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A gravity model for global value chains

The gravity model

A typical tool in assessing bilateral trade’s causes and effects may be the gravity model. In a recently available paper (Baldwin and Taglioni 2011), we show that the gravity equation isn’t valid for trade flows where trade in parts and components is important.

The essential point is easy.

  • The typical gravity equation comes from a consumer expenditure equation with the relative price eliminated utilizing a general equilibrium constraint (Anderson 1979, Bergstrand 1985, 1989, 1990).
  • As such the typical formulation and empirical application (Anderson and van Wincoop 2003) is most beneficial adapted to explaining trade in consumer goods.

When consumer trade dominates, the GDP of the destination nation is an effective proxy for consumer demand; the GDP of the foundation nation is an effective proxy of its total supply.

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A global view of cross-border migration

Ramifications of migration on origin and destination countries

In a recently available paper (di Giovanni, Levchenko, and Ortega 2013), we measure the welfare ramifications of migration from a worldwide perspective in a way analogous to how economists measure the gains from international trade. Namely, we compare the welfare on the globe economy under current degrees of migration to welfare in a counterfactual, no-migration equilibrium.

The main top features of our framework are:

  • We model a big amount of worker heterogeneity by level of skill, country of birth, and country of residence.
  • We incorporate international remittances.
  • We take into account each country’s amount of openness to trade.

That is potentially important because, in a number of economic models, the consequences of immigration are mitigated by the amount of trade openness. Finally, building on Melitz (2003), we assume a monopolistically competitive economy where heterogeneous firms face both variable and fixed costs of serving each export market, and our model highlights the interplay between workers and firms. We distinguish between your long run, where the group of potential firms throughout the market adjusts to fulfill the free-entry condition, and the short run, where the group of potential (however, not actual) projects throughout the market is fixed. The model is calibrated to complement country-level productivity, openness to trade, degrees of migration and remittances, the firm-level productivity distribution, and the observed skill distributions of natives and immigrants (predicated on the data made by Docquier et al. 2009, 2010).

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A germany without fiscal transfers

A Germany without fiscal transfers

Germany shifts an enormous amount of fiscal transfers across jurisdictions each year. This column argues that limits the amount of economic disparities across regions, but comes at the price of lower national productivity and output. Still, with regards to welfare, Germany wouldn’t normally be better off if all fiscal transfers were abolished.

Related

Many countries conduct policies that shift tax revenue across regions so as to tackle spatial economic disparities of their territory (e.g. Acconcia et al.2015). Fiscal transfers are particularly pronounced in Germany. Using data on generated taxes and available public funds at the neighborhood level, in a fresh paper we estimate a substantial overall amount of €65.7 billion was shifted over the 411 districts (Landkreise) in the entire year 2010 alone (Henkel et al.2018). That is equal to 12.4% of aggregate tax revenue and includes various grants from upper- to lower-level government layers, the horizontal fiscal equalisation scheme across Federal States (Länderfinanzausgleich), and extra lower-tier schemes that redistribute from rich to poor jurisdictions within States. The quantity of fiscal transfers within Germany is, thus, a lot more than doubly large as all EU structural funds combined.

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A german sovereign wealth fund to save the euro

A german sovereign wealth fund to save the euro

The Eurosystem’s response

The Eurosystem’s role in intermediating large private-sector savings surpluses shouldn’t be regarded as abnormal. On the other hand, there have become few types of countries with consistently large external surpluses being intermediated for long periods exclusively by the private sector.

Generally in most countries running persistent current account surpluses (say, above 3% of GDP for a lot more than five years), the federal government or the central bank has accumulated large foreign assets either through a sovereign wealth fund or through forex intervention.

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A future agenda for eu trade policy as if the real world really mattered

A future agenda for eu trade policy as if the real world really mattered

Reality Check 1: With regards to the WTO "do no harm."

Of course you like the WTO but everybody knows it really is in serious trouble. Despite their public statements, Heads of Government are simply just not ready to make the trade-offs essential to complete an economically meaningful Doha Round. Without doubt a mouse could possibly be produced if matters get so very bad that people need a Doha Round deal to "save the machine." But, by 2008, it became clear that everyone had learned that there is no basis for a deal.

Thomas Schelling, the Nobel Prize-winning strategist, supplies the best way of taking into consideration the Doha Round stalemate. Schelling showed that if one negotiator was presented with by its government an extremely restrictive negotiating mandate then, under some circumstances, other negotiating parties keen to summarize a deal would do etc the former’s terms. But Schelling also remarked that if many governments tied the hands of their negotiators then stalemate was possible.

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A fresh approach to complete the banking union in the eurozone

A fresh approach to complete the banking union in the eurozone

A fresh method of complete the banking union in the Eurozone

Negotiations on the banking union in the Eurozone have already been stuck since the Italian government assembled a blocking minority opposing further discussions on proposals to lessen legacy risks in banks’ balance sheets. This column argues that completing the banking union should once more get priority, and that the European deposit insurance scheme could progress immediately by giving in its early phase that the ESM would provide a liquidity line to national deposit guaranty schemes that had exhausted their funds, without sharing of losses.

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A framework for banking structural reform

A framework for banking structural reform

The 2007-08 crisis revealed regulatory failures that had allowed the shadow bank operating system and systemic risk to grow unchecked. This column evaluates recent proposals to reform the banking industry. Although appropriate pricing of risk should make activity restrictions redundant, there may nevertheless be complementarities between both of these approaches. Ring-fencing could make banking groups easier resolvable and for that reason lower the price of imposing market discipline.

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A framework for central banks and bank supervision

A framework for central banks and bank supervision

A fresh policy framework

Under this framework, monetary policy and the regulation of banks aim at stabilizing both inflation and the true economy. Stabilisation of the true economy consists in stabilising output fluctuations due to macroeconomic shocks and by financial instability. In the latter case, stabilisation of output fluctuations is attained by avoiding or reducing financial instability itself.

The central bank could have two instruments at its disposal:

(a) the short-term interest and

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A free trade agreement for asia

A free trade agreement for asia

Two pathways

The ASEAN-led pathway begins with the ASEAN FTA which includes experienced place since 1992, combining it with the ASEAN+1 FTAs with China, Japan, Korea, India, Australia, and New Zealand, and consolidating these with the trilateral C/J/K FTA. The resulting East Asian FTA could then be expanded to cover each of the ASEAN+6 and be the CEPEA. This sequential method of trade integration reflects Asia’s pragmatic bottom-up method of integration that supports sub-regional cooperation as the inspiration of an eventual broader, deeper, and more unified regional architecture (Asian Development Bank 2008).