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51. The Global Economic Impact of the COVID-19 Pandemic: The Second Wave and Policy Implications

Author:
Gyeong Lyeob Cho, Minsuk Kim, and Yun Kyung Kim
Publication Date:
09-2021
Content Type:
Research Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This paper examines the macroeconomic impact of the COVID-19 pandemic through the Computable General Equilibrium model. Due to a second wave and a subsequent delay in economic recovery, the pandemic could lead to a permanent shock in capital accumulation and productivity. This implies that the shock may not merely affect the short-term growth rate but also negatively impact the future economic growth path from its pre-pandemic trend. Through simulations, in the mild scenario, countries lose 0.10% to 0.31% of their future economic growth rates; in the severe scenario, they lose 0.21% to 0.69%.
Topic:
Economics, Globalization, International Trade and Finance, Public Health, Pandemic, and COVID-19
Political Geography:
Global Focus

52. Better Two Eyes than One: A Synthesis Classification of Exchange Rate Regimes

Author:
Cécile Couharde and Carl Grekou
Publication Date:
10-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper proposes a new de facto classification of exchange rate regimes, the synthesis classification. The proposed framework has several advantages over existing de facto classifications. First, it offers a unified framework based on the most divergent classifications, the RR and LYS classifications, leading not only to a broader coverage but also to encompass a broad spectrum of exchange systems. Second, it fits better with the known history of exchange rate regimes developments in the post-Bretton Woods era. Among others, it brings an interesting nuance to the so-called hollowing-out hypothesis by showing that the evolution of de facto regimes —especially in emerging economies since the late 1990s— has essentially involved movement toward more tightly “managed” intermediate regimes and not a shift away from such regimes. As an illustration of the insightfulness of our classification, we empirically revisit the nexus between currency crises and exchange rate regimes. In addition to associate a higher probability of currency crisis to both intermediate and floating regimes, our classification, also displays better statistical performances than other classifications in predicting currency crises.
Topic:
Economics, International Cooperation, International Trade and Finance, Exchange Rate Policy, and Currency
Political Geography:
Global Focus

53. Love of Variety and Gains from Trade

Author:
Christophe Gouel and Sébastien Jean
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper shows how gains from trade are conditioned by love of variety, defined as the extent to which an additional product variety generates benefits in either final or intermediate consumption. We develop a multi-country, multisector gravity trade model where love of variety is parameterized separately from product substitutability using a generalized CES demand function, and show analytically how gains from trade depend on love of variety through different channels that we identify and interpret. In this context, except for very specific parameterizations, gains from trade differ between a heterogeneous- and a homogeneous-firm model. Counterfactual simulations based on a calibrated version of this model show that, all other things being equal, the assessed gains from trade commonly vary by a proportion of one to three depending on the value of the love-of-variety elasticity, in a way that differs significantly across countries. Trade war simulations also point to the strong sensitivity of the assessed impacts. We conclude that love of variety is a key determinant of the gains from trade, an aspect that has so far been overlooked for the sake of convenience in the modeling framework and due to lack of empirical estimates.
Topic:
International Cooperation, International Trade and Finance, Trade Wars, and Models
Political Geography:
Global Focus

54. Free Trade Agreements and the Movement of Business People

Author:
Thierry Mayer, Hillel Rapoport, and Camilo Umana Dajud
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
Many of the measures to contain Covid-19 severely reduced business travel. Using provisions to ease the movement of business visitors in trade agreements, we show that removing barriers to the movement of business people promotes trade. To do this, we first document the increasing complexity of Free Trade Agreements. We then develop an algorithm that combines machine learning and text analysis techniques to examine the content of FTAs. We use the algorithm to determine which FTAs include provisions to facilitate the movement of business people and whether those provisions are included in dispute settlement mechanisms. Using these data and accounting for the overall depth of FTAs, we show that provisions facilitating business travel indeed facilitate business travel (but not permanent migration) and, eventually, increase bilateral trade flows.
Topic:
International Cooperation, International Trade and Finance, Migration, Business, Free Trade, Pandemic, and COVID-19
Political Geography:
Global Focus

55. Long-Term Macroeconomic Projections of the World Economy

Author:
Lionel Fontagné, Erica Perego, and Gianluca Santoni
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
What will the global economy look like in a generation? The answer depends on the multiple forces driving long-term growth (demography, education, diffusion of technical progress, energy costs, investment and saving behaviour, international capital mobility) and requires a comprehensive framework to conceptualise them. We re-estimate the three-factor (capital, energy, labour) MAcro-econometric model of the Global Economy (MaGE), initially developed by Fouré et al. (2013), with a database covering 170 countries using state-of-the-art methods. We thus establish the long-term structural relationships that drive the dynamics of the World economy. The model projections to 2050 illustrate the expected changes in the World economy and their driving forces. In light of the projected volume of energy consumption, making these projections compatible with climate imperatives calls for increased technology sharing at the international level in order to decouple economic growth from energy use.
Topic:
Economics, Energy Policy, International Trade and Finance, and Macroeconomics
Political Geography:
Global Focus

56. Interactions Between Global Value Chains and Foreign Direct Investment: A Network Approach

Author:
Amat Adarov
Publication Date:
07-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
The world economy is increasingly shaped by cross-border production and investment activity. The paper uses complex network analysis along with panel data econometric techniques to study the structure and interactions between the networks of global value chains (GVC) and foreign direct investment (FDI). The analysis reveals that both FDI and GVC networks have a distinct core-periphery structure dominated by a relatively small number of countries with the USA constituting the global hub interlinked with regional European and Asian clusters, which, in turn, are centered around regional hub countries like China and Germany. Simultaneous equation model regressions using three-stage least squares suggest that FDI centrality facilitates GVC centrality of countries. However, FDI centrality is driven to a large extent by the FDI statutory restrictions and tax offshore regulations, rather than GVC connectivity.
Topic:
International Trade and Finance, Foreign Direct Investment, Borders, Networks, Macroeconomics, and Global Value Chains
Political Geography:
Global Focus

57. Labour Taxes and International Trade: The Role of Domestic Labour Value Added

Author:
Amat Adarov, Mario Holzner, Branimir Jovanovic, and Goran Vukšić
Publication Date:
08-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper revisits the relationship between labour taxation and international trade, focusing on the role of domestic labour value added. Using sectoral data from 41 EU and OECD economies over the period 2005-2014, we assess how labour taxes affect exports and imports and how domestic labour value added shapes this relationship. We find that higher labour taxes reduce exports but that the effect depends to a large extent on the share of domestic labour value added, which differs by industries, countries and time periods. Imports do not seem to be affected. This implies that changes in labour taxes will not affect all sectors and countries in the same way and that policy makers should be aware of this when deciding on labour taxes. We also calculate the contribution of labour tax changes to the export dynamics in the analysed period and sample of countries, finding that in general the contribution is small.
Topic:
International Trade and Finance, Labor Issues, Tax Systems, Exports, and Imports
Political Geography:
Global Focus

58. Impact of Technical Barriers to Trade on the Trade in Goods in the Information and Communications Technology Sector: Differentiating by Aim of the Regulatory Measure

Author:
Mahdi Ghodsi
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
In this modern digital world, goods from the information and communications technology (ICT) sector are the engine of the global economy. While tariffs levied on ICT goods have been eliminated or significantly reduced since the conclusion in December 1996 of the Information Technology Agreement of the World Trade Organization (WTO), non-tariff measure (NTMs) have come to be used more frequently with regard to imports of these goods. Technical barriers to trade (TBTs), as the most important trade policy measure imposed on imports of ICT goods, form the focus of this study. This paper analyses how different types of TBTs imposed on imports of ICT goods globally affected the values and volumes of imported goods at the six-digit level of the Harmonised System (HS) during the period 1996-2018. Keywords cited in the TBTs notified to the WTO give an indication of the aims behind the imposition of TBTs. Therefore, this study digs deeper into the impact of 30 types of TBT, using the keywords cited. The methodology used in this paper controls for zero trade flows using the Pseudo Poisson Maximum Likelihood (PPML) technique; and it controls for endogeneity bias using the exogenous instrumental variable approach. Furthermore, the paper provides more detailed analysis of the impact of TBTs across five ICT product categories that are defined by the United Nations Conference on Trade and Development (UNCTAD). The results indicate that TBTs have a generally strong positive impact on the value of imports of ICT goods. While many keywords cited in TBTs notified to the WTO affect the values and volumes of imports in a positive way, certain other TBTs function as trade barriers that reduce their values and volumes.
Topic:
International Trade and Finance, Communications, World Trade Organization, Tariffs, and Information Technology
Political Geography:
Global Focus

59. Source – Assembly – Sink: Value Added Flows in the Global Economy

Author:
Robert Stehrer
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
In this paper we provide a method to characterise global value chains and a related decomposition of bilateral gross exports by distinguishing three different stages of the value-added flows: (i) the source of value added, (ii) the final assembly stage of a product, and (iii) the final absorption (sink) of this product. Methodologically this is embedded in a simple framework using matrix algebra allowing for intuitive interpretations of the individual decomposition terms and results. The approach leads to a novel decomposition of bilateral gross export flows and related value-added trade indicators. It is shown how these correspond to existing measures using the property of inverse matrices. Specifically, the paper sheds light on the nature of the double-counting terms discussed in the literature. Finally, the approach outlined is extended by incorporating insights from the hypothetical extraction method. We argue that this is a complementary approach which however can be used to flexibly define the value chains of interest and characterise the respective flows that are considered part of this defined value chain, again carefully differentiating the source, assembly, and sink dimensions.
Topic:
International Trade and Finance, Economy, Exports, Global Value Chains, and Decomposition
Political Geography:
Global Focus

60. Heterogeneous Effects of Non-tariff Measures on Cross-border Investments: Bilateral Firm-level Analysis

Author:
Amat Adarov and Mahdi Ghodsi
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
We analyse the heterogeneous effects of technical regulations and safety standards embodied in non-tariff measures on foreign direct investment using global firm-level panel data of bilateral cross-border ownership relationships over the period 2008-2018. To this end, we develop a novel measure of time-varying bilateral ad valorem equivalents of sectoral non-tariff measures, which reveals that technical barriers to trade (TBTs) played a much greater role as a trade-inhibiting factor in comparison with import tariffs and sanitary and phytosanitary (SPS) measures over the period 1996-2018, with their relative importance increasing in the post-Great Recession period. Estimations using the Poisson pseudo-maximum likelihood framework reveal the importance of non-tariff measures as a driver of foreign direct investment, with heterogeneous effects observed for the measures imposed by the host and the home country, as well as across sectors and types of non-tariff measures. Among other results, we find that an increase in the stringency of technical barriers to trade imposed by the host country is associated with higher investment in the foreign subsidiaries operating in this country, pointing to the regulatory barrier-jumping motive of foreign direct investment. The effect is much stronger for the multinational corporations operating in the information and communications technology sector.
Topic:
International Trade and Finance, Foreign Direct Investment, Economy, and Business
Political Geography:
Global Focus