Alejandro Graziano, Kyle Handley, Nuno Limão, 26 January 2021

Following the Brexit referendum five years ago, firms in the UK and also those in the EU and other countries operated in an environment with increased uncertainty over future trade policies. This column presents evidence of the detrimental effects of this uncertainty on trade in the UK before any changes to trade policy had taken place. Studying the period after the Conservative Party won the general election in May 2015 until just after the Brexit referendum in June 2016, it finds that an increasing probability of Brexit significantly reduced UK export values and product entry, while increasing product exit.

Alvaro Espitia, Aaditya Mattoo, Nadia Rocha, Michele Ruta, Deborah Winkler, 18 January 2021

As COVID-19 spread across countries, many saw global value chains as transmitters of shocks. Using disaggregated export data for multiple countries, this column shows that participation in global value chains increased exporters’ vulnerability to foreign shocks, but it also reduced vulnerability to domestic shocks. Sourcing inputs from abroad is an example of beneficial diversification through trade when domestic production is disrupted. This evidence corroborates the view that nationalising value chains is not the way to improve resilience. 

Felix Friedt, 17 January 2021

The COVID-19 pandemic has caused one of the most severe contractions in international trade since the Great Trade Collapse, leading to comparisons between the two episodes. While the Great Trade Collapse has been clearly linked to the collapse in international demand, this column argues that the COVID-19 pandemic has the potential to impact trade through multiple transmission channels, highlighting the role of global value chains in the transmission. Commercial policy responses to bolster the global economy must, therefore, deviate from demand-centred instruments and consider the dependence on and resilience of global value chains to address the triple pandemic effect.

Adnan Seric, Holger Görg, Wan-Hsin Liu, Michael Windisch, 07 January 2021

The Covid-19 pandemic has exposed the fragility of the global trade network underpinning global value chains. Initial disruptions in the supply chains for key medical goods due to surges in demand and newly erected trade barriers have prompted policymakers around the world to question their country’s reliance on foreign suppliers and international production networks. This column takes a closer look at China’s post-pandemic recovery and argues that its response may hold clues to the future of global value chains.

James Anderson, Yoto Yotov, 20 December 2020

The gravity equation of international trade raises several empirical puzzles relating to the decreasing impact of distance, the declining trade-related costs of bilateral trade, and the estimation of trade elasticities. This column introduces a new, ‘short-run gravity’ model which simultaneously resolves all three of the above-mentioned puzzles. The model estimates a 14% decline in the distance elasticity and shows that capacity reallocation raised world manufacturing trade by 75% between 1998 and 2006. Finally, an estimated structural parameter implies that the short-tun trade elasticity is about one-fourth of its long-run counterpart. 

Jie Bai, Maggie Chen, Jin Liu, Daniel Yi Xu, 15 December 2020

Global e-commerce platforms present new export opportunities for small and medium-sized enterprises in developing countries by significantly lowering the entry barriers of exporting. This column shows, however, that the lack of market selection can lead to severe congestion in consumers' search process and, when firms' intrinsic quality is not perfectly observed, hinder market allocation towards better firms. Policies aimed at alleviating information frictions and reducing the number of firms can help to improve allocative efficiency and raise consumer welfare.

Christine Arriola, Przemyslaw Kowalski, Frank van Tongeren, 15 November 2020

The Covid-19 pandemic has left in its wake a global economy damaged beyond what was thought possible a decade ago. The globalised nature of the 21st century global economy is a key component in terms of the dynamics, and effects, of the virus. This column presents an analysis of the importance of global value chains, both during the pandemic and throughout the recovery process. The results of the study suggest that increased localisation could do more harm than good, and that the international network of interconnected supply chains remains key to producing essential goods and services.

Taylor Jaworski, Carl Kitchens, Sergey Nigai, 01 November 2020

The interaction between domestic transportation networks, market integration, and globalisation is important for understanding the value of domestic infrastructure investment and weighing these against the substantial costs of building and maintaining domestic roads. Using an endogenous specification of domestic and international trade costs that takes into account the availability of the road network and congestion levels, this column estimates that the total value of the entire US highway system was $619 billion in 2012 dollars, which accounts for 3.9% of US aggregate GDP in 2012. The results suggest that decisions on how much to invest in domestic infrastructure should be made in conjunction with considering how improvements in the domestic transportation networks would affect domestic and international trade as well as distributional consequences for different locations within a country.

Arnaud Mehl, Martin Schmitz, Cédric Tille, 29 September 2020

The geographical distance between two countries has a substantial impact on their economic relationship, affecting trade, foreign direct investment, and international banking linkages. Using data from the Great Recession and the COVID-19 pandemic, this column demonstrates that the financial linkages between countries located far from one another experience more volatility during crises than those between countries that are closer together. Policymakers concerned about their country’s exposure to global cycles should focus not only on their primary trading partners, but also on trade flows with more distant partners.

Guillaume Vuillemey, 27 September 2020

The maritime shipping industry has been the backbone of globalisation, carrying 80% to 90% of global trade flows. This column shows that over the past four decades, shipping firms are being systematically structured to evade corporate responsibilities. Potential tort liabilities, for example in case of an oil spill, are evaded by registering each ship in a different subsidiary; regulatory standards are evaded by using flags of convenience; and long-term responsibilities related to ship recycling are evaded using so-called last-voyage flags.

Ufuk Akcigit, Sina T. Ates, Josh Lerner, Richard Townsend, Yulia Zhestkova, 24 September 2020

The US military community has highlighted the potential security threat posed by foreign venture investments in Silicon Valley, particularly from Chinese stakeholders. This column presents a theoretical and empirical analysis of the relationship between venture capital and national security, focusing on the ability of overseas firms to gain a domestic technological advantage through investing in the US tech sector. The growing importance of this the technology sector, as well as the national security issues at stake, mean that understanding the correlations is a vital avenue of future research.

Benny Kleinman, Ernest Liu, Stephen Redding, 17 September 2020

The increasingly prominent role of China in the world economy has led to widespread discussions concerning the balance of power, trade relations, and economic development. This column presents a new ‘friends and enemies’ model which is used to show that significant growth and welfare effects have stemmed from China’s shifting role, and that changes in trading clusters have varied across different sectors. The findings also suggest that as countries become less economically friendly in terms of the welfare effects of their productivity growth, they also become less politically friendly in terms of foreign policy. 

Yuxian Chen, Yannis Ioannides, 15 September 2020

With the COVID-19 pandemic raging at the beginning of the summer of 2020, countries that depend heavily on international tourism were confronted with the dilemma of whether or not to let travel restart. This column uses international data to explore the relationship between tourism specialisation and short-run economic growth. The results suggest that a 1% increase in tourism specialisation is associated with 0.01 percentage point increase in the growth rate of GDP per capita for OECD countries. This is in line with previous findings but is based on up-to-date panel data.

Silvana Tenreyro, 04 September 2020

Understanding the nature of the global economy remains an important and interesting topic of discussion for both policymakers and researchers. This column presents a summary of two recent evaluations of aspects of the open economy. The author summarises work concerning global currencies and trading networks, offering insights into how the research agenda on each area may evolve over the coming years. 

Cecile Gaubert, Oleg Itskhoki, 14 August 2020

Large firms play a pivotal role in international trade, shaping, at least in parts, the export patterns of their home countries This column studies the role of such individual superstar firms and their specific know-how and managerial talent in determining a country’s comparative advantage. Guided by a framework it finds that in France, sectors with more superstar firms export more compared to average sectors. The contribution of superstar firms to exports is particularly pronounced in the most export-intensive sectors. However, over the medium to long run, exports of such sectors tend to fall faster and reverse to the mean.

Eiichi Tomiura, Banri Ito, Byeongwoo Kang, 12 August 2020

Cross-border data flows are increasingly critical for modern firms, and the regulation of data poses a distinctly novel challenge for policymakers in the 21st century. This column presents survey data from Japan, investigating exactly which type of firm are most likely to be affected by regulations surrounding the international exchange of data. The results of the study suggest that new technologies such as Artificial Intelligence and 3D printers are usually adopted by the most productive and innovative firms, and that hampering these firms with regulation may create harmful effects for the wider economy.

Robert Feenstra, Chang Hong, 25 July 2020

In December 2019, the US and China reached a Phase One agreement, which mandates China to purchase additional imports from the US worth $200 billion in 2020 and 2021. This column shows that the most efficient way for China to increase imports from the US is to mimic the effects of an import subsidy. For agricultural products, this subsidy would need to be as high as 42% for 2020 and 59% for 2021 in order to meet the target. Such subsidies would divert agricultural imports away from other countries, especially decreasing Chinas imports from Australia and Canada.

Peter Petri, Michael Plummer, 09 July 2020

The US-China trade war has negatively affected global growth and trade prospects, redirecting supply chains and leading to inefficiencies. However, this column suggests that emerging mega-regional trade agreements, including the Comprehensive and Progressive Agreement on Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, have the potential to compensate for the trade war by reducing regional costs. Such agreements are likely to lead to deeper integration within Asia, especially among Japan, China, and Korea. They could also trigger further economic distancing between Asia and the US, and a large increase in the influence of China.

Matteo Fiorini, Bernard Hoekman, Petros Mavroidis, Douglas Nelson, Robert Wolfe, 08 July 2020

The WTO is looking for a new Director-General. This column reports on selected results of a recent survey designed to help identify what the trade community thinks is needed. The results suggest strong support for someone with managerial and political experience, and a professional network that spans international organisations, major capitals, and international business. African respondents assign the highest priority to regional diversity. Overall, there is a distinct contrast between the preferred profile and that of the incumbent.

Jean Imbs, Laurent Pauwels, 26 June 2020

Exposure to foreign shocks is often thought to be highly dependent on foreign trade and measures of openness usually build exclusively on measures of direct trade. This column argues that in a world of global value chains, focusing on direct trade gives a distorted view of the exposure to foreign shocks. It proposes a new measure of openness which computes the fraction of gross output sold to downstream customers located abroad. This measure finds most sectors to be more open and this increased openness is estimated to cause rises in productivity and contagion, without observable effects on growth.

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