INSTITUTION‐INDUCED PRODUCTIVITY DIFFERENCES AND PATTERNS OF INTERNATIONAL CAPITAL FLOWS

This paper studies theoretically how the cross‐country differences in the institutional quality (IQ) of domestic credit markets shape the patterns of international capital flows when such IQ differences also cause productivity differences across countries. IQ affects productivity by changing productivity–agency‐cost trade‐offs across heterogeneous investment projects. Such institution‐induced productivity differences are shown to have effects on the investment and capital flows that are opposite of exogenous productivity differences. This implies that the overall effect of IQ could generate U‐shaped responses of the investment and capital flows. Among other things, this means that capital could flow from middle‐income countries to both low‐income and high‐income countries, and that, starting from a very low IQ, a country could experience both a growth and a current account surplus after a successful institutional reform. More generally, the results here provide some cautions when interpreting the empirical evidence on the role of productivity differences and institutional differences on capital flows. It also calls into question the validity of treating the degree of financial frictions as a proxy for the quality of financial institutions, as commonly done in the literature.     

Trade and Labour Markets: Vertical and Regional Differentiation in Italy

The labour market misfortunes of the less skilled and rapid growth of international trade in manufactured goods with less advanced countries are linked by the paradoxical observation that trade theorists are in the forefront of those denying the importance of trade in income distribution. This paper analyses this conclusion by stressing the importance of vertical differentiation of trade flows and regional differentiation of skills in order to identify labour market effects of trade integration. Vertical and regional differentiation in trade and labour markets are analysed for a country, Italy, where these two elements seem to play a crucial role. The results show a likely displacement effect on unskilled labour due to trade flows with less advanced countries. Given the characteristics of Italian trade and labour markets, a stronger trade‐induced displacement effect on demand for unskilled labour takes place in the North of the country. Thus the vertical differentiation in Italian intra‐industry trade is a warning against understating the effect of trade on labour markets if product heterogeneity is not adequately considered. The regional differentiation of skill intensity is another warning against understating the effect of trade on labour markets whenever cross‐sectoral effects and the change in relative specialization are not adequately considered.     

DISTANCE AND FOREIGN DIRECT INVESTMENT WHEN CONTRACTS ARE INCOMPLETE

We introduce incomplete contracts in a model where multinational firms from a certain country (“North”) can decide to serve a foreign market (“South”) through exports or through horizontal foreign direct investment (FDI). FDI relies on the supply of specialized intermediate inputs that could be supplied either by northern suppliers or by suppliers located in South. Intermediate sourcing contracts are complete in North but not in South. Were southern contracts also complete, FDI would arise only when trade barriers are high enough. Incomplete contracts in South generate, instead, a non‐linear relation between trade barriers and FDI as foreign investment emerges also when trade barriers are low enough. The reason is the positive effect that low trade barriers have on the bargaining power of final producers with respect to their southern suppliers. (JEL: F23, F12)     

Reservation Wages: Explaining Some Puzzling Regional Patterns

We use the Italian Labour Force Survey and the European Household Panel Survey to analyse the distribution of the reservation wages reported by job‐seekers. In Italy, reservation wages appear to be higher in the South — the low‐income and high‐unemployment area of the country — than in the North and Centre. A similar, rather counterintuitive, pattern can also be found in Finland, France, and Spain. First, we show that the way in which these data are commonly collected generates double‐selection bias. Second, we show that this bias has a strong effect on the estimation of the geographical pattern of reservation wages in many countries. The size of this bias is substantial in Italy. When controlling for it, reservation wages are at least 10 per cent higher in the North and Centre than in the South.     

Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative Explanation

The standard gravity model predicts that trade flows increase in proportion to importer and exporter total income, regardless of how income is divided into income per capita and population. Bilateral trade data, however, show that trade grows strongly with income per capita and is largely unresponsive to population. I develop a general equilibrium Ricardian model of trade that allows the elasticity of trade with respect to income per capita and with respect to population to diverge. Goods are of various types, which differ in their income elasticity of demand and in the extent to which there is heterogeneity in their production technologies. I estimate the model using bilateral trade data of 162 countries and compare it to a special case that delivers the gravity equation. The general model improves the restricted model's predictions regarding variations in trade due to size and income. I experiment with counterfactuals. A positive technology shock in China makes poor and rich countries better off and middle‐income countries worse off.     

The Determinants of Child Labour: The Role of Primary Product Specialization

Abstract. The paper tests predictions of a traditional intra‐household bargaining model which, under reasonable assumptions, shows that lack of bargaining power in the value chain significantly reduces the capacity for obtaining benefits from increased product demand arising from trade liberalization and therefore is positively associated with child labour. Cross‐sectional and panel negative binomial estimates in a sample of emerging countries support this hypothesis. They show that proxies of domestic workers’ bargaining power in the international division of labour (such as the share of primary product exports) are significantly related to child labour, net of the effect of traditional controls such as parental income, quality of education, international aid, and trade liberalization. The positive impact of the share of primary product exports on child labour outlines a potential paradox. The paradox suggests that trade liberalization does not always have straightforward positive effects on social indicators and that its short‐run effects on income distribution and distribution of skills and market power across countries need to be carefully evaluated.     

Foreign Direct Investment,Trade, and Skilled Labour Demand in Eastern Europe

In this paper, we study the effects of inward foreign direct investment (FDI) and trade on relative skilled labour demand in Poland, Hungary, and the Czech Republic. Our estimates show significant heterogeneity in the FDI effect across the three economies: the effect is always significantly positive for Hungary, weakly negative for Poland, and negligible for the Czech Republic. As to trade, we find much more homogeneity in coefficient estimates, which are generally negative for all countries, although significant only in the case of Hungary.     

EXPORT‐PLATFORM FOREIGN DIRECT INVESTMENT

A poorly understood empirical phenomenon is export‐platform affiliate production (EP), particularly for sale in third countries rather than in the parent or host countries. We develop a three‐region model, with two identical large, high‐cost countries (collectively called North) and a small, low‐cost country (South). The large countries each have one firm. Our theory section analyzes the conditions under which one or both of these firms uses the South to produce for (a) export back to the parent (home‐country EP), (b) export to the other large country (third‐country EP), or (c) export to both (global EP). A free‐trade area between one of the northern countries and South can lead to the insider northern firm choosing home or global EP and the outsider firm choosing third‐country EP for a range of parameter values. Our empirical section shows the relevance of this outcome. Foreign manufacturing affiliates of US multinationals inside North America concentrate on home‐country EP while affiliates inside Europe concentrate on third‐country EP. (JEL: F12, F23)     

THE RISE OF THE EAST AND THE FAR EAST: GERMAN LABOR MARKETS AND TRADE INTEGRATION

We analyze the effects of the unprecedented rise in trade between Germany and “the East” (China and Eastern Europe) in the period 1988–2008 on German local labor markets. Using detailed administrative data, we exploit the cross‐regional variation in initial industry structures and use trade flows of other high‐income countries as instruments for regional import and export exposure. We find that the rise of the East in the world economy caused substantial job losses in German regions specialized in import‐competing industries, both in manufacturing and beyond. Regions specialized in export‐oriented industries, however, experienced even stronger employment gains and lower unemployment. In the aggregate, we estimate that this trade integration has caused some 442,000 additional jobs in the economy and contributed to retaining the manufacturing sector in Germany. This is almost exclusively driven by the rise of Eastern Europe, not by China. We also conduct an analysis at the individual worker level, and find that trade had a stabilizing overall effect on employment relationships.     

Analysing business opportunities in North Sea oil

Offshore activity in the North Sea is the first of a number of worldwide offshore developments that will take off in the next 10 years. Exploration is occurring at a dramatic rate off the coasts of a number of countries in South East Asia and is also taking place off the coast of Australia, Africa, South America, the United States and Canada. The North Sea will thus, in many cases, be the test bed for suppliers to the offshore industry. With all countries which have oil deposits off their coast being anxious to promote indigenous supply of products and services to the oil industry, competition in the world market will intensify. Only those companies who can establish their product and marketing strategies in the politically calm environment of the North Sea can hope to reap the rewards of what may turn out to be the world's fastest growing industrial market over the next 20 years.     

A GLOBAL VIEW OF CROSS‐BORDER MIGRATION

This paper evaluates the global welfare impact of observed levels of migration using a quantitative multi‐sector model of the world economy calibrated to aggregate and firm‐level data. Our framework features cross‐country labor productivity differences, international trade, remittances, and a heterogeneous workforce. We compare welfare under the observed levels of migration to a no‐migration counterfactual. In the long run, natives in countries that received a lot of migration—such as Canada or Australia—are better off due to greater product variety available in consumption and as intermediate inputs. In the short run, the impact of migration on average welfare in these countries is close to zero, while the skilled and unskilled natives tend to experience welfare changes of opposite signs. The remaining natives in countries with large emigration flows—such as Jamaica or El Salvador—are also better off due to migration, but for a different reason: remittances. The welfare impact of observed levels of migration is substantial, at about 5% to 10% for the main receiving countries and about 10% in countries with large incoming remittances.     

VOLATILITY,LABOR MARKET FLEXIBILITY,AND THE PATTERN OF COMPARATIVE ADVANTAGE

This paper studies the link between volatility, labor market flexibility, and international trade. International differences in labor market regulations affect how firms can adjust to idiosyncratic shocks. These institutional differences interact with sector specific differences in volatility (the variance of the firm‐specific shocks in a sector) to generate a new source of comparative advantage. Other things equal, countries with more flexible labor markets specialize in sectors with higher volatility. Empirical evidence for a large sample of countries strongly supports this theory: the exports of countries with more flexible labor markets are biased towards high‐volatility sectors. We show how differences in labor market institutions can be parsimoniously integrated into the workhorse model of Ricardian comparative advantage of Dornbusch, Fischer, and Samuelson (1977, American Economic Review, 67, 823–839). We also show how our model can be extended to multiple factors of production.     

THE INTERNATIONAL DIMENSION OF PRODUCTIVITY AND DEMAND SHOCKS IN THE US ECONOMY

This paper analyzes the cross‐country effects of productivity and demand disturbances in the United States identified with sign restrictions based on standard theory. Productivity gains in US manufacturing increase US consumption and investment vis‐à‐vis foreign countries, resulting in a trade deficit and higher international prices of US goods, despite the rise in their supply. Financial adjustment works via a higher global value of US equities, real dollar appreciation, and an expansion of US gross foreign liabilities as well as assets. Positive demand shocks to US manufacturing also increase investment and cause a real dollar appreciation, but have limited effects on the trade balance and net foreign assets. Our findings emphasize the importance for macroeconomic interdependence of endogenous fluctuations in aggregate demand across countries in response to business cycle shocks.     

SOVEREIGNS VERSUS BANKS: CREDIT,CRISES, AND CONSEQUENCES

Two separate narratives have emerged in the wake of the Global Financial Crisis. One interpretation speaks of private financial excess and the key role of the banking system in leveraging and deleveraging the economy. The other emphasizes the public sector balance sheet and worries about the risks of lax fiscal policy. However, the two may interact in important and understudied ways. This paper examines the co‐evolution of public and private sector debt in advanced countries from 1870 to 2012. We find that in advanced economies financial crises are not preceded by public debt build‐ups nor are they more likely when public debt is high. However, history shows that high levels of public debt tend to exacerbate the effects of private sector deleveraging after financial crises. The economic costs of financial crises rise substantially if large private sector credit booms are unwound at times when the public sector has little capacity to pursue macroeconomic and financial stabilization.     

Is there a trend towards global value chain specialization? — An examination of cross border sales of US foreign affiliates

In this study we discuss and empirically test the assertion that over the last two decades multinational enterprises' (MNEs') configuration of value-adding activities has shifted from a sparse and simple (host–home) international division of labor among the foreign affiliates to a more specialized and ‘advanced’ global value chain configuration in which MNEs locate fine-sliced parts of the value chain at the most efficient locations. Using data on trade flows of U.S. affiliates in 56 host countries between 1983 and 2003 we find some indications of a trend in the direction of global value chain specialization. In particular among US affiliates in developing countries the proportion of host–host, intra-firm trade has increased significantly during the observed period of time. Conversely, the proportion of host–home and inter-firm trade has diminished. We interpret this as indicating both value chain disaggregation (vertical specialization) and MNEs' systematic exploitation of factor cost differentials across countries. We also find that the absolute levels of all types of trade flows have increased. Hence, it is the relative, and not the absolute, changes in the trade flow patterns of US affiliates that gives credibility to the global value chain assertion.     

THE WELFARE GAINS OF FINANCIAL LIBERALIZATION: CAPITAL ACCUMULATION AND HETEROGENEITY

Research has shown that, absent individual heterogeneity and under complete markets, the welfare impact of financial openness is quantitatively limited. Not only are inequalities in wealth and labor productivity a feature of most societies, but also financial markets suffer from many well‐known frictions. This paper demonstrates that, when households face borrowing constraints and uninsurable idiosyncratic shocks to income, the welfare implications of financial liberalization are considerable. For instance, the average increase in welfare of a typical emerging market economy that switches from a closed capital market to perfect capital mobility is equivalent to a permanent increase in average consumption of roughly 5.4%. This is about 3.9 times more than the welfare gains of the same policy under a complete markets environment without any individual heterogeneity. We show that individual heterogeneity accounts for two thirds of this additional increase in the average welfare gain; market incompleteness accounts for the remaining third. In our calibration, the median household in capital‐scarce countries is in favor of international financial integration. However, if the pivotal voter is wealthy enough then such reform might not be implemented, since richer households have a vested interest in capital market closedness.     

Dropping the Books and Working Off the Books

The paper empirically tests the relationship between underground labour and schooling achievement for Italy, a country ranking badly in both respects when compared with other high‐income economies, with a marked duality between North and South. In order to identify underground workers, we exploit the information on individuals' social security positions available from the Bank of Italy's Survey on Household Income and Wealth. After controlling for a wide range of sociodemographic and economic variables and addressing potential endogeneity and selection issues, we show that a low level of education sizeably and significantly increases the probability of working underground. Switching from completing compulsory school to graduating at college more than halves this probability for both men and women. The gain is slightly higher for individuals completing the compulsory track with respect to those having no formal education at all. The different probabilities found for self‐employed and dependent workers support the view of a dual informal sector, in which necessity and desirability coexist.     

全球价值链视角下我国对外依存程度分析

嵌入全球价值链可促进我国经济发展，却也使我国更加依赖于外国市场，从而增加了国家风险。本文以全球价值链为视角，基于世界投入产出模型构建了增加值对外依存程度的测算方法，对当前的不同测算方法进行了比较，提出了传统贸易、全球价值链的简单和复杂参与下的对外依存程度。最后，利用2000-2014年的世界投入产出表进行测算。结果表明：我国的对外依存程度呈现先升后降的态势；传统贸易下对外依存程度的变化是我国对外依存度变化的主要原因。这意味着：平衡全球价值链嵌入和国家风险的关键是提高全球价值链的参与程度。本文的方法和结论可以为我国政府管理国家风险和贸易谈判提供支持。     

Discrimination and Resistance to Low‐skilled Immigration

Abstract. This paper shows that the immigration of some low‐skilled workers can be of advantage for low‐skilled natives when the host economy suffers from unemployment due to the presence of trade unions and an unemployment insurance scheme. This benefit arises if trade unions have appropriate bargaining power and preferences for members’ income, labor market discrimination against immigrants is strong enough and the unemployment tax rate is low.     

基于知识整合的企业进入模式研究

中国企业进入技术发达国家时往往采用收购模式,以满足技术学习的需要.基于相关文献,指出了这种进入模式存在的问题,并建立了ECKT模型.结合京东方集团收购韩国HYDIS公司的案例,分析了双方的战略动机和冲突演化,并归纳出其中的典型事件.在此基础上,分析了文化冲突和知识整合对收购过程的影响,提出了以动态观点建立低风险进入模式的重要性.