The World Economy

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  • Sourcing patterns of export‐platform foreign affiliates: The case of Japanese affiliates in Mexico

    This study investigates the sourcing patterns of Japanese export‐platform foreign affiliates in Mexico, which mainly export to the United States and Canada. We propose a novel approach to estimate intermediate input elasticities of exports by sourcing country. We find that, on average, Japanese export‐platform foreign affiliates in Mexico source intermediate inputs from third countries, including the United States and Canada, rather than from Japan and Mexico, suggesting that Japanese export‐platform foreign affiliates in Mexico are mainly integrated into the vertical production networks back and forth between Mexico, the United States and Canada. In turn, Japanese foreign affiliates selling domestically in Mexico source intermediate inputs not only within the North American Free Trade Agreement countries but also from Japan. In addition, we find that export‐platform foreign affiliates in Mexico use more labour‐intensive production than do foreign affiliates selling domestically in Mexico. This suggests that saving labour costs is one of the motives for export‐platform foreign direct investment in Mexico.

  • Intensive and extensive margins of exports: What can India learn from China?

    We decompose India's export performance in manufactured products during 2000–15 into changes at the intensive and extensive margins. India's performance, along different margins, is compared and contrasted with that of China. The results show that while China outperforms India at both the margins, the gap is particularly wide at the intensive margin. Decomposition of intensive margin along quantity and price margins shows that Chinese products are generally sold cheaper than Indian products. Higher price margin, however, has not translated into high intensive margin for India due to its abysmally low quantity margin. We examine different explanations for China's superior performance relative to India, along different margins, using a gravity model. Our results suggest that China's exchange rate policy was not the prime reason for its export success. Neither do we find that FDI inflows were significant in explaining the export performance gap between them. The results show that China's export relationship bias towards high‐income partner countries holds the key in understanding its superior performance. This bias is a natural consequence of China's high degree of specialization in labor‐intensive activities. India, by contrast, due to an idiosyncratic pattern of specialisation, has failed to exploit its export potential in high income countries.

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  • How do countries respond to anti‐dumping filings? Dispute settlement and retaliatory anti‐dumping

    Empirical studies have found that countries may respond strategically to the anti‐dumping petition filed against their exporters through their own retaliatory actions. Although most previous studies have focused on retaliatory anti‐dumping filings, in this paper we explore another potential avenue for strategic response—filing a complaint under the World Trade Organization's (WTO) dispute settlement understanding. Using a panel of global anti‐dumping filings between 1995 and 2011, we analyse under what conditions countries will choose to retaliate through either an anti‐dumping petition or a WTO dispute, and to what degree these two strategies are complementary or act as substitutes. We find statistical evidence that countries are more likely to file a WTO dispute when they have also filed a retaliatory anti‐dumping petition, suggesting that these two strategies may be complementary.

  • China's exports, export tax rebates and exchange rate policy

    This paper examines the relationship between China's exports, export tax rebates and exchange rate policy. It offers an explanation for why China's exports continued to rise under RMB real appreciations during the Asian financial crisis. Based on a traditional export demand model, we test our hypothesis that the counteracting effects of China's export tax rebate policy have diminished the effectiveness of real exchange rates in facilitating the resolution of trade imbalances under the current pegged exchange rate regime. We find evidence that RMB real appreciations during the crisis negatively affected China's exports, but the negative effects were mitigated by the positive effects of export tax rebates. We also find evidence of a long‐run relationship between China's exports and the other explanatory variables. The empirical evidence suggests that under the pegged exchange rate regime with limited adjustments, real exchange rate movements alone cannot resolve China's external imbalances. The policy implication of this study is that China needs to redirect its decades‐long export‐oriented development strategy to one that emphasises domestic demand‐oriented development and to replace the current pegged exchange rate regime with a market‐oriented more flexible exchange rate regime.

  • Economic integration across Latin America: Evidence from labour markets, 1990–2013

    Combining macroeconomic and microeconomic data and three indicators of international market integration, this paper assesses the degree to which Latin American labour markets are integrated. The results suggest that relative to East Asia, Latin American labour markets are somewhat more integrated, but considerable differences across countries persist. In addition, the evidence indicates that the degree of labour market integration across Latin American borders is significantly less than that of labour markets within the United States in two of the three indicators. These differences may suggest opportunities for efficiency gains from further labour market integration.

  • A meta‐analysis of the indirect impact of foreign direct investment in old and new EU member states: Understanding productivity spillovers

    In this paper, we summarise, combine and explain recent findings from firm‐level empirical literature focusing on the indirect impact of foreign direct investment (FDI) on economic performance, measured as productivity, in the Enlarged Europe. We have reviewed 52 quantitative studies, released between 2000 and 2015 and codified 1,133 estimates. We run a regression of regressions which measures the strength of the FDI–productivity relationship. Taking advantage of large number of high‐quality studies on FDI and its role in explaining the growth in firms’ productivity in Europe, we adopt recent meta‐regression analysis methods—funnel asymmetry and precision estimate tests and precision‐effect estimate with standard errors—to explain the heterogeneous impact of FDI. This paper assesses the country‐specific impact of FDI on firms’ performance, after taking publication selection bias, econometric modelling and the individual studies’ characteristics fully into account. Our results show that on average FDI has a positive indirect impact on productivity. The impact is especially significant in selected European countries, and we interpret this as a sign of better absorptive capacities in those countries.

  • The role of inbound tourist flows in promoting exports

    While it is established that tourism benefits growth through increased employment and investments, it is not well understood whether tourism has an effect on exports. This paper explores exports as an additional channel through which tourism affects domestic economic activity. Using bilateral tourist and trade flows, the paper explores the causal effect of tourist flows on exports. To deal with endogeneity, two instruments are constructed and subsequently used on two different sets of exporters, one of the instruments being the number of casualties due to terrorism in a country. We find that tourism affects mainly the exports of differentiated products. Specifically, we find that tourism benefits the exports from non‐OECD exporters of processed food products and this effect is only estimated for South–North trade with an elasticity close to 1. For European countries, the findings point in the same direction; tourism affects differentiated consumer products and processed food with elasticity close to 1, which adds plausibility to the earlier results. We also find a lagged effect for tourism mainly on the export of consumer goods (for the two samples) and processed food products (for European countries). The results suggest that exporting is an additional channel through which tourism can stimulate domestic economic activity in the tourist destination.

  • In search of spatial interdependence of US outbound FDI in the MENA region

    The paper investigates the spatial interdependence of US MNE investments in the MENA region. Given the variations in resource endowments, governance structures and degree of infrastructure availability in MENA countries, one would expect these variables to affect an MNE's choice of FDI location. We do find that domestic non‐spatial factors such as own country inflation and governance measured by bureaucratic quality as well as infrastructure affect a host country's inward FDI. We also found that only one measure of natural resource endowment; that is, oil and gas exports were instrumental in attracting FDI. This non‐spatial result is generally robust and invariant to the two methodologies employed in this study, that is the spatially autoregressive (SAR) model and the spatial Durbin model (SDM). We found that neighbouring countries’ infrastructure availability measured either by “electricity used” or “energy used” affected FDI inflows in a host country. However, this spatial impact was found only in the SDM model. The spatial effects of neighbouring countries’ economic and political conditions and resource endowments were, however, not observed on a host country's inward FDI. The insignificance of both the surrounding market potential and the spatially weighted FDI suggests a purely horizontal motive of MNE investments in the MENA region.

  • Multinational activity of European firms and heterogeneity

    This paper offers an empirical assessment of the multinational activity of European firms. It takes the predictions of models of firm heterogeneity and FDI activity as a reference to explore the characteristics of multinational firms from 30 European countries. We use a data set, based on ORBIS, which links information of parent–affiliate pairs of firms. Our results show that more productive firms have greater multinational activity in terms of both scope, the number of foreign markets where they invest, and scale, the volume of local sales by subsidiaries active in foreign markets. The estimation of gravity equations shows that country characteristics that encourage multinational activity successively induce the entry of less productive parent firms. We confirm this asymmetry for the GDPs of the home and host countries, distance, contiguity and other standard gravity equation variables.

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