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FIW Working Papers

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FIW Working Paper N° 161

Jaewon Jung - December 2015

 

Abstract:

In this paper, we develop a simple general-equilibrium trade model in which heterogeneous workers make an investment decision in acquiring advanced managerial skills and choose their optimal effort level based on their own individual organizational beliefs and CEO’s managerial vision. In doing so, we show how trade liberalization and/or changes in managerial vision of CEO may lead to non-monotonic income changes within firms due to the interaction between workers’ beliefs and CEO’s managerial vision. Whether a stronger (or weaker) CEO’s managerial vision benefits the firm or not depends on its extent relative to workers’ overall beliefs, and may involve some winners and losers within firms.

JEL:                 F16, F66

Keywords:       Organizational belief, Managerial vision, Organizational change, International trade.

FIW Working Paper N° 160

Rajmund Mirdala -December 2015

 

Abstract:

Fixed versus flexible exchange rate dilemma has become a subject of rigorous academic discussions for decades. Advantages of exchange rates flexibility contrasted benefits of exchange rate stability though a phenomenon known as the fear of floating favoured exchange rate variability and its positive effects on economies. Relative diversity in the exchange rate regimes in EU11 countries motivated many authors to investigate the sources of their real exchange rate volatility provided that even fixed exchange rates  may fluctuate via adjustments in prices and wages. However, fixed exchange rate perspective associated with Eurozone membership may induce changed patterns in the real exchange rate determination in countries that benefit from nominal exchange rate flexibility prior to euro adoption.
In the paper we analyse sources of real exchange rates fluctuations in EU11 countries. SVAR methodology and impulse-response functions will be employed to examine the responsiveness of real exchange rates to the underlying structural shocks by employing SVAR methodology. Our results indicate an increased responsiveness of real exchange rates in EMU non-member countries to demand and supply shocks, particularly due to the effects of the crisis period. At the same time, real exchange rates in EMU member countries became more responsive to nominal shocks.


JEL: C32, E52
Keywords: real exhange rates, exogenous shocks, economic crisis, structural vector auto regression, impulse-response function

FIW Working Paper N° 159

Veronika Hecht - Oktober 2015

 

Abstract:

This paper analyses the location choice of German investors in the Czech Republic based on a unique dataset covering all Czech companies with a German equity holder in 2010. The identification of the regional determinants of foreign direct investment (FDI) location is an important regional policy issue as FDI is supposed to improve the labour market conditions of the host region. Using a nested logit approach the impact of agglomeration economies, labour market conditions and distance on the location choice decision is investigated. The main result of the paper is that apart from a low distance to the location of the parent company the attractiveness of a Czech district for German investors is mainly driven by agglomeration economies. Besides localisation economies the agglomeration of German companies in a region plays a decisive role. The  importance of labour market characteristics differs between investment sectors, sizes and periods.


JEL: F24, R12, R30
Keywords: Location choice, FDI, Multinational enterprises, Germany, Czech
Republic, Agglomeration Economies

FIW Working Paper N° 158

Izabela Sobiech- Oktober 2015

 

Abstract:

In this paper, I measure the importance of remittances and financial development for developing countries. I estimate an index of overall financial conditions and use it to determine the relevance of the financial sector as a transmission channel for remittances to affect economic growth. The index brings together information from existing measures, reflecting size, depth and efficiency of the financial sector. It is created by means of an unobserved components model. I show that the more financial development in a country, the smaller becomes the impact of remittances on economic growth and it can even turn negative. For countries with weaker financial markets there is a positive effect, but significant only at the earliest stages of financial development. The effect becomes negative in the third quartile of financial development. These results hold irrespective of the measure of financial development included, but are most profound in case of the created index. This means that estimates based on proxies might be slightly biased. I also show that countries with both low levels of remittances and financial development should first focus on developing the latter, while migrants' transfers become important for growth if the country has a moderate level of  financial development.

 

JEL: F24, O11, O15 and O16
Keywords: remittances, economic growth, financial development, unobserved
components model, dynamic panel data analysis

FIW Working Paper N° 157

Christian Danne - Juli 2015

 

Abstract:

This paper constructs agreement specific instruments in order to estimate the effect of membership in a regional cooperation agreement (RCA) on institutional change. For a sample of 144 emerging and developing economies, the results  show that membership in a RCA explains a significant part of the cross country variation in institutional reforms. EU and NATO-related agreements are an important reason why emerging markets in Eastern Europe and Central Asia have been better reformers despite their socialistic heritage. RCAs are a main factor why African economies are still doing very poorly in terms of institutional reforms. I show that the construction of the RCA and the willingness delegate sovereignty is behind the effect on institutions and is an important transmission channel of how historical experience are shaping current institutions.

 

JEL: F53, F55, H11, O11, O19

Keywords: Economic institutions, reforms, regional cooperation

FIW Working Paper N° 156

Marlies Schütz und Nicole Palan - April 2015

 

Abstract:

Production and trade processes in the textile industry have been undergoing tremendous changes in structure due to both changes in technology (i.e. increased mechanization and automation processes) and in the institutional environment (i.e. the assignment of the WTO treaty in 1994). This paper studies the restructuring process in the textile industry from the perspective of two major textile producing countries in the EU15, i.e. Italy and Portugal between the two years 1995 and 2009. As a starting point, a detailed descriptive analysis of the global distribution of the textile industry and changes therein is provided. By means of two international textile trade networks (ITTNs), showing (1) trade in value added and (2) trade in labour, we next discuss spatial trade patterns and changes therein. Focusing on the ITTNs, we then figure out how these countries’ textile industries were affected in terms of specialisation patterns, movements along the global value chain and vertical specialisation. Combining the merits of a multiregional I/O-framework with network analysis both qualitative and quantitative aspects of the experienced restructuring process are figured out. This paper contributes to a better understanding of changes in national economic structures resulting from changes in the institutional and technological change without masking the international context.

 

JEL: C67, F14, O12

Keywords: International trade network, concentration, textile industry, structural change, network analysis, multiregional input-output model

FIW Working Paper N° 155

Alexandre Gazaniol und Catherine Laffineur - März 2015

 

Abstract: This paper investigates to which extent outward foreign direct investment (FDI) affects domestic wages. We are first interested in the raw wage differential between multinational and domestic firms. Results reveal that multinational companies pay a wage premium to their employees, even within precise skill-groups (blue-collar workers, intermediate occupations and managers). The wage premium is increasing within the wage distribution. In a second step, we use spell of workers within a firm in a fixed effect model to analyze the effect of outward FDI within job-spells. Results suggest that outward FDI raises wages for managers and reduces wages for workers performing offshorable tasks. The positive effect of FDI on managers’ wages is mainly driven by the intensive margin of outward FDI, that is by large firms already established abroad. This result is observed even after controlling for endogenous workers’ mobility.

 

JEL: J24, J31, D21, D23

Keywords: Offshoring, Tasks, Wages, Inequality

FIW Working Paper N° 154

Michele Imbruno - März 2015

 

Abstract: This paper highlights the crucial role played by international access to intermediate inputs to explain firm-level performance, via two channels simultaneously: trade and FDI. We develop a simple theoretical model showing that trade integration of input market entails an efficiency improvement within firms able to import (gains from input switching) and an efficiency decline within other firms (losses from domestic input availability). At the same time, FDI integration of input market implies non-importers’ efficiency enhancement (gains from input switching) and some ambiguous effects on importers’ efficiency (due to additional losses from foreign input availability). Using firm-level data from the Chinese manufacturing sector over the period 2002-2006, we find some results coherent with our theoretical predictions.

 

JEL: F12, F14, F23

Keywords: Heterogeneous firms, Trade liberalization, FDI, Intermediate inputs, Productivity

FIW Working Paper N° 153

Vincent Bignon, Régis Breton und Mariana Rojas Breu - März 2015

 

Abstract: This paper shows that currency arrangements impact on credit available through
default incentives. To this end we build a symmetric two-country model with money and imperfect credit market integration. With the Euro Area context in mind, we capture differences in credit market integration by variations in the cost for banks to grant credit for cross-border purchases. We show that for a high enough level of this cost, currency integration may magnify default incentives, leading to more stringent credit rationing and lower welfare than in a regime of two currencies. The integration of credit markets restores the optimality of the currency union.

 

JEL: FE42, E50, F3, G21

Keywords: banks, currency union, monetary union, credit, default

FIW Working Paper N° 152

Reto Foellmi, Sandra Hanslin und Andreas Kohler - März 2015

 

Abstract: This paper presents a dynamic North-South general-equilibrium model where households have non-homothetic preferences. Innovation takes place in a rich North while norms in a poor South imitate products manufactured in North. Introducing  non-homothetic preferences delivers a complete international product cycle as described by Vernon (1966), where the different stages of the product cycle are not only determined by supply side factors but also by the distribution of income between North and South. We ask how changes in Southern labor productivity, South's population size and inequality across regions affects the international product cycle. In line with presented stylized facts about the product cycle we predict a negative correlation between adoption time and per capita incomes.

 

JEL: F1, O3

Keywords: Product cycles, Inequality, International trade

FIW Working Paper N° 151

Judit Temesvary - März 2015

 

Abstract: This paper examines how cross-border differences in the stringency of bank regulations affect U.S. banks’ international activities. The analysis relies on a unique bank-level dataset on the globally most active U.S. banks’ balance sheet as well as their cross-border, foreign affiliate lending and foreign market entry choices in 82 foreign countries in the 2003-2013 period. Results show that U.S. banks are significantly more likely to enter foreign markets with relatively laxer bank capital and disclosure requirements, and exit foreign markets with relatively stricter deposit insurance schemes and more restrictions on activities. Banks substitute away from foreign affiliate lending (via subsidiaries in the foreign country) towards cross-border lending (originating from the U.S.) in foreign countries with more powerful and independent bank regulators and limits on activities.

 

JEL: F3, F4, G2

Keywords: International bank lending, Cross-border regulatory arbitrage, Foreign market entry and exit, Balance sheet effects

FIW Working Paper N° 150

Thomas Bernhardt und Ruth Pollak - März 2015

 

Abstract: Recent decades have witnessed an increasing integration of developing countries into global value chains (GVCs). This growing participation in global production sharing has raised hopes for economic upgrading within such value chains. However, globalization has intensified international competition, and achieving economic upgrading is not an easy task. Moreover, the social consequences of participating in GVCs are not always positive; however, they have received considerably less attention in the literature. This paper suggests a simple and parsimonious approach to measuring economic and social upgrading (and downgrading) in GVCs. Applying this parsimonious methodology and using quantitative secondary data, we analyze how widespread upgrading has been in four selected manufacturing GVCs: apparel, wood furniture, automotive, and mobile phones. We also investigate to what extent downgrading is part of the reality and undertake a comparative analysis across GVCs, regions and country groups (developing vs. developed countries). We find that the promise of industrial upgrading through participation in GVCs does not materialize for everyone. Indeed, economic upgrading has taken place in just over a quarter of the countries in our sample, among them mainly developing countries. Finally, we examine the relationship between economic performance and social performance in the different GVCs to investigate whether or not economic upgrading is typically associated with social upgrading. While patterns differ across GVCs, we find that economic upgrading is more likely to occur simultaneously with social upgrading than without, and vice versa. Our analysis, thus, suggests that economic upgrading is conducive to, but not sufficient for, social upgrading to occur.

 

JEL: F14, F63, F66, O19, O57

Keywords: global value chains, economic upgrading, social upgrading, apparel, automotive, mobile phones, wood furniture

FIW Working Paper N° 149

Igor A. Makarov und Anna K. Sokolova - März 2015

 

Abstract: According to current international climate change regime countries are responsible for greenhouse gas (GHG) emissions, which result from economic activities within national borders, including emissions from producing goods for exports. At the same time imports of carbon intensive goods are not regulated by international agreements. In this paper emissions embodied in exports and imports of Russia were calculated with the use of inter-country input-output tables. It was revealed that Russia is the second largest exporter of emissions embodied in trade and the large portion of these emissions is directed to developed countries. The reasons for high carbon intensity of Russia’s exports are obsolete technologies (in comparison to developed economies) and the structure of commodity exports. Because of large amount of net exports of carbon intensive goods the current approach to emissions accounting does not suit interests of Russia. On the one hand, Russia, as well as other large net emissions exporters, is interested in the revision of allocation of responsibility between producers and consumers of carbon intensive products. On the other hand, current technological backwardness makes Russia vulnerable to the policy of “carbon protectionism”, which can be implemented by its trade partners.

 

JEL: F18, F64, Q65

Keywords: global climate change, carbon emissions, virtual carbon, carbon intensity of trade, Russia’s trade, input-output analysis, Kyoto protocol

FIW Working Paper N° 148

Klaus Prettner und Holger Strulik - März 2015

 

Abstract: We investigate the effects of human capital accumulation on trade and productivity by integrating a micro-founded education and fertility decision of households into a model of international trade with firm heterogeneity. Our theoretical framework leads to two testable implications: i) the export share of a country increases with the education level of its population, ii) the average profitability of firms located in a country also increases with the education level of its population. We find that these implications are supported by empirical evidence for a panel of OECD countries from 1960 to 2010.

 

JEL: F12, F14, I20, J11
Keywords: firm heterogeneity, international competiveness, education, fertility decline

FIW Working Paper N° 147

Ioannis Bournakis, Dimitris Christopoulos und Sushanta Mallick - März 2015

 

Abstract:Given the decline in growth momentum in the manufacturing sector in many OECD countries, the role of knowledge-based capital has emerged as a key driver for sustained growth. While empirical studies on estimating knowledge spillovers have usually been undertaken at the country level, the spillover effects can be more definitive only if the analysis is conducted at the industry-level. This paper therefore attempts to identify spillovers by disentangling technological innovations into intra- and inter-national knowledge innovations at industry level in driving per capita output growth. Our main findings are first, that there is evidence for a robust positive relationship between R&D, human capital and output growth across these countries at industry-level. Second, the potential of international spillover gains is greater in countries with higher human capital and in industries whose pattern of production is more R&D oriented, import intensive, and dependent on vertical FDI. Finally, significant heterogeneity is found between high and low-tech industries with high-tech group displaying greater knowledge spillovers, suggesting that low-tech industries need to be more innovative in order to absorb the technological advancements of domestic and international rivals.

 

JEL: F1, F6, O3, O4

Keywords: Knowledge spillover; Industry-level productivity; R&D

FIW Working Paper N° 146

Galina V. Kolev - Februar 2015

 

Abstract: The paper analyzes the sources of exchange rate movements in emerging economies in the context of monetary tapering by the Federal Reserve. A structural vector autoregression framework with a long-run restriction is used to decompose the movements of nominal ex-change rates into two components: one component driven solely by the adjustment of the real exchange rate to permanent shocks and one resulting from transitory shocks such as monetary policy measures. Imposing the restriction that temporary shocks should not affect the real exchange rate in the long run, the analysis shows that the recent depreciation of the Russian ruble and the Turkish lira is largely driven by transitory shocks, like for instance monetary policy measures. Furthermore, the response of the lira to transitory shocks is sluggish and further depreciation is possible in the next months. In Brazil and India, on the contrary, nominal exchange rate behavior is mainly driven by permanent shocks. The recent depreciation is not caused by short-lived shocks but rather by changing long-term macroeconomic fundamentals. The foreign exchange interventions of the central bank to avoid large depreciation are therefore largely misplaced, especially in Brazil. They aggravate the use of nominal exchange rate flexibility as an efficient adjustment mechanism for real exchange rate changes, i.e. changes in relative prices across borders, and efficient allocation of resources.

 

JEL: F31, E58

Keywords: Exchange rates, emerging economies, SVAR, monetary policy

FIW Working Paper N° 145

Soumia Zenasni - Februar 2015

 

Abstract: Increased globalization over the last two decades has led to strong growth in international business activity and international financial integration. This phenomenon covers a wide array of economic activities, including regional and international integration, investment and trade, international financial shocks and disturbances. This paper takes stock of current trends in regional financial integration and trade liberalization processes for the case of Maghreb countries. It aims also to examine the effects of these recent trends on economic growth in an era of growing globalization and frequent financial shocks. Using Multivariate Threshold Vector Autoregressive (MVTAR) estimation with data from 1990 to 2012, this study argues that the greater and deeper regional financial integration and trade will have positive repercussions for each Maghreb country. In addition, estimation results show that the regional financial integration process plays a positive role in enlarging the borders of countries as well as the market size of each country and, consequently, in stimulating economic growth. Finally, we can assert that the study argues that political and structural impediments continue to hamper regional integration.

 

JEL: F36, E44, F65, G01, C3

Keywords: Regional financial integration, trade libaralization, globalization, Maghreb countries, multivariate threshold analysis

FIW Working Paper N° 144

Julian Donaubauer, Birgit Meyer, Peter Nunnekamp - Februar 2015

 

Abstract: We raise the hypothesis that aid specifically targeted at economic

infrastructure helps developing countries attract higher FDI inflows through

improving their endowment with infrastructure in transportation,

communication, energy and finance. By performing 3SLS estimations we

explicitly account for dependencies between three structural equations on

the allocation of sector-specific aid, the determinants of infrastructure, and

the determinants of FDI. We find fairly strong and robust evidence that

targeted aid promotes FDI indirectly through the infrastructure channel. In

addition, aid in infrastructure appears to have surprisingly strong direct effects

on FDI.

 

JEL : F21, F35, O18

Keywords: aid effectiveness, sector-specific aid, foreign direct investment, infrastructure

 

FIW Working Paper N° 143

Mary M. Everett - Februar 2015

 

Abstract: Using novel data on individual euro area banks' balance sheets this paper shows that exposure to stressed European sovereigns manifested in a liquidity shock to their international funding through two channels: (i) a contraction in cross-border funding, and (ii) a contraction in US wholesale funding. The effectiveness of the ECB's unconventional monetary policy measures, in the form of the 3-year Long-Term Refinancing Operations (VLTROs), in mitigating effects of the European sovereign debt crisis on the supply of private sector credit is assessed. Controlling for banks' risk factors and credit demand, the first round of VLTROs in December 2011 is not found to have been successful in offsetting the decline in credit supply to Households and non-financial corporates. In contrast, the VLTROs in February 2012 are found to have mitigated the effect of the European sovereign debt crisis on credit supply. Moreover, a contraction in credit supply to non-financial corporates, but not households, is documented for euro area banks affected by the international liquidity shock and that drew on ECB liquidity under the VLTRO facilities.

 

JEL : F60, G21, G15, H63

Keywords: European sovereign crisis, cross-border banking, sovereign debt,

international transmission, non-standard measures, ECB liquidity

 

FIW Working Paper N° 142

Dominique Bruhn - Februar 2015

 

Abstract: Against the background of a changing landscape of trade and investment governance in the 21st century, characterised by the proliferation of deep preferential trade agreements (PTAs), this paper econometrically tests the importance of global value chain trade and regulatory differences in explaining the likelihood of a country pair to include an (enforceable) investment provision in the PTA. The spatial probit analysis, based on Bayesian Monte Carlo Markov Chain simulation, reveals that higher production network trade and strongly differing legal frameworks are indeed associated with a higher likelihood of including (enforceable) investment provisions. This is true even when controlling for interdependence between countries and conducting a variety of sensitivity checks, underscoring the importance of deep integration in the context of global value chains. However, when excluding EU countries from the sample, investment coverage and enforceability is rather driven by positive spatial interdependence between countries, raising the question whether the focus on global value chain trade and regulatory differences is something characteristic of EU trade policy making.

 

JEL : F13, F14, F15

Keywords: preferential trade agreement, investment, global value chain,

production network trade, spatial probit, Bayesian econometrics

FIW Working Paper N° 141

Jagannath Mallick - Februar 2015

 

Abstract: Globalisation, has intensified the demand preference for quality labour, that embodies more knowledge and competency/skill to maximise the production in one hand, and it has also changed the life style and consumption behavior of the society on the other. As a consequence, this has led to significant changes in the composition and structure of the economy, and also, the reallocation of labour. The study examines the reallocation effect (or structural change) and the direct effect of globalization on labour productivity growth in BRICS countries. The study also examines the relative role of consumption factors and other factors for the structural development during globalization. The study uses shift–share analysis, dynamic panel data method and input-output tables for the empirical analysis during 1990-91 to 2011-12. The findings show that the contribution of structural change is relatively significant in China and India. The globalization measures including international trade and FDI are found to have significant impact on the upsurge of labour productivity growth in BRICS, where the consumption demand predominates among the factors of structural development.

 

JEL : F1, J01, J08, J34, R1

Keywords: Globalisation, FDI, Trade, Labour productivity, Structural Change, BRICS

FIW Working Paper N° 140

Joscha Beckmann, Ansgar Belke und Christian Dreger - Jänner 2015

 

Abstract: Deviations of policy interest rates from the levels implied by the Taylor rule have been persistent before the financial crisis and increased especially after the turn of the century. Compared to the Taylor benchmark, policy rates were often too low. This paper provides evidence that both international spillovers, among them dependencies in the interest rate setting of central banks, and nonlinear reaction patterns can offer a more realistic specification of the Taylor rule of four major central banks.

 

JEL : E43, F36, C22

Keywords: Taylor rule, international spillovers, monetary policy interaction, smooth transition models

 

FIW Working Paper N° 139

Andrej Drygalla - Jänner 2015

 

Abstract: This paper analyzes changes in the monetary policy in the Czech Republic, Hungary, and Poland following the policy shift from exchange rate targeting to inflation targeting around the turn of the millennium. Applying a Markovswitching dynamic stochastic general equilibrium model, switches in the

policy parameters and the volatilities of shocks hitting the economies are

estimated and quantified. Results indicate the presence of regimes of weak

and strong responses of the central banks to exchange rate movements as

well as periods of high and low volatility. Whereas all three economies

switched to a less volatile regime over time, findings on changes in the policy parameters reveal a lower reaction to exchange rate movements in the Czech Republic and Poland, but an increased attention to it in Hungary. Simulations for the Czech Republic and Poland also suggest their respective central banks, rather than a sound macroeconomic environment, being accountable for reducing volatility in variables like inflation and output. In Hungary, their favorable developments can be attributed to a larger extent to the reduction in the size of external disturbances.

 

JEL : C32, E58, F41

Keywords: Markov switching DSGE models, inflation targeting, small open economy

FIW Working Paper N° 138

Matthias Neuenkirch und Florian Neumeier - Jänner 2015

 

Abstract: In this paper, we empirically assess how economic sanctions imposed by the UN and the US affect the target states’ GDP growth. Our sample includes 68 countries and covers the period 1976–2012. We find, first, that sanctions imposed by the UN have a statistically and economically significant influence

on economic growth. On average, the imposition of UN sanctions decreases the target state’s real per capita GDP growth rate by 2.3–3.5 percentage points (pp). These adverse effects last for a period of 10 years. Comprehensive UN economic sanctions, that is, embargoes affecting nearly all economic activity, trigger a reduction in GDP growth by more than 5 pp. Second, the effect of US sanctions is much smaller and less distinct. The imposition of US sanctions decreases GDP growth in the target state over a period of 7 years and, on average, by 0.5–0.9 pp.

 

JEL: F43, F51, F52, F53.

Keywords: Economic growth, economic sanctions, United Nations,

United States.

FIW Working Paper N° 137

Cosimo Beverelli, Simon Neumüller und Robert Teh - Jänner 2015

 

Abstract: We estimate the effects of trade facilitation on export diversification, as measured by two extensive margins: the number of products exported by destination and the number of export destinations served by product. To address the issue of causality, we employ an identification strategy whereby only exports of new products, or exports to new destinations, are taken inton account when computing the respective margins of trade. We find a positive impact of trade facilitation on the extensive margins of trade. The results are robust to alternative definitions of extensive margins, different sets of controls and various estimation methods. Simulation results suggest substantial extensive margin gains from trade facilitation reform in Sub-Saharan Africa and Latin America and the Caribbean.

 

JEL : F13, F14, F17

Keywords: Trade facilitation, Export diversification, International trade agreements, WTO

FIW Working Paper N° 136

Katja Mann - Jänner 2015

 

Abstract: This paper investigates how the European integration process of central eastern European countries, which has been taking place since the 1990’s, affects their GDP growth. Based on an augmented Solow model, I estimate a convergence equation for a panel of ten countries over 16 years (1995-2010). In the regression, trade with the other European Union member states as a share of total trade serves as a measure of European integration. I find a small, but significant medium-run growth bonus from integration, which is robust to alternative specifications of the regression equation and of the variables of interest. The results are confirmed by a supplementary analysis at the industry level using a difference-in-difference type of estimation strategy. The paper thus provides an argument in favour of European integration.

 

JEL : C23, F43, O47, R11

Keywords: European integration, central eastern Europe, economic growth,

growth convergence

FIW Working Paper N° 135

Wolfgang Lechthaler und Mariya Mileva - Jänner 2015

 

Abstract: We develop a dynamic general equilibrium trade model with comparative advantage, heterogeneous firms, heterogeneous workers and endogenous firm entry to study wage inequality during the adjustment after trade liberalization. We find that trade liberalization increases wage inequality both in the short run and in the long run. In the short run, inter-sectoral wage inequality is high but then recedes. The skill premium does not change much in the short run but increases substantially in the medium and long run. Incorporating worker training in the model considerably reduces the effects of trade liberalization on wage inequality. The effects on wage inequality are much more adverse when trade liberalization is unilateral instead of bilateral or restricted to specific sectors instead of including all sectors.

 

JEL: E24, F11, F16, J31, J62

Keywords: trade libaralization; wage inequality, adjustment dynamics

FIW Working Paper N° 134

Tarun Arora - Jänner 2015

 

Abstract: The Paper assesses the export competitiveness of top fifteen textile products (different for each export destination) at 6 digit level of HS classification exported by India to top seven textile export destinations by using both price and income export elasticities. The export elasticities are estimated using dynamic panel data approach for each country separately. Commodity specific elasticities are further estimated to forecast the exports of commodities exported to respective export destinations. The resulting estimates can be used in designing destination specific export promotion policies for India.

FIW Working Paper N° 133

Sergey Kadochnikov und Anna Fedyunina - Jänner 2015

 

Abstract: In this paper, we investigate the relationship between export performance and economic growth in Russian regions. We propose a methodology for decomposition of export growth into intensive and extensive margins and distinguish between product- and geographic extensive components within extensive margin. An empirical analysis suggests that higher growth rates in Russian regions are associated with higher intensive margin. We reveal significant differences in export survival of differentiated and homogeneous flows and find evidence of strong effects of distance and institutions on export survival. We argue that Russian regions would experience higher economic growth if they were able to improve their export performance at the intensive margin by providing lower transport costs to the business and by enhancing higher quality of institutions.