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21. Assessing the Impact of New Technologies on Wages and Labour Income Shares

Author:
Antea Barišić, Mahdi Ghodsi, and Robert Stehrer
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper advances the literature on the impacts of new technologies on labour markets, focusing on wage and labour income shares. Using a dataset from 32 countries and 38 industries, we analyse the effects of new technologies – proxied by patents, information and communication technology (ICT) capital usage, and robot intensity – on average wages and labour income shares over time. Our results indicate a positive correlation between patents and wage levels along with a minor negative impact on labour income shares, suggesting that technology rents are not fully passed on to labour. Robot intensity is positively associated with labour income shares, while ICT capital has an insignificant effect. These effects persist over time and are reinforced by global value chain (GVC) linkages. Our conclusions align with recent research indicating that new technologies have a generally limited impact on wages and labour income shares.
Topic:
Science and Technology, Labor Issues, Investment, Global Value Chains, Robotics, and Income
Political Geography:
Global Focus

22. Mild Deglobalization: Foreign Investment Screening and Cross-Border Investment

Author:
Vera Z. Eichenauer and Feicheng Wang
Publication Date:
03-2024
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Openness to foreign investments is associated with risks. To mitigate these risks, many high-income countries have strengthened the control of foreign investments over the last decade in an increasing number of sectors considered critical. Investment screening distorts the market for cross-border investments in controlled sectors, which might lead to unintended economic effects. This is the first cross-country panel study to examine the economic effects of investment screening mechanisms. We combine deal-level data on cross-border mergers and acquisitions (M&A) for the period 2007–2022 with information on sectoral investment screening. Using a staggered triple difference design, we estimate a reduction of 11.7 to 16.0 percent in the number of M&A in a newly screened sector. The effects are driven by minority acquisitions and deals involving a foreign government or state-owned enterprises or US firms as investors. There is no reduction in the number of deals within the EU/EFTA, most of which are not subject to screening. The findings call policymakers’ attention to weighing the benefits of national security and the economic costs of introducing investment screening.
Topic:
Globalization, International Trade and Finance, National Security, Foreign Direct Investment, Investment, Geoeconomics, Global Capital Allocation, and Deglobalization
Political Geography:
China, Europe, and United States of America

23. International investment income: patterns, drivers, and heterogeneous sensitivities

Author:
Giovanni Donato and Cedric Tille
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Financial globalization has led to a large increase in international asset holdings. While the rise of associated dividend and interest flows has until now been muted by the decreasing trend in interest rates, this pattern could change, leading to a larger role of investment income flows in the balance of payments. We use a broad sample of countries to document the heterogeneous evolution of the various components of investment income flows, with a rising role of FDI and equity income, especially in advanced economies. We then assess the impact of various variables on yields with a panel analysis. Various drivers have highly heterogeneous effects across investment categories and country groups, often impacting the yields on both assets and liabilities. This translates into substantial heterogeneity in the response of countries’ income balance, due to different compositions of asset and liabilities. This heterogeneity is amplified if we consider country-specific estimates in complement to the panel ones. Focusing on the impact of changes in interest rates, we find that higher rates only had a limited impact in the 2013 taper tantrum, investment income balances are likely to benefit from higher US rates in the current phase of higher rates, with offsetting effects of higher domestic rates.
Topic:
International Trade and Finance, Foreign Direct Investment, Financial Markets, Investment, Interest Rates, and Financial Integration
Political Geography:
Global Focus

24. Optimal Investments in Africa’s Road Network

Author:
Sebastian Krantz
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper characterizes economically optimal investments into Africa's road network in partial and general equilibrium - based on a detailed topography of the network, road construction costs, frictions in cross-border trading, and economic geography. Drawing from data on 144 million trans-continental routes, it first assesses local and global network efficiency and market access. It then derives a large network connecting 447 cities and 52 ports along the fastest routes, devises an algorithm to propose new links, analyzes the quality of existing links, and estimates link-level construction/upgrading costs. Subsequently, it computes market-access-maximizing investments in partial equilibrium and conducts cost-benefit analysis for individual links and several investment packages. Using a spatial economic model and global optimization over the space of networks, it finally elicits welfare-maximizing investments in spatial equilibrium. Findings imply that cross-border frictions and trade elasticities significantly shape optimal road investments. Reducing frictions yields the greatest benefits, followed by road upgrades and new construction. Sequencing matters, as reduced frictions generally increase investment returns. Returns to upgrading key links are large, even under frictions.
Topic:
Emerging Markets, Globalization, International Trade and Finance, Infrastructure, Economic Growth, Investment, and Roads
Political Geography:
Africa

25. Uganda’s Oil Refinery: Gauging the Government’s Stake

Author:
Paul Bagabo and Thomas Scurfield
Publication Date:
01-2024
Content Type:
Policy Brief
Institution:
Natural Resource Governance Institute
Abstract:
Uganda’s planned oil refinery will have several benefits for the country, including for its security of fuel supply and balance of payments. The refinery could be reasonably profitable, generating an internal rate of return of 13 percent in a baseline scenario. The government is planning to take a 40 percent stake but may ultimately pay a higher price for this equity than it expects. Even if it borrows to cover its upfront contribution to costs, it will need to divert around $330 million in present value terms from the national budget for loan repayments in the 2030s. This price will increase if downside risks, such as cost overruns or lower global oil prices, materialize. The government can take several steps to increase interest from other investors, including by reducing the risk of cost overruns, ensuring deregulated product prices continue, and providing less risky forms of state support such as tax incentives. These should reduce the need for the government to take a large stake.
Topic:
Oil, Regulation, and Investment
Political Geography:
Uganda and Africa

26. US-India Economic Ties: To the Next Level and Beyond

Author:
Aparna Pande
Publication Date:
10-2024
Content Type:
Special Report
Institution:
Hudson Institute
Abstract:
This executive summary outlines the key recommendations for policymakers that emerged from deliberations at the Takshashila Institution–Hudson Institute roundtable series “US-India Economic Ties: To the Next Level and Beyond.” Its recommendations are divided into four proposed areas for collaboration between India and the United States: trade and investment, ideas and human capital, technology, and methods and mechanisms.
Topic:
Economics, Science and Technology, Bilateral Relations, Investment, and Trade
Political Geography:
South Asia, India, North America, and United States of America

27. The Yemen Annual Review 2023

Author:
Sana'a Center for Strategic Studies
Publication Date:
02-2024
Content Type:
Commentary and Analysis
Institution:
Sana'a Center For Strategic Studies
Abstract:
Peace talks between Saudi Arabia and the Houthi group (Ansar Allah) dominated Yemeni politics over the last year. The negotiations began as backchannel discussions in October 2022 after the Houthis resisted UN pressure to renew a truce first agreed in April 2022 by making a series of eleventh-hour demands. The talks continued despite Houthi attacks on oil terminals in southern Yemen in late 2022 that effectively put the internationally recognized government under a form of economic blockade. As the months progressed, the government’s increasingly dire economic situation pressured it to accept the Saudi policy of seeking a settlement with Houthi authorities, seemingly at almost any price. The broad terms of a Saudi-Houthi agreement first became public in January, when international media reported that Saudi Arabia had agreed in principle to pay outstanding civil servant salaries in Houthi-run areas, including those of military and security personnel, and to remove restrictions on entry points, including the ports of Hudaydah and Sana’a airport. In return, Saudi Arabia wanted guarantees that there would be no more attacks on its territory and the creation of a buffer zone along the border, an end to the Houthi blockade of southern ports and the siege of Taiz, and for direct Yemeni-Yemeni talks to follow any deal. Within a few months, these proposals had morphed into a comprehensive roadmap for peace involving a six-month ceasefire, to be followed by three months of government-Houthi discussions on managing a transitional phase of two years, during which a final resolution of the conflict would be negotiated. A prisoner swap in April arranged by the International Committee of the Red Cross in Switzerland saw around 973 people released, including high-profile figures, and seemed to augur rapid progress. But Saudi Arabia appeared to overplay its hand when Ambassador to Yemen Mohammed al-Jaber led a delegation on a much-feted trip to Sana’a in April. The Houthis again raised their demands, arguing that an agreement must be signed first with Riyadh alone as a party to the conflict, and that Saudi Arabia should agree to pay compensation for war damage and finance postwar reconstruction. Al-Jaber left Sana’a without an agreement, but the basic terms of a formal de-escalation and path toward a resolution of the conflict were nevertheless laid down. Saudi Arabia’s problem now was how to manage resistance from the government’s Presidential Leadership Council (PLC). Ultimately, it was kept in the dark about the details of the proposed arrangement for most of the year, even its chairman Rashad al-Alimi, who was expected to sign off at the end of the process. A Houthi delegation met Saudi officials during a hajj pilgrimage trip in June – posing for photos with Defense Minister Khaled bin Salman – sending the signal that a formal agreement normalizing Saudi-Houthi ties and initiating a Yemeni-Yemeni peace process had become a question not of if, but when. A complication that emerged early on was US reservations about a peace deal following the Saudi-Iran rapprochement brokered by China in March. This seemed to mark China’s arrival as a diplomatic player in the region, putting the Americans on notice that another global superpower was interested in challenging its role in the Middle East, including, perhaps, in Yemen. There was an irony here, in that rising criticism of Saudi Arabia’s conduct during the war in the US Congress, and threats to halt arms sales, played a role in bringing the Saudi leadership around the idea of getting out of Yemen and ending a foreign military adventure that had damaged its global standing.
Topic:
Security, Foreign Policy, Diplomacy, Investment, Houthis, and 2023 Gaza War
Political Geography:
Middle East, Yemen, and Saudi Arabia

28. The Collateral Channel within and between Countries

Author:
Jérôme Héricourt, Jean Imbs, and Lise Patureau
Publication Date:
10-2024
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
We examine the response of investment to real estate prices among French firms from 1994 to 2015. Using newly introduced methods and specifications, we find that investment sensitivity to real estate prices decreases with firm size: The smallest firms are at least three times more responsive to changes in collateral value compared to the largest firms. We impute these estimates onto other countries where available data lack firm-level detail. This approach allows us to assess the aggregate sensitivity of investment to real estate prices across different countries. Our results indicate significant variation in the sensitivity of aggregate investment to real estate shocks, driven by cross country differences in the size distribution of firms.
Topic:
Investment, Real Estate, Collateral Channel, and Firm Heterogeneity
Political Geography:
Europe and France

29. Xi Jinping’s Quantitative Easing Unlikely to Save Economy

Author:
Willy Wo-Lap Lam
Publication Date:
10-2024
Content Type:
Journal Article
Journal:
China Brief
Institution:
The Jamestown Foundation
Abstract:
In an apparent U-turn, the People’s Republic of China (PRC) has initiated stimulus policies that have boosted the stock market and are attempting to jump-start key sectors and meet the annual GDP growth target of 5 percent. In the last week of September, the central bank announced a package worth at least 2 trillion Renminbi (RMB; $280 billion), cut the banks’ reserve requirement ratio by 50 basis points, and hinted at further measures. The domestic and international response has been underwhelming, in part because the package leaves the economy even more overleveraged than before. President Xi Jinping’s attempts to enhance the PRC’s global stature, including through a recent ICBM test and by deepening support for Russia’s war in Ukraine and for other countries willing to denounce the United States and the West, will not help the domestic economic woes as they discourage foreign investment.
Topic:
Monetary Policy, Economy, Economic Growth, Investment, and Quantitative Easing
Political Geography:
China and Asia

30. Tough Love and the Diplomacy of Foreign Assistance

Author:
Mark G. Wentling
Publication Date:
05-2024
Content Type:
Journal Article
Journal:
American Diplomacy
Institution:
American Diplomacy
Abstract:
Providing aid to low and middle-income countries (LMIC) is at the heart of our relationships with those countries. The concept is that needy countries on this list of 132 LMICs, particularly the 45 Least Developed Countries (LDCs) in the bottom range of this list, require external aid for their development. However, almost all the countries on the LMIC list are the same as they were over 30 years ago, and they are no closer to graduating into a higher income category. It is highly doubtful if any LMIC will achieve the UN’s Sustainable Development Goals set for 2030. This raises several fundamental questions about the return on the US government’s investment. What are the cost-benefit and recurrent costs analyses? Do the returns justify the investment of the USG’s human resources and funding amounts? Is USG assistance contributing to modifying the host country’s behavior so that it is more favorable to US interests? Basically, is the activity worth USG resources?
Topic:
Development, Diplomacy, Investment, and Foreign Assistance
Political Geography:
Global Focus and United States of America