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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