The World Economy

Publisher:
Wiley
Publication date:
2021-02-01
ISBN:
0378-5920

Latest documents

  • A micro‐founded approach to exploring gains from trade integration: Evidence from 27 EU countries

    This paper studies how trade integration of both final output and intermediate input markets affected aggregate efficiency and welfare in the European Union (EU) during the period 2004–2012. The results suggest that aggregate efficiency gains from trade mainly occur through input switching effects within firms and output reallocation effects across firms. Moreover, welfare gains from trade are relatively smaller than aggregate efficiency gains, due to a decrease in domestic final varieties.

  • Employment protection and FDI revisited: New evidence from micro data*
  • Catch‐up industrial policy and economic transition in China

    This paper studies how catch‐up industrial policies in China affect economic development in a two‐sector neoclassical growth model. To fulfil their aspirations of catching up with the output of the capital‐intensive sector of developed countries, Chinese political leaders adopted industrial policies that subsidise this target sector at the expense of other sectors from 1952 until the economic reform in 1978. The static effect of this industrial policy distorts the allocation of resources across sectors and lowers the aggregate TFP. The dynamic effect discourages the accumulation of capital. We show that although the output of the capital‐intensive sector boosts initially, it will be lower than its first‐best counterpart in the long run if catch‐up aspirations are too strong. Our theoretical predictions are consistent with the experience of the Chinese economy from 1952 to 1978.

  • Financial intermediation, trade agreements and international trade*

    Using a gravity model on a data set of 69 developed and developing countries over the period 1986–2006, we show that the trade‐promoting role of financial intermediation in the exporting country is mitigated when this country faces low exporting costs, that is when there is a regional trade agreement (RTA) between this country and the importing one. We also establish that this mitigating effect is reduced in financially constrained sectors, for which the role of financial intermediation remains crucial. Finally, we find evidence that the same trade‐boosting effect and the same interaction with RTAs prevail for financial intermediation in the importing country.

  • The triangular purchasing power parity hypothesis: A comment

    The recently proposed triangular purchasing power parity (PPP) hypothesis posits that, in a world dominated by the United States, China and Euroland, the exchange rate between the US dollar and the euro will be a function of the Euroland price level relative to China’s price level. Contrary to conventional PPP, the US price level plays no role. We show that the theory underlying triangular PPP is flawed and that it is no more than a simple transformation of the conventional PPP relationship. Moreover, some of the empirical evidence presented in support of the triangular PPP actually refutes one of its central ideas.

  • Does private aid follow the flag? An empirical analysis of humanitarian assistance

    This paper compares the allocation of private humanitarian aid to that of official humanitarian aid awarded to 140 recipient countries over the 2000–2016 period. We construct a new database that offers information on the country in which the headquarters of private donors are located to test whether private aid tends to follow the humanitarian aid allocation pattern of the respective official donor. Our empirical results confirm that private humanitarian aid tends to “follow the flag”. This finding is robust against the inclusion of various fixed effects, estimating instrumental variables models and disaggregating private humanitarian aid into corporate aid and NGO aid. Donor country‐specific estimations reveal that private humanitarian aid from China, Sweden, the United Kingdom and the United States tend to “follow the flag”.

  • The economic and social costs of globalisation: A target zone analysis

    This paper adopts a target zone approach to analyse and interpret the current phase of slowdown, if not retreat, of economic globalisation. A ‘honeymoon’ emerges when a credible limit is imposed on its economic and social costs. Conversely, if the upper cost threshold is not set credibly, a ‘divorce’ from economic globalisation emerges earlier than if no target is taken into account. Such a second case represents the recent events.

  • Issue Information
  • Re‐estimating the effect of heterogeneous standards on trade: Endogeneity matters

    Controlling for endogeneity‐induced biases and accounting for the source of heterogeneity may both matter for the proper empirical estimation of the effect of heterogeneous standards on trade. However, existing literature on the trade effects of heterogeneity in pesticides maximum residue levels (MRLs) does not directly address the problem of endogeneity in the standards–trade relationship. Using pesticides MRL data for 53 countries over 2005–14, we thus re‐examine the trade effects of stricter (than partner) standards accounting for endogeneity using panel data methods. We find that the direction of the estimated trade effects gets reversed, thereby underlining the greater demand‐enhancing effect of more stringent regulation. We also discuss why endogeneity may bias the estimates downwards. In another original contribution, we examine the standards–trade relationship by the direction of imposition of stricter standards for a large panel. Our results suggest that stricter standards do not impede trade, irrespective of who imposes them.

  • Are African exports that weak? A trade in value added approach

    African countries are known to export less than any other group of countries in the world. Many studies have advanced that the main reason for this is the high level of transport costs due to the poor quality of transport infrastructures on the African continent. We first show that, depending on the estimator used, African countries as an aggregate do not necessarily trade a lower volume of gross exports than other countries on average, even though they clearly underperform in exports of final goods. This underperformance, reflected by the greater impact of bilateral trade costs such as distance on African exports of final goods compared to other countries, is not observed for African intermediate goods flows. Second, we formulate a model for trade in value added by adapting the standard gravity equation to take into account the structure of value added exports. The proposed model points up the importance of the indirect trade costs of third countries via which a country of origin's value added transits before reaching its final destination. When we control for these indirect trade costs in the value added trade estimation, the additional impact of the bilateral trade costs observed for African countries’ final goods exports is six times lower.

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