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21. World Economy in Winter 2023: Expansion continues with little momentum

Author:
Klaus-Jurgen Gern, Stefan Kooths, Jan Reents, Nils Sonnenberg, and Ulrich Stolzenburg
Publication Date:
12-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
The global economy held up better than expected in the face of the inflation shock and the massive tightening of monetary policy in 2023, even if the economic expansion was moderate. Inflation is now falling swiftly and monetary policy is expected to start cutting interest rates in the first half of 2024. However, there are currently scant signs that global outlook will meaningfully improve in the near term. In the advanced economies, a high level of policy uncertainty is weighing on growth while fiscal policy stimuli are waning. In China, economic momentum remains subdued due to structural problems. Overall, we expect global production - measured on a purchasing power parity basis - to increase by 2.9 percent in the coming year, following 3.1 percent in 2023. For 2025, we expect global growth to pick up to 3.2 percent. We have thus revised upwards our forecast for 2023 and 2024 slightly - by 0.1 percentage points - compared to our September report. Although unemployment in the advanced economies will increase slightly going forward, it will remain historically low. Inflation will continue to fall and generally approach target levels again by 2025.
Topic:
Monetary Policy, Economy, Inflation, and Production
Political Geography:
Global Focus

22. The CEPII Trade and Production Database

Author:
Thierry Mayer, Gianluca Santoni, and Vincent Vicard
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper documents the CEPII Trade and Production Database (TradeProd), which provides data on international and domestic trade flows and trade protection. The database covers 162 countries and 9 industrial sectors over the period 1966-2018. TradeProd is intended for econometric estimation of the gravity equation and also includes a yearly balanced dataset necessary for counterfactual exercises using new quantitative trade models.
Topic:
International Trade and Finance, Tariffs, Production, and Gravity Equation
Political Geography:
Global Focus

23. Cooperation against the odds: Getting small firms to work together in unfavourable circumstances

Author:
Kira Gartzou-Katsouyanni
Publication Date:
11-2022
Content Type:
Working Paper
Institution:
Hellenic Foundation for European and Foreign Policy (ELIAMEP)
Abstract:
How can we get small firms to work together in order to achieve mutually beneficial outcomes, despite adverse circumstances? This policy paper provides an answer to this question that could be useful both to policymakers and to local stakeholders seeking to undertake innovative, cooperative economic activities in their area. Based on evidence from eight case studies within the Greek agri-food and tourism sectors, I argue that a small group of local actors, whom I call ‘institutional entrepreneurs’, usually play a key role in catalysing the emergence of cooperation at the local level. Their strategies and experiences carry valuable insights. I also outline the characteristics that macro-level institutional frameworks need to have if they are to facilitate local cooperation. These characteristics can inform the design of institutions at both the domestic and the EU level. The paper’s findings could be relevant to people interested in local development, but also to those concerned with boosting the productivity and export orientation of the Greek economy as a whole. After all, cooperation can improve the performance of small firms, and it is thus an important ingredient for inclusive growth in countries with a lot of small firms, such as Greece.
Topic:
Development, Economy, Business, and Production
Political Geography:
Europe and Greece

24. CHIPS Act will spur US production but not foreclose China

Author:
Gary Clyde Hufbauer and Megan Hogan
Publication Date:
10-2022
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The CHIPS and Science Act, export controls, and agreements with allied countries will accomplish many of their multiple objectives. More US semiconductor fabrication plants will be built, US R&D will be accelerated, and advanced chips and chip-making machines will be denied to China, Russia, and other adversaries. However, the Act will not make a material difference to US chip supplies in the next two or three years. Slower economic growth has already tipped the chips market in favor of ample supplies. While collective measures have inflicted considerable short-term pain on China, causing a sharp drop in the fortunes of its high-tech firms, China will respond by redoubling its self-sufficiency programs. The United States, however, should not mimic China in pursuing self-sufficiency, as US self-sufficiency is an illusion. The United States currently exports high-value chips and imports low-value chips, so increasing self-sufficiency would require the United States to prioritize basic chip production at the same time it is supposed to be competing with China in advanced chip production. Continuing to prioritize advanced chip production—where the United States has a clear advantage—is the most efficient course of action.
Topic:
Economics, Legislation, Exports, Production, and Semiconductors
Political Geography:
China, Asia, and United States of America

25. Prosperity and Resilience: Diverse Production and Comparative Advantage in Modern Economies

Author:
David Henig and Anna Guildea
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
A common version of trade theory suggests that countries will specialise in a limited number of products. Using the example of David Ricardo from 1817, England specialises in cloth and Portugal in producing wine – and then they trade with each other to mutual benefit. However, this is a crude version of comparative advantage that routinely leads to political concerns about trade. Today the prime concern is that Europe and other developed countries have become too dependent on China by allowing the logic of comparative advantage to work. In short, trade has made us vulnerable. The observed reality is different. Most advanced economies produce and export a broad range of goods and services. Their governments have similar aspirations to develop and support diverse manufacturing and services, including in the most traded global sectors such as pharmaceuticals, automotive, business services, and food and drink. Modern specialisation comes in countries producing various, but not all, products within global supply chains. Patterns of trade suggest such specialisation has allowed countries to both grow and become resilient to individual shocks. Knowledge and ownership of the whole supply chain is more important than producing everything.
Topic:
Globalization, Economy, Services, Resilience, WTO, and Production
Political Geography:
Europe and Global Focus

26. Economic Costs of Friend-shoring

Author:
Beata Javorcik, Lucas Kitzmueller, Helena Schweiger, and Muhammad A. Yıldırım
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Geo-political tensions and disruptions to global value chains have led policymakers to reevaluate their approach to globalisation. Many countries are considering regionalisation and friend-shoring – trading primarily with countries sharing similar values – as a way of minimising exposure to weaponisation of trade and securing access to critical inputs. If followed through, this process has the potential to reverse global economic integration of recent decades. This paper estimates the economic costs of friend-shoring using a quantitative model incorporating inter-country inter-industry linkages. The results suggest that friend-shoring may lead to real GDP losses of up to 4.6% of global GDP. Thus, although friend-shoring may provide insurance against extreme disruptions and increase the security of supply of vital inputs, it would come at a significant cost.
Topic:
Trade, Production, Regionalization, and Friend-shoring
Political Geography:
Global Focus

27. Mexico’s Automotive Industry: A Success Story?

Author:
Jorge Carreto Sanginés, Margherita Russo, and Annamaria Simonazzi
Publication Date:
10-2021
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
In less than three decades Mexico’s automotive industry has gone from a minor role to the 7th largest world producer of automotive vehicles. The Mexican experience is part of the more general case of the “integrated peripheries.” The development of these cannot be accounted for separately from the developments occurring in its core country. Unlike the core-periphery literature, however, our analysis emphasizes that the various clusters of cores and integrated peripheries are not alike. In the case under study, the core has been systematically lagging behind the main transformations pioneered by its competitors. The paper traces the evolution of the Mexican automotive industry, emphasizing the difficulties faced by a late-comer country in developing an independent industry, and the importance of policy choices as well as the macroeconomic context in affecting its development. NAFTA represents the culmination of an integration process that has profoundly transformed the structure of the Mexican automotive industry, deepening its dependence on the US market. While there is no doubt that it has contributed to the spectacular growth of the Mexican auto industry, whether it also increased its resilience or, rather, its dependence is still an open question. This issue is particularly relevant in view of the transformations that are taking place in the automotive sector and in the geopolitical scenario. These include the end of NAFTA and the advent of USMCA, the entry of powerful competitors into the global market, and the transition to electric and autonomous vehicles, which all entail risks and opportunities. The lens of the centre-periphery relationship can help to understand the present integration of North America and its future direction.
Topic:
Networks, Manufacturing, Trade Policy, Production, and Automotive Industry
Political Geography:
North America and Mexico

28. The Impact of COVID-19 on Global Production Networks: Evidence from Japanese Multinational Firms

Author:
Hongyong Zhang
Publication Date:
03-2021
Content Type:
Research Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
Using aggregate-level data on Japanese multinational corporations (MNCs) in major host countries and regions, this paper investigates the impact of COVID-19 on global production and supply chains with a focus on East Asia. I use the numbers of COVID-19 cases and deaths as measures of the impact of the pandemic. I find that the pandemic had substantial impacts on the performance (sales, employment, and investment) of Japanese MNCs and global supply chains (exports to Japan and exports to third countries) in Q1–Q3 2020. China recovered quickly in Q2 and grew in Q3, whilst the countries of the Association of Southeast Asian Nations and the rest of the world had still not fully recovered in Q3 2020. Importantly, lockdown and containment policies in host countries had large negative impacts on the sales and employment of Japanese MNCs. In contrast, I did not find positive effects of economic support policies on firm performance. Interestingly, whilst the firm expectations and business plans of Japanese MNCs were negatively affected by the COVID-19 pandemic, their business confidence increased with strong overall government policy responses in host countries in Q1 2020.
Topic:
Economic Development, Pandemic, COVID-19, and Production
Political Geography:
Japan and Asia

29. The Effect of the COVID-19 Pandemic on Global Production Sharing in East Asia

Author:
Archanun Kohpaiboon and Juthatip Jongwanich
Publication Date:
04-2021
Content Type:
Research Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
This paper examines the effect of the COVID-19 pandemic on global production sharing in ASEAN Member States. Product-level analysis – on hard disk drives, air conditioners, microwaves, televisions, washing machines, and automotive parts – is undertaken to examine trade patterns between January 2019 and October/November 2020. The key finding suggests that the pandemic caused parts shortages, but this effect has been short-lived. There is no strong evidence that multi-national enterprises have altered their supply chains or means of sourcing parts and components in response to the pandemic. There is some indication that multi-national enterprises are moving away from China, but whether this reflects a ‘COVID-19 effect’ or the trade war between the United States and China is not clear. COVID-19, a once-in-a-century event, may not alone be a compelling reason to restructure supply chain management relating to global production sharing, which has been a structural phenomenon driving economic globalisation.
Topic:
Globalization, Pandemic, COVID-19, Supply Chains, and Production
Political Geography:
East Asia, Asia, and Southeast Asia

30. East Asian Production Networks Amidst the COVID-19 Shock

Author:
Ayako Obashi
Publication Date:
06-2021
Content Type:
Research Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
In the East Asian context, previous studies showed that trade occurring through production networks remained relatively steady amidst an economic shock and recovered faster and stronger once the shock was over. Using finely disaggregated product-level monthly bilateral trade data, we examine whether network trade in the East Asian region has been robust and resilient in face of the COVID-19 crisis, as well as in normal times, by conducting a series of survival analyses. We find a new set of empirical evidence suggesting the robustness of East Asian network trade in normal times and its resilience even amidst the COVID-19 shock.
Topic:
International Trade and Finance, Public Health, Pandemic, COVID-19, and Production
Political Geography:
East Asia, Asia, and Southeast Asia