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  • Author: Sonali Chowdhry, Gabriel Felbermayr
  • Publication Date: 02-2021
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: In 2011, the EU-South Korea Free Trade Agreement (EUKFTA) entered into force. With its focus on non-tariff barriers (NTBs), it is a leading example of a deep new generation agreement. Using detailed French customs data for the period 2000 to 2016, we investigate how exporters of different size have gained from the agreement. Applying a diff-in-diff strategy that makes use of the rich dimensionality of the data, we find that firms with larger pre-FTA sizes benefit more from the FTA than firms at the lower end of the size distribution, both at the extensive (product) and the intensive margins of trade. The latter finding is in surprising contrast to leading theories of firm-level behavior. Moreover, we find that our main result is driven by NTB reductions rather than tariff cuts. In shedding light on the distributional effects of trade agreements within exporters, our findings highlight the need for effective SME-chapters in FTAs.
  • Topic: Economics, International Political Economy, Treaties and Agreements, Tariffs, Trade
  • Political Geography: Europe, South Korea, European Union
  • Author: Mahdi Ghodsi, Hüseyin Karamelikli
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: The Vienna Institute for International Economic Studies (WIIW)
  • Abstract: Economic sanctions are intensively used by international institutions to enforce political objectives. Since 2006 the EU has been implementing general sanctions against the whole economy of Iran, affecting their trade relations. Since 2007, and following the imposition of sanctions by the UN Security Council, the EU has also implemented smart sanctions targeting Iranian entities and natural persons associated with its military activities. In a non-linear autoregressive distributed lag (NARDL), this paper investigates the impact of general and targeted EU sanctions against Iran on quarterly bilateral trade values between the 19 members of the euro area (EA19) and Iran between the first quarter of 1999 and the fourth quarter of 2018. The results indicate that general sanctions have strongly hampered trade flows between the two trading partners. The impact of general sanctions on the total imports of the EA19 from Iran is more than four times stronger than on the total exports of the EA19 to Iran. Moreover, the EU’s general sanctions have hampered trade in almost all sectors, except for the primary sectors. Furthermore, our study finds that the impact of smart sanctions targeting Iranian entities and natural persons is much smaller than the impact of general sanctions on total trade values and the trade values of many sectors. Smart sanctions affect the exports of most sectors from the EA19 to Iran, while they are statistically insignificant for the imports of many sectors from Iran. Thus, this paper provides evidence on the motivations behind smart sanctions, which target specific individuals and entities rather than the whole economy, unlike general sanctions, which have a negative impact on ordinary people.
  • Topic: United Nations, Sanctions, Trade, Trade Policy
  • Political Geography: Europe, Iran, United Nations, European Union
  • Author: Wilfried Rickels, Alexander Proelß, Oliver Geden, Julian Burhenne, Mathias Fridahl
  • Publication Date: 09-2020
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: Under the European Union Emissions Trading System (EU ETS), operators must surrender allowances corresponding to the emissions of greenhouse gases (GHG) from their installations. The supply of allowances in the EU ETS decreases linearly and, all else equal, is expected to end around 2057. An earlier cut-off date is likely to follow from the European Council’s recent decision that the EU should reach net-zero GHG emissions by 2050. Scenarios published by the European Commission even anticipate a net-negative cap in the EU ETS from 2045 onwards, generated through carbon dioxide (CO2) removals. Upholding emissions trading, in the long run, therefore entails significant use of credits resulting from atmospheric CO2 removal activities. However, in its current form, the ETS Directive does not contain any legal basis for generating CO2 removal credits. Integrating CO2 removal into the EU ETS would, thus, require fundamental amendments of the ETS Directive, waiving the currently mandatory association binding emitting activities to the adoption of emission abatement technologies. The next policy window for such amendments will open in 2021, following the decision on a more ambitious EU 2030 emission reduction target. This conceptual paper explores various design options for integrating negative emissions technologies (NETs) into the EU ETS. We discuss their potential implications for emissions trading at large and address the specificity of bioenergy with carbon capture and storage (BECCS); repealing the provision that installations exclusively using biomass are not covered by the ETS Directive, BE(CCS) installations could in principle fall within the scope of the ETS Directive. Theoretically, it would be possible to consider free allocation of biogenic credits to BE(CCS) installations. Bioenergy operators could avoid having to surrender these biogenic allowances through the use of CCS and instead sell them on the EU ETS market, having implicitly received credits for the removal of CO2 from the atmosphere.
  • Topic: Climate Change, Green Technology, Trade, Carbon Emissions
  • Political Geography: European Union
  • Author: Liza Archanskaia, Johannes Van Biesebroeck, Gerald Willmann
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Kiel Institute for the World Economy (IfW)
  • Abstract: We illustrate a new source of comparative advantage that is generated by countries’ different ability to adjust to technological change. Our model introduces substitution of workers in codifiable (routine) tasks with more efficient machines, a process extensively documented in the labor literature, into a canonical 2 × 2 × 2 Heckscher-Ohlin model. Our key hypothesis is that labor reallocation across tasks is subject to frictions, the importance of which varies by country. The arrival of capital-augmenting innovations triggers the movement of workers out of routine tasks, and countries with low labor market frictions become relatively abundant in non-routine labor. In the new equilibrium, more flexible countries specialize in producing goods that use non-routine labor more intensively. We document empirically that the ranking of countries with respect to the routine intensity of their exports is strongly related to labor market institutions and to cultural norms that influence adjustment to technological change, such as risk aversion or long-term orientation. The explanatory power of this mechanism for trade flows is especially strong for intra-EU trade.
  • Topic: International Political Economy, Science and Technology, Innovation, Trade, Trade Policy
  • Political Geography: Global Focus, European Union