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42. FDI Spillover Effects on Innovation Activities of Knowledge-using and Knowledge-creating Firms: Evidence from an Emerging Economy
- Author:
- Iraj Hashi, Mehtap Hisarciklilar, Slavo Radošević, Nebojša Stojčić, and Nina Vujanović
- Publication Date:
- 03-2022
- Content Type:
- Working Paper
- Institution:
- The Vienna Institute for International Economic Studies (WIIW)
- Abstract:
- The beneficial effects of innovation for firms’ performance and competitiveness are well documented, but it has been suggested in recent years that innovation regimes differ between advanced and emerging economies. While advanced economies rely on knowledge generation, their emerging counterparts follow mainly a knowledge-use regime through the application of existing knowledge and technology. Climbing up the technological ladder can be helped through spillovers from foreign investors to local firms. We investigate whether FDI spillovers influence different phases of the innovation process (from decision to innovate to productivity) among knowledge-using and knowledge-creating firms in an emerging European economy. The results show that the innovation process in emerging economies is closer to the imitation than the creation of novel products. Local firms benefit from foreign counterparts in the early phase of the innovation process. Stronger FDI effects are found among firms that undertake innovation through knowledge use rather than through knowledge generation.
- Topic:
- Emerging Markets, International Trade and Finance, Foreign Direct Investment, Economy, Investment, and Knowledge Systems
- Political Geography:
- Europe
43. Cutting through the Value Chain: The Long-Run Effects of Decoupling the East from the West
- Author:
- Gabriel Felbermayr, Alexander Sandkamp, and Hendrik Mahlkow
- Publication Date:
- 03-2022
- Content Type:
- Working Paper
- Institution:
- Kiel Institute for the World Economy (IfW)
- Abstract:
- With ever-increasing political tensions between China and Russia on one side and the EU and the US on the other, it only seems a matter of time until protectionist policies cause a decoupling of global value chains. This paper uses a computable general equilibrium trade model calibrated with the latest version of the GTAP database to simulate the effect of doubling non-tariff barriers - both unilateral and reciprocal - between the two blocks on trade and welfare. Imposing trade barriers almost completely eliminates bilateral imports. In addition, changes in price levels lead to higher imports and lower exports of the imposing country group from and to the rest of the world. The targeted country group increases exports to the rest of the world and reduces imports. Welfare falls in all countries involved, suggesting that governments should strive to cooperate rather than turning away from each other. By imposing a trade war on Russia, the political West could inflict severe damage on the Russian economy because of the latter’s smaller relative size.
- Topic:
- International Cooperation, International Trade and Finance, European Union, Conflict, Trade Wars, Protectionism, and Rivalry
- Political Geography:
- Russia, China, Europe, Asia, North America, and United States of America
44. Potential Impacts of Sanctions against Russia on the Non-oil Exports of Azerbaijan
- Author:
- Eldayag Mustafayev
- Publication Date:
- 04-2022
- Content Type:
- Working Paper
- Institution:
- Center for Economic and Social Development (CESD)
- Abstract:
- By using statistical descriptive analysis, this article analyzes how the isolation of Russia from the international trade and finance system, as a result of the Western sanctions, will affect the Russian trade turnover and what type of future challenges and opportunities it may provide for the non-oil export base of Azerbaijan. In terms of the opportunities, Azerbaijan can further focus on its main non-oil export goods such as agricultural and chemical industrial products to capture an additional share in the semi-abandoned Russian market, along with considering possible competition pressure coming from the other non-western Russian trade partners. Re-exporting opportunities currently are limited in scale and have a risk of facing international sanctions and criticism.
- Topic:
- International Trade and Finance, Sanctions, Exports, and Russia-Ukraine War
- Political Geography:
- Russia and Azerbaijan
45. EU in Search of a WTO-Compatible Carbon Border Adjustment Mechanism
- Author:
- Cecilia Bellora and Lionel Fontagné
- Publication Date:
- 05-2022
- Content Type:
- Working Paper
- Institution:
- Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
- Abstract:
- To meet the targets of the EU’s ”Fit for 55” package, the European Commission proposes to implement a Carbon Border Adjustment Mechanism (CBAM). The CBAM is firstly intended to avoid carbon leakages, but it also deals with the thorny issue of the compliance by European producers in carbon-intensive industries. In addition, its design, as voted by the European Council on March 15, 2022, questions the compatibility of the CBAM with World Trade Organization (WTO) rules. The CBAM puts a price on carbon contained in imported products whose production-related emissions have not been taxed (or not at the same level as in the European Union) by the exporter country, in order to offset the difference in carbon prices at the border. This paper aims to quantify the economic and environmental impacts of different CBAM design choices with the aim of complying with WTO rules. Different from the previous literature, we evaluate the various options with a dynamic general equilibrium model featuring imperfect competition, global value chains, green-house gas emissions and endogenous price of emission quotas. We show that CBAM is effective in reducing carbon leakages. But its design leads to an increase in the price of carbon quotas in the European Emission Trading System (ETS) market. Losses in competitiveness on export markets are expected, also for downstream sectors not covered by the EU ETS nor the CBAM. Eventually, offsetting the difference in carbon prices at the border comes at a cost to the enforcing jurisdiction, suggesting that the CBAM was not designed as a beggar-thy-neighbour policy.
- Topic:
- Energy Policy, International Trade and Finance, Regional Cooperation, European Union, Carbon Emissions, WTO, and Green Transition
- Political Geography:
- Europe
46. The Role of Storage in Commodity Markets: Indirect Inference Based on Grains Data
- Author:
- Christophe Gouel and Nicolas Legrand
- Publication Date:
- 07-2022
- Content Type:
- Working Paper
- Institution:
- Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
- Abstract:
- Understanding commodity prices dynamics is of crucial importance for assessing the persistence of cost-push costs or for countries dependent on commodity exports. Unfortunately, despite decades of research, the workhorse theoretical model in the field, the rational expectations storage model, is yet to be empirically validated. This paper provides the first full empirical test of the storage model. We first build a new storage model featuring a supply response, long-run demand and cost trends, and four structural shocks. We then develop a flexible empirical approach which relies on the indirect inference method and exploits the joint dynamics of prices and quantities unlike previous estimations which only use price information. The information contained in quantities is essential to relax restrictive identifying assumptions and empirically assess the overall consistency of the model's new features. Finally, we carry out a structural estimation on the aggregate index of the world most important staple food products: maize, rice, soybeans, and wheat. The results show that our extended storage model is consistent with most of the moments in the data, including the high price autocorrelation of which up to 42% can be explained by the transfer of inventories over time. They also show that, although for these commodities supply shocks are the main drivers of market dynamics, over the past 60 years all price spikes have been associated with large positive demand shocks.
- Topic:
- Agriculture, International Trade and Finance, Commodities, and Price
- Political Geography:
- Global Focus
47. The Culture-Promotion Effect of Multinationals on Trade: the IKEA case
- Author:
- Dylan Bourny, Daniel Mirza, and Jamel Saadaoui
- Publication Date:
- 07-2022
- Content Type:
- Working Paper
- Institution:
- Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
- Abstract:
- In this paper, we investigate how some MNEs which spread their home culture over time and space to the rest of the world are affecting, in turn, trade flows from home. By selling products embodying cultural information related to their country of origin, those MNEs embrace the role of ambassadors of their home country. We argue that IKEA offers an ideal case to identify a multinational's culture-promotion effect on trade. We build a dataset on IKEA's presence in foreign markets between 1995 and 2015 and merge it with disaggregated product level trade between pairs of countries. We find solid evidence of an externality linked to IKEA: a setting of an IKEA new store in a destination increases trade flows by around 2% from Sweden for products that resemble to what the multinational offers (despite being completely unrelated to that multinational). This result is driven primarily by the products identified to encompass a high-cultural content. Other robustness checks and tests seem to be very much consistent with the hypothesis of IKEA promoting the Swedish culture to the world.
- Topic:
- Globalization, International Trade and Finance, Culture, and Multinational Corporations
- Political Geography:
- Global Focus
48. Regional Diffusion of Foreign Demand Shocks Through Trade and Ownership Networks
- Author:
- Lionel Fontagné and Gianluca Santoni
- Publication Date:
- 09-2022
- Content Type:
- Working Paper
- Institution:
- Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
- Abstract:
- International demand shocks are transmitted within the trade and ownership firms' networks and impact directly or indirectly domestic firm productivity and labor misallocation. Considering manufacturing firms for Italy, Spain and France over the period 2009-2017, we quantify these transmission channels from the global economy to the domestic firms, and within the domestic economy across locations, sectors and firms. We compute in a shift share fashion international demand shock at the district-sector-year level as plausibly exogenous to individual firms. Our results confirm that global shocks are transmitted through trade networks and that this transmission is largely mediated by firms' ownership networks both across and within the borders of the three countries.
- Topic:
- Economics, International Trade and Finance, Demand, and Productivity
- Political Geography:
- Europe, France, Spain, and Italy
49. Analysis of Cameroon – Nigeria Trade and Prospects for the African Continental Free Trade Area
- Author:
- Henri Kouam and Vera Kum
- Publication Date:
- 01-2022
- Content Type:
- Working Paper
- Institution:
- The Nkafu Policy Institute
- Abstract:
- Free trade between Cameroon and Nigeria is about reducing barriers to cross-border trade between the two countries by allowing traders on both sides of the spectrum to explore a larger market and private sector producers to expand their business. This policy brief examines the nature of Cameroon and Nigeria’s trade whilst illustrating the benefits of free trade on living standards, employment, and income inequality. It recommends that Cameroon and Nigeria cooperate on trade facilitation measures to increase the benefits of the African Continental Free Trade Area.
- Topic:
- Economics, International Trade and Finance, Regional Cooperation, Bilateral Relations, and Free Trade
- Political Geography:
- Africa, Nigeria, and Cameroon
50. Biden, Israel, and China: Making a Difficult Threesome Work
- Author:
- Steven R. David
- Publication Date:
- 05-2022
- Content Type:
- Working Paper
- Institution:
- Jerusalem Institute for Strategy and Security (JISS)
- Abstract:
- It is wrong to expect Israel, a middle-level economy, to decouple from China when far wealthier countries (including the United States) show no signs of following suit. Israeli companies should not be subject to restrictions not placed on companies elsewhere, including the United States itself.
- Topic:
- Diplomacy, International Trade and Finance, Hegemony, and Conflict
- Political Geography:
- China, Middle East, Israel, Asia, North America, and United States of America
51. Regulating the International Digital Economy, with Trade and Innovation in Mind
- Author:
- Douglas Lippoldt
- Publication Date:
- 06-2022
- Content Type:
- Working Paper
- Institution:
- Centre for International Governance Innovation
- Abstract:
- The international digital economy is growing rapidly, and the fragmented governance framework is struggling to keep pace. Global entities such as the World Trade Organization and regional trade agreements offer a patchwork approach to governance. This paper illustrates the importance of governance in relation to private-sector innovation and recommends next steps to enhance governance, close gaps and promote further innovation. Better definition and international alignment of the framework for governance of digital trade and data could lead to greater privacy, trust and security.
- Topic:
- International Cooperation, International Trade and Finance, Regulation, Digital Economy, and Innovation
- Political Geography:
- Global Focus
52. Public responses to foreign protectionism: Evidence from the US-China trade war
- Author:
- David Steinberg and Yeling Tan
- Publication Date:
- 06-2022
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- America's recent turn toward protectionism has raised concerns about the future viability of the liberal international trading system. This study examines how and why public attitudes toward international trade change when one's country is targeted by protectionist measures from abroad. To address this question, the authors fielded three original survey experiments in the country most affected by US protectionism: China. First, they find consistent evidence that US protectionism reduces Chinese citizens' support for trade. This finding is replicated in parallel experiments on technology cooperation, and further validated outside of the China context with a survey experiment in Argentina. Second, they show that responses to US protectionism reflect both a "direct reciprocity" logic—citizens want to retaliate against the United States specifically—and a "generalized reciprocity" logic that reduces support for trade on a broader, systemic basis.
- Topic:
- Economics, International Trade and Finance, Protectionism, and Competition
- Political Geography:
- China, Asia, North America, and United States of America
53. The IMF should enhance the role of SDRs to strengthen the international monetary system
- Author:
- Edwin M. Truman
- Publication Date:
- 12-2022
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The special drawing right (SDR), issued by the International Monetary Fund (IMF), has the potential to strengthen dramatically the international monetary system. Established in 1969 and allocated twice during its first decade, the SDR was in the institutional closet from 1980 until 2009, when $250 billion in SDRs was allocated to members of the IMF to help address the global financial crisis. In 2021 another $650 billion in SDRs was allocated to help address the coronavirus pandemic. The SDR has proved itself as a crisis instrument. This paper addresses critically the arguments against SDR allocations. It proposes regular annual SDR allocations, along with measures to make the SDR more attractive to critics and measures to build out the SDR system in support of the international monetary system. The paper includes an appendix on the history of the SDR. A second appendix analyzes SDR use following the 2009 and 2021 allocations and finds that contrary to the popular myth, many countries other than low-income members of the IMF benefited directly in multiple ways from those allocations.
- Topic:
- International Trade and Finance, Financial Crisis, Finance, and IMF
- Political Geography:
- Global Focus
54. The WTO and vaccine supply chain resilience during a pandemic
- Author:
- Chad P. Bown
- Publication Date:
- 09-2022
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Cross-border supply chains and international trade enabled the manufacturing and delivery of billions of vaccine doses to inoculate the world against COVID-19. At the same time, the pandemic revealed how the World Trade Organization (WTO) must change to become more useful in the face of a public health emergency. This paper describes the market failures—especially on the supply side—justifying the domestic subsidies and contracting arrangements used to accelerate vaccine research and development and to increase the scale of vaccine production to save lives, livelihoods, and economic activity during a pandemic. It highlights tradeoffs associated with the US subsidies and the priority-rated contracts written through the Defense Production Act under Operation Warp Speed. This case study reveals a rich environment in which cross-border supply chains exacerbate input shortages in ways that constrain vaccine production, highlighting the need for the WTO to embrace new forms of international policy coordination for pandemic preparedness and response. As part of a pandemic treaty, the paper proposes a plurilateral agreement on vaccine supply chain resilience that would include novel and enforceable disciplines for export restrictions, provisions to trigger coordinated subsidies across countries to jointly scale up vaccine output- and input-production capacity, and market surveillance initiatives on supply chain transparency.
- Topic:
- International Trade and Finance, Vaccine, COVID-19, WTO, and Supply Chains
- Political Geography:
- Global Focus
55. The impact of the Ukraine crisis on international trade
- Author:
- Zsolt Darvas and Catarina Martins
- Publication Date:
- 12-2022
- Content Type:
- Working Paper
- Institution:
- Bruegel
- Abstract:
- We study the economic implications of Russia’s invasion of Ukraine, by scrutinising global trade volumes and commodity prices, trade balances and bilateral trade flows between major economic powers and Russia. We find that energy prices increased more in 2021 than in 2022, suggesting that the war and the sanctions were not the most important drivers. Nevertheless, International Monetary Fund forecast revisions from October 2021 to October 2022 suggest that the volume of global trade in goods and services declined by 3.4 percent, energy prices increased by about 100 percent, and the prices of non-energy commodities by 8 percent. The war could be an important driver of these forecast revisions, though other factors were also at play. While forecasts for important industrial production input costs were not revised, soaring energy prices deteriorated the trade balance of countries importing energy. Only half of the increase in Russia’s trade surplus was related to soaring energy prices. The other half resulted from the collapse of Russian imports, which will likely undermine the Russian economy’s productive capacity over time. Falling Russian exports of goods other than mineral fuels suggest Russia’s productive capacity has already weakened. Russia’s trade has been reoriented from advanced economies to China, India and Turkey, but this has only partially compensated for the decline in trade with advanced countries. We find that sanctions had an impact on trade. There is no evidence of European and US companies circumventing sanctions by re-routing sanctioned goods to Russia via China and Turkey. The UK and the US have already stopped importing fossil fuels from Russia, and such imports by the EU have declined. With the EU’s Russian seaborne crude petroleum import ban taking effect in December 2022 and the refined petroleum ban coming to effect in February 2023, Russia’s revenues from fossil fuel exports to the EU are set to shrink significantly, with limited options for redirecting exports to other countries. The three main policy-relevant implications from our research are: The war and the sanctions are not the most important drivers of energy price; The direct aim of sanctions seems to have been achieved; The capacity of the Russian state to finance the war from fossil fuel revenues is bound to shrink. The dataset used for most charts of this working paper is regularly updated and is available in the Russian foreign trade tracker
- Topic:
- International Trade and Finance, Sanctions, Fossil Fuels, and Russia-Ukraine War
- Political Geography:
- Russia, Europe, and Ukraine
56. International Managerial Skill and Big Colombian Exporting Firms’ Performance, 2006-2014
- Author:
- Federico Merchan
- Publication Date:
- 06-2022
- Content Type:
- Working Paper
- Institution:
- Kiel Institute for the World Economy (IfW)
- Abstract:
- This paper uses a sample of the biggest private Colombian exporting firms to propose and estimate a two-step methodology for measuring international managerial skill and calculating its impact on firm performance. The first step quantifies the manager’s organizational capital contribution to improvements in Bloom et al.’s (2021) production efficiency (ability to assemble inputs into final goods) and/or quality capacity (skill to make high quality goods) mechanisms, through the median of export unit value regression residuals at firm-year level (multiplying by -1 the price competition products’ residuals). The second step is regression analysis of firm performance. Results indicate that: i) international managerial quality has a significant and robust positive effect on total export value via the intensive margin, ii) exported value elasticity relative to international managerial quality is around 3 times larger than exported value elasticity relative to exogenous global demand shocks, and iii) better managers in the international market do not necessarily upgrade export quality.
- Topic:
- Economics, Emerging Markets, International Trade and Finance, Exports, Management, and Labor Market
- Political Geography:
- Colombia and South America
57. Bilateral trade and conflict heterogeneity
- Author:
- Katrin Kamin
- Publication Date:
- 06-2022
- Content Type:
- Working Paper
- Institution:
- Kiel Institute for the World Economy (IfW)
- Abstract:
- Although the number of interstate disputes has fallen in the past 30 years, rising geopolitical competition is challenging the foundation of the absence of great power war. Additionally, the number of internal conflicts is surging. At the same time, globalisation has spun a net of global trade connections and has thus created dependencies, making everyone more vulnerable to the repercussions of conflict. In this context, this paper analyses the relationship between trade and conflict from a trade perspective: Using data from UCDP and COMTRADE this paper studies the effects of five different conflict types on international trade flows in the period 1992 - 2011, including interstate and internal conflicts as well as other types of violence.Applying the gravity equation of international trade and the ppml high-dimensional fixed effects estimator, this paper finds that the heterogeneity of conflict types and their distinct characteristics matter for the magnitude and direction of their influence on trade.
- Topic:
- Globalization, International Trade and Finance, Conflict, and Trade
- Political Geography:
- Global Focus
58. The impact of trade and trade policy on the environment and the climate: A review
- Author:
- Gabriel Felbermayr and Sonja Peterson
- Publication Date:
- 09-2022
- Content Type:
- Working Paper
- Institution:
- Kiel Institute for the World Economy (IfW)
- Abstract:
- While international trade can offer gains from specialization and access to a wider range of products, it is also closely interlinked with global environmental problems, above all, anthropogenic climate change. This survey provides a structured overview of the economic literature on the interaction between environmental outcomes, trade, environmental policy and trade policy. In this endeavor, it covers approaches reaching from descriptive data analysis based on Input‐Output tables, over quantitative trade models and econometric studies to game‐theoretic analyses. Addressed issues are in particular the emission content of trade and emissions along value chains, the relocation of dirty firms and environmental impacts abroad, impacts of specific trade polices (such as trade agreements or tariffs) or environmental policy (such as Border Carbon Adjustment), transportation emissions, as well as the role of firms. Across the different topics covered, the paper also tries to identify avenues for future research, with a particular focus on extending quantitative trade and environment models.
- Topic:
- Climate Change, Environment, International Trade and Finance, Trade, and Carbon Emissions
- Political Geography:
- Global Focus
59. Brothers in arms: The value of coalitions in sanctions regimes
- Author:
- Sonali Chowdhry, Julian Hinz, Katrin Kamin, and Joschka Wanner
- Publication Date:
- 10-2022
- Content Type:
- Working Paper
- Institution:
- Kiel Institute for the World Economy (IfW)
- Abstract:
- This paper examines the impact of coalitions on the economic costs of the 2012 Iran and 2014 Russia sanctions. By estimating and simulating a quantitative general equilibrium trade model under different coalition set-ups, we (i) dissect welfare losses for sanction-senders and target; (ii) compare prospective coalition partners and; (iii) provide bounds for the sanctions potential — the maximum welfare change attainable — when sanctions are scaled vertically, i.e. across sectors up to an embargo, or horizontally, i.e. across countries up to a global regime. To gauge the significance of simulation outcomes, we implement a Bayesian bootstrap procedure that generates confidence bands. We find that the implemented measures against Iran and Russia inflicted considerable economic harm, yielding 32 – 37% of the vertical sanctions potential. Our key finding is that coalitions lower the average welfare loss incurred from sanctions relative to unilateral implementation. They also increase the welfare loss imposed on Iran and Russia. Adding China to the coalition further amplifies the welfare loss by 79% for Iran and 22% for Russia. Finally, we quantify transfers that would equalize losses across coalition members. These hypothetical transfers can be seen as a sanctions-equivalent of NATO spending goals and provide a measure of the relative burden borne by coalition countries.
- Topic:
- Globalization, International Trade and Finance, Markets, Sanctions, Alliance, and Embargo
- Political Geography:
- Russia, China, Europe, Asia, North America, and United States of America
60. The Consequences of Unilateral Withdrawals from the Paris Agreement
- Author:
- Mario Larch and Joschka Wanner
- Publication Date:
- 11-2022
- Content Type:
- Working Paper
- Institution:
- Kiel Institute for the World Economy (IfW)
- Abstract:
- International cooperation is at the core of multilateral climate policy. How is its effectiveness harmed by individual countries dropping out of the global mitigation effort? We develop a multisector structural trade model with emissions from production and a constant elasticity of fossil fuel supply function to simulate the consequences of unilateral withdrawals from the Paris Agreement. Taking into account both direct and leakage effects, we őnd that a US withdrawal would eliminate more than a third of the world emissions reduction (31.8% direct effect and 6.4% leakage effect), while a potential Chinese withdrawal lowers the world emission reduction by 24.1% (11.9% direct effect and 12.2% leakage effect). The substantial leakage is primarily driven by technique effects induced by falling international fossil fuel prices.
- Topic:
- Climate Change, International Trade and Finance, Fossil Fuels, Carbon Emissions, and Paris Agreement
- Political Geography:
- Global Focus and United States of America