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71. Productivity spillovers from FDI: A firm-level cross-country analysis

Author:
JaeBin Ahn, Shekhar Aiyar, and Andrea F. Presbitero
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This paper provides cross-country firm-level evidence on productivity spillovers from foreign direct investment (FDI), separately for greenfield FDI and cross-border mergers and acquisitions (M&As). The granularity of bilateral sector-level FDI datasets allows for addressing possible endogeneity issues by applying a two-step approach whereby an exogenous FDI measure is constructed from a gravity-type regression of bilateral FDI flows. When looking at the effects of greenfield investments on firm labour productivity we find: i) positive intra-industry spillover effects for firms located in advanced countries, and ii) positive backward spillover effects for firms located in emerging and developing countries. These spillovers are driven entirely by FDI from advanced countries. The results from cross-border M&As are noisier, with weakly suggestive evidence for positive intra-industry spillovers in advanced countries but negative backward spillovers in emerging markets and developing countries.
Topic:
Foreign Direct Investment, Business, and Productivity
Political Geography:
Global Focus

72. The economic case for climate finance at scale

Author:
Patrick Bolton, Alissa M. Kleinnijenhuis, and Jeromin Zettelmeyer
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
It will be impossible to contain the global temperature rise to 1.5 to 2 degrees Celsius above pre-industrial levels unless emerging market and developing economies (EMDEs) decarbonise much more rapidly. This policy brief examines the economic case for advanced-country financial support for replacement of coal with renewable energy sources in EMDEs. Such conditional financial support is necessary in the sense that an exit from coal consistent with keeping the global temperature rise to between 1.5°C and 2°C will not happen without it, desirable from the perspective of the financier countries, and financially feasible. Although the global economic benefits of phasing out coal are very large, the costs of exiting coal generally exceed the benefits to EMDEs. However, the collective economic benefits to advanced countries greatly exceed those costs. These net benefits are positive even for small coalitions of advanced countries (G7 or G7 plus EU). The fiscal costs of financing the coal exit in EMDEs (without China) are modest as a share of G7+EU GDP at about 0.3 percent of GDP per year, assuming public-sector participation in renewable energy investment costs through blended finance of around 25 percent. Although providing climate finance to EMDEs is economically desirable and feasible from the G7 perspective, it is not happening at the necessary scale, partly because of incentives and political-economy challenges. Advanced countries are more likely to be willing to commit financing to climate action outside their borders if they have more control over how this money is spent. Developing countries are reluctant to phase out coal unless sufficiently large financial support is forthcoming for renewable investments that are consistent with their development goals. These problems could be overcome by tying renewable finance to a coal phase-out. Already-existing Just Energy Transition Partnerships with South Africa, Indonesia and Vietnam are prototypes of this approach. They should be scaled up, with sufficient grants to pay for coal closures and the social transition in coal communities, by explicitly conditioning funding on a coal phase-out and through a stronger governance structure to implement these deals.
Topic:
Climate Change, Emerging Markets, Climate Finance, Renewable Energy, Coal, Carbon Emissions, and Emerging Economies
Political Geography:
Global Focus

73. Navigating the treacherous political economy of structural reform

Author:
Davide Furceri, Jonathan Ostry, and Chris Papageorgiou
Publication Date:
05-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
We examine the economic and electoral effects of liberalisation measures using newly-constructed databases on structural economic reforms and the outcome of democratic elections since the 1970s. The data shows a remarkable slowdown in the pace of liberalisation in both advanced and emerging market and developing countries since the 1990s. A debate has emerged about the causes of this slowdown, including the possibility that reforms do not deliver the economic benefits that advocates, including the multilateral financial institutions, trumpeted. Some have pointed to the fact that the current and previous United States administrations have abandoned neoliberal policies in favour of more government intervention in the economy, and the effect has been globally contagious. Our empirical analysis suggests that the growth dividend from liberalisation is economically and statistically significant, but it emerges only slowly over time. Because of this delay, liberalising reforms are costly to democratic incumbents when they are implemented close to elections. Reforms may generate immediate concentrated losses, which elicit an electoral backlash, especially when the aggregate gains are only visible several years after the reform’s implementation. The electoral penalty is also sensitive to overall business-cycle conditions, being much larger when an economy is in recession. Electoral effects also differ depending on the type of reform. Notably, financial reforms generate more perceptible growth-equity trade-offs than real-economy reforms, especially when implemented during weak economic conditions. The political economy of reform is treacherous. To avoid adverse electoral effects, timing reform early in the electoral term and when business-cycle conditions are favourable is critical. So too is avoiding reforms that generate large distributional costs in the face of small aggregate gains (an adverse growth-equity trade-off). Focusing on these considerations is critical to reinvigorate support for structural reform.
Topic:
Economics, Political Economy, Reform, Elections, and Liberalization
Political Geography:
Global Focus

74. Global supply chains: lessons from a decade of disruption

Author:
Luca Léry Moffat and Niclas Poitiers
Publication Date:
03-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This paper explores both the character and impact of three recent shocks to global supply chains: the COVID-19 pandemic, the Russian invasion of Ukraine and the US-China trade war. These were large shocks which have had significant impacts on domestic and international supply chains, but these impacts have differed in their longevity, economic impact and policy responses. We show that supply chains were remarkably resilient against shocks of such magnitude. However, this resilience was also achieved thanks to the equally remarkable size and scope of policy responses and global supply chain reorganisation. We recommend that pre-emptive policies may be justified to shield households and industry from future shocks. Given the entangled nature of these shocks and that their effects continue to reverberate, we emphasise the need for extensive future research to understand the nature of these shocks and the effectiveness of policy responses.
Topic:
Global Markets, Trade Wars, Trade, COVID-19, Supply Chains, and Russia-Ukraine War
Political Geography:
China, Global Focus, and United States of America

75. Knowledge spillovers and geopolitical challenges in global supply chains

Author:
Niclas Poitiers and Kamil Sekut
Publication Date:
02-2024
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
This paper explores the role of knowledge spillovers through global supply chains against the backdrop of increasing geopolitical tensions and protectionist policies. The research, part of the ReThinkGSC project, underscores the importance of the international research and development ecosystem in fostering innovation. This ecosystem provides benefits to all countries involved and is essential for tackling global challenges. However, we highlight the growing threats to knowledge dissemination posed by policies aimed at preserving national security and leading technological positions. These measures, intended to safeguard strategic interests, risk fragmenting supply chains and stifling global innovation if they are applied on a broad basis. We recommend that restrictions on knowledge flows be limited to narrowly defined strategic areas and that countries adopt strategies to enhance internal knowledge dissemination, diversify supply chains and foster international economic ties. We emphasise the need for careful policy design, avoiding broad protectionist measures, and suggests bolstering R&D through public grants and tax incentives, and by promoting private-public partnerships.
Topic:
Geopolitics, Supply Chains, Research and Development, and Knowledge Transfer
Political Geography:
Global Focus

76. Bold International Tax Reforms to Counteract the OECD Global Tax

Author:
Adam N. Michel
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
Nearly 140 countries, including the United States, have endorsed a new global tax system proposed by the Organisation for Economic Co-operation and Development (OECD). This proposal, which aims to increase global business taxes and targets America’s most successful companies, threatens to undermine crucial features of the international corporate tax system. Congress will face a decision in 2025: conform to the OECD’s system or opt out and safeguard America’s position as the most attractive place to do business. The taxation of multinational businesses often raises concerns about a “race to the bottom” through harmful tax competition and businesses shifting profits to low-tax countries. Yet the magnitude and effect of these two phenomena are commonly misunderstood. Tax competition has allowed average statutory corporate tax rates to be cut in half over the past four decades, fueling investment and economic growth. Among OECD countries, revenues have increased while tax rates declined. The magnitude of profits shifted to low-tax countries is often inflated by researchers relying on data that overstate income in tax havens. A more comprehensive picture shows that about 8 percent of US corporate profits are reported in tax havens, only half of US multinationals have any presence in a tax haven, and they face higher effective tax rates than domestic competitors. Where it does exist, profit shifting acts as a tax cut on investment, boosting jobs and economic growth in both tax havens and higher-tax home markets. Following the long history of costly reforms to stop businesses from moving profits overseas, US policymakers should try a different approach. Instead of enacting new rules to stop income shifting out of the United States, Congress should focus exclusively on increasing the attractiveness of the United States as an investment destination.
Topic:
Reform, Business, Multinational Corporations, Tax Systems, OECD, and Competition
Political Geography:
Global Focus

77. Overcoming digital threats to democracy

Author:
Lydia Khalil
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
Lowy Institute for International Policy
Abstract:
The internet was once considered an open door to democracy and liberty. Today, it is seen as an agent of democratic erosion. Digital challenges to democracy include the scale and spread of disinformation and misinformation, the increase in polarisation and extremism that are facilitated and escalated online, and inadequate regulation. Digital platforms are increasingly perceived by the public as serving the needs and interests of the powerful rather than the public good. Average users have few means to influence key decisions and debates about how digital technologies are used and developed. The rules of the digital sphere — whether made by tech companies, regulators, or politicians — often lack public legitimacy. Applying deliberative democracy principles — where small but representative groups of people make decisions after deliberating on issues in depth — can help address the challenges of legitimacy and generate broadly acceptable solutions to the problems that bedevil online spaces and challenge democracy.
Topic:
Democracy, Disinformation, Polarization, and Digital Technologies
Political Geography:
Global Focus

78. Social Reintegration of Former Inmates: Networked Strategies for Promoting Public Policies and Strengthening Civil Society Organizations

Author:
Melina Risso, Vivian Calderoni, Camila Nadalini de Godoy, Carolina Loeb, Marina Alkmim, and Julia Quirino
Publication Date:
04-2024
Content Type:
Special Report
Institution:
Igarapé Institute
Abstract:
The social reintegration process for former inmates presents challenges that extend beyond the confines of the justice system alone. In the Brazilian context, marked by regional disparities and social, racial, and educational inequalities, the lack of material, financial, and psychosocial support places ex-inmates in a cycle of social rejection and criminality. The deficiency of adequate investments, exacerbated by an emphasis on punishment over post-release reintegration, intensifies these challenges. Thus, it underscores the importance of networked collaboration among public, private, and civil society sectors to optimize resource use, promote integrated solutions, and overcome obstacles in assisting former inmtes, providing multidimensional support for social reintegration. This report outlines the strategies of five network-based initiatives aimed at former inmates, implemented both in Brazil and globally. The document details how these initiatives contribute to strengthening the social reintegration of former inmates and illustrates how they can serve as models to inspire other coordinated actions in the same field. Social reintegration of former inmates and its related concepts used here synonymously – such as (re)insertion, (re)inclusion, (res)socialization, (re)education, (re)adaptation, and (re)habilitation – should be seen as a priority not only by the criminal justice system but by all stakeholders who may have a direct or indirect influence on this process. It is a global challenge that requires reforms in the justice system, strengthening the rule of law, and implementing specific public policies focused on the various challenges these individuals face in their resocialization process, including aspects such as social interaction, employment opportunities, and access to housing, health, and education. This study acknowledges that the pursuit of social reintegration should be approached from the perspective of ensuring rights and not limited to the view of security and reducing criminal recidivism. This principle was adopted based on the recognition that the criminal justice system is an environment that creates and perpetuates inequalities for the individuals within it. Therefore, ensuring the rights that were denied before, during, and after incarceration is essential for effective social reintegration. Interventions and programs with multiple approaches for this group are rarely accessible, limited to sporadic opportunities to access essential services. In Brazil, which ranks as the third country worldwide in terms of the absolute number of incarcerated individuals, there is a significant variation in incarceration rates across states, which highlights the regional disparities. The composition of Brazil’s prison population also reflects social, racial, and educational inequalities, emphasizing the selective nature of a justice system which imprisons a disproportionate number of black, young, and uneducated people.
Topic:
Security, Civil Society, Human Rights, Prisons/Penal Systems, Inequality, Reintegration, and Criminal Recidivism
Political Geography:
Brazil, South America, and Global Focus

79. The Neo-Global World: Past Baggage, Present Challenges, Future Prospects

Author:
Dmitry Yevstafyev
Publication Date:
01-2024
Content Type:
Journal Article
Journal:
International Affairs: A Russian Journal of World Politics, Diplomacy and International Relations
Institution:
East View Information Services
Abstract:
THIS paper continues a series of articles on the neo-global world written by the author in recent years.1 It also examines problems stemming from attempts to simultaneously construct a new architecture of international relations and overcome the destabilizing legacy of the largely US-centric system of late globalization. The emerging multilevel dialectic in a number of regions, not always the most promising in terms of access to resources, forms “funnels of conflict” that lead to the destruction of the economic and sociopolitical systems previously formed there. The earlier proposed hypothesis about a “blank slate” in the space of international political and economic relations being necessary for the development of basic institutions and elements of the economic architecture of the new world is, unfortunately, confirmed. We are currently witnessing the simultaneous emergence of several potential spatial “blank slates” where differences between the world’s key powers are being resolved by military force, which could result in chains of small regional conflicts turning into a systemic crisis of the global political and economic architecture. Power factors of varying degrees of intensity (from hybrid wars to direct military confrontation of the world’s largest states) will play a decisive role in the development and management of this crisis. The need to resolve the crucial accumulated points of contention of the late-global world will be of paramount importance in the ongoing processes of not just transformations but global spatial transformations, as demonstrated by the political and military-political processes of 2020- 2022, which, for various reasons, including situational ones, have acquired an antagonistic nature in a number of cases.
Topic:
Economy, Ideology, International Order, and Geoeconomics
Political Geography:
Global Focus

80. Illiberalism in International Relations

Author:
Alexander Dugin
Publication Date:
01-2024
Content Type:
Journal Article
Journal:
International Affairs: A Russian Journal of World Politics, Diplomacy and International Relations
Institution:
East View Information Services
Abstract:
There are two main schools in the theory of international relations --- realism and liberalism. Realists believe that human nature is inherently flawed (the legacy of Hobbes’s anthropological pessimism and, on an even deeper level, the legacy of the Christian idea of the Fall, or lapsus in Latin) and cannot be fundamentally corrected, which means that selfishness, predation, and violence are impossible to eradicate. This leads to the conclusion that man (who, according to Hobbes, is a wolf to another man) can only be restrained and regulated by means of a strong state. The state is inevitable and is the bearer of supreme sovereignty. At the same time, the predatory and egoistic nature of man is projected onto the state; therefore, the nationstate has its own interests. These interests take into account only their own state, while the will to violence and greed mean war is always a possibility. Realists believe that this has always been and always will be. International relations are therefore based only on a balance of power between wholly sovereign entities. No world order can exist in the long term; there is only chaos, which changes as some states weaken and others strengthen. At the same time, the term “chaos” in this theory is not bad in itself; it is merely a statement of the actual state of affairs, derived from taking the concept of sovereignty very seriously. If there are several truly sovereign powers, no supranational order can exist between them to which all would submit. Were such an order to exist, sovereignty would not be complete, in fact, it would not exist at all, and only this supranational authority itself would be sovereign. The school of realism has traditionally been very strong in the US, starting with its first founders: Hans Morgenthau and George Kennan in the US, and Edward Carr in the UK.
Topic:
International Relations, Realism, Multipolarity, Illiberalism, and Posthumanism
Political Geography:
Russia and Global Focus