Rabah Arezki, Yang Liu, 30 September 2021

Covid-19 has further exposed the growing interdependence between advanced economies and emerging markets. Most of the existing research on cross-border spillovers has focused on the spillover effects from advanced economies to emerging markets. This column shows that spillovers from emerging markets to advanced economies over the past 25 years are about a fifth of those running in the opposite direction, and have increased significantly over time because of the evolving interdependence between these blocks. 

Valentina Bruno, Hyun Song Shin, 27 July 2021

The strength of the US dollar in currency markets has drawn the attention of researchers, policymakers, and businesses for decades. This column examines the effects of the dollar on international trade, with a particular focus on exports. A strong dollar dampens trade volumes through the financial channel, outweighing any improvement in trade competitiveness. Trade activity is strong when the dollar is weak, but global trade suffers when the dollar is strong.

Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu, Taiyo Yoshimi, 23 July 2021

The currency a firm chooses to invoice in reveals lessons on the prominence of that currency in the international sphere. This column presents survey data from Japanese overseas subsidiaries, highlighting how the use of Asian currencies has been growing steadily. The authors show that among Asian local currencies, Chinese renminbi and Thai baht are the most used currencies by Japanese subsidiaries. If these countries become increasingly important destination markets for regional countries, local currencies will be used more as trade invoice currency in Asia.

Xuepeng Liu, Emanuel Ornelas, Huimin Shi, 09 June 2021

Worldwide merchandise trade flows decreased significantly in 2020, as Covid-19 disrupted economic activity across the globe. This column analyses how various pandemic-related factors shaped international trade flows. Specifically, it estimates how Covid-19 incidence and lockdown restrictions affected the monthly year-over-year growth of imports from China for all destinations to which China exported goods in 2019–2020. It finds that government measures to curb economic activities had a larger impact on a country’s imports than the direct health and behavioural effects of the pandemic itself.

Martina F. Ferracane, Erik van der Marel, 30 May 2021

The global economy relies on trade in digital services and cross-border data flows. However, digital trade rules across most countries have not been measured or classified. This column categorises the approach to data regulation in 116 countries and examines the implications of data regulation for trade in digital services. It suggests that proximity in data regulation frameworks may affect the cost and volume of digital trade between countries.

Bruno Conte, Klaus Desmet, Dávid Krisztián Nagy, Esteban Rossi-Hansberg, 04 May 2021

Trade restrictions are often invoked as a way to stem climate change. Although international transportation is an important source of carbon emissions, this view is incomplete. Using a dynamic spatial growth model, this column argues that trade can be a powerful mechanism to adapt to rising temperatures. The interaction of climate change, productivity, and migration decisions gives rise to significant global changes in populations and sectoral specialisations. On aggregate, rising temperatures are predicted to lower real GDP per capita by 6% and welfare by 15% by the year 2200. 

Floriana Borino, Eric Carlson, Valentina Rollo, Olga Solleder, 30 April 2021

The global spread of Covid-19 forced governments to impose strict containment measures, generating international supply and demand shocks. As a result, nationalistic views advocating for increased localisation of production were amplified. Using a novel dataset comprising 4,433 enterprises across 133 countries, this column shows that, despite being more strongly affected by the Covid-19 crisis, firms engaged in international trade have taken more resilient actions than firms that only operate domestically. These results underscore the importance of global connectedness and international trade for promoting resilience to economic shocks.

Gabriel Felbermayr, Yoto Yotov, 14 April 2021

Whether or not large bilateral trade imbalances are a signal of non-reciprocal (or ‘unfair’) trade costs has been the subject of debate for some time, and was brought to the fore during President Trump’s time in office. This column argues that if the trading partners’ average trade costs with the whole of the world are taken into account, then the ‘unfair trade’ argument does not hold up. Using standard gravity modeling, the authors find that up to 88% of the variance in bilateral balances can be explained without making any reference to asymmetries in bilateral trade costs.

Pierre Dubois, Yassine Lefouili, Stephane Straub, 30 January 2021

Patients in the developing world often face prices for essential medicines far in excess of international reference levels, even if those drugs have lost patent protection. This column presents evidence from seven low- and middle-income countries with diverse drug procurement systems to assess the effect of centralised procurement on drug prices. The results of the study highlight that centralised procurement of drugs by the public sector leads to lower prices, but that the induced price reduction is smaller when the supply side is more concentrated.

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.

Kerem Cosar, Benjamin Thomas, 04 January 2021

Open oceans are vital for the transport of a large share of world trade. But they are also frequently at the centre of geopolitical tensions between nation states. This column estimates the economic costs of impeded shipping access in South East Asia. The results of the study suggest that restrictions to shipping due to military sanctions could have large negative effects on economic welfare for countries all over the world, including oil exporters such as the United Arab Emirates and Saudi Arabia.

Julian di Giovanni, Andrei Levchenko, Isabelle Mejean, 14 December 2020

Superstar firms have recently been linked to phenomena such as top income inequality, comparative advantage in trade, and the fall in the labour share. Another important feature of superstar firms is their international trade linkages. This column studies how susceptible an economy with few large firms which account for the majority of imports and exports is to international business cycle shocks.  It finds that at the micro level, such larger firms respond more strongly to foreign shocks than smaller firms. At the macro level, this heterogeneity dampens the domestic GDP response to a foreign shock. 

Fernando Arteaga, Desiree Desierto, Mark Koyama, 04 December 2020

When the galleon San José sank in a typhoon in 1694, it was carrying a cargo worth 2% of the GDP of the entire Spanish empire. Fernando Arteaga, Desiree Desierto and Mark Koyama tell Tim Phillips about how bribes sank Spanish treasure ships.

Federico Di Pace, Luciana Juvenal, Ivan Petrella, 28 November 2020

The abrupt movements in commodity prices at the onset of the Covid-19 crisis have reignited policymakers’ concerns over movements in the terms of trade. The shock has certainly confirmed that terms of trade are very volatile and extremely sensitive to changes in global economic activity. This column argues that these terms of trade shocks are likely to have a persistent impact on the business cycle of developing economies, which are particularly vulnerable to fluctuations in the price of their exports.  

Bengt Söderlund, 04 November 2020

Strict travel restrictions are preventing business partners from different countries from meeting in person. This column explores the effect of business travelling time on trade using data from the liberalisation of Soviet air space in 1985, which radically reduced flight times between Europe and East Asia. The findings reveal that travelling time can account for most of the trade frictions that cause bilateral trade to sharply decline with geographical distance, suggesting that the current travel restrictions could have large negative effects on trade.

Fernando Arteaga, Desiree Desierto, Mark Koyama, 25 October 2020

The Spanish Crown had a monopoly on the trade route between Manila and Mexico for more than 250 years. The ships that sailed this route were “the richest ships in all the oceans”, but much of the wealth sank at sea and remain undiscovered. This column uses a newly constructed dataset of all of the ships that travelled the route to show how monopoly rents that allowed widespread bribe-taking would have led to overloading and late ship departure, thereby increasing the probability of shipwreck. Not only were late and overloaded ships more likely to experience shipwrecks or to return to port, but the effect is stronger for galleons carrying more valuable, higher-rent cargo. This sheds new light on the costs of rent-seeking in European colonial empires.

Gerdien Meijerink, Bram Hendriks, Peter A.G. van Bergeijk, 02 October 2020

The outbreak of the Covid-19 pandemic led to a 14% dive in world trade by April 2020. Using the CPB’s World Trade Monitor and a Bayesian VAR model, this column compares the recent contraction, and partial recovery, to the 2008/2009 Global Crisis and the Great Depression. The current trade recession appears to have a sharper ‘V-shape’, with a stronger collapse but a quicker recovery than the previous crises.

Sebastian Doerr, Dalia Marin, Davide Suverato, Thierry Verdier, 19 August 2020

A well-established observation in the trade literature is that conglomerate firms are more productive than single-product firms, but this appears to be at odds with findings in the finance literature that multi-segment firms trade at a discount and have lower Tobin’s Q than single-product firms, because internal capital markets misallocate funds across divisions within firms. This column develops a novel theory of misallocation within firms (rather than between firms) due to managers' empire building. Introducing an internal capital market into a two-factor model of multi-segment firms, it shows that more open markets impose discipline on competition for capital within firms, which explains why exporters exhibit a lower conglomerate discount than non-exporters. Testing the model with data on US companies, the authors establish that import competition reduces mis-allocation within firms. A one standard deviation increase in Chinese imports lowers the conglomerate discount by 32% and over-reporting of costs by up to 15%.

Ingo Borchert, Joscelyn Magdeleine, Juan Marchetti, Aaditya Mattoo, 20 June 2020

Despite the growing importance of services in output and trade, there has been relatively little information on how services policies have evolved over the past decades. This column presents evidence on services trade policies from a new database created by the World Bank and WTO. It reveals that higher income economies are more open on average than developing economies, but the chronology of reform varies across sectors. In addition, while explicit restrictions are being lowered, regulatory scrutiny is increasing in most sectors, especially in higher income economies.

Fernando Leibovici, Ana Maria Santacreu, 14 June 2020

The ongoing COVID-19 pandemic has led to a massive increase in the demand for essential medical equipment. This column discusses recent findings on the role of international trade of essential medical goods in exacerbating or mitigating the impact of a pandemic. The effects depend crucially on the countries’ trade imbalances in essential medical goods. Net importers of these goods are relatively worse off during a pandemic than net exporters. Although the welfare losses of net importers are lower in a world with high trade barriers, they benefit from reducing barriers once the pandemic arrives.

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