This paper creates a new index (“index of bilateral trade relation”) to quantitatively evaluate the degree of regional economic integration based on countries’ de facto bilateral trade relations. It concludes that a fundamental arrangement of East Asian regionalism should involve at least one of the two “hub” candidates – Japan and China. It also suggests that the China- ASEAN FTA (CAFTA) may trigger domino effects of regionalism in East Asia.
The paper investigates whether higher financial integration leads in general to slower current account adjustments. The study estimates theoretically founded trade balance reaction functions for a panel of seventy countries from 1970-2004. The empirical analysis finds that adjustment in integrated economies is slower. Consistent with the presented theory the trade balance of integrated economies is more persistent, responds less strongly to net foreign assets, and is more sensitive to fluctuations in net output. A sufficiently strong response to net foreign assets is also a condition for external sustainability. Under high integration countries appear to stay close to the sustainability limit.
This paper develops an open economy firm-heterogeneous model where the combination of market rigidities and exchange rate uncertainty acts like a barrier to trade and modifies a firm's optimal choice in terms of production and pricing. The existence of price and labour rigidities, coupled with imperfect financial development and exchange rate uncertainty, separates incumbent firms into (1) domestic producers, (2) exporters setting the price in national currency and (3) more productive exporters pricing in foreign currency. The model predicts that only where financial development is limited a reduction in exchange rate uncertainty raises a firm's profit, lowers prices, and induces new firms to export. Fully financially integrated countries are insulated from exchange rate risk.
This paper analyzes the effects of local externalities on the probability of starting a new economic activity. We use firm-level data and geographic information on French zip-codes for 1993-2002. Poisson and Negative Binomial panel data models are estimated as they naturally allow for large sets of location choices with frequent zero outcomes and control for unobserved zip-code heterogeneity. To measure the geographic extent of location externalities we compute localization, urbanization and congestion variables for neighboring regions. We separately analyze the scale effects stemming from exporting and non-exporting firms. Our results show that agglomeration economies at zip-code level strongly effect the location decision of industrial establishments and find the presence of agglomeration shadows, one of the core predictions of the standard New Economic Geography formulations.
Using NAFTA’s effect on Mexico’s exports as a natural experiment, this paper conducts an empirical analysis on the explanatory power of the two strands of heterogeneous firms trade models: the heterogeneous firms trade (HFT) model and the quality heterogeneous firms trade (QHFT) model. The paper first discusses the common prediction of the two models on ‘new’ goods’ exports and on the contrasting prediction on unit price evolution. An empirical analysis shows a strong supportive evidence on the common prediction, i.e., NAFTA’s positive impact on ‘new’ goods exports from Mexico to the US. The paper then proposes a simple way to check the explanatory power of the models on unit price evolution, and finds no evidence in favour of either model.
This study aims to analyse the discretionary fiscal policy of Azerbaijan, Kazakhstan, and Russia for the period 2003-2015 using the structural budget balance (SBB). The SBB considers the permanent component of oil revenue and therefore clearly defines the discretionary fiscal position and the aggregate demand effect of fiscal policy. The SBBs in Azerbaijan and Russia experience a deficit for most of the analysed period. A moderate SBB surplus is observed in Kazakhstan. The estimated SBBs also demonstrate that fiscal policies tend to be mainly procyclical in Kazakhstan and Russia. Azerbaijan conducted a counter-cyclical fiscal policy for half of the investigated period. Moreover, governments placed more importance on economic stabilization in 2009 due to the global financial crisis.
In this paper we empirically examined the role of fiscal rules in mitigating the impact of oil market fluctuations in resource-rich economies using a structural panel VAR framework following P. Pedroni (2013) and incorporating identification scheme of Kilian (2009). Our key findings can be summarized as: l) oil exporting developing countries exhibit procyclical respond to positive oil market specific demand shock, 2) there are significant crosscountry differences in the way governments respond to the oil market shocks, 3) fiscal rules mitigate the shocks and generate fiscal discipline only if when all fiscal rules are imposed simultaneously, 4) we couldn't identify any significant role of wealth funds as a budget stabilization policy.
This paper analyses the impact of GVC linkages on product upgrading using the Indian firm-level dataset Prowess, and methodologies of System-GMM and Propensity score matching. Defining product upgrading as a movement towards more sophisticated products, we use Haussmann's product sophistication index to calculate a sales-weighted average sophistication level of Indian manufacturing firms in the period 2000/01-2014/15. The first section of the paper empirically investigates whether GVC firms produce more sophisticated goods than non-GVC firms. In the next section, we take the sub-sample of GVC firms to analyse the impact of depth of GVC integration on firm-level sophistication. Lastly, the study draws on Gereffi's (2005)) governance framework and quantifies different types of governance structures to analyse how power asymmetries can impact the sophistication levels of developing country supplier firms. The study finds that the on average, Indian firms participating in GVCs produce more sophisticated goods than non-GVC firms, and increasing GVC integration significantly and positively impacts firm level sophistication. These results lend empirical support to the learning by importing and exporting hypothesis. However, our results also show that firms that link into Captive global value chains produce significantly less sophisticated goods than firms linking into Relational chains.
