Modern discussions about a country’s ‘decline in manufacturing’ are seldom meaningful. Such talk of industrialisation and deindustrialisation across the entire sector tends to ignore important variation across individual industries. This column draws lessons from the revealed comparative advantage of late-Victorian Britain – the ‘workshop of the world’. Advantage lay mainly in industries that were relatively capital-intensive and that didn’t rely on large pools of unskilled labour. Despite its resource wealth, even Britain in the first era of globalisation was at a measurable comparative disadvantage in a number of industries.
Brian Varian, 29 May 2016
Jean-Marc Fournier, 26 May 2016
The limits of the European Single Market have often been highlighted. This column argues that although implicit barriers remain, the Single Market has delivered substantial benefits to member countries. New empirical evidence is presented of the trade and FDI gains that Central and Eastern European countries have enjoyed since joining the Single Market. On top of making regulations more competition-friendly, regulatory harmonisation can boost the economic links between countries.
Emanuel Ornelas, 14 May 2016
For over half a century, one pillar of the world trading system has been the principle of ‘special and differential treatment’ (SDT) for developing countries. This column explores how SDT has impacted trade policy around the world. Although this strategy aims to help developing countries, in design and practice it seems to be biased against them. While there is no support for SDT as a growth-promoting strategy, there is a clear need for further research that explicitly tackles the empirical challenges that it presents.
Gabriel Felbermayr, Jasmin Gröschl, Thomas Steinwachs, 27 April 2016
The refugee crisis has placed Europe’s Schengen Agreement under stress, with some calling for the reintroduction of identity checks and other border controls. This column presents new estimates of the potential costs of such controls. On average, the removal of controls at one border acts like the removal of a 0.7% tariff. The controls currently notified to the EU Commission could lower EU GDP by around €12.5 billion. The full demise of Schengen would be about three times as costly.
Juergen Matthes, Berthold Busch, 27 April 2016
Studies attempting the quantify the economic effects for the UK of Brexit have come up with conflicting results – ranging from significant advantages to marked losses. Using a meta-analysis, this column shows this can be explained by different methods and assumptions, as well as varying coverage of effects. The forward-looking, model-based studies are unable to capture many positive effects of economic integration on welfare and growth. In comparison, backward-looking studies tend to find significantly larger trade effects of economic integration agreements. The meta-analysis suggests that in case of Brexit, GDP losses for the UK in the range of 10% or more cannot be ruled out in the long run.
Giovanni Federico, Antonio Tena-Junguito, 07 February 2016
Parallels are often drawn between the Great Recession of the past decade and the economic turmoil of the interwar period. In terms of global trade, these comparisons are based on obsolete and incomplete data. This column re-estimates world trade since the beginning of the 19th century using a new database. The effect of the Great Recession on trade growth is sizeable but fairly small compared with the joint effect of the two world wars and the Great Depression. However, the effects will become more and more comparable if the current trade stagnation continues.
Yin-Wong Cheung , Sven Steinkamp, Frank Westermann, 27 January 2016
Since the beginning of the Global Crisis, illicit capital flows out of China have been in decline. This column argues that a key factor behind this is the relative money supply between China and the US. China’s rapidly increasing money supply, combined with the Fed’s expansionary monetary policy, prompted investors to reallocate their portfolios between the two countries. Another contributing factor is China’s gradual process of capital account liberalisation. The Fed’s interest rate hike in December may see a resurgence in China’s capital flight.
Pierre-Louis Vézina, David von Below, 20 January 2016
The price of oil rose to unprecedented highs in the 2000s, and its recent plunge took many by surprise. Although there are many consequences of such price fluctuations on the world economy, they are notoriously difficult to pin down. This column examines the trade consequences of varying shipping costs caused by oil price fluctuations. High oil prices are found to increase the distance elasticity of trade, making trade less global. The recent drop in oil prices could thus be a boon for globalisation.
Yasuyuki Todo, 24 December 2015
The Trans-Pacific Partnership (TPP) agreement was reached in October following seven years of negotiations. This column examines how Japan can maximise the TPP’s effect on its economy, identifying several additional policies that will be necessary. These include support for Japanese small and medium enterprises seeking to expand operations overseas, and policies that encourage and ease incoming foreign direct investment.
Nauro F. Campos, Fabrizio Coricelli, 11 December 2015
Whatever the result of Britain’s upcoming in-or-out referendum on EU membership, its relationship with the EU will change substantially. To assess these changes, it is important to understand how Britain has benefited from EU membership. This column argues that EU membership has brought benefits through three key mechanisms – trade, foreign investment, and finance. The current focus on UK exports to and imports from the EU may severely underestimate the true potential costs to Britain of Brexit.
Costas Arkolakis, Manolis Galenianos, 22 November 2015
Greece’s trade deficit declined by 10% of GDP between 2007 and 2012, removing one of the great imbalances of the pre-Crisis years. Exports actually fell over the period, however, worsening the country’s economic crisis. This column compares Greece’s actual export performance with a benchmark for the expected trade response to the reduction in net capital. Greece’s exports should have increased by 25%, and export underperformance was responsible for a third of the country’s GDP decline. While labour markets have adjusted to the new economic environment, product markets seem to be hindering the recovery of competitiveness.
Emilie Anér, Anna Graneli, Magnus Lodefalk, 14 October 2015
A large body of research has established a positive link between immigrants and bilateral trade. However, the temporary movement of people across borders has received less attention. This column uses Swedish data to analyse the impact of temporary cross-border movement on trade. Recently arrived migrants are found to reduce the negative impact of distance on foreign trade, by assisting firms to overcome informal and informational barriers to trade with their origin country. Facilitating movement of people across borders can be a highly useful tool for engaging in and benefitting from specialised and internationalised production networks.
Céline Carrère, Anja Grujovic, Frédéric Robert-Nicoud, 03 September 2015
When looking at the potential effects of a trade policy, trade economists usually insist on the real income effects, often dismissing its unemployment effects as of second-order importance, whereas policymakers and the public at large tend to voice concerns about jobs gained or lost. This column presents a quantitative framework that weighs both concerns, which is especially important when real incomes and the unemployment rates move in the same direction following a trade reform.
Andrew K Rose, 01 September 2015
A nation’s hard power is based on its ability to coerce, while its soft power depends on the attractiveness of its culture, political ideals, and policies. This column shows that a country’s soft power has measureable effects on its exports. Countries that are admired for their positive global influence export more, holding other things constant.
Kaoru Hosono, Daisuke Miyakawa, Miho Takizawa, 27 August 2015
‘Learning by exporting’ refers to productivity gains experienced by firms after they commence exporting. Such gains are argued to be due to access to new knowledge and resources. This column explores some of the preconditions for learning-by-exporting effects, using data on the overseas activities and affiliations of Japanese firms. Firms that enter markets in which they don’t have affiliates or subsidiaries are found to enjoy the most learning-by-exporting productivity gains. These findings have implications for the timing of new market entry.
Uri Dadush, 13 March 2015
Manufacturing is often seen as the key to sustainable export and productivity growth in developing countries. This column argues that, while manufacturing played a key role in some countries’ development, high growth can be sustained without relying primarily on manufacturing. A process of learning, productivity improvement, and investment that touches all sectors characterises the most successful economies. Policies that artificially favour manufacturing should instead give way to maximising learning from the frontier in all sectors of the economy.
Jason Furman, 20 February 2015
The US economy has strengthened considerably in recent years, presenting an opportunity to address the 40-year stagnation in incomes for the middle class. This column provides historical and international context for the key factors affecting middle-class incomes: productivity growth, labour force participation, and income inequality. It also outlines President Obama’s approach to economic policies – what he terms “middle-class economics” – which is designed to improve all three.
Theodore H. Moran, 30 January 2015
Joining international supply chains has helped some developing nations to industrialise while leaving others by the wayside. This column discusses research that extract lessons from four case studies. It suggests the key to success is combining pro-active investment promotion with customised infrastructure improvements and public-private vocational training that allow investors to fit production from a novel site seamlessly into the company’s international supplier network.
Otaviano Canuto, Cornelius Fleischhaker, Philip Schellekens, 11 January 2015
While Brazil has become one of the largest economies in the world, it remains among the most closed economies as measured by the share of exports and imports in GDP. This column argues that this cannot be explained simply by the size of Brazil’s economy. Rather it is due to a reliance on domestic value chain integration as opposed to participation in global production networks. Greater trade openness could produce efficiency gains and help Brazil address its productivity and competitiveness challenges.
Emine Boz, Matthieu Bussière, Clément Marsilli, 12 November 2014
The past three years have witnessed a slowdown in global trade. This column shows that the slowdown was particularly pronounced in advanced economies, especially the Eurozone. In a panel of 18 OECD economies, most of the slowdown can be explained by cyclical factors. However, structural factors – global value chains and especially protectionism – may have played a role too.