving the intervention price. The expected increase in sugar imports led the EU to substantially reduce the intervention price, besides other measures. This caused a disadvantage for countries which had been granted preferential access to the European market already: the African, Caribbean, and Pacific (ACP) countries. Our paper quantifies this erosion of preferences, employing a gravity framework. In terms of methodology we are addressing two fundamental problems well known in the gravity literature. The occurrence of excess zeros in the dependent variable of such disaggregated data is tackled with the employment of the scale‐independent negative binomial quasi generalised pseudo maximum likelihood estimator. The problem of identification is addressed by modelling the policy change with the continuous preference margin instead of using dummy variables. We find that preference erosion did occur. The ACP countries were indeed negatively affected by the consequences following the introduction of the EBA.
    January 25, 2016   doi: 10.1111/twec.12374   open full text
  • International R&D Spillovers and Business Service Innovation.
    Johannes Pöschl, Neil Foster‐McGregor, Robert Stehrer.
    World Economy. January 25, 2016
    A major international transmission channel of productivity increases is trade in intermediate products and services. This paper follows existing literature to analyse international spillovers at the industry level, extending the analysis to investigate the importance of spillovers from services sector in this framework. The analysis makes use of newly available data on international input–output linkages between industries. Our results indicate significant positive productivity effects from innovation in knowledge‐intensive, high‐technology business services and confirm the productivity effects from international manufacturing spillovers found in recent literature.
    January 25, 2016   doi: 10.1111/twec.12379   open full text
  • In or Out? Standards, Discretion, Compliance and the WTO.
    James C. Hartigan.
    World Economy. January 25, 2016
    Self‐enforcement in international agreements in the presence of uncertainty in the form of shocks and imperfect information regarding the extent of compliance by other members is enhanced by the use of standards in performance of commitments. Standards are less precise than rules. They must be sufficiently demanding that undercompliance is distinguishable from non‐compliance. Discretion permits undercompliance as an alternative to renegotiation of commitments, safeguards and the filing of disputes. Undercompliance, particularly when restrained, is a lower cost and less confrontational resolution to addressing adverse shocks. Signatories are restrained in undercomplying so that the effects of their actions are imperfectly distinguishable from the effects of shocks. Compliance and evidentiary standards for formal disputes define the accomplishments of the agreement. Evidentiary standards serve as an important discipline to undercompliance even in the absence of formal disputes.
    January 25, 2016   doi: 10.1111/twec.12385   open full text
  • The Innovation Performance of Irish and Foreign‐owned Firms: The Roles of R&D and Networking.
    Justin Doran, Eoin O'Leary.
    World Economy. January 20, 2016
    This paper contributes to the growing evidence that Irish and foreign‐owned firms based in Ireland conduct their innovation activities differently from each other. It tests the Cohen and Levinthal hypothesis, separately for Irish and foreign‐owned firms, that undertaking R&D and collaborating with external networks together enhance the probability of product and process innovation. To control for potential endogeneity of the external networking variables, a two‐step procedure is used with predicted probabilities used as instruments in the estimated production functions. Based on data from the Irish Community Innovation Survey 2006 to 2008, the results suggest that Irish‐owned firms which engage in external networks with public knowledge sources, while simultaneously undertaking R&D, are more likely to innovate than firms which perform these two activities individually. Irish‐owned firms which engage in backward networking for product and forward networking for process innovation while also undertaking R&D are less likely to be innovative, perhaps suggesting a substitution effect. These results for Irish‐owned firms provide some support for Cohen and Levinthal's hypothesis. However, foreign‐owned firms seem to behave differently, being largely self‐contained and relying exclusively on intramural R&D for innovation as the external networking variables, both individually and when interacted with R&D, have no effect on innovation likelihood.
    January 20, 2016   doi: 10.1111/twec.12378   open full text
  • Corporate Taxation of Heterogeneous Firms and the Welfare Effects of Labour Unions.
    Andrea Schneider.
    World Economy. January 15, 2016
    This paper examines the welfare effects of powerful labour unions when the government levies a uniform tax rate – as is currently the case in most OECD countries – and firms are heterogeneous with respect to productivity. I show that an increase in the bargaining power of labour unions can decrease the welfare loss generated by restriction of the tax policy and provide conditions under which powerful labour unions decrease the likelihood that firms will move abroad. I also reproduce the well‐known effect whereby powerful labour unions decrease corporate tax rates if firms are mobile.
    January 15, 2016   doi: 10.1111/twec.12380   open full text
  • Cross‐border Travellers and Parallel Trade: Implications for Asian Economies.
    Xuan Nguyen, Chi‐Chur Chao, Pasquale Sgro, Munirul Nabin.
    World Economy. January 15, 2016
    This paper explores the impact of parallel trade in an export market by cross‐border travellers on welfare of the home country in a model with heterogeneous consumers' perceptions. We show that such parallel trade when it is organised trading always hurts the home‐country welfare. However, when parallel trade is unorganised trading, it might benefit the home‐country welfare provided that the size of the export market is relatively small. Along these lines, we suggest optimal policy responses in the home country to parallel trade by cross‐border travellers. The results of the paper yield insightful policy implications for Asian economies.
    January 15, 2016   doi: 10.1111/twec.12381   open full text
  • Central Bank Intervention, Exchange Rate Regime and the Purchasing Power Parity.
    Luke Lin, Chun I. Lee.
    World Economy. January 04, 2016
    Motivated by the argument that central bank intervention leads to non‐linear exchange rate adjustment processes, we examine purchase power parity (PPP) by applying quantile unit root tests to the exchange rates of the New Taiwan Dollar (NTD) vis‐à‐vis seven Asian currencies. We show that exchange rate regime matters in determining whether PPP holds. While PPP holds overwhelmingly during the period when the NTD is under the fixed exchange rate regime, it is present only for some exchange rates during the managed floating rate regime. For exchange rates exhibiting mean reversion, the reversion occurs mainly when the shocks are large. In contrast to conclusion in the literature, our test results show little evidence of asymmetric mean reversion between positive and negative shocks.
    January 04, 2016   doi: 10.1111/twec.12372   open full text
  • International Migration and Child labour in Developing Countries.
    Anna De Paoli, Mariapia Mendola.
    World Economy. January 04, 2016
    This paper investigates the labor market effect of international migration on child work in countries of origin. We use an original cross‐country survey dataset, which combines information on international migration with detailed  individual‐level data on child labour at age 5–14 in a wide range of developing countries. By exploiting both within and cross‐country variation and controlling for country fixed effects, we find strong and robust evidence on the role of international mobility of workers in reducing child labour in disadvantaged households through changes in the local labour market.
    January 04, 2016   doi: 10.1111/twec.12375   open full text
  • Exchange Rates, Employment and Labour Market Rigidity.
    Fernando Alexandre, Pedro Bação, João Cerejeira, Miguel Portela.
    World Economy. December 29, 2015
    In this paper, we study the effect of labour market rigidity on the impact of exchange rate shocks on employment. We use a panel dataset comprising 22 manufacturing sectors across 23 OECD countries. In our econometric model, the impact of exchange rate fluctuations on sectoral employment is mediated by the degree of openness and by a measure of labour market rigidity: the OECD's employment protection legislation (EPL) index. Our results suggest that greater labour market rigidity reduces the impact of exchange rate shocks on employment. This effect is statistically significant for low‐technology sectors.
    December 29, 2015   doi: 10.1111/twec.12376   open full text
  • Determinants of the Status of an International Financial Centre.
    Imad Moosa, Larry Li, Riley Jiang.
    World Economy. December 15, 2015
    In March 2014, New York overtook London as the number one financial centre in the world as ranked by the global financial centre index (GFCI). This move has raised questions as to what has actually happened to justify such a change in ranking. Some questions are also raised such as why Mauritius is ranked higher than Helsinki. Notwithstanding the problems associated with the GFCI as a measure of the status of an international financial centre, an attempt is made to identify the determinants of the status of 53 financial centres using 24 potential explanatory variables and the technique of extreme bounds analysis (EBA). The results show that the important determinants include, among others, the corporate tax rate, global competitiveness, global credit rating, occupancy cost and property rights. A policy implication of the results is that attention should be paid to these determinants if a financial centre is to consolidate its position.
    December 15, 2015   doi: 10.1111/twec.12369   open full text
  • Trading with Conditions: The Effect of Sanitary and Phytosanitary Measures on the Agricultural Exports from Low‐income Countries.
    Marina Murina, Alessandro Nicita.
    World Economy. November 29, 2015
    Market access for agricultural products is increasingly determined by capability to comply with a wide array of regulatory measures. From a trade perspective, one of the most important aspects of such regulatory measures is their potential distortionary effect, as their cost of compliance is often asymmetrical across countries. This paper investigates the effect of the European Union's sanitary and phytosanitary (SPS) measures on the exports from low income countries. This study finds that SPS measures result in relatively higher burden for low income countries but that membership in deep trade agreements seems to reduce the difficulties related to compliance with SPS measures. These results are consistent with the hypothesis that while many middle and high income countries have the internal capacity to comply with SPS measures, most low income countries do not.
    November 29, 2015   doi: 10.1111/twec.12368   open full text
  • Firm R&D, Processing Trade and Input Trade Liberalisation: Evidence from Chinese Firms.
    Wei Tian, Miaojie Yu.
    World Economy. November 28, 2015
    This paper examines the impact of input trade liberalisation on firm R&D activity by taking China's accession to the WTO as a quasi‐natural experiment. Different from ordinary imports, processing imports in China enjoy zero tariffs and are not affected by input trade liberalisation due to the WTO accession. The paper uses disaggregated firm‐level production data and transaction‐level trade data to perform difference‐in‐difference analysis by taking processing import firms as a control group. An intensive empirical search shows that after China's accession to the WTO, input trade liberalisation fostered firm R&D significantly. The findings are robust to different measures and various empirical specifications.
    November 28, 2015   doi: 10.1111/twec.12367   open full text
  • Regionalism in Services: A Study of ASEAN.
    Batshur Gootiiz, Aaditya Mattoo.
    World Economy. November 20, 2015
    Can regionalism do what multilateralism has so far failed to do – promote greater openness of services markets? While previous research has pointed to the wider and deeper legal commitments under regional agreements as proof that it can, no previous study has assessed the impact of such agreements on applied policies. This paper focuses on the ASEAN region, where regional integration of services markets has been linked to the thriving regional supply chains. Drawing upon surveys in 2008 and 2012 of applied policies in the key services sectors of ASEAN countries, we assess the impact of the ASEAN Framework Agreement on Services (AFAS) and the ambitious ASEAN Economic Community Blueprint, which envisages integrated services markets by 2015. We find that ASEAN is not integrating faster internally than vis‐à‐vis the rest of the world: policies applied to trade with other ASEAN countries are virtually the same as those applied to trade with rest of the world. Moreover, the recent commitments scheduled under AFAS have not produced significant liberalisation and, in a few instances, services trade policy has actually become more restrictive. The two exceptions are in areas that are not on the multilateral negotiating agenda: steps have been taken towards creating regional open skies in air transport, and a few mutual recognition agreements have been negotiated in professional services. These findings suggest that regional negotiations add most value when focused on areas that are not being addressed multilaterally.
    November 20, 2015   doi: 10.1111/twec.12328   open full text
  • Banking Soundness Indicators and Sovereign Risk in Time of Crisis: The Case of the European Union.
    Purificación Parrado‐Martínez, Antonio Partal‐Ureña, Pilar Gómez Fernández‐Aguado.
    World Economy. November 19, 2015
    This study examines the impact of the soundness of the banking sector on sovereign risk of EU member countries during the financial crisis using a selection of financial soundness indicators (FSIs) and the sovereign ratings of the three main rating agencies. Unlike previous literature that typically focuses on the ability of FSIs to foresee banking crises, we estimate ordered response models to assess the power of these indicators to explain sovereign risk. Our results show that evaluations made by the rating agencies are related to the lagged values of core FSIs such that an improvement in these indicators leads to improvements in upcoming sovereign ratings. Hence, reinforced banking soundness would reduce the sovereign risk. Accordingly, governments, supervisors and central banks should pay close attention to the evolution of certain FSIs related to the banking sector, in addition to other variables that have traditionally been taken into account in analysing sovereign risk.
    November 19, 2015   doi: 10.1111/twec.12357   open full text
  • Labour Migration and Economic Growth in East and South‐East Asia.
    Terrie Walmsley, Angel Aguiar, Syud Amer Ahmed.
    World Economy. November 16, 2015
    East and South‐East Asia will face major demographic changes over the next few decades with many countries’ labour forces starting to decline, while others experience higher labour force growth as populations and/or participation rates increase. A well‐managed labour migration strategy presents itself as a mechanism for ameliorating the impending labour shortages in some East Asia–Pacific countries, while providing an opportunity for other countries with excess labour to provide migrant workers who will contribute to the development of the home country through greater remittance flows. This paper examines such migration policy options using a global dynamic economic simulation approach and finds that allowing migrants to respond to the major demographic changes occurring in Asia over the next 50 years would be beneficial to most economies in the region in terms of real incomes and real GDP over the 2007–50 period. Such a policy could deeply affect the net migration position of a country. Countries that were net recipients under current migration policies might become net senders under the more liberal policy regime.
    November 16, 2015   doi: 10.1111/twec.12334   open full text
  • Institutional Differences and the Direction of Bilateral Foreign Direct Investment Flows: Are South–South Flows any Different than the Rest?
    Firat Demir, Chenghao Hu.
    World Economy. November 09, 2015
    We explore the asymmetric effects of institutional differences on bilateral foreign direct investment (FDI) flows conditional on countries' development levels, previous experiences of foreign investors and bilateral trade relations. The empirical results using bilateral FDI data from 134 countries during 1990–2009 suggest that institutional differences create entry barriers for foreign investors only in North–South and South–North directions, and more so for the former. Furthermore, Southern investors appear to have a comparative advantage in institutionally different developing countries. Finally, we find no evidence that investor experiences in other institutionally different countries or existing trade linkages negate the negative effect of institutional distance.
    November 09, 2015   doi: 10.1111/twec.12356   open full text
  • The Role of Goods‐Trade Networks for Services‐Trade Volume.
    Peter H. Egger, Joseph Francois, Douglas R. Nelson.
    World Economy. November 08, 2015
    In this paper, we address the role of countries’ goods‐trade networks for their services‐trade volume. The paper employs a large cross section of bilateral trade data on aggregate cross‐border goods and services sales and illustrates that the depth and overlap of two countries’ services networks induce a positive direct impact on their services‐trade volume. The evidence takes into account that goods trade flows and networks are potentially endogenous so that the estimated direct effects support a causal interpretation. We find that the magnitude of the multilateral goods‐trade network effect on the bilateral services‐trade volume is much larger than that of bilateral goods‐trade volume.
    November 08, 2015   doi: 10.1111/twec.12331   open full text
  • Technology Spillovers from FDI. Evidence on the Intensity of Different Spillover Channels.
    Cristina Jude.
    World Economy. November 04, 2015
    The aim of this paper is to empirically disentangle specific channels of technology spillovers from FDI to domestic firms. To this end, we look into the mechanisms of technology diffusion through FDI and investigate six measures of spillovers in a sample of Romanian firms for the period 1999–2007. Our results show that the position in the supply chain is essential for capturing FDI spillovers, as local suppliers enjoy productivity gains, while local clients suffer productivity losses. We also show that foreign affiliates internalise all benefits associated with supplier upgrading, thus raising concerns about the social return on technology transfer. Additionally, our approach allows us to separate horizontal spillovers into a competition effect, an imitation/demonstration effect and a labour mobility component. We find only labour mobility to act as an efficient channel for horizontal knowledge diffusion, even though its direction depends highly on human capital.
    November 04, 2015   doi: 10.1111/twec.12335   open full text
  • Assessing Export Competitiveness through the Lens of Value Added.
    Janet Ceglowski.
    World Economy. October 30, 2015
    Extensive changes in the organization of world trade over the last two decades have renewed concerns about countries’ ability to compete in export markets. The impact could be especially large in industries that participate in global value chains (GVCs). This study assesses the recent export performance of 56 countries in five industries associated with GVCs using an index of normalised revealed comparative advantage (RCA) that can be compared across industries and countries and new data on the domestic value added in exports from the OECD's Trade in Value‐added database. For a number of the GVC industries, countries identified as the most competitive based on gross exports are often found to be less competitive when evaluated in terms of domestic value added. Business services are an important exception; several countries appear more competitive on a value‐added basis than based on conventional measures of gross exports. Despite concerns about hollowing out, a number of major industrial countries remain highly competitive in one or more GVC industries, even from the perspective of domestic value added. A value‐added approach to RCA provides insights that are not apparent from an exclusive focus on gross exports.
    October 30, 2015   doi: 10.1111/twec.12362   open full text
  • Modes of Supply for US Exports of Services.
    Elisabeth Christen, Joseph Francois.
    World Economy. October 26, 2015
    We examine the choice of modes of delivery in services based on US data, including both cross‐border exports and sales through foreign affiliates. We focus on characteristics of destination markets and how this impacts on mode choice. We find that market size, distance and policy all play a role in where firms establish, and in how many markets firms enter. The importance of sales through affiliates relative to total foreign sales also depends on factors like market size, geographic and economic distance and the policy regime in place. Precisely, how important these factors are depends on the sector in question.
    October 26, 2015   doi: 10.1111/twec.12330   open full text
  • Impact of Trade on Canada's Employment, Skill and Wage Structure.
    Ram C. Acharya.
    World Economy. October 21, 2015
    Using newly constructed data for 88 Canadian industries (including primary, manufacturing and services), for 15 years (1992–2007), we analyse the impact of trade and technological change on labour demand, skill structure, wage premiums and welfare in Canada. Results show that export growth has no impact, whereas import growth reduces employment growth. But contrary to popular belief, Canada's job loss due to imports has been very small, only about 6,000 persons annually. China's negative impacts are more pronounced in industries where the share of information and communication technology (ICT) capital is rising fast and among low R&D intensive industries. In terms of skill change, ICT use and real exchange rate appreciation are biased towards high skill workers. Imports from the United States and China are skill‐neutral, whereas imports from Mexico are skill‐upgrading. Overall, neither export nor import growth has an impact on the wage rate. However, had there been no imports from China, the annual wage growth rate of high skill manufacturing workers would have been 0.6 per cent higher. Between 1992 and 2007, there was an annual net gain from the rise in imports at about 0.4 per cent of GDP, in addition to the gains obtained from 1992 import levels vis‐à‐vis autarky.
    October 21, 2015   doi: 10.1111/twec.12360   open full text
  • Do Remittances Facilitate a Sustainable Current Account?
    Gazi M. Hassan, Mark J. Holmes.
    World Economy. October 21, 2015
    We examine how workers' remittances impact on the current account. In doing so, we focus on how remittances affect the sustainability rather than the size of current account balances. We find that the presence of remittances makes it more likely that exports and imports are cointegrated, thereby lending support to current account sustainability. Furthermore, quantile regression analysis suggests that increased remittances are associated with a faster speed of current account adjustment towards long‐run equilibrium, particularly for those countries characterised by already highly persistent current account balances. In contrast to a literature that emphasises an adverse Dutch disease impact of workers' remittances on the real exchange rate in terms of reduced external competitiveness, our findings suggest that remittances are actually beneficial to the current account balance.
    October 21, 2015   doi: 10.1111/twec.12361   open full text
  • FDI Spatial Spillovers in China.
    Mi Lin, Yum K. Kwan.
    World Economy. October 21, 2015
    This paper studies FDI spatial spillovers in China. Empirical investigation reveals that, along the spatial dimension, FDI presence tends to generate negative intraregional spillovers that dominate other potential positive externalities. The direction, magnitude and scope of inter‐regional spillovers vary, depending on the spillover channels. Our empirical findings call for a rethinking of policy‐driven agglomeration among indigenous firms and MNEs in developing countries.
    October 21, 2015   doi: 10.1111/twec.12337   open full text
  • Merchanting and Current Account Balances.
    Elisabeth Beusch, Barbara Döbeli, Andreas M. Fischer, Pinar Yeşin.
    World Economy. October 21, 2015
    Merchanting is goods trade that does not cross the border of the firm's country of residence. Merchanting grew strongly in the last decade in several European economies and has become an important determinant of these countries’ current account. Because merchanting firms reinvest their earnings abroad to expand their international activities, this practice raises national savings in the home country without increasing domestic investment. This paper examines the empirical linkages between merchanting and the current account balance. Using a sample of 53 countries during 1980–2011, it shows that merchanting activity is a determinant of the medium‐term current account balance.
    October 21, 2015   doi: 10.1111/twec.12355   open full text
  • The Fiscal Framework in a Currency Union: Lessons from a Comparison between the Euro Area and the Eastern Caribbean Currency Union.
    Andrew Hughes Hallett, Svend E. Hougaard Jensen.
    World Economy. October 20, 2015
    This paper draws out lessons from the euro area (EA) that are transferable to the Eastern Caribbean Currency Union (ECCU) and other Caribbean economies with fixed exchange rates. Based on observations from both the EA and the ECCU, we present a new policy framework which is capable of imposing fiscal discipline, with the aim of avoiding the risk of unsustainable fiscal policies reappearing and of preventing monetary policy from being undermined by undisciplined national governments. In the ECCU case, we find that fiscal deficits are more a result of financial and trade imbalances than fiscal indiscipline per se. Consequently, constraints on overall debt, public and private, rather than direct limits on endogenous public deficits, appear to be the appropriate response.
    October 20, 2015   doi: 10.1111/twec.12359   open full text
  • Cross‐country Services Versus Manufacturing Activity of Multinational Firms in Response to Services Versus Goods Policy.
    Peter Egger, Valeria Merlo, Georg Wamser.
    World Economy. October 20, 2015
    This paper assesses the consequences of trade costs on goods and services for the distribution of foreign direct investment (FDI) across goods and services as well as across countries. The paper employs data on the universe of German FDI abroad which are collected at the firm level and aggregated for the purpose of this paper to two sectors – goods and services – and 79 countries, using data for the year 2005. Key findings are that services trade costs as reflected in the services trade restrictiveness index and bilateral investment treaty membership are the most important policy drivers of the activity of German‐owned multinational firms in both goods and services. An increase in services trade restrictions raises goods activity at the expense of services activity. This effect is more pronounced the more important host countries in terms of the German FDI are.
    October 20, 2015   doi: 10.1111/twec.12332   open full text
  • When an Importer's Protection of IPR Interacts with an Exporter's Level of Technology: Comparing the Impacts on the Exports of the North and South.
    Wonkyu Shin, Keun Lee, Walter G. Park.
    World Economy. October 20, 2015
    Using bilateral trade data of countries from 2000 to 2007, this paper contributes to the empirical literature on the role of intellectual property rights (IPRs) in global trade. The existing literature has focused on how IPRs in the destination country affect exports from a source country. In this paper, we add an additional dimension: the level of technology of the exporting country (LT). This is quite important for distinguishing the impact of IPRs on the exports of developed and developing countries, since the technology levels vary across countries at different stages of development and intellectual property rights better protect exports that are technologically advanced than exports that are imitative and potentially infringing. By factoring in the level of technology (LT), our empirical analysis makes the case that IPRs can act as a barrier to the exports from the South, especially the rapidly catching‐up economies, and thus be a source for the middle‐income trap phenomenon.
    October 20, 2015   doi: 10.1111/twec.12338   open full text
  • Services Trade Protection and Economic Isolation.
    Ingo Borchert, Batshur Gootiiz, Arti Grover Goswami, Aaditya Mattoo.
    World Economy. October 13, 2015
    Poor connectivity is conventionally blamed on difficult geography and low income. But economic isolation could also result from policy choices in key ‘linking’ services such as air transportation and telecommunications. A new database on applied services trade policies reveals that many countries restrict trade in the very services that connect them with the rest of the world. We present evidence that restrictive policies lead to more concentrated market structures and limited access to services, even after taking into account the influence of geography and income. Moving from an intermediate level of restrictiveness to an open regime could lead to a 20 percentage point increase in cellular teledensity in the telecommunications sector and to a 25 per cent increase in flight connections per airline in the aviation sector, respectively.
    October 13, 2015   doi: 10.1111/twec.12327   open full text
  • Estimates of Ad Valorem Equivalents of Barriers Against Foreign Suppliers of Services in Eleven Services Sectors and 103 Countries.
    Yaghoob Jafari, David G. Tarr.
    World Economy. October 12, 2015
    A new database on the barriers faced by foreign suppliers of services has been produced by the World Bank. Data for 103 countries are available on eleven of the most important services sectors in international trade. To date, however, these data have not been converted into ad valorem equivalents. Based on these data, and building on the methodology and publications supported by the Australian Productivity Commission, we produce estimates of the ad valorem equivalents of the barriers for all these sectors and countries. Compared with estimates available in the literature that are based on assessments of country and sector‐specific barriers to services providers, our estimates expand the set of sectors and more than triple the set of countries for which estimates of the ad valorem equivalents of the services barriers are available.
    October 12, 2015   doi: 10.1111/twec.12329   open full text
  • Time Zones Matter: The Impact of Distance and Time Zones on Services Trade.
    Elisabeth Christen.
    World Economy. October 10, 2015
    Given the need for proximity in the provision of many services, factors such as geographical distance place a higher cost burden on the delivery of services in foreign markets as compared to goods trade. In addition, differences in time zones add significantly to the costs of service transactions. Decomposing the impact of distance into a longitudinal and latitudinal component and accounting for differences in time zones, it is possible to identify in detail the factors driving the impact of increasing coordination costs on the delivery of services through foreign affiliates. Working with a bilateral US data set on foreign affiliate sales in services this paper examines the impact of time zone differences and east–west and north–south distance on US outward affiliate sales, by employing a Hausman–Taylor model for services trade by foreign affiliates. Both distance components as well as time zone differences have a significant positive effect on foreign affiliate sales. By decomposing the effect of distance the results show that increasing east–west or north–south distance by 100 km raises affiliates sales by 2 per cent. Regarding time zone differences, the findings suggest that affiliate sales increase as hourly time zone differences get larger.
    October 10, 2015   doi: 10.1111/twec.12326   open full text
  • The Effect of R&D Services Offshoring on Skilled Employment: Firm Evidence.
    Mery Patricia Tamayo, Elena Huergo.
    World Economy. October 10, 2015
    The offshoring of high‐tech services has greatly increased in recent years, with consequences for firms demand for skilled employment in firms. This paper specifically analyses the relationship between R&D offshoring and the demand for R&D employment using firm‐level data for Spanish manufacturing and services companies during the period 2004–11. Estimating different specifications with panel data techniques, we find that this association is statistically positive. In particular, for services firms a 1 percentage point increase in R&D offshoring raises the demand for researchers by about 11 per cent.
    October 10, 2015   doi: 10.1111/twec.12336   open full text
  • Services Productivity, Trade Policy and Manufacturing Exports.
    Bernard Hoekman, Ben Shepherd.
    World Economy. September 22, 2015
    This paper analyses the linkage between services and manufacturing productivity performance, using firm‐level data for over 100 developing countries. We find strong evidence for such a linkage, although the effect is small: at the average rate of services input intensity, a 10 per cent improvement in services productivity is associated with an increase in manufacturing productivity of 0.3 per cent. Services trade restrictiveness indices are found to be a statistically significant determinant of manufactured exports performance, a finding that is robust to the inclusion of the overall level of trade restrictiveness that is applied against manufactured exports directly. The main channel through which services trade restrictions negatively affect manufactured exports is through FDI, a finding that is consistent with the stylised fact in the literature that FDI is a key channel for trade in services and an important vehicle through which services technology and know‐how is transferred across countries. At the sectoral level, restrictions on transport and retail distribution services have the largest negative impact on exports of manufactures.
    September 22, 2015   doi: 10.1111/twec.12333   open full text
  • Boom‐and‐bust Cycles, External Imbalances and the Real Exchange Rate.
    Nikolas A. Müller‐Plantenberg.
    World Economy. September 16, 2015
    When the current account balance and net capital outflows do not exactly offset each other, international payment flows arise. Payment flows into a country push the real exchange rate up, payment outflows push it down. This article uses a model of optimal consumption and portfolio choice to determine the factors that drive international payment flows during boom‐and‐bust cycles. It shows that during such episodes, capital inflows first exceed the deficit on current account, strengthening the currency. Later on, when the return on domestic capital reverts to its normal level, the current account recovers, yet the overall decline of the net foreign asset position provokes a fall of the real exchange rate even below its initial level. Case studies of countries experiencing rapid economic expansions followed by economic and financial meltdowns confirm the article's theoretical predictions.
    September 16, 2015   doi: 10.1111/twec.12322   open full text
  • Offshoring, Plant Survival and Employment Growth.
    Roger Bandick.
    World Economy. September 15, 2015
    This paper empirically investigates the effects of offshoring on plant survival and employment growth using data on the Danish manufacturing plants during the period 1995–2006. To control for the potential endogeneity of the offshoring decision, the paper uses instrumental variables and propensity score‐matching approaches. The data allow me to control for the heterogeneity between the units by using firm‐level offshoring activities in different regions and performing the empirical analysis on plantlevel aggregation, which is shown to be of crucial importance. Using firm as a unit of observation, the effect of offshoring is, if any, very small. However, using plant as a unit of observation, there are strong indications that offshoring plays a much larger role for the extensive and intensive margin of adjustments. The results reveal that plants survival prospect is higher if the main offshoring is located in high‐wage countries; lower if it is located in low‐wage countries; and not affected if it is located in medium‐wage countries. Finally, the results also reveal that depending on where the main offshoring is located, the growth rate of low‐skilled employment is 2 to 8 per cent lower in plants of offshoring firms.
    September 15, 2015   doi: 10.1111/twec.12316   open full text
  • Trade Costs and Current Accounts.
    Clément Nedoncelle.
    World Economy. September 11, 2015
    Are trade cost reductions a plausible explanation for growing global current account imbalances? I advocate that changes in trade costs affect trade and production structures, which is likely to affect national savings and investment. Explicitly adding trade costs à la Markusen and Venables into Jin's framework, this augmented model predicts that trade cost reductions affect the current account through changes in the industrial structure. Empirical evidence confirms that the interaction of trade costs and capital intensity drives current account balances. I also provide evidence that the response of current accounts to changes in trade costs depends on the capital intensity of production and on the depth of regional agreements on trade and factor mobility. Aside from the direct effect generally emphasised in standard macro‐level analysis, changes in production patterns could therefore be an additional channel of impact of regional integration on current accounts.
    September 11, 2015   doi: 10.1111/twec.12318   open full text
  • Labour Market Institutions and Household Consumption Insurance within OECD Countries.
    Anna Lo Prete.
    World Economy. September 11, 2015
    This paper tests empirically whether the effect of idiosyncratic income shocks on aggregate consumption depends on institutional features of national labour markets. The results show that, in a sample of 15 OECD countries, institutional heterogeneity is a significant determinant of the response of household consumption to country‐specific income shocks. This is consistent with the idea that institutionally provided social insurance may help increase income stability when people differ in their ability to access financial markets and smooth consumption fluctuations.
    September 11, 2015   doi: 10.1111/twec.12325   open full text
  • Do Trade Agreements Increase Food Trade?
    Irfan Mujahid, Matthias Kalkuhl.
    World Economy. September 03, 2015
    In addition to multilateral trade agreements under the World Trade Organization (WTO), the world has seen a remarkable proliferation of regional trade agreements (RTAs) in the last two decades. This study investigates whether these multilateral and regional trade institutions increase food trade and bring the world into a freer flow of food. The gravity model of international trade is used for the empirical analysis. The model is developed in a large panel data setting and attempted to address some potential problems in the estimations including multilateral trade resistances, zero trade values and endogeneity. The results suggest that both the WTO and RTAs have delivered significant positive effects on trade among the participant countries, but not food. Only RTAs are found to have increased food trade among the participant countries. However, although on average the WTO is found to have negative implications on food trade, it facilitates the developing countries more than the developed countries.
    September 03, 2015   doi: 10.1111/twec.12324   open full text
  • Cross‐Border Mergers and Upstreaming.
    Hamid Beladi, Avik Chakrabarti, Daniel Hollas.
    World Economy. September 03, 2015
    Global forces of fragmentation continue to distance (upstream) a product's conception from its end use. A concurrent flow of cross‐border mergers and upstreaming, by multinational corporations, dominates the fashion of doing international business. We investigate if there is any link between cross‐country variations in upstreaming within firms, apparent in international data, and mergers between firms across borders. Our empirical analysis reveals a significantly positive association between country upstreamness and cross‐border mergers. We build on Neary as well as Beladi et al. to provide a theoretical explanation of our findings in terms of the incentives in business strategic decision‐making to realise the gains from cross‐border mergers and upstreaming through the pricing mechanism of intermediate inputs in a vertically related oligopolistic industry.
    September 03, 2015   doi: 10.1111/twec.12320   open full text
  • Economic Integration, Corporate Tax Incidence and Fiscal Compensation.
    Nelly Exbrayat, Benny Geys.
    World Economy. September 03, 2015
    Higher corporate taxes are often argued to depress wages (a tax incidence effect), while higher wages may require compensation via lower corporate tax rates (a fiscal compensation effect). Yet, existing empirical evidence ignores that (i) both effects are likely to occur simultaneously (necessitating a joint estimation approach), and (ii) capital mobility might play a critical moderating role for the strength of both effects. Using a panel data set comprising 24 OECD countries over the period 1982–2007, we address both these deficiencies. This clearly illustrates the simultaneous existence of tax incidence and fiscal compensation effects. Moreover, capital mobility (and the ensuing relative bargaining power of economic agents) has a significant influence on both the prevalence and strength of these effects.
    September 03, 2015   doi: 10.1111/twec.12323   open full text
  • Determinants of International Student Migration.
    Andrew Abbott, Mary Silles.
    World Economy. September 02, 2015
    This paper considers what factors determine the migration of overseas students, when students cross borders for higher education. We utilise a gravity model for international student mobility and derive estimates for a sample of 18 countries of destination and 38 countries of origin over the period 2005–11. Our results confirm that geographical distance and the presence of a common language are powerful in explaining bilateral student flows. Our most interesting finding is that time zone differences have a statistically significant and economically large effect in determining international student flows.
    September 02, 2015   doi: 10.1111/twec.12319   open full text
  • Redistribution of Trade Gains in the Presence of Firm and Worker Heterogeneity.
    Marco Pinto.
    World Economy. September 02, 2015
    Trade gains are unequally distributed; in particular, low‐ability workers lose out in terms of wages and employment probability. In this paper, we investigate the impact of redistribution schemes on aggregate and disaggregate variables. To this end, we built a trade model with trade unions, heterogeneous firms and workers. Three redistribution schemes are distinguished: unemployment benefits financed by either a wage tax, a payroll tax or a profit tax. We find that: (i) all three redistribution schemes reduce output per capita; (ii) but the marginal reduction is lowest in the wage tax funding scenario; and (iii) If the profit tax is used, labour demand for low‐ability workers increases.
    September 02, 2015   doi: 10.1111/twec.12315   open full text
  • Determinants of Trade Costs and Trade Growth Accounting between India and the European Union during 1995–2010.
    Abhishek Gaurav, Somesh K. Mathur.
    World Economy. August 28, 2015
    This study aimed to utilise the micro‐founded measure of trade cost derived by Novy to estimate the relative bilateral trade costs of India with its European Union partners. The advantage of using such a model is that the trade costs can be derived entirely using observable trade data. The results show that Indian tariff equivalent with its major EU trading partners has declined by 20 percentage points between 1995 and 2010, with Malta and Latvia experiencing the greatest decline. The study then decomposes the bilateral trade growth to ascertain whether it is an outcome of increased domestic production or reduction in bilateral and multilateral trade barriers. Novy's model indicates that the decline in relative bilateral trade costs explains the greatest percentage of this trade growth, which is partially offset by decline in multilateral resistance terms that has diverted trade away to other trading partners primarily in South and South‐East Asia and North America.
    August 28, 2015   doi: 10.1111/twec.12317   open full text
  • The Effects of Greenfield FDI and Cross‐border M&As on Total Factor Productivity.
    Ayesha Ashraf, Dierk Herzer, Peter Nunnenkamp.
    World Economy. August 26, 2015
    We examine the effects of greenfield FDI and cross‐border mergers and acquisitions (M&As) on total factor productivity (TFP) in developed and developing host countries of FDI. Using panel data for up to 123 countries over the period from 2003 to 2011, we find that greenfield FDI has no statistically significant effect on TFP, while M&As have a positive effect on TFP in the total sample. Greenfield FDI and M&As both appear to be ineffective in increasing TFP in the subsample of developing countries. In contrast, M&As have a strong and positive effect on TFP in the subsample of developed countries.
    August 26, 2015   doi: 10.1111/twec.12321   open full text
  • Do Multinationals Deteriorate Developing Countries' Export Prices? The Impact of FDI on Net Barter Terms of Trade.
    Konstantin M. Wacker.
    World Economy. August 26, 2015
    This paper explores the economic relationship between foreign direct investment to developing countries and the export prices of the latter, measured by terms of trade. It is first shown that economic theory suggests such a relationship for various reasons but is inconclusive about the direction of the effect. To address this open issue empirically, I analyse data on more than 50 developing countries throughout the period 1980–2008 using robust dynamic panel data methods. The results show that FDI had an economically relevant and statistically significant positive impact on developing countries' net barter terms of trade. A higher level of education in the developing country fosters this effect.
    August 26, 2015   doi: 10.1111/twec.12311   open full text
  • Agricultural Policies and Trade Paths in Turkey.
    Donald Larson, Will Martin, Sebnem Sahin, Marinos Tsigas.
    World Economy. August 25, 2015
    In 1959, shortly after the European Economic Community was founded under the 1957 Treaty of Rome, Turkey applied for Associate Membership of the then six‐member common market. By 1963, a path for integrating the economies of Turkey and the eventual European Union had been mapped. As with many trade agreements, agriculture posed difficult political hurdles, which were never fully cleared, even as trade barriers to other sectors were eventually removed and a Customs Union formed. In this paper, we trace the influences the Turkey‐EU economic institutions have had on agricultural policies and the agricultural sector. Using an applied general equilibrium framework we provide estimates of what including agriculture under the Customs Union would mean for the sector and the economy. We also discuss the implications of fully aligning Turkey's agricultural policies with the EU's Common Agricultural Policy, as would be required under full membership.
    August 25, 2015   doi: 10.1111/twec.12294   open full text
  • Current Account Adjustment in the Eurozone: Lessons From a Flexible Price Model.
    Christoph Zwick.
    World Economy. August 21, 2015
    This paper discusses the desired size of the internal devaluation in the Eurozone for a scenario of current account adjustment induced by shifts in relative demand. Based on Obstfeld and Rogoff, I develop a four‐region model of the world economy consisting of the Eurozone‐core, Eurozone‐periphery, United States and Asia. In contrast to most of the existing literature, this model structure enables studying the impact of global current account adjustment on the rebalancing process in the Eurozone. In addition, the model allows for movements of factors of production between tradable and non‐tradable sectors. The results point to the important impact of sectoral reallocation and increases in Asian demand on the size of the internal devaluation as well as on the implied length of the adjustment period.
    August 21, 2015   doi: 10.1111/twec.12309   open full text
  • Export Performance and Access to Intermediate Inputs: The Case of Rules of Origin Liberalisation.
    Anna Andersson.
    World Economy. August 20, 2015
    Internationally fragmented production processes have highlighted the need of efficient sourcing from foreign suppliers. This paper aims to investigate how exports of final goods are affected by better access to foreign intermediate inputs. In particular, the paper empirically tests whether expanding the set of available intermediate input suppliers through preferential rules of origin liberalisation affects exports of final goods. We exploit the introduction of the southern Mediterranean countries into the Pan‐Euro‐Med zone of diagonal cumulation which meant that foreign intermediate inputs could be used from more countries than before without jeopardising the preferential access to the EU. Using a fixed effects specification that controls for detailed levels of unobserved heterogeneity and multilateral resistance, we examine the effect of the new diagonal cumulation possibilities on southern Mediterranean exports to EU‐15. We find a positive effect on both export intensity, the value of exports, and export diversification, the number of exported products. Being part of the Pan‐Euro‐Med zone of diagonal cumulation is associated with a 20 per cent increase in export intensity and a 5 per cent increase in export diversification.
    August 20, 2015   doi: 10.1111/twec.12308   open full text
  • Does the Quality of Investment Protection Affect FDI Flows to Developing Countries? Evidence from Latin America.
    Jay Dixon, Paul Alexander Haslam.
    World Economy. August 17, 2015
    Studies on the impact of international investment agreements (IIAs), including bilateral investment treaties (BITs), on foreign direct investment (FDI) inflows have been inconclusive. This paper contributes to the debate about the effectiveness of IIAs using an original database that differentiates between investment agreements according to the quality of investor protection, and which covers a wide variety of trade and investment agreements signed and ratified in the Americas. We find evidence that in the least likely case of south–south FDI flows, high‐quality international investment treaties have a demonstrable effect on foreign direct investment inflows. Moreover, international investment agreements appear to be most effective in a context of deeper economic integration. That is, they work better when they provide higher quality protection to investors and when they are combined with other preferential economic integration agreements, such as trade agreements.
    August 17, 2015   doi: 10.1111/twec.12299   open full text
  • EU Anti‐dumping and Tariff Cuts: Trade Policy Substitution?
    Tobias D. Ketterer.
    World Economy. August 14, 2015
    The world trading system in its current form aims at reducing multilateral trade barriers across the board. Indeed, the last successfully concluded multilateral trade negotiations led to substantial tariff concessions on the part of most developed economies. What, however, happened to other forms of import protection? Have substantial tariff concessions subsequently been replaced by the use of alternative forms of import protection? In this paper we empirically investigate the relationship between negotiated external tariff cuts and the subsequent use of anti‐dumping actions by the EU. Evidence is found for larger Uruguay Round tariff cuts increasing the probability of subsequent anti‐dumping investigations.
    August 14, 2015   doi: 10.1111/twec.12305   open full text
  • Indicators of Absorptive Capacity and Import‐induced South–North Convergence in Labour Intensities.
    Michael Hübler, Alexander Glas, Peter Nunnenkamp.
    World Economy. August 14, 2015
    We hypothesise that North–South trade is associated with knowledge spillovers that create labour productivity gains depending on various aspects of Southern absorptive capacity. We use the novel World Input–Output Database (WIOD) that provides bilateral and bisectoral panel data for 39 countries and 35 sectors for 1995–2009. We examine growth in relative South–North labour intensities (South–North convergence) for 31 industrialised source and eight emerging recipient countries. We find strong evidence that various components and individual indicators of absorptive capacity interact with imports of investment goods in such a way that the relative labour intensity is reduced. GMM and GLS estimations corroborate the results. Policies that improve various of the identified aspects of absorptive capacity are more promising than policies that select only one. Elevating the absorptive capacity of emerging economies to the maximum level in the world would halve the South–North gap in labour intensities within a couple of decades if it were solely achieved through the trade channel.
    August 14, 2015   doi: 10.1111/twec.12300   open full text
  • Trade and Urbanisation.
    Jang P. Thia.
    World Economy. August 13, 2015
    Insights from economics of geography suggest that greater urbanisation should lead to an increased level of trade. Larger exporting markets should also provide incentives for agglomeration. Using a novel instrumental variables approach, this study provides empirical evidence that suggests that within country urbanisation has a strong positive impact on exports of the modern sector, while exports too have a positive impact on urbanisation. Consistent with model predictions, urbanisation is also associated with a decline in exports and increase in imports in the primary sector.
    August 13, 2015   doi: 10.1111/twec.12312   open full text
  • The Quest for Robust Counterfeit and Piracy Figures: Custom Agencies as Statistical Decision‐makers and Recent Evidence Based on German Imports.
    Alexander Cuntz.
    World Economy. August 12, 2015
    Based on unique custom seizure data, we extrapolate robust figures on the amount of counterfeit and piracy in German imports. We therefore outline a simple model which explores estimation biases in counterfeit statistics provided by utility‐maximising custom agencies. Our empirical strategy sets out to (i) provide evidence on bias and, (ii) guided by theory, identify an unbiased subsample of the data. Upper bound population estimates (counterfeit shares) for 2010–11 suggest that around 17 per cent of all German imports are counterfeit. In addition, we highlight differences in counterfeit trade by commodity and distribution channel, and conclude with policy advice.
    August 12, 2015   doi: 10.1111/twec.12310   open full text
  • International Transmission Mechanisms and Contagion in Housing Markets.
    Anupam Nanda, Jia‐Huey Yeh.
    World Economy. August 11, 2015
    This paper explores international transmission mechanism and its role in contagion effect in the housing markets across six major Asian cities. The analysis is based on the identification of house price diffusion effects through a global vector autoregressive (GVAR) model estimated using quarterly data for six major Asian cities (Hong Kong, Tokyo, Seoul, Singapore, Taipei and Bangkok) from 1991Q1 to 2011Q2. The empirical results indicate that the open economies heavily relying on international trade such as Singapore, Japan (Tokyo), Taiwan (Taipei) and Thailand (Bangkok) show positive correlations between the economy's openness and house prices, which is consistent with the Balassa–Samuelson hypothesis. Interestingly, some region‐specific conditions also appear to play important roles as determinants of house price movements, which may be driven by restrictive housing policies and demand–supply imbalances such as Singapore and Bangkok. These results are reasonably robust across several model specifications. The findings bear significant implications for formulation of investment strategy and public policies.
    August 11, 2015   doi: 10.1111/twec.12288   open full text
  • On the Path to Trade Liberalisation: Political Regimes in Trade Negotiations.
    Florian Mölders.
    World Economy. August 11, 2015
    The number of free trade agreements (FTA) has increased substantially since 1990 despite efforts to promote multilateral trade liberalisation. While there is evidence on the determinants of FTA formation, still little is known on the processing of trade agreements, particularly regarding the pre‐implementation duration. This paper fills the research gap by using event data on the negotiation, the signing and the implementation of trade agreements. Duration analysis is employed to examine the connection between regime types and the lengths of the negotiation and the ratification stages. The results support the claim that higher levels of democratisation are associated with shorter negotiations, while political constraints lead to delays. Moreover, the depth of an agreement matters: a higher number of WTO‐X and WTO+ provisions do not only prolong the negotiation stage, but also the subsequent ratification. Against the background of potential anticipation effects of trade agreements, these results are of interest for exporting firms that assess the timing of implementation.
    August 11, 2015   doi: 10.1111/twec.12280   open full text
  • Intellectual Property Rights, FDI, R&D and Economic Growth: A Cross‐country Empirical Analysis.
    Wen‐Hsien Liu.
    World Economy. August 01, 2015
    This paper aims to empirically examine how intellectual property rights (IPRs) protection, foreign direct investment (FDI) and research and development (R&D), along with other possible variables, may affect the economic growth of the host country. Using the panel data of 92 countries during 1970–2007, I conclude from the system generalised method of moments estimation that domestic investment share, FDI, R&D capacity, openness to trade, human capital and IPRs protection all have statistically significant and positive impacts on economic growth. A further investigation of countries at different levels of development suggests two striking findings. First, besides the domestic investment, openness, human capital and IPRs protection, R&D is the key to drive economic growth in the higher‐income countries, while FDI is the engine of growth in both higher‐income and middle‐income countries. Second, a positive and significant impact of IPRs protection on economic growth is found in both higher‐income and lower‐income countries. However, such an impact is not detected in the middle‐income countries.
    August 01, 2015   doi: 10.1111/twec.12304   open full text
  • Assessing Regional Risks From Pandemic Influenza: A Scenario Analysis.
    George Verikios, Maura Sullivan, Pane Stojanovski, James Giesecke, Gordon Woo.
    World Economy. August 01, 2015
    We analyse the economic risks from two influenza pandemics that represent extremes along the virulence‐infectiousness continuum of possible pandemics: a high virulence–low infectiousness event and a low virulence–high infectiousness event. Our analysis involves linking an epidemiological model and a quarterly computable general equilibrium model. We find that global economic activity is more strongly affected by a pandemic with high infection rates rather than high virulence rates, all else being equal. Regions with a higher degree of economic integration with the world economy face greater risks of negative effects than less integrated regions.
    August 01, 2015   doi: 10.1111/twec.12296   open full text
  • Offshoring and the Skill‐premium: Evidence from Individual Workers’ Data.
    Tommaso Tempesti.
    World Economy. August 01, 2015
    During the 1980s the United States has experienced an increase in both international trade and the skill‐premium. The association between these two phenomena has proven elusive in the early empirical literature on the subject. Indeed, the consensus among labour economists seems to be that trade has not been the main cause of such increase in the skill‐premium. This view has been challenged by Feenstra and Hanson (1999, Quarterly Journal of Economics, 114, 3, 907) who find that offshoring sizably affects the skill‐premium. I revisit this debate using individual workers’ data from the March Current Population Survey combined with industry‐level trade data. This strategy improves upon the work of Feenstra and Hanson who do not control for the demographic characteristics of the labour force. In my results, offshoring can explain between 9 and 30 per cent of the increase in the college wage premium, relative to high‐school workers. In addition, I find that offshoring can explain 21 per cent of the increase in the relative employment of skilled labour. These results suggest that offshoring may play an important role in the increase in the relative demand of skilled workers.
    August 01, 2015   doi: 10.1111/twec.12298   open full text
  • (Not So) Easy Come, (Still) Easy Go? Footloose Multinationals Revisited.
    Pierre Blanchard, Emmanuel Dhyne, Catherine Fuss, Claude Mathieu.
    World Economy. July 31, 2015
    The central question of this paper is to test whether multinational firms (MNFs) are more likely to exit the local market than domestic firms. Using firm‐level data for Belgium, we estimate a random effects probit model taking into account the endogeneity of firm size, total factor productivity (TFP) and sunk costs in firm exit. Our results highlight two features of the ‘footloose’ nature of MNFs. First, controlling for firm and sector characteristics, the exit probability of MNFs is larger than that of domestic firms. Second, MNFs have a lower sensitivity to TFP and size than do domestic firms. This means that an improvement in economic performance on the local market will not prevent a multinational from closing its local plant as much as it would for a domestic firm.
    July 31, 2015   doi: 10.1111/twec.12301   open full text
  • Are Trade Preferences more Effective than Aid in Supporting Exports? Evidence from the ‘Everything But Arms’ Preference Scheme.
    Katerina Gradeva, Inmaculada Martínez‐Zarzoso.
    World Economy. July 29, 2015
    This study examines the effect of the ‘Everything But Arms’ (EBA) trade preferences regime on exports from the African, Caribbean and Pacific countries (ACP) to the European Union (EU). With this aim, an augmented gravity model is estimated for exports from the 79 ACP countries to the EU‐15 for the time period of 1995—2013 using panel data techniques. The results are used to quantify the effect of the eligibility for EBA preferences on the export performance of the ACP least developed countries (LDCs) and to relate it to the impact of official development assistance on exports. In addition to their separate effects, the combined impact of EBA and aid flows is examined. The main results do not provide evidence for an additional positive effect of the EBA agreement on the export performance of the ACP LDCs. However, receiving aid shows a significant and positive effect on exports from EBA‐eligible ACP countries to the EU‐15, supporting an EU development strategy that includes both sorts of assistance, aid and trade preferences.
    July 29, 2015   doi: 10.1111/twec.12289   open full text
  • Heterogeneous Firms, Globalisation and the Distance Puzzle.
    Mario Larch, Pehr‐Johan Norbäck, Steffen Sirries, Dieter M. Urban.
    World Economy. July 23, 2015
    Despite the strong pace of globalisation, the distance effect on trade is persistent or even growing over time (Disdier and Head, 2008). To solve this distance puzzle, we use the recently developed gravity equation estimator from Helpman et al. (2008) (HMR henceforth). Using three different data sets, we find that the distance coefficient increases over time when ordinary least squares (OLS) is used, while the non‐linear estimation of HMR leads to a decline in the distance coefficient over time. The distance puzzle, thus, arises from a growing bias of OLS estimates. The latter is explained by an increase in the importance of the bias from omitting the number of heterogeneous exporting firms relative to the bias from omitting zero trade flows. Furthermore, we show that including zero trade flows cannot solve the distance puzzle when using HMR. The HMR estimates are strongly correlated with the time pattern in freight costs reported by Hummels (2007).
    July 23, 2015   doi: 10.1111/twec.12303   open full text
  • Networks and the Dynamics of Firms' Export Portfolio: Evidence for Mexico.
    Juan Lucio, Raúl Mínguez, Asier Minondo, Francisco Requena.
    World Economy. June 30, 2015
    We use network analysis tools to identify communities in the web of exporters' destinations. Our network‐based community measure is purely outcome based, it captures multilateral rather than bilateral dependence across countries, and it can be calculated at the industry level. Next, we use our network‐based community measure as predictor of additional countries chosen by firms expanding their export destination portfolio. Using data on Mexican new exporters, the probability of choosing a new export destination doubles if it belongs to the same community of any of the firm's previous destinations. The introduction of the network‐based community variable improves the accuracy of the model up to 19 per cent relative to a model that only includes gravity variables. Industry‐specific communities and general communities play similar roles in determining the dynamics of Mexican exporters' country portfolio.
    June 30, 2015   doi: 10.1111/twec.12286   open full text
  • Remittances and Financial Access: Is There Really a Link and for Whom? Evidence from Mexican Household Data.
    Christian Ambrosius.
    World Economy. June 30, 2015
    In policy discussions, it has frequently been claimed that migrants' remittances could function as a ‘catalyst’ for financial access among receiving households. This paper provides empirical evidence on this hypothesis from Mexico, a major receiver of remittances worldwide. Using the Mexican Family Life Survey panel (MxFLS) for 2002 and 2005, the results from the fixed effects logit model show that receiving remittances is strongly correlated with the ownership of savings accounts and to a limited degree with the availability of borrowing options. Effects are particularly important for microfinance institutions, and more important for rural households compared to urban households.
    June 30, 2015   doi: 10.1111/twec.12287   open full text
  • FDI and Financial Market Development in Africa.
    Isaac Otchere, Issouf Soumaré, Pierre Yourougou.
    World Economy. June 24, 2015
    The literature on the relationship between foreign direct investment (FDI), financial market development (FMD) and economic growth focuses mainly on two aspects: the relationship between FDI and economic growth, and the role played by FMD in that linkage. The literature is almost silent on the relationship and the direction of causality between FDI and FMD. Although it has been established that FDI contributes more to growth in countries with a more developed financial market, it is not clear how FDI and FMD interact with each other. The aim of this paper is to fill this gap in the African context. Particularly, in Africa, where stock markets experience low liquidity and less transparency, FDI can be an impetus for financial market reforms and serve as a mechanism to improve the transparency and the depth of the financial markets. Also, well‐functioning financial markets can help channel foreign investments more efficiently into productive sectors, and therefore create more value for investors, hence making the countries more attractive to FDI. In short, both FDI and FMD will impact each other simultaneously, which is confirmed by our findings. We document a bidirectional causality between FDI and FMD. Furthermore, the multivariate regression results of the system of simultaneous equations also confirm the positive relationship between FDI and FMD in Africa. We also find that FDI contributes to economic growth in Africa after controlling for endogeneity between FDI, FMD and economic growth.
    June 24, 2015   doi: 10.1111/twec.12277   open full text
  • Structural Reforms and Labour‐market Outcomes: International Panel‐data Evidence.
    Claire H. Hollweg, Daniel Lederman, Devashish Mitra.
    World Economy. June 24, 2015
    This paper explores the impact of structural reforms on a comprehensive set of macro‐level labour‐market outcomes, including the unemployment rate, the average wage index, and overall and female employment levels and labour force participation rates. Together, these outcome variables capture the overall health of the labour market and the aggregate welfare of workers. Yet, to our knowledge, there seems to be no other comprehensive empirical investigation in the existing literature of the impact of structural reforms at the cross‐country macro‐level on labour‐market outcomes other than the unemployment rate. After documenting the average trends across countries in the labour‐market outcomes up to 10 years on either side of each country's structural reform year, we run fixed‐effects ordinary least squares and instrumental variables regressions to account for the likely endogeneity of structural reforms to labour‐market outcomes. Overall, the results suggest that structural reforms lead to positive outcomes for labour. Redistributive effects in favour of workers, along the lines of the Stolper‐Samuelson effect, may be at work.
    June 24, 2015   doi: 10.1111/twec.12279   open full text
  • The Concurrent Impact of Cultural, Political, and Spatial Distances on International Mergers and Acquisitions.
    Maria Chiara Di Guardo, Emanuela Marrocu, Raffaele Paci.
    World Economy. June 23, 2015
    This paper explores the concurrent effects of cultural, political, and spatial distances on mergers and acquisitions (M&A) flows occurring between any two countries belonging to the whole European Union (27 States) or to the European Neighbours group (16 States) over the period 2000–11. In the econometric analysis, based on zero‐inflated models, we simultaneously estimate the probability of engaging in a cross‐border M&A and the intensity of the deals. This allows us to adequately model the two different mechanisms which may result in the absence of deals in the cross‐border bilateral M&A transactions. The absence of deals may be due to either the lack of any transactions or unsuccessful negotiations. Taking into account the effect of population, gross domestic product, technological capital, financial conditions and quality of the institutions, we find robust evidence that the multi‐dimensional distance between two countries negatively affects both the probability and the intensity of M&A deals.
    June 23, 2015   doi: 10.1111/twec.12275   open full text
  • Plant Location, Wind Direction and Pollution Policy Under Offshoring.
    Laixun Zhao, Tetsugen Haruyama.
    World Economy. June 11, 2015
    We examine pollution policy in a unified three‐country framework, with the country in the middle playing double roles as both a polluter and a victim. We find that government preference over profits and consumer surplus to be important and so is environmentalism. In particular, the most downwind country has the least incentives to control pollution. Under oligopoly, several additional undesirable scenarios may arise, due to the interaction between wind direction and the incentive trade‐offs in rent‐shifting and pollution control. We analyse the mechanisms behind and provide policy guidance.
    June 11, 2015   doi: 10.1111/twec.12274   open full text
  • South–South Trade and Skill Premia.
    Sherif Khalifa.
    World Economy. May 22, 2014
    Contrary to the predictions of the 2 × 2 × 2 Heckscher–Ohlin model, empirical evidence shows that the skill premium increased in some developing countries and decreased in others after trade liberalisation. This paper attempts to reconcile the empirical evidence with the theoretical predictions by introducing a model where South–South trade can produce the observed patterns of skill premia in the South. In this context, South–South trade expands the import range of the country that reduces the tariff. This increases the demand for and the cost of skilled workers in the other country. This also leads the country that reduces the tariff to expand its export range and reduce its import range. Therefore, the country that reduces the tariff experiences an increase in its export range, which leads to an increase in the skill premium. As the impact on the import range is ambiguous, it is possible that the other country experiences a decline in the skill premium. Thus, trade liberalisation between Southern countries can cause an increase in the skill premium in one and a decrease in the skill premium in another.
    May 22, 2014   doi: 10.1111/twec.12184   open full text
  • The Location Choices of Multinational Firms: The Role of Internationalisation Experience and Group Affiliation.
    Alexandre Gazaniol.
    World Economy. May 22, 2014
    This paper investigates whether location choices of multinational firms depend on their past export, import or Foreign Direct Investment (FDI) experience on foreign markets or the experience of other affiliated firms. Regardless of locations' characteristics, we find that exporting in a given country, and to a smaller extent importing from it, significantly increases the probability of investing in that particular country the following year. This preliminary exporting phase appears more important for first‐time investors. Moreover, location choices not only depend on the investor's own international experience, but also on the international experience of other affiliated firms: firms tend to invest in countries where the group already exports or owns a local affiliate. These last findings suggest the existence of coordinated strategies and/or information sharing between affiliated firms.
    May 22, 2014   doi: 10.1111/twec.12186   open full text
  • The China Growth Miracle: The Role of the Formal and the Informal Institutions.
    Kenneth S. Chan, Xianxiang Xu, Yuanhua Gao.
    World Economy. May 20, 2014
    This paper examines why China, in spite of its ordinary institutions, can grow so rapidly and for so long. Since each region in China has different quality of institutions and growth rates, we look into provincial and city data for this investigation. The variables formal and informal institutions are added into the conventional cross‐section growth equation. The quality of the formal (informal) institution is taken from an opinion survey on the effectiveness of city governance conducted by the World Bank in 2006 (can be measured by the share of township‐and‐village enterprise in each province during 1978–2002 or by the trust index from surveys). We conclude that it is the informal institution that drives the rapid growth in China. Further investigation, using panel data and Arellano‐Bond system GMM estimator, which controls for the missing fixed effect in cross‐provincial regressions and provides useful instrument, confirms.
    May 20, 2014   doi: 10.1111/twec.12193   open full text
  • The Paradox of ‘Preferences’: Regional Trade Agreements and Trade Costs in Services.
    Sébastien Miroudot, Ben Shepherd.
    World Economy. May 19, 2014
    We analyse the relationship between regional trade integration and trade costs in services. The analysis relies on theory‐consistent bilateral trade costs for 55 countries for 1999–2009 and an analysis of services commitments in 66 regional trade agreements to which these countries are parties. Despite the recent proliferation of services regional trade agreements (RTAs), we find that trade costs are only slightly lower due to these agreements. In addition, we find that the trade cost reductions that do take place tend to happen before the agreement is signed. This is consistent with countries using RTAs as a way of ‘locking in’ reforms. Finally, we find that the preferential margin of services RTAs is thin: members and non‐members both see slightly lower trade costs when an RTA is signed. However, the difference between the member and non‐member trade cost effects is 28 per cent for services and 40 per cent for goods, indicating a slimmer margin of preference in the former case. We discuss the possible explanations for these findings in terms of the nature of services RTAs and their relationship with regulatory reform. Based on these results, we argue that regionalism in the case of services seems relatively non‐discriminatory and does not lead to substantial trade preferences.
    May 19, 2014   doi: 10.1111/twec.12178   open full text
  • Identifying Determinants of Branch Performances in Agricultural Bank of China: A Spatial Econometric Approach.
    Yi‐Cheng Liu, Wen Yang, Chao‐Cheng Mai.
    World Economy. May 19, 2014
    This paper identifies determinants of branches’ performances in Agricultural Bank of China using the spatial econometric approach. Studies on changes of spatial patterns of a financial industry are scarce, especially at the branch level. This paper is the first attempt to take spatial interdependence and urbanisation effects into account to investigate the determinants of China's bank branches’ performances from 1997 to 2011. We have chosen the world's 10th largest bank, the Agricultural Bank of China, because it discloses the most complete panel data of all. Empirical evidence indicates that spatial effects and urbanisation have large, statistically significant impacts on branches’ performances. It highly and positively corresponds to tertiary industry output (domestic consumption) and urbanisation. This signals that the ABC has evolved from a state‐owned specialised bank to a listed commercial bank.
    May 19, 2014   doi: 10.1111/twec.12194   open full text
  • Global Fiscal Adjustment and Trade Rebalancing.
    Warwick J. McKibbin, Andrew B. Stoeckel, YingYing Lu.
    World Economy. May 18, 2014
    The emergence of substantial fiscal deficits and a large build up of government debt in major advanced economies will inevitably lead to a period of fiscal consolidation in coming years. In an earlier paper, Asian Economic Papers, 9, 2010 and 54, explored the effects of this fiscal adjustment in advanced economies on the global economic outlook. This paper focuses on the differences between the impacts of fiscal policy in advanced versus emerging economies. In particular, the need for more fiscal spending on infrastructure in emerging economies and the need for fiscal consolidation in advanced economies leads naturally to the question of what this asymmetric fiscal adjustment might do to global trade balances as well as global economic growth over the coming decades. The adjustment needed in both regions is substantial, and the asymmetry of the adjustment implies important consequences for trade and capital flows between regions as well as asset price adjustments within and between regions.
    May 18, 2014   doi: 10.1111/twec.12185   open full text
  • Retailer Supply Chain and Market Access: Evidence From French Agri‐food Firms Certified with Private Standards.
    Karine Latouche, Emmanuelle Chevassus‐Lozza.
    World Economy. May 16, 2014
    This paper explores an original data set identifying French agri‐food firms certified with two European private standards: the International Food Standard and/or the British Retail Consortium standard (BRC). Certified firms complying with such requirements are able to supply some European retailers with products sold under their retailers' own private label. Our analysis revealed that certified firms were among the biggest and most productive firms in the sample. Then, based on recent developments in international economics, we propose a modification of Chaney's model (2008, American Economic Review98, 1707) and estimations to test for the hypothesis that entering retailer networks reduces export costs faced by certified firms to access European union (EU) markets. After controlling for size and productivity effects, model estimations show that French firms who adopt BRC and enter the corresponding network benefit from better access through a significant decrease in their entry costs to certain EU markets.
    May 16, 2014   doi: 10.1111/twec.12191   open full text
  • Microdynamics of Turkey's Export Boom in the 2000s.
    Tolga Cebeci, Ana M. Fernandes.
    World Economy. May 14, 2014
    This paper examines the microdynamics behind the dramatic export boom experienced by Turkey during the 2000s. Using disaggregated exporter‐level customs data covering the universe of export transactions for Turkey during the period 2002–11, we characterise firm‐level dynamics in the export sector and we decompose export growth at the aggregate, sectoral and destination market levels to identify the role of firm turnover, destination turnover and product turnover. We show that year‐to‐year aggregate export growth is dominated by growth in continuous exporters, and for these, growth is dominated by exports to their continued destinations and of their continued products. However, the observed high degree of churning across firms, destinations and products accounts for a substantial part of Turkey's export growth over longer periods. The patterns of microdynamics of export growth are verified across sectors and across groups of destination markets with some exceptions regarding exports to new emerging markets where net exporter entry plays a more critical role for export growth over longer periods.
    May 14, 2014   doi: 10.1111/twec.12183   open full text
  • Supply‐chain Trade: A Portrait of Global Patterns and Several Testable Hypotheses.
    Richard Baldwin, Javier Lopez‐Gonzalez.
    World Economy. May 13, 2014
    The trade associated with international production networks – supply‐chain trade for short – is associated with some of the most momentous global economic changes in the last 100 years. It has transformative implications for the world economy. This paper presents a portrait of the global pattern of supply‐chain trade and how it has evolved since 1995.
    May 13, 2014   doi: 10.1111/twec.12189   open full text
  • Globalisation and Industrial Policy: The Case of China.
    Peter Nolan.
    World Economy. May 09, 2014
    After a quarter of a century of industrial policy, China's objective of nurturing a group of globally competitive state‐owned enterprises appears to have succeeded beyond most expectations. However, China's SOEs are far from catching up with the world's leading firms. Protection through state ownership in a massive, fast‐growing economy has permitted China's SOEs to earn large profits and achieve high market capitalisations, but this is not the same thing as building globally competitive firms. The fact that China's industrial policy has been unsuccessful after a quarter of a century of intense effort demonstrates how difficult it is to construct an industrial policy in the era of capitalist globalisation, which has produced intense global industrial concentration across large parts of the global value chain. Although the detailed content of the next stage of reform of China's large state‐owned enterprises is unclear, China's determination to build a group of globally competitive large companies remains undimmed.
    May 09, 2014   doi: 10.1111/twec.12197   open full text
  • The Evidence on Globalisation.
    Niklas Potrafke.
    World Economy. May 09, 2014
    Globalisation is blamed for many socioeconomic shortcomings. I discuss the consequences of globalisation by surveying the empirical globalisation literature. My focus is on the KOF indices of globalisation (Dreher 2006a, Applied Economics 38, 1, 1091; Dreher et al. 2008, Measuring Globalization – Gauging its Consequences. Berlin: Springer) that have been used in more than 100 studies. Early studies using the KOF index reported correlations between globalisation and several outcome variables. Studies published more recently identify causal effects. The evidence shows that globalisation has spurred economic growth, promoted gender equality and improved human rights. Moreover, globalisation did not erode welfare state activities, did not have any significant effect on labour market interaction and hardly influenced market deregulation. It increased, however, within‐country income inequality. The consequences of globalisation thus turn out to be overall much more favourable than often conjectured in the public discourse.
    May 09, 2014   doi: 10.1111/twec.12174   open full text
  • Corporate Voluntary Carbon Information Disclosure: Evidence from China's Listed Companies.
    Juan Peng, Jianfei Sun, Rui Luo.
    World Economy. May 06, 2014
    This article seeks to answer two questions: (i) what factors drive firms to decide whether or not to disclose the information related to their greenhouse gas emissions (also called carbon information)? (ii) what forces lead firms to disclose more carbon information? Using data hand‐collected from the annual Corporate Social Responsibility reports of China's listed companies from 2008 to 2012, we find the following: (i) firms that operate in sectors of high‐emission industries are more likely to make carbon information disclosure (CID hereafter); (ii) the more companies within one industry that make CID, the more likely it is that a company in that industry will make CID; (iii) companies having a higher sales rank within an industry are more likely to make CID.
    May 06, 2014   doi: 10.1111/twec.12187   open full text
  • The Trade Competitiveness of Southern Emerging Economies: A Multidimensional Approach Through Cluster Analysis.
    Pierluigi Montalbano, Silvia Nenci.
    World Economy. May 06, 2014
    This paper investigates the trade competitiveness of the new emerging Southern economies – China, India, Brazil and South Africa (CIBS) – with respect to their main global partners. Starting from the commonly held view that countries with trade patterns similar to those of emerging countries are likely to suffer losses, we propose a multidimensional approach based on cluster analysis, both crisp and fuzzy, as an alternative strategy for assessing similarity in global trade patterns. On the basis of key trade characteristics drawn from the diverse strands of trade theory, we assess the relative position of CIBS within global trade patterns and their evolution over time. Unlike previous studies, our results do not support the hypothesis of the presence of a competitiveness threat from Southern emerging countries towards the main industrialised economies.
    May 06, 2014   doi: 10.1111/twec.12195   open full text
  • New Competence Creation in Multinational Company Subunits: The Role of International Knowledge.
    John Cantwell, Lucia Piscitello.
    World Economy. May 05, 2014
    It has been demonstrated that more creative innovative activities of subunits of multinational companies (MNCs) rely upon the munificence of local knowledge in the host country. Here, we argue that the strength of international business network connections of a host location influences the potential accessibility of international knowledge and hence tends to widen the domain of new knowledge search that can be successfully undertaken by an MNC subunit. This in turn increases the likelihood of an MNC subunit building new areas of competencies, that is, in fields of competencies which are relatively new to the MNC. Specifically, we suggest that the relevant international business network connections are those involving local actors in the MNC subunit's relevant industry. Moreover, geographical proximity between MNC subunits and their parent company has an inverse U‐shaped relationship with new competence creation by subunits. Using a balanced panel data set on innovative activities conducted abroad by 194 of the world's largest industrial firms from 1975 to 1995, we find support for our expectations.
    May 05, 2014   doi: 10.1111/twec.12175   open full text
  • Import Churning and Export Performance of Multi‐product Firms.
    Jože P. Damijan, Jozef Konings, Sašo Polanec.
    World Economy. May 02, 2014
    This paper analyses the impact of churning in the imported varieties of capital and intermediate inputs on firm export scope and productivity. Using detailed data on imports and exports at the firm‐product‐market level, we document substantial churning in both imports and exports for Slovenian manufacturing firms in the period 1994–2008. On average, a firm changes about one‐quarter of imported and exported product‐markets every year, while gross churning in terms of added and dropped product‐markets is almost three times higher. A substantial share of this product churning is due to simultaneous imports and exports of firms in identical varieties within the same CN‐8 product code (so called pass‐on‐trade). We find that churning in imported varieties is far more important than reduction in tariffs or declines in import prices for firms’ productivity growth and increased export product scope. We also find gross churning has a bigger impact on firm productivity improvements by a factor of more than 10 in comparison with net churning. Both adding and dropping of imported input varieties thus seem to be of utmost importance for firms aiming to optimise their input mix towards their most valuable inputs. These effects are further enhanced when excluding simultaneous trade in identical varieties, suggesting that pass‐on‐trade has less favourable effects on firms’ long‐run performance than regular trade.
    May 02, 2014   doi: 10.1111/twec.12196   open full text
  • Garment Industry in Sri Lanka and the Removal of GSP Plus by EU.
    Jayatilleke S. Bandara, Athula Naranpanawa.
    World Economy. May 02, 2014
    The ready‐made garment industry plays an important role in Sri Lanka both in terms of export earnings and poverty alleviation through employment generation. Following the removal of GSP Plus by EU in 2010 on the basis of alleged human right violations by the Sri Lankan government during the last stage of the civil war in 2009 and after, it currently faces serious challenges in exporting to the EU, its major market. Given the important role of the ready‐made garment industry in poverty alleviation through employment generation, the impact of removal of GSP plus on the poor is examined in this paper. The empirical results of this study demonstrate that poverty and income inequality are expected to be exacerbated in Sri Lanka as a result of the removal of GSP Plus by the EU using non‐economic reasons such as human rights violation. The results are also relevant for the renewed emphasis on trade preferences as a potential instrument for the Millennium Development Goals and the debate on how trade preferences are to be designed to maximise their effectiveness in stimulating a manufacturing supply response.
    May 02, 2014   doi: 10.1111/twec.12182   open full text
  • Staying Home or Moving Away? Restructuring Efforts within Multinational Enterprises.
    Filip Abraham, Tim Goesaert, Jozef Konings.
    World Economy. April 29, 2014
    This paper analyses the impact of geographic dispersion on employment changes within multinationals. Building on earlier work of Landier et al. (2009, Review of Financial Studies 22, 3: 1119), we investigate whether corporate decision‐making within a multinational is affected by the distance between an affiliate and its headquarter. Our findings suggest a detrimental impact of distance on employees, by either an increased likelihood of observing a downsizing event, or by witnessing a larger decrease in the number of employees at distant locations during downsizing events. In addition, our results seem to relate the higher likelihood of observing a downsizing event to the role of social factors on decision making. The more visible a manager is in his community, the less likely he is to downsize proximate divisions.
    April 29, 2014   doi: 10.1111/twec.12179   open full text
  • Foreign Direct Investment, Productivity, Demand for Skilled Labour and Wage Inequality: An Analysis of Uruguay.
    Adriana Peluffo.
    World Economy. April 26, 2014
    This study seeks to identify the causal effects of foreign ownership on productivity, the demand for skilled labour and wage inequality. With this aim, we use differences‐in‐differences techniques for a panel of Uruguayan manufacturing firms in the period 1997–2005. Our results seem to indicate that FDI causes higher productivity and increased demand for skilled labour. Furthermore, although average wages are higher in foreign‐owned firms than in domestic ones, the wage gap between skilled and unskilled workers is wider. It follows that promoting foreign investment enhances productivity. In addition, due to the greater demand for skilled workers, policies such as training schemes would be conducive to raising productivity still further, while other social policies could help to mitigate the wage inequality effects.
    April 26, 2014   doi: 10.1111/twec.12180   open full text
  • Trade Liberalisation: The Effects of Free Trade Agreements on the Competitiveness of the Dairy Sector.
    Catherine Couillard, Ekaterina Turkina.
    World Economy. April 26, 2014
    In recent years, preferential trade agreements (PTAs), free trade agreements (FTAs) in particular, have proliferated while WTO negotiations have stagnated. This paper contributes to the literature on trade liberalisation and the agricultural sector by analysing the effects of FTAs on the competitiveness of the dairy sector across 76 countries and over a 20‐year period from 1990 to 2009. With a longitudinal econometric model, the results demonstrate that when a country has a revealed comparative advantage in the dairy sector, FTAs positively influence several indicators of competitiveness in the dairy sector, such as production, market share and trade balance. The results also indicate that multilateral FTAs are more beneficial than bilateral FTAs. There is strong empirical evidence that FTAs are more beneficial to developed countries than to developing countries. There is no statistical evidence to support the hypothesis about a relationship between FTAs and farm‐gate price.
    April 26, 2014   doi: 10.1111/twec.12181   open full text
  • Political Connections, Government Intervention and Acquirer Performance in Cross‐border Mergers and Acquisitions: an Empirical Analysis Based on Chinese Acquirers.
    Liuyong Yang, Jingjing Zhang.
    World Economy. April 26, 2014
    The extant literature suggests that the political connections enjoyed by Chinese acquiring firms have both positive and negative effects on their performance in cross‐border mergers and acquisitions (CBMA). We employed firm‐level data on Chinese acquirers from 2001 to 2012, demonstrating that the effect of political connections on mergers and acquisitions performance is determined by external government intervention. Holding the level of political connections constant, the greater the degree of government intervention is, the worse the acquirer's performance in cross‐border mergers and acquisitions will be. We also demonstrated that political connections affect acquirer performance in cross‐border mergers and acquisitions through the channel of preferential access to bank financing, and the acquiring firms' high cash holdings, which are encouraged by the ease of bank financing, have a negative effect on acquirer CBMA performance. Using the Blinder‐Oaxaca decomposition, we investigated changes in the Chinese acquirers' performance following changes in the external policy environment in 2008 and the effect of political connections and other factors on this change.
    April 26, 2014   doi: 10.1111/twec.12190   open full text
  • Foreign Ownership and the Extensive Margins of Exports: Evidence for Manufacturing Enterprises in Germany.
    Horst Raff, Joachim Wagner.
    World Economy. March 19, 2014
    We examine how foreign ownership of a firm affects the variety of goods that the firm exports and the number of countries it trades with. We construct a simple theoretical model of how foreign ownership may affect these extensive margins of exports and take this model to data from Germany, one of the leading actors on the world market for goods. In line with theoretical predictions we find that foreign‐owned firms do export more goods to more countries after controlling for firm size, productivity and industry affiliation. These differences between foreign‐owned firms and domestically controlled firms are highly statistically significant, and they are large from an economic point of view, with foreign‐owned firms exporting up to 39 per cent more goods to up to 31 per cent more countries.
    March 19, 2014   doi: 10.1111/twec.12157   open full text
  • The Gravity Model and Trade Efficiency: A Stochastic Frontier Analysis of Eastern European Countries' Potential Trade.
    Geetha Ravishankar, Marie M. Stack.
    World Economy. February 06, 2014
    The opening up process of the eastern European countries is characterised by an increasing degree of trade integration with their Western neighbouring countries. Typically, the degree of East–West trade integration is assessed by comparing actual trade volumes with potential trade volumes projected from the gravity model parameters estimated for a group of countries that best represent normal trade relations. This approach, however, does not compare trade levels against a maximum level of trade feasible for the group of eastern European countries. This paper using a stochastic frontier specification of the gravity model is able to identify the efficiency of trade integration relative to maximum potential levels. The findings, based on a panel data set of bilateral exports from 17 Western European countries to the 10 new member states over the 1994–2007 period, indicate a high degree of East–West trade integration close to two‐thirds of frontier estimates, suggesting a low degree of trade resistances.
    February 06, 2014   doi: 10.1111/twec.12144   open full text
  • Born to be Global and the Globalisation Process.
    Pehr‐Johan Norbäck, Lars Persson.
    World Economy. January 13, 2014
    During the last decades, we have witnessed a large number of entrepreneurial firms that reach the world market at a fast pace (‘born global firms’). Our analysis suggests that the ongoing globalisation process indeed implies that born to be global firms would be more prominent in the world economy due to the reduction in the cost of exploiting good business ideas globally. However, our analysis also suggests that entrepreneurial firms have incentives to sell their business to incumbents. Indeed, we show that ‘born to be sold global firms’ can be even more frequent as a result of trade liberalisation and the international deregulation of the market for corporate control.
    January 13, 2014   doi: 10.1111/twec.12132   open full text
  • Subsidy‐induced Dumping.
    Jørgen D. Hansen, Jørgen U.‐M. Nielsen.
    World Economy. December 27, 2013
    More than two‐thirds of all anti‐subsidy investigations in the EU are paired with an anti‐dumping investigation against the same non‐EU producers. The outcome may be a two‐component duty where one duty addresses the ‘unfairness’ of the subsidy and the other the dumping behaviour. The philosophy behind this practice is that, at least to some extent, the observed dumping has been induced by the subsidy, and as the GATT Treaty, Article VI commits the claimant not to impose double remedies for the same ‘misbehaviour’, it is necessary to make an assessment of the hypothetical dumping without the subsidy. The EU quantification of the hypothetical dumping margin assumes that an export subsidy translates fully to the dumping margin, while a domestic subsidy leaves the dumping margin unchanged. Using an oligopoly model, we show in this paper that in case of an export subsidy, the EU anti‐dumping duty is lower than the predicted hypothetical dumping margin from the oligopoly model. For a domestic subsidy, the results are ambiguous, and the difference between the size of the duty following the EU procedure and the model predictions is relatively small.
    December 27, 2013   doi: 10.1111/twec.12134   open full text
  • Political Risk, Institutions and Foreign Direct Investment: How Do They Relate in Various European Countries?
    Vladimír Benáček, Helena Lenihan, Bernadette Andreosso‐O'Callaghan, Eva Michalíková, Denis Kan.
    World Economy. September 15, 2013
    There is no abstract available for this paper.
    September 15, 2013   doi: 10.1111/twec.12112   open full text
  • Measuring Global Economic Interdependence: A Hierarchical Network Approach.
    David Matesanz Gomez, Benno Torgler, Guillermo J. Ortega.
    World Economy. July 25, 2013
    This paper investigates the business cycle co‐movement across countries and regions since 1950 as a measure for quantifying the economic interdependence in the ongoing globalisation process. Our methodological approach is based on analysis of a correlation matrix and the networks it contains. Such an approach summarises the interaction and interdependence of all elements, and it represents a more accurate measure of the global interdependence involved in an economic system. Our results show (1) the dynamics of interdependence has been driven more by synchronisation in regional growth patterns than by the synchronisation of the world economy, and (2) world crisis periods dramatically increase the global co‐movement in the world economy.
    July 25, 2013   doi: 10.1111/twec.12080   open full text
  • Exchange Rate Volatility and Intra‐Asia Trade: Evidence by Type of Goods.
    Hsiao Chink Tang.
    World Economy. July 25, 2013
    This paper examines the impact of intra‐Asia exchange rate volatility on intra‐Asia trade in primary goods, intermediate goods, equipment goods and consumption goods from 1980 to 2009. For Asia, the evidence shows that as intraregional exchange rate volatility increases, intraregional exports in these goods fall. This adverse impact is even more pronounced in the subregion of Association of Southeast Asian Nations (ASEAN)+5 comprising ASEAN member countries plus the People's Republic of China; Hong Kong, China; Japan; the Republic of Korea; and Taipei, China; and especially among intermediate and equipment exports. Again, the impact magnifies in an even smaller subgroup excluding the smaller ASEAN economies. These results underline the significant impact of exchange rate volatility on the region's production networks. For South Asia, however, exchange rate volatility appears to have a positive impact on exports. Still, caution is warranted given that South Asian economies trade relatively little with each other.
    July 25, 2013   doi: 10.1111/twec.12095   open full text
  • Foreign Wage Premium, Gender and Education: Insights from Vietnam Household Surveys.
    Emiko Fukase.
    World Economy. July 25, 2013
    This paper investigates the differential impacts of foreign ownership on wages for different types of workers (in terms of educational background and gender) in Vietnam using the Vietnam Household Living Standards Surveys of 2002 and 2004. Whereas most previous studies have compared wage levels between foreign and domestic sectors using firm‐level data (thus excluding the informal sector), one advantage of using the Living Standards Surveys in this paper is that the data allow wage comparison analyses to extend to the informal wage sector. A series of Mincerian earnings equations and worker‐specific fixed effects models are estimated. Several findings emerge. First, foreign firms pay higher wages relative to their domestic counterparts after controlling for workers' personal characteristics. Second, the higher the individual workers' levels of education, the larger on average are the wage premiums for those who work for foreign firms. Third, longer hours of work in foreign firm jobs relative to working in the informal wage sector are an important component of the wage premium. Finally, unskilled women experience a larger foreign wage premium than unskilled men, reflecting the low earning opportunities for women and a higher gender gap in the informal wage sector.
    July 25, 2013   doi: 10.1111/twec.12103   open full text
  • Housing Development and Urbanisation in China.
    Shujie Yao, Dan Luo, Jianling Wang.
    World Economy. July 25, 2013
    Rapid urbanisation and rising income have led to a strong demand for housing in urban China. However, housing development has been distorted by speculation, income inequality and lack of government support for low‐cost houses. In recent years, house prices become so high, making the vast majority of urban residents unable to afford, whereas rich families are able to buy many and leave them vacant. Income inequality is a major cause for rising house prices, which, in turn, exaggerates income inequality further. This vicious relationship has caused social tension between the rich and the poor and unhappiness among the middle‐ and low‐income groups. This paper discusses the factors responsible for the housing bubble in China and recommends appropriate policies to resolve this problem.
    July 25, 2013   doi: 10.1111/twec.12105   open full text
  • Movements of People for Movements of Goods?
    Rinaldo Brau, Anna Maria Pinna.
    World Economy. July 25, 2013
    Whilst it is well established to think of international tourism as a type of exports, namely ‘home’ exports, the potential of tourism flows as an engine for fostering trade among countries is a poorly studied topic. In this paper, we show that this relationship can be studied at a very detailed level by exploiting the disaggregation of existing information on international trade and inbound tourism. We consider a sample of 25 countries belonging to the European Union, a region that has been interested by common shocks such as the establishment of the euro as the new currency for many countries and the liberalisation in the air transport market. We carry out a panel data analysis by means of which we assess whether international tourist arrivals by a given country activate additional exports towards the same country. We find not only that tourism can promote exports, but also that this effect displays important differences depending on whether or not consumption goods are considered. This finding is consistent with the idea that the experience of tourists in a given destination reduces the fixed costs of trade, thus facilitating access to the advantages of international trade for more peripheral economies.
    July 25, 2013   doi: 10.1111/twec.12104   open full text
  • Tourism Promotion, Increasing Returns and Domestic Welfare.
    Hui Shi, Chuhui Li.
    World Economy. July 25, 2013
    This paper compares the effect of tourism promotion funded by commodity tax and income tax on domestic welfare in an open economy with increasing returns in the tourism and the non‐tourism sector. A promotion may overcome the under‐production of tourism goods through taking account of the implications of increasing returns, but at the same time, the taxation may have an adverse impact on the rest of the economy. Employing a general equilibrium analysis, we find that the cost of tourism promotion overcomes the benefit, reducing local residents' welfare. Furthermore, commodity tax on tourism consumption is relatively more efficient than income tax in a monopolistic competition, with less adverse impact on the variety of non‐tourism goods. We also clarify the condition for deteriorating ‘terms of trade’, which only happens when the country has a small allocation of factor endowments.
    July 25, 2013   doi: 10.1111/twec.12084   open full text
  • Trade Creation and Diversion Effects of Regional Trade Agreements: A Product‐level Analysis.
    Shujiro Urata, Misa Okabe.
    World Economy. July 15, 2013
    This paper examines the impacts of regional trade agreements (RTAs) on trade flows at product level, with a particular focus on trade creation and diversion. Based on estimation of the gravity equation, dealing with the zero trade flows and endogeneity bias problems, we analyse the impacts of various types of RTAs involving 67 countries for 20 products during the 1980–2006 period. We find that RTAs among developing countries tend to cause trade diversion compared with RTAs among developed countries. Taking the higher external tariff rates of developing countries compared with developed countries into consideration, our results suggest trade diversion is likely to be caused by remaining high tariffs on imports from non‐members. In addition, we find the trade creation effect for many products in the cases of Customs Unions and plurilateral RTAs. These results imply that trade creation would be caused by various factors besides the reduction in tariff rates. Based on these results, we draw a policy implication that external tariff rate reduction is an important factor in avoiding trade diversion in the formation of RTAs, in particular for RTAs among developing countries, while a large number of members and the common external tariff appear to be important for generating the trade creation effect.
    July 15, 2013   doi: 10.1111/twec.12099   open full text
  • Review Essay: The Antiglobalisation Paradox – Freedom to Enter into Binding International Law is Real Freedom.
    Joel P. Trachtman.
    World Economy. July 15, 2013
    In The Globalization Paradox, Dani Rodrik sets up what he calls a policy trilemma among hyperglobalisation, democracy and autonomy. This trilemma is best understood as a trade‐off between national autonomy and rules that promote globalisation. However, a contractual perspective on international law – recognising that states use international law to make exchanges of policy autonomy in ways that enhance each consenting state's welfare – suggests that there is no real trade‐off between national autonomy and international legal rules that promote globalisation. The antiglobalisation paradox is that these rules of international law may be seen as an expression of national autonomy. There is no trilemma, and even the trade‐off between national autonomy and globalisation must be understood instead as a trade‐off between two ways of promoting national welfare: one through autarchy and the other through international legal exchange. It then becomes apparent that a bias in favour of autarchy is mistaken, as it inappropriately limits the ways in which governments may promote national welfare. Furthermore, international law does not necessarily need, at the international level, the same types of mechanisms for democratic accountability that are required at the national level, because states consent to international law through their national democratic processes. Globalisation can take place through international legal rules that have appropriate democratic credentials and that leave in place appropriate national autonomy.
    July 15, 2013   doi: 10.1111/twec.12101   open full text
  • On the Differential Behaviour of National and Multinational Firms: A Within‐ and Across‐sectors Approach.
    María C. Latorre.
    World Economy. July 15, 2013
    This paper looks for different patterns of behaviour of national firms and multinational enterprises (MNEs). Its main contribution is the use of a computable general equilibrium perspective to analyse firms’ performance. The model is calibrated for the case of the Czech Republic, which has been a very attractive foreign direct investment location in the last three decades. We replicate the arrival of MNEs to different sectors of this country in turn and analyse the responses of both types of firms across the 20 different sectors in which the Czech economy has been split. Our results grasp the short‐run impact. The higher labour intensity of national firms leads them to different patterns of production and labour demand, compared with MNEs operating within the same sector. The demand side of the model (particularly, exports and private consumption) drives the evolution of production and labour demand across sectors. Regarding prices, we also find a differential pattern between both types of firms within and across sectors. Our analysis offers detailed evidence on how the impact of MNEs will differ depending on the sector to which they arrive. Finally, the aggregate results suggest that a completely different microeconomic panorama may underlie rather similar macroeconomic outcomes.
    July 15, 2013   doi: 10.1111/twec.12100   open full text
  • Trade in Services and Regional Trade Agreements: Do Negotiations on Services Have to be Specific?
    Amélie Guillin.
    World Economy. July 15, 2013
    Trade in services has been on a substantial positive trend since the last decades, and the number of regional trade agreements (RTAs) in force has increased regularly overtime. However, negotiations on services remain hesitant even at the bilateral level. Classifying an RTA according to its degree of liberalisation in services allows accounting for ‘depth’ and heterogeneity issues amongst RTAs. I estimate a gravity equation using panel data covering the period 1999–2007, including bilateral and country‐and‐time fixed effects. The main results are: (i) amongst RTAs, only the trade agreements covering services have a significant effect on trade in services; and (ii) the deeper, in terms of sectors and of content, the agreement is, the more intratrade the signatory countries have.
    July 15, 2013   doi: 10.1111/twec.12102   open full text
  • Isolating the Network Effect of Immigrants on Trade.
    Mariya Aleksynska, Giovanni Peri.
    World Economy. July 02, 2013
    Within the migration–trade nexus literature, this paper proposes a more carefully defined measure of migration business networks and quantifies its impact on bilateral trade. Using cross‐sectional data and controlling for the overall bilateral stock of migrants, the share of migrants employed in managerial/business‐related occupations has a strong additional effect on trade. Those immigrants should be the ones directly involved in the diffusion and transmission of information relevant for companies trading with other countries. Their presence is found to increase the volume of trade, especially of imports, beyond the already known effect of immigrants or highly educated immigrants. When we control for the presence of highly educated immigrants, the share of immigrants in business network occupations shows a particularly large effect on trade in differentiated goods. We also find that highly educated individuals in business‐related occupations are those contributing to stimulate import and export by the largest margin. Business network effects seem particularly important in stimulating exports to culturally different countries, such as those with different language and legal origin.
    July 02, 2013   doi: 10.1111/twec.12079   open full text
  • EMU and Trade Revisited: Long‐Run Evidence Using Gravity Equations.
    Mariam Camarero, Estrella Gómez, Cecilio Tamarit.
    World Economy. June 26, 2013
    In this paper, we present evidence of the long‐run effect of the euro on trade for the twelve initial EMU countries for the period 1967–2008 from a double perspective. First, we pool all the bilateral combinations of trade flows among the EMU countries in a panel cointegration gravity specification. Second, we estimate a gravity equation for each of the EMU members vis‐à‐vis the other eleven partners. We apply panel cointegration techniques based on factor models that account for cross‐dependence and structural breaks. Whereas the joint gravity equation provides evidence on the aggregate effect of the euro on intra‐European trade, by isolating the individual countries, we assess which of the member countries have obtained a larger benefit from the euro. The results show that the euro has had a positive though small effect on trade. Belgium and Luxembourg, France and Italy are the countries more benefited from the introduction of the euro. The effects for exports to third countries are in general more moderate, and, with the exception of Greece, there is no evidence of diversion effects.
    June 26, 2013   doi: 10.1111/twec.12090   open full text
  • Cross‐border and Foreign Affiliate Sales of Services: Evidence from German Microdata.
    Markus Kelle, Jörn Kleinert, Horst Raff, Farid Toubal.
    World Economy. June 26, 2013
    We merge German balance‐of‐payments and foreign‐affiliate‐trade statistics to obtain data about trade in commercial services at the firm level. We use these data to study export market participation and the choice of export mode: cross‐border versus foreign affiliate sales. We find that for firms in our sample productivity is both a statistically significant and economically important determinant of the export participation and export mode choice. We also identify the role of industry‐ and country‐specific determinants.
    June 26, 2013   doi: 10.1111/twec.12093   open full text
  • Financial Crisis and Productivity Evolution: Evidence from Indonesia.
    Sharon Poczter, Paul Gertler, Alexander D. Rothenberg.
    World Economy. June 24, 2013
    We examine how the productivity of different industries changes over the course of a financial crisis by exploiting cross‐firm, within‐industry differences in productivity resulting from the Asian financial crisis of 1997. We show that the crisis coincided with dramatic changes in productivity and that many of these changes were sustained in the long run. In particular, an increasing number of industries experienced decreases in average firm productivity during the crisis and did not recover. Further, we find that changes in industrial productivity in the recovery period are driven not by increases in the productivity of existing firms, but rather by the entry of new firms and changes to the reallocation of market share. Finally, we find that foreign exporters' productivity was the least impacted by the crisis, suggesting that only access to alternate forms of both capital and international markets can help to smooth investment and maintain productivity over a financial crisis.
    June 24, 2013   doi: 10.1111/twec.12086   open full text
  • Commodity Price, Carry Trade, and the Volatility and Liquidity of Asian Currencies.
    Maria Socorro Gochoco‐Bautista, Jianxin Wang, Minxian Yang.
    World Economy. June 24, 2013
    This study examines how the volatility and liquidity of 10 Asian exchange rates against the US dollar change with volatilities in commodity price and carry trade over the period of January 2000 to June 2010. We find that uncertainties in commodity markets and carry trades are significantly correlated with the volatilities and the bid‐ask spreads of most Asian currencies. The correlation with carry trade is generally stronger and has been rising over the sample period. While high volatilities in carry trade are associated with high volatilities in many Asian currencies, high volatilities in commodity price do not coincide with excessive volatilities in Asian currencies. This suggests that investors and policymakers should be more concerned with the volatility in carry trade.
    June 24, 2013   doi: 10.1111/twec.12089   open full text
  • Will the Renminbi Emerge as an International Reserve Currency?
    Jong‐Wha Lee.
    World Economy. June 24, 2013
    The global reserve system can be strengthened by increasing the role of alternative currencies. A gradual evolution to a multicurrency system reduces pressure on a single reserve currency issuer from an ever‐growing balance‐of‐payments deficit. It also allows countries to better diversify their foreign exchange holdings. Given the continuing strong economic growth in the China and its growing influence on the world economy, the renminbi will likely emerge as a new international currency. However, this is contingent on the China accepting a more convertible capital account and developing an efficient financial system. Internationalising the renminbi will likely be a gradual and drawn‐out process. Simulations show that, with greater convertibility, the renminbi could gradually become an international currency within Asia and beyond – sharing from 3 to 12 per cent of international reserves by 2035.
    June 24, 2013   doi: 10.1111/twec.12092   open full text
  • Export Credit Guarantees and Export Performance: Evidence from Austrian Firm‐level Data.
    Harald Badinger, Thomas Url.
    World Economy. June 24, 2013
    This paper provides an economic assessment of export credit guarantee commitments by the Austrian export credit agency, using firm‐level data on a cross‐section of Austrian exporting firms for the year 2008. In a first step, we explore various determinants of export guarantee usage. Results suggest that firm size, being part of a multinational enterprise, exposure to revenue risk and R&D intensity are important factors. In a second step, we investigate the effects of export guarantees on export performance. Identification is achieved using as instruments the exogenous determinants of export guarantee usage identified in the first step. We find that there are economically and statistically significant effects of export credit guarantee usage on firm‐specific export performance ranging from some 80 to 100 per cent compared with the control group of non‐users.
    June 24, 2013   doi: 10.1111/twec.12085   open full text
  • Intraregional Spillovers in South America: Is Brazil Systemic After All?
    Gustavo Adler, Sebastián Sosa.
    World Economy. June 24, 2013
    The high business cycle correlation between Brazil (the large neighbour in South America) and other countries in the region has been a frequent source of concern for policymakers, as it has been viewed as evidence of the large influence of the former country on its neighbours. This paper studies the importance of such influence, documenting trade linkages over the last two decades and quantifying spillover effects in a vector autoregression setting. We find that, after controlling for common external factors, spillovers from Brazil are only relevant for Southern Cone economies (especially Mercosur's members) and Peru, but not for the rest of South America, and these findings are consistent with the extent of trade linkages between these countries. We find also that spillovers can take two different forms: the transmission of Brazil‐specific shocks and the amplification of global shocks – through their impact on Brazil's output. Finally, we also find suggestive evidence that depreciations of Brazil's currency may not have significant impact on output of its key trading partners.
    June 24, 2013   doi: 10.1111/twec.12094   open full text
  • The Effects of Globalisation on the US Labour Mark'et: Service Sectors Considered.
    Ling Feng, Weijun Hu, Zhiyuan Li.
    World Economy. June 24, 2013
    How has globalisation affected employment and wages in the United States? Existing studies largely ignore the intersector labour movement between the manufacturing and service sectors by focusing only on the intrasector movement within the manufacturing sector. However, by decomposing the aggregate labour demand in the United States, we find that the intersector movement is more substantial than intrasector movement. Motivated by the decomposition results, this study presents a three‐sector model that includes a manufacturing sector and two service sectors at varying skill intensities. The model shows that offshoring might translate into smaller‐than‐expected wage changes because of the intersector labour movement. In line with the theoretical predictions, two notable empirical results are presented. First, an occupation's exposure to offshoring has non‐significant, albeit negative, effects on wages. Second, the more an occupation is exposed to offshoring, the lower its employment in the manufacturing sector as a share of its total employment. Furthermore, these effects are larger for more routine occupations or those requiring less education.
    June 24, 2013   doi: 10.1111/twec.12088   open full text
  • An Asian Currency Unit: Simulations for Its Effects on East Asia.
    Kuo‐Chun Yeh.
    World Economy. June 24, 2013
    An Asian currency unit (ACU) is necessary to deepen Asian financial markets and to convert national currencies into a single monetary policy. However, the experiences of the European Currency Unit and the European Exchange Rate Mechanism crisis in 1992–93 have indicated the danger of the so‐called gradual approach. This study evaluates the effects of welfare should the ACU indicator become a long‐term constraint of the People's Republic of China and Japan, the big two in East Asia. Our results indicate that the constraints of countries’ own baskets (e.g. real effective exchange rates) are still better before the launch of a true single currency. That is, pegging to an ACU indicator could hardly be sustained in the long‐run if East Asian countries have not reached a consensus about a regional monetary union.
    June 24, 2013   doi: 10.1111/twec.12097   open full text
  • Investigating China's Disaggregated Processed Exports: Evidence that Both the RMB and Exchange Rates in Supply Chain Countries Matter.
    Willem Thorbecke.
    World Economy. June 24, 2013
    China's trade surplus is entirely in processing trade. Processed exports are final goods produced using parts and components coming from supply chain countries. Many claim that because much of the value added of China's processed exports comes from other countries, the renminbi should not affect China's processed exports. To investigate these issues, this paper disaggregates processed exports into their two main categories, processing with imported materials (PWIM) exports and processing and assembly (PAA) exports. For PWIM exports, much of the value added comes from China while for PAA exports most of the value added comes from supply chain countries. DOLS results indicate that exchange rates in supply chain countries affect both types of exports and that the renminbi significantly affects PWIM exports, but not PAA exports. These results indicate that both the renminbi and exchange rates in supply chain countries matter for processed exports.
    June 24, 2013   doi: 10.1111/twec.12096   open full text
  • State‐owned Enterprises, Exporting and Productivity in China: A Stochastic Dominance Approach.
    Robert Elliott, Ying Zhou.
    World Economy. June 17, 2013
    A popular explanation for China's rapid economic growth in recent years has been the dramatic increase in the number of private domestic‐ and foreign‐owned firms and a decline in the state‐owned sector. However, recent evidence suggests that China's state‐owned enterprises (SOEs) are in fact stronger than ever. In this paper, we examine over 78,000 manufacturing firms between 2002 and 2006 to investigate the relationship between ownership structure and the degree of firm‐level exposure to export markets and firm‐level productivity. Using a conditional stochastic dominance approach, we reveal that although our results largely adhere to prior expectations, the performance of SOEs differs markedly between those that export and those that supply the domestic market only. It appears that China's internationally focused SOEs have become formidable global competitors.
    June 17, 2013   doi: 10.1111/twec.12078   open full text
  • Reforming Property Rights Institutions in Developing Countries: Can FDI Inflows Help?
    Abdoul' Ganiou Mijiyawa.
    World Economy. June 17, 2013
    This paper analyses factors that can facilitate property rights institutions reform in developing countries (DC). Inspired by the works of North and Weingast (Journal of Economic History, 49, 1989, 803) and Acemoglu et al. (American Economic Review, 95, 2005a, 546; 2008) relating to the process of institutional reforms in England during the seventeenth century, I assume that FDI inflows could contribute to property rights reform in DC that are initially endowed with a minimum of effective institutions of constraints on the executive (i.e. effective institutions of checks and balances). Using five‐year panel data over the period 1970–2005 with a sample of 80 DC, and after correcting for endogeneity, I find that conditioned on the initial level of constraints on the executive, the effect of FDI inflows on the probability of reforming property rights is positive and significant. The minimum level of constraints on the executive necessary for the catalytic role of FDI inflows in reforming property rights institutions is 3.6. Only 20 out of the 80 DC in the sample have this minimum level of constraints on the executive. Among the 20 countries five are in sub‐Saharan Africa.
    June 17, 2013   doi: 10.1111/twec.12081   open full text
  • Zero Tolerance for GM Flax and the Rules of Trade.
    Crina Viju, May T. Yeung, William A. Kerr.
    World Economy. June 17, 2013
    Trade in genetically modified products is a longstanding and contentious issue in agricultural trade. One issue has not, as yet, received much attention. This is the mingling of unapproved GM products with conventional products. This issue is likely to gain more prominence in the future as new GM product development accelerates. Until recently, problems with mingling were largely one‐off events. Recently, however, an ongoing case of mingling has arisen – the case of Canadian GM flax in the EU. The case led to an embargo of imports from Canada and subsequently the bilateral negotiation of a protocol to allow exports to resume. The case raises a number of important issues pertaining to the objective of zero tolerance policies for GM products, the operationalisation of zero tolerance, the role of the testing industry, the design of testing regimes and the risks associated with the absence of transparency and/or international standardisation. It is concluded that mingling is a topic that is deserving of multilateral attention.
    June 17, 2013   doi: 10.1111/twec.12077   open full text
  • Deep Integration and Production Networks: An Empirical Analysis.
    Gianluca Orefice, Nadia Rocha.
    World Economy. June 17, 2013
    This paper investigates the two‐way relationship between deep integration and production networks trade. We capture deep integration with a set of indices constructed in terms of policy areas covered in preferential trade agreements. We estimate an augmented gravity equation to investigate the impact of deep integration on production networks trade. The results show that on average, signing deeper agreements increases production networks trade between member countries by almost 12 percentage points. In addition, the impact of deep integration is higher for trade in automobile parts and information and technology products compared with textile products. To analyse whether higher levels of network trade increase the likelihood of signing deeper agreements, we follow the literature on the determinants of preferential trade agreements. The estimation results show that, after taking into account other PTA determinants, a ten percentage increase in the share of production network trade over total trade increases the depth of an agreement by approximately 6 percentage points. In addition, the probability of signing deeper agreements is higher for country pairs involved in North–South production sharing and for countries belonging to the Asia region.
    June 17, 2013   doi: 10.1111/twec.12076   open full text
  • Convergence of Inflationary Shocks: Evidence from the Caribbean.
    Juan Carlos Cuestas, Carlyn Ramlogan‐Dobson.
    World Economy. June 07, 2013
    In this paper, we aim to shed some light on the inflation dynamics in the Caribbean. We analyse the inflation rates for twelve countries using various time series methods. The results show that the inflation rates are mean reverting processes and that there is evidence of a convergence club in inflation rates within the area, which contradicts previous studies. Our contribution implies a high degree of similarity in the dynamics of our target countries' inflation rates.
    June 07, 2013   doi: 10.1111/twec.12082   open full text
  • Services Trade, Regulation and Regional Integration: Evidence from Sectoral Data.
    Erik Marel, Ben Shepherd.
    World Economy. June 05, 2013
    We use new World Bank Services Trade Restrictiveness Indices (STRIs) to measure the impact of regulation on cross‐border services trade at the sectoral level. We find that policy barriers as measured by the overall STRI for each sector have a negative and significant effect on total services trade, as well as trade in business and financial services. The effect in other sectors is not statistically significant. However, disaggregating the policy data by mode produces stronger results: policy restrictiveness negatively impacts trade in all sectors except wholesale and retail trade. There is thus considerable evidence of cross‐sectoral heterogeneity in the impact of regulations. In addition, we find evidence of cross‐modal substitution in total services trade, but complementarity in business, financial and insurance services. Finally, we find that regional trade agreements tend to promote trade overall and in business and financial services; however, the effect seems to be primarily driven by the impact of the European Union.
    June 05, 2013   doi: 10.1111/twec.12083   open full text
  • Business Cycles Synchronicity and Income Levels: Has Globalisation Brought us Closer Than Ever?
    Rosmy Jean Louis, Daniel Simons.
    World Economy. June 03, 2013
    Research on business cycle linkages shows a tendency to model countries of relatively the same income levels jointly. However, the issue of whether these countries move along the same business cycles has not been formally investigated in the literature. In this paper, we take this approach and investigate whether each group of countries follows its own dynamics and is therefore subjected to the same business cycle and whether these cycles are independent of each other across income groups. Results indicate that high income per capita countries (HICs) tend to be guided by stronger similarity in business cycles than countries in the middle (MICs) and low income (LICs) groups. In search for an explanation of the business cycles synchronicity observed, panel data analysis was explored. The results from the robust fixed effects estimation show neither trade openness nor shocks to consumption underlie international business cycle synchronization, but rather shocks to oil prices.
    June 03, 2013   doi: 10.1111/twec.12074   open full text
  • Technology, Trade Costs and Export Sophistication.
    Ermias Weldemicael.
    World Economy. June 03, 2013
    This paper uses a disaggregated version of the Eaton and Kortum (Econometrica, 70, 2002, 1741) model to analyse the relative importance of technology and trade costs for export sophistication and welfare in a general equilibrium framework. It uses a structural estimation method to identify key parameters of the model that fit the observed trade pattern. The calibrated parameters vary across commodities consistent with their expected level of sophistication. The results are robust to alternative specifications of the calibration. Using fitted data, it also show that export sophistication is highly correlated with GDPper capita. Overall, the parameters are comparable with estimates from other studies. Finally, counterfactual experiments are conducted to quantify the effects of changes in technology and trade costs for the countries in the bottom quintile. The findings imply that these countries have a huge technological disadvantage, particularly in more sophisticated commodities.
    June 03, 2013   doi: 10.1111/twec.12071   open full text
  • Unilateral Liberalisation or Trade Agreements: Which Way Forward for the Pacific?
    Renuka Mahadevan, John Asafu‐Adjaye.
    World Economy. June 03, 2013
    Empirical results show that, for the Pacific island states, a free trade agreement with developed countries provides more benefits followed by regional trade agreement within the Pacific and then unilateral tariff reduction. While the agricultural sector expands and the manufacturing sector declines in all scenarios, to avoid second‐best outcomes, developed countries need to go beyond the provision of aid for trade/development measures. For developing countries, the way forward with regional trade agreements is to carefully sequence them with regard to the different developed countries involved. This must be accompanied by domestic reform which is necessary but not sufficient for long‐term gains.
    June 03, 2013   doi: 10.1111/twec.12075   open full text
  • Export Credit Guarantees and Export Performance: An Empirical Analysis for Germany.
    Gabriel J. Felbermayr, Erdal Yalcin.
    World Economy. May 03, 2013
    Recent literature finds that exporters are particularly vulnerable to financial market frictions. As a consequence, exports may be lower than their efficient levels. For this reason, many countries support exporters by underwriting export credit guarantees. The empirical evidence on the effects of those policies is, however, very limited. In this paper, we use sectoral data on export credit guarantees issued by the German government. We investigate whether those guarantees indeed do increase exports and whether they remedy the export‐restricting effect of credit market imperfections both on the sectoral and on the export‐market levels. Exploiting the sectoral structure of a rich three‐way panel data set of German exports, we control for unobserved heterogeneity on the country‐year, sector‐year and country‐sector dimensions. We document a robust export‐increasing effect of guarantees. There is some evidence that the effect is larger for export markets with poor financial institutions and in sectors that rely more on external finance.
    May 03, 2013   doi: 10.1111/twec.12031   open full text
  • A Global Assessment of the Economic Effects of Export Taxes.
    David Laborde, Carmen Estrades, Antoine Bouët.
    World Economy. May 02, 2013
    This paper uses a new detailed global data set on export taxes at the HS6 level and the MIRAGE global Computable General Equilibrium model to assess the impact of export taxes on the world economy. We find that removing export taxes would have worldwide effects: the average export tax on global merchandise trade was 0.48 per cent in 2007, with the bulk of these taxes imposed on energy products. The removal of these taxes would increase global welfare by 0.23 per cent, a larger figure than expected gains from the Doha Round. Both developed and emerging economies, such as China and India, would gain from such policies even if they currently impose export taxes. Medium and small food‐importing countries without market power (such as the least‐developed countries) would also benefit from the elimination of export restrictions – especially during food crisis situations. Both the energy sector and the export taxes implemented by the Commonwealth of Independent States countries appear to play a critical role in the overall economic impact of such a policy change. However, the fact that some countries, such as Argentina, would experience income losses due to such a policy change is a major challenge to overall positive reform in this area.
    May 02, 2013   doi: 10.1111/twec.12072   open full text
  • Home Firm Performance After Foreign Investments and Divestitures.
    Dirk Engel, Vivien Procher.
    World Economy. April 09, 2013
    An almost undisputed aim for firms in today's globalised world is to operate internationally. Several papers find a positive relationship between foreign direct investment (FDI) and the domestic performance of firms. In this paper, we address the ‘FDI – export’ relationship to better understand this trend. Furthermore, by presenting results on firm's post‐divestiture employment growth at home, we are able to provide a more comprehensive view on firm performance after stepping in and out of foreign markets. We apply a propensity score matching technique in combination with a difference‐in‐difference estimator to analyse the performance dynamics of French firms that either invested abroad or carried out foreign divestitures during the period 2000–2007. FDI has, on average, a positive effect in terms of export share, operating turnover and employment in firm's domestic market. Industry differences reveal that firms in high‐tech industries experience a strong increase in their domestic performance, whereas firm performance in low‐tech industries increases only moderately in post‐investment periods. In contrast, the divestiture impact on the post‐divestiture performance is rather negligible.
    April 09, 2013   doi: 10.1111/twec.12068   open full text
  • As the Current Account Turns: Disaggregating the Effects of Current Account Reversals in Industrial Countries.
    William D. Craighead, David R. Hineline.
    World Economy. March 21, 2013
    This paper extends the study of current account (CA) reversals by considering the implications for the composition of output and employment. It is shown that decreases in CA deficits imply increases in tradable relative to nontradable output and/or declines in investment. The impact of CA ‘rebalancing’ should therefore be expected to vary considerably across sectors of an economy. This intersectoral variation is studied by examining the dynamics of output, employment and prices using data for 55 sectors of the economy during 14 industrial country reversal episodes. The output and employment declines associated with CA reversals are most clearly evident in investment‐related sectors, while sectors related to primary commodities generally perform relatively well following reversals. Reversals are also followed by increases in relative inflation for tradable goods sectors.
    March 21, 2013   doi: 10.1111/twec.12069   open full text
  • Parallel Trade and Pharmaceutical Prices: A Game‐theoretic Approach and Empirical Evidence from the European Union.
    Sotiris Vandoros, Panos Kanavos.
    World Economy. March 21, 2013
    This paper studies whether parallel traded products spark price competition in pharmaceutical markets and whether they are any cheaper than locally sourced products. We follow a game‐theoretic approach and employ descriptive statistics and econometric methods to study the effects of parallel trade on competition from a theoretic and empirical perspective. The theoretic approach suggests that there is a unique Nash equilibrium, and the parallel trader sets prices at the same level as the locally sourced product, while the price of the latter remains unaffected by parallel trade. However, there may be deviations from this equilibrium in the presence of particular policies or generic competition, in which case the parallel traded product may be priced at lower levels than the locally sourced product. Empirical analysis confirms the predictions of the theory. Descriptive statistics show that there is no gap between locally sourced and parallel traded products, unless generics or policies encouraging parallel trade are present. Results of the econometric analysis show that parallel trade does not trigger price competition and that the price of the locally sourced product remains unaffected by parallel trade. Therefore, any savings for health insurance occurring as a result of parallel trade are limited.
    March 21, 2013   doi: 10.1111/twec.12063   open full text
  • How do Cross‐Border Mergers and Acquisitions Answer to Deregulation in Services?
    Fabienne Boudier, Julie Lochard.
    World Economy. March 18, 2013
    There is no abstract available for this paper.
    March 18, 2013   doi: 10.1111/twec.12067   open full text
  • Declining Distance Effects in International Trade: Some Country‐Level Evidence.
    Michael Bleaney, Abelardo S. Neaves.
    World Economy. March 14, 2013
    Technical progress can be expected to reduce transport costs over time, yet most studies of bilateral trade based on the gravity model find distance effects to be increasing rather than decreasing. We investigate countries' openness to international trade (the ratio of exports plus imports to GDP). We find that trade decreases with geographical remoteness, land area and lack of access to the sea, all of which are likely to be correlated with transport costs. In contrast to the results obtained with log‐linear models of bilateral trade, distance effects (remoteness and land area) have declined over time. Trade decreases with population density and increases with improvements in the terms of trade, investment and a more liberal trade policy.
    March 14, 2013   doi: 10.1111/twec.12034   open full text
  • Estimating the Impact of Currency Unions on Trade: Solving the Glick and Rose Puzzle.
    Douglas L. Campbell.
    World Economy. March 14, 2013
    Does leaving a currency union reduce international trade? This paper uses a historical approach to re‐examine the puzzling large apparent impact of currency unions on trade. I find that the early time series estimates were driven by the gradual decaying of colonial trade ties and other major geopolitical factors, including warfare, communist takeovers and ethnic cleansing episodes. My methodology, which carries lessons for other uses of gravity equations in policy analysis, yields point estimates of currency unions on trade that are not statistically distinct from zero.
    March 14, 2013   doi: 10.1111/twec.12062   open full text
  • Credit Support for Export: Robust Evidence from the Czech Republic.
    Karel Janda, Eva Michalikova, Jiri Skuhrovec.
    World Economy. March 12, 2013
    The topic of this paper is quite a novel one – it is one of few empirical academic papers dealing with export credit. Moreover, it is the first analysis of this kind which focuses on transition economies. The paper deals with export credit promotion in the Czech Republic. The development and structure of Czech Republic trade and export support is presented first, followed by an econometric analysis of the gravity model of Czech Republic trade. A panel of 160 countries in 1996–2008 is analyzed and two gravity models of exports for the Czech Republic are estimated, the static model by fixed effects (LSDV estimator) and the dynamic model by System GMM. Due to ambiguous conclusions we assume that the behavior of our explanatory variables is not uniform and our data set behaves as a mixture of countries with heterogeneous behavior. This means that traditional techniques of estimation which include all observations into one model do not give significant results. Thus, we use robust techniques of estimation that solve the problem of heterogeneous patterns in data sets. Out of several possibilities we use the Least Trimmed Squares estimator (LTS) with a leverage point. We show that guarantees are a significant factor that influences positively the volume of exports in the Czech Republic. Moreover, there exist more variables that affect the size of exports in the Czech Republic. Market forces described by GDP, distance, political risk or gross fix capital formation are significant in our econometric model. We find that higher GDP, shorter distance or lower political risk have a positive impact on Czech Republic exports.
    March 12, 2013   doi: 10.1111/twec.12061   open full text
  • Do Vertical Linkages Limit Protectionism? Switzerland in the Multifibre Arrangement.
    Rolf Weder, Simone Wyss.
    World Economy. March 12, 2013
    The multifibre arrangement (MFA) heavily restricted the world trade in textiles and clothing (T&C) from 1974 to 1994. Switzerland joined the MFA as one of 44 signatory economies in 1974, but never applied its discriminatory instruments. To explain this peculiar behaviour, we apply international trade theory as well as files gathered from the Swiss Federal Archives. Our analysis suggests that Switzerland used the MFA, first, as an instrument to seek better market access, and second, as an option to protect its T&C industry if required. Switzerland refrained, however, from exercising the option mainly because of the existence of an important vertically related export industry, that is the Swiss textile machinery industry.
    March 12, 2013   doi: 10.1111/twec.12066   open full text
  • Sterilisation and Monetary Control by the GCC Member Countries.
    M. Kabir Hassan, Ashraf Nakibullah, Abul Hassan.
    World Economy. March 06, 2013
    Currencies of the GCC countries have long been unofficially but effectively pegged to the US dollar. Since 2003, the GCC countries have formally started pegging their currencies to the US dollar as a first step towards a proposed Gulf monetary union. The prevailing dollar peg and the absence of any significant current and capital account restrictions led some to believe that these countries have lost monetary independence. Contrary to this belief, the paper presents evidence that interest rates of the GCC countries did not converge to the interest rates of the US implying that the assets of the GCC countries are not perfect substitutes to the US assets. This imperfect asset substitutability has allowed the GCC countries to manoeuver their monetary policies and the central banks of the GCC countries have had some control over their money growth rates by sterilising the changes in international reserves. Results indicate that the monetary authorities of these countries used domestic credit policy to attain some domestic policy objective while engaging in sterilised foreign exchange intervention. This result implies that the proposed GCC central bank should be able to maintain the monetary independence as a group and can reap the benefit of monetary efficiency of the proposed Gulf Monetary Union.
    March 06, 2013   doi: 10.1111/twec.12056   open full text
  • Some Surprising Facts About the Concentration of Trade Across Commodities and Trading Partners.
    Arvind Panagariya, Nitika Bagaria.
    World Economy. March 06, 2013
    The present paper documents unexplained concentration in trade. Bernard et al. (Producer Dynamics: New Evidence from Micro Data, 2009, University of Chicago Press) have documented concentration at the level of the firm and in exports. Taking a step forward, we document trade volume concentration at the level of nations and in both exports and imports. Firm level concentration has been relatively easy to explain in terms of models of heterogeneous‐firm models with entry costs in both the domestic and foreign markets. But as we shall see, the concentration at the level of the nation, especially in imports if not exports, turns out to be far more difficult to explain.
    March 06, 2013   doi: 10.1111/twec.12060   open full text
  • Are There Efficiency Gains from the Removal of Natural Resource Export Restrictions? Evidence from British Columbia.
    Jacob R. Fooks, Steven J. Dundas, Titus O. Awokuse.
    World Economy. February 26, 2013
    Log export bans (LEBs) are a popular development tool utilised by developing nations with sizable endowments of timber; however, the actual impact of these policies is debatable. British Columbia has a developed forestry sector and still maintains a LEB. This trade restriction continually creates conflicts with Canada's international trade partners, including the United States. This paper examines the efficiency implications of a hypothetical removal of roundwood export restrictions in British Columbia using roundwood price and quantity data from 1995 to 2008. A time‐series econometric approach is utilised to determine supply and demand elasticities for British Columbia's roundwood. Empirical results from a vector error correction model suggest that a removal of export restrictions will generate an overall increase of approximately $347.91 million US dollars per year to British Columbia's forest economy.
    February 26, 2013   doi: 10.1111/twec.12041   open full text
  • The Effect of Government Ideology on an Exchange Rate Regime: Some International Evidence.
    Chun‐Ping Chang, Chien‐Chiang Lee.
    World Economy. February 25, 2013
    This paper comprehensively investigates the effect of government ideology on the type of exchange rate regime that a country implements via multinomial logit and multinomial probit models for 147 countries in the period 1974–2009. Our results clearly indicate that a left‐wing government increases the likelihood that a country implements a flexible regime in the classifications of exchange rate regimes. Nevertheless, evidence is weaker when using the de jure IMF course classification, which is set up by Ilzetzki et al. (). In a deeper investigation, we find that left‐wing governments are more likely to choose a flexible regime relative to a fixed one in our sample of OECD, non‐OECD and non‐Eurozone countries, as the impacts from government ideology on the determinant of the choice of exchange rate regime in Eurozone countries disappear. More importantly, we present many explanations for exchange rate regime choices when macroeconomic conditions, political constraints and institutions impact the choice of exchange rate regime.
    February 25, 2013   doi: 10.1111/twec.12018   open full text
  • The Fiscal Impact of Immigration in France: A Generational Accounting Approach.
    Xavier Chojnicki.
    World Economy. February 20, 2013
    The objective of this study is to use both static and dynamic frameworks to compare the benefits that immigrants draw from the public system with their contributions through the taxes that they pay. The main conclusion of this paper is that the impact of immigration on welfare systems is weak. Thus, if we compare, on a given date, immigrants' global contribution to the public administration budget with the volume of transfers they receive, immigrants appear to be relatively favoured by the redistribution system. At the same time, even if immigrants seem to pay less taxes and receive more transfers than natives, the difference in distribution between the two populations, with a higher concentration of immigrants in the active age groups and a sparser concentration among the net beneficiaries of the social transfer system, leads to a slightly positive long‐term impact of immigration on public finances. However, the impact of immigration remains very slight compared with the global effort that would have to be undertaken to reduce budgetary imbalances.
    February 20, 2013   doi: 10.1111/twec.12057   open full text
  • Exchange Rate Volatility Before and After the Float.
    Muammer Wali, Meher Manzur.
    World Economy. February 18, 2013
    This paper provides a descriptive analysis of broad features of major exchange rates since the early 1970s and compares these features with those of the 1960s. The analysis is then extended to investigate whether these features are manifested in interest rates and in commodity prices. The results indicate that while the exchange rates have become more volatile during the current floating rate regime, the moments are comparable with those for interest rates and commodity prices.
    February 18, 2013   doi: 10.1111/twec.12058   open full text
  • Foreign Equity Trading and Average Stock‐return Volatility.
    Mehmet Umutlu, Levent Akdeniz, Aslihan Altay‐Salih.
    World Economy. February 11, 2013
    We exam,ine whether there is a rela,tion,ship between for,eign equity trad,ing and aver,age total vol,a,til,ity, mea,sured as the value‐weighted aver,age of stock‐return variance in the Istan,bul Stock Exchange. We employ for,eign equity pur,chase and sale data to track changes in for,eign equity trad,ing, which not only enable us to cap,ture effec,tive for,eign inves,tor par,tic,i,pa,tion but also to observe the potential asym,met,ric effects of incom,ing and out,go,ing funds on the aver,age total vol,a,til,ity. Con,sis,tent with the impli,ca,tions of the asym,met,ric infor,ma,tion hypoth,e,sis, we find that net equity flow is pos,i,tively asso,ci,ated with aver,age total vol,a,til,ity. Fur,ther,more, we show that net equity flow affects the aver,age total vol,a,til,ity through the local and idi,o,syn,cratic vol,a,til,i,ties, sug,gest,ing that for,eign inves,tors engage in the production of firm specific and market wide information.
    February 11, 2013   doi: 10.1111/twec.12011   open full text
  • Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies.
    Lukas Menkhoff.
    World Economy. February 11, 2013
    Nowadays foreign exchange interventions occur in emerging market economies, whereas empirical studies on interventions mainly refer to advanced economies. However, interventions in emerging markets are different from those in advanced economies: they occur ‘regularly’ and central banks have considerable leverage, derived from relatively high reserves, some non‐sterilisation, the central bank’s information advantage and capital controls. Consequently, these interventions often successfully impact the level and volatility of exchange rates. Nevertheless, more research on interventions in emerging markets is needed analysing the influence of heterogeneous institutional circumstances, examining the role of central bank communication and using high‐frequency data.
    February 11, 2013   doi: 10.1111/twec.12027   open full text
  • Who Uses Intermediaries in International Trade? Evidence from Firm‐level Survey Data.
    Jennifer Abel‐Koch.
    World Economy. February 07, 2013
    The present paper uses data from the World Bank Enterprise Survey conducted in Turkey in 2005 to shed light on the firms that use intermediaries in international trade. It lends robust empirical support to recent theories which suggest that indirect exporters are mostly small firms that are not profitable enough to cover the high fixed costs of building an own distribution network abroad. Manufacturers who develop new products are more likely to use trade intermediaries, as are firms that produce low‐quality goods. In contrast, neither foreign ownership nor credit constraints are correlated with the choice of export mode. Moreover, firms that rely on trade intermediaries to sell their goods abroad also do so to source their foreign inputs, implying that the role of intermediaries in facilitating trade may be larger than previous studies suggest.
    February 07, 2013   doi: 10.1111/twec.12025   open full text
  • Firm R&D, Absorptive Capacity and Learning by Exporting: Firm‐level Evidence from China.
    Mi Dai, Miaojie Yu.
    World Economy. January 12, 2013
    The absorptive capacity of firms developed through R&D promotes learning by exporting. In this paper, we estimate the instantaneous and long‐run productivity effects of exporting on the universe of Chinese manufacturing firms. We find that exporting has very different productivity effects for firms with different pre‐export R&D status. It has large and lasting productivity effects for firms with pre‐export R&D, while it has little effects for firms without pre‐export R&D. Furthermore, the effect of exporting increases with the number of years of pre‐export R&D investment.
    January 12, 2013   doi: 10.1111/twec.12014   open full text