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Begin New Search Topic International Trade and Finance Political Geography Europe Content Type Working Paper Publication Year within 25 Years Publication Year within 5 Years

1. Industrial policy for electric vehicle supply chains and the US-EU fight over the Inflation Reduction Act

Author:
Chad P. Bown
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The Inflation Reduction Act (IRA) of 2022 provoked a transatlantic trade spat. After the law was passed, the Biden administration addressed some of the concerns raised by the European Union by writing controversial rules to implement the legislation. These regulations are expected to have complex effects that, in some instances, may offset the intended impact of other provisions in the original legislation. This paper examines how the law, its implementing regulations, policy decisions on leasing, as well as potential critical minerals agreements all have the potential to affect the electric vehicle (EV) supply chain. The EV case study showcases the political-economic complications involved in US and EU attempts to cooperate over clean energy transition policy to address the global externality of carbon dioxide emissions. EVs are but one example of the challenge facing partners with integrated supply chains and similar levels of economic development that share concerns about climate change, rising inequality, workers, other social issues, and democracy itself. The EV conflict laid bare the differing US and EU prioritization of these issues relative to economic efficiency, World Trade Organization rules, the approach to nonmarket economies, and national security vulnerabilities that arise from depending on an authoritarian regime such as China for import sourcing of critical inputs.
Topic:
Industrial Policy, International Trade and Finance, European Union, Supply Chains, and Electric Vehicles
Political Geography:
Europe, North America, and United States of America

2. Who Learns More from Afar? Spatial Empirical Evidence on Manufacturing and Services

Author:
Nina Vujanović
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper investigates spatial dependence of FDI knowledge spillovers in manufacturing and services using spatial panel techniques applied to the 2006-2014 Bureau Van Dijk’s Amadeus firm-level dataset for Croatia and Slovenia. The paper finds diverse results across the two sectors. The distance between regions does not hinder the absorption of foreign knowledge in manufacturing despite the strong market-stealing effects operating within regions as well as spatially. On the other hand, FDI knowledge spillovers decrease service productivity within regions, because of market-stealing effects operating strongly across a smaller geographical scale. However, its impact is lost as knowledge spillovers from more distant neighbours are accounted for, because the poaching of local labour is impeded by distance due to rising costs of labour mobility. The research indicates that for knowledge absorption, geographic distance plays differing roles in manufacturing and services, due to the different nature of the production process.
Topic:
Development, International Trade and Finance, Foreign Direct Investment, Manufacturing, Econometrics, and Competition
Political Geography:
Europe, Croatia, and Slovenia

3. Assessing Digital Leadership: Is the EU Losing out to the US?

Author:
Dario Guarascio and Roman Stöllinger
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
Since Leontief’s (1953) seminal work on the factor content of trade, the validity of the Heckscher-Ohlin-model has been judged not only on the basis of formal tests of the theory but also tested against prior expectation. In this vein, this paper uses the Heckscher-Ohlin-Vanek (HOV) approach to investigate whether supposed US leadership in the digital domain can be traced back to digital task endowments embodied in labour services. In a comparison between EU member states and the US, we find that the latter is more intensive in digital tasks than the EU and that this difference is explained by both an intensity-effect (US occupations being more digital-task intensive) and a structural component (relatively more digital-task intensive occupations). Viewed through the lens of the HOV theorem we find that the US is abundant in digital tasks relative to non-digital tasks, while the opposite is true for the EU. The standard tests for the predictive power of the HOV theorem are high and in line with the results for labour in previous literature.
Topic:
International Trade and Finance, Foreign Direct Investment, European Union, Digitalization, and Competition
Political Geography:
Europe and United States of America

4. Employment Effects of Offshoring, Technological Change and Migration in a Group of Western European Economies: Impact on Different Occupations

Author:
Michael Landesmann and Sandra Leitner
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper estimates conditional demand models to examine the impact of offshoring, technological change, and migration on the labour demand of native workers differentiated by four different types of occupational groups: managers/professionals, clerical workers, craft (skilled) workers and manual workers. The analysis is conducted for an unbalanced panel of five economies Austria, Belgium, France, Spain, and Switzerland covering the period 2005-2018. Our results point to important and occupation-specific effects: offshoring seems to have beneficial employment effects for native craft workers in this set of economies, while negative effects for native manual workers across a wide set of industries (including manufacturing and services industries) and managers/professionals in manufacturing. Furthermore, there are important distinctions whether offshoring occurs in other advanced economies, in the EU13 or in developing countries. The analysis of the impact of technological change shows the strong positive impact which the additional IT equipment has on most occupational groups of native workers (with the exception of manual workers), while robotisation in manufacturing showed strongly negative impacts on the employment of all groups of workers and especially of craft workers. Increasing immigrant shares in the work forces showed strongly negative impacts on native workers – however, considering only the partial substitution effects and not including the potential for productivity and demand effects – and this is mostly accounted for by immigration from low- to medium-income source countries.
Topic:
International Trade and Finance, Migration, Labor Issues, Immigration, Foreign Direct Investment, Employment, Competition, Income Distribution, and Offshoring
Political Geography:
Europe, France, Belgium, Spain, Switzerland, and Austria

5. Functional Specialisation and Working Conditions in Europe

Author:
Sandra Leitner, Roman Stöllinger, and Zuzana Zavarská
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
Specialisation in value-chain functions is one of the new phenomena introduced by global value chains (GVCs). This report investigates the effects of functional specialisation on labour markets in fabrication and R&D activities as the two polar cases of value-chain functions, whereby the former is associated with factory economies, while the latter is characteristic of headquarter economies. More precisely, a metric similar to revealed comparative advantage is used to study the effect of relative functional specialisation on wages and non-wage working conditions. In line with the GVC literature emphasising power relations and organisational aspects of production networks, we are able to identify differentiated effects for functional specialisation patterns on wages in EU member states at the industry level across time. While relative functional specialisation in fabrication tends to hold back wages, functional specialisation in R&D has a positive effect on wage progression, controlling for labour productivity, GVC participation and numerous labour supply- and labour demand-side factors. The use of a constructed ‘sharp’ instrument allows giving these results a causal interpretation. Conversely, both functional specialisation measures are found to improve some non-wage working conditions, namely workers’ physical environment and their work intensity, which is evidence against a potential ‘race to the bottom’ effect of functional specialisation along GVCs. The effect is stronger for relative specialisation in fabrication than for relative specialisation in R&D.
Topic:
International Trade and Finance, Labor Issues, Foreign Direct Investment, European Union, Labor Market, Value Chains, and Wages
Political Geography:
Europe

6. Determinants of Functional Specialisation in EU Countries

Author:
Aleksandra Kordalska and Magdalena Olczyk
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper aims to identify factors that determine functional specialisation (FS) in global value chains (GVCs) in European Union countries. We focus on fabrication and R&D as two opposite business functions in terms of their character and their potential of creating value-added. To make our results robust two different approaches to measuring functional specialisation are used – an FDI-based approach and a trade-based approach. To assemble a relative functional specialisation index, for each approach we use the same metric – a revealed comparative advantages index. Our results suggest a positive effect of wages on specialisation in an R&D function, and a negative impact on FS in fabrication. Increasing labour productivity boosts both specialisation in fabrication and in R&D. The results are robust to different model specifications and different time intervals. The instrumental variables method allows us to interpret the results as causal relationships. Additionally, human capital and labour skills foster FS in R&D (only in FDI data), and growing employment makes FS in fabrication increase. The growth of GDP per capita positively affects functional specialisation in R&D activities. Among GVC participation measures, we confirm the importance of increasing backward linkages to explain the boost in fabrication activities. Dividing a full sample into a group of EU15 countries and a group of Central Eastern European countries we observe that patterns for the EU15 are similar to those for the full sample, while for CEE countries wages are insignificant and labour productivity affects FS in fabrication only.
Topic:
International Trade and Finance, Foreign Direct Investment, European Union, Economy, Value Chains, and Competition
Political Geography:
Europe

7. Exchange Rate Pass-Around

Author:
Matthieu Crozet, Julian Hinz, and Federico Trionfetti
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In January 2015, The Swiss Franc (CHF) appreciated unexpectedly against the Euro by approximately 15%. We document a new fact: French firms that exported to both the Swiss market and the Eurozone also exhibited a sudden change in their export prices to the Eurozone. We coin this the “exchange rate pass-around” effect. We rationalise this fact with a simple model based on the endogenous decision of some firms to give up pricing-to-market and opt for single-pricing to all markets. An important implication of this finding is that single-pricing may be one of the causes of the incomplete pass-through. This mechanism has so far remained unexplored in the literature, which may have led to overestimating the importance of other factors. Based on monthly French export data, our empirical analysis confirms the existence of the pass-around. Firms directly affected by the CHF exchange rate shock increased their prices in neighboring markets by 0.8% compared to other exporters. The effect was stronger for firms with lower ex-ante price heterogeneity across markets and for firms with smaller trade costs to Switzerland. However, the effect was short-lived. As time passed, exporters tended to decouple the prices they set on the Swiss market from those for the Eurozone, and the pass-around effect faded.
Topic:
International Trade and Finance, Markets, Monetary Policy, European Union, and Exchange Rate Policy
Political Geography:
Europe

8. Blowback: The Effect of Sanctions on Democratic Elections

Author:
Matthieu Crozet and Julian Hinz
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Sanctions are meant to coerce political adversaries through economic measures. However, evidence for their effectiveness is scarce. In this paper we assess the impact of sanctions on a democracy — France — by studying the electoral consequences of the sanctions and countersanctions imposed between Russia and Western countries. Contrary to most of the existing literature we find clear evidence for exposure to the sanctions to cause an increase in the vote share for pro-Russian (and far-right) candidates during the French 2017 presidential election. Locally, the impact on voting is substantial. Back-of-the-envelope calculations indicate that about 16,300 votes for the main far-right candidate can be directly attributed to the sanctions’ impact. This is the total number of votes cast in a medium-sized French city. It is however not nearly enough to have affected the outcome of the election at the national level.
Topic:
Globalization, International Trade and Finance, Sanctions, and Elections
Political Geography:
Russia, Europe, and France

9. Who is to suffer? Quantifying the impact of sanctions on German firms

Author:
Holger Görg, Anna Jacobs, and Saskia Meuchelbock
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
In this paper, we use a novel firm level dataset for Germany to investigate the effect of sanctions on export behaviour and performance of German firms. More specifically, we study the sanctions imposed by the EU against Russia in 2014 in response to the annexation of Crimea and Russia's countermeasures. We find a substantial negative effect on both the extensive and intensive margin of German exports. While the negative effects are strongest for firms exporting products subject to trade restrictions, we provide further evidence on the indirect effects of sanctions. Analysing the impact on broader measures of firm performance, we document that the cost of sanctions is heterogeneous across firms but overall modest. Our results reveal that the negative impact of the shock was concentrated primarily among a small number of firms that were highly dependent on Russia as an export market and those directly affected by the sanctions.
Topic:
Foreign Policy, Globalization, International Trade and Finance, Sanctions, Russia-Ukraine War, and Firm Dynamics
Political Geography:
Russia, Europe, and Germany

10. The Russian-Ukrainian War: An Opportunity to Strengthen the AfCFTA

Author:
Steve Tametong and Venessa Aboudi
Publication Date:
02-2023
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
The world had hardly covered from the horrors of the COVID-19 pandemic when it was once again tested on February 24, 2022, by the outbreak of war between Russia and Ukraine. The consequences of this war are quite significant for humanity. On the economic level, the Russian-Ukrainian conflict has highlighted the disadvantages of globalization, understood as a process marked by the interconnection and interdependence of world economies. The inflationary shock and the food crisis resulting from the inoperative nature of import channels for certain basic necessities from Russia and Ukraine have demonstrated the fragility of the economies. With regard to African countries, in particular, the prices of several basic food products (wheat, flour, rice, maize, bread, vegetable oil, etc.) have risen sharply. Indeed, most African countries are almost dependent on the import of agricultural products and seeds from the two belligerent countries. These imports correspond to 35 billion US dollars of imports each year (1). This appears to be an incongruity given the extent of arable land on the African continent. The low production and especially processing capacity increases the dependence of African economies on the import of these basic products. The outbreak of the Russian-Ukrainian conflict makes it possible to question the economic resilience of African States, that is to say, their “capacity [ to] keep output close to [their] potential despite a shock ” (2). Above all, it offers the opportunity to analyze the economic and commercial potential of the AfCFTA in the process of building the resilience of African economies to external shocks. Indeed, the AfCFTA was officially launched in January 2021 with the main objective of “creating a single market for goods and services facilitated by the movement of people in order to deepen the economic integration of the African continent…” (3). This policy note is structured around the idea that the Russian-Ukrainian conflict, in view of its socio-economic consequences on the African continent, offers an opportunity for African countries to work toward the strengthening of the AfCFTA. So that it appears as a real pole of competitiveness and inter-African trade likely to counter the shocks and uncertainties of the dynamics of world trade. Before analyzing the AfCFTA as a pole of production and export of African products (II), it is necessary to take stock of the socio-economic consequences of the Russian-Ukrainian war on African economies (I).
Topic:
Security, International Trade and Finance, Military Strategy, Free Trade, Peace, and Russia-Ukraine War
Political Geography:
Africa, Russia, Europe, and Ukraine

11. The impact of the Ukraine crisis on international trade

Author:
Zsolt Darvas and Catarina Martins
Publication Date:
12-2022
Content Type:
Working Paper
Institution:
Bruegel
Abstract:
We study the economic implications of Russia’s invasion of Ukraine, by scrutinising global trade volumes and commodity prices, trade balances and bilateral trade flows between major economic powers and Russia. We find that energy prices increased more in 2021 than in 2022, suggesting that the war and the sanctions were not the most important drivers. Nevertheless, International Monetary Fund forecast revisions from October 2021 to October 2022 suggest that the volume of global trade in goods and services declined by 3.4 percent, energy prices increased by about 100 percent, and the prices of non-energy commodities by 8 percent. The war could be an important driver of these forecast revisions, though other factors were also at play. While forecasts for important industrial production input costs were not revised, soaring energy prices deteriorated the trade balance of countries importing energy. Only half of the increase in Russia’s trade surplus was related to soaring energy prices. The other half resulted from the collapse of Russian imports, which will likely undermine the Russian economy’s productive capacity over time. Falling Russian exports of goods other than mineral fuels suggest Russia’s productive capacity has already weakened. Russia’s trade has been reoriented from advanced economies to China, India and Turkey, but this has only partially compensated for the decline in trade with advanced countries. We find that sanctions had an impact on trade. There is no evidence of European and US companies circumventing sanctions by re-routing sanctioned goods to Russia via China and Turkey. The UK and the US have already stopped importing fossil fuels from Russia, and such imports by the EU have declined. With the EU’s Russian seaborne crude petroleum import ban taking effect in December 2022 and the refined petroleum ban coming to effect in February 2023, Russia’s revenues from fossil fuel exports to the EU are set to shrink significantly, with limited options for redirecting exports to other countries. The three main policy-relevant implications from our research are: The war and the sanctions are not the most important drivers of energy price; The direct aim of sanctions seems to have been achieved; The capacity of the Russian state to finance the war from fossil fuel revenues is bound to shrink. The dataset used for most charts of this working paper is regularly updated and is available in the Russian foreign trade tracker
Topic:
International Trade and Finance, Sanctions, Fossil Fuels, and Russia-Ukraine War
Political Geography:
Russia, Europe, and Ukraine

12. Brothers in arms: The value of coalitions in sanctions regimes

Author:
Sonali Chowdhry, Julian Hinz, Katrin Kamin, and Joschka Wanner
Publication Date:
10-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper examines the impact of coalitions on the economic costs of the 2012 Iran and 2014 Russia sanctions. By estimating and simulating a quantitative general equilibrium trade model under different coalition set-ups, we (i) dissect welfare losses for sanction-senders and target; (ii) compare prospective coalition partners and; (iii) provide bounds for the sanctions potential — the maximum welfare change attainable — when sanctions are scaled vertically, i.e. across sectors up to an embargo, or horizontally, i.e. across countries up to a global regime. To gauge the significance of simulation outcomes, we implement a Bayesian bootstrap procedure that generates confidence bands. We find that the implemented measures against Iran and Russia inflicted considerable economic harm, yielding 32 – 37% of the vertical sanctions potential. Our key finding is that coalitions lower the average welfare loss incurred from sanctions relative to unilateral implementation. They also increase the welfare loss imposed on Iran and Russia. Adding China to the coalition further amplifies the welfare loss by 79% for Iran and 22% for Russia. Finally, we quantify transfers that would equalize losses across coalition members. These hypothetical transfers can be seen as a sanctions-equivalent of NATO spending goals and provide a measure of the relative burden borne by coalition countries.
Topic:
Globalization, International Trade and Finance, Markets, Sanctions, Alliance, and Embargo
Political Geography:
Russia, China, Europe, Asia, North America, and United States of America

13. Developing EU Trade Incentives: A Support Tool for Refugee Self-Reliance and Host Community Resilience in Turkey

Author:
Basak Kale
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
IEMed/EuroMeSCo
Abstract:
The European Union (EU) is developing innovative mechanisms to investigate the root causes of migration in order to offer better socioeconomic opportunities both to migrants and host communities. These mechanisms and actions require multi-country bilateral and regional assistance tools to support different partner countries. Innovative and out-of-the-box ideas include multiple countries and various stakeholders. They are developed to provide cooperation solutions in different regions to have a wider impact on the causes and implications of migration. Despite these efforts, political, social, economic and environmental causes continue to generate human mobility around and beyond the immediate neighbourhood of the EU. The Arab Spring and the civil war in Syria have been creating human mobility in the EU neighbourhood. The war made approximately 7 million Syrians flee to neighbouring countries. Turkey is hosting around 3.7 million Syrians and another half a million asylum seekers and refugees from other regions (DGMM, 2021; UNHCR, 2021). The presence of Syrians in Turkey, together with other refugees benefitting from international protection, has become protracted. The efforts to create durable solutions in the form of “voluntary return, resettlement or local integration” have not yet successfully provided sustainable solutions. Turkey does not pursue an official state integration policy to integrate asylum seekers, refugees and the Syrians under temporary protection (STP). However, STPs, asylum seekers and refugees are becoming increasingly integrated into their host communities through informal and local integration mechanisms (Kale & Erdoğan, 2019). The delay in the access to formal employment and challenges in receiving formal employment permits aggregate the difficulties in the inclusion of refugees into formal employment schemes. Summer 2015 has shown that when there is a lack of economic and employment opportunities for asylum seekers, refugees and persons under temporary protection the incentive to have onward movement to other countries persists and the possibilities of integration in host communities stay low. It is clear that resilience-building and livelihood support through formal work is essential for vulnerable populations to have dignified living conditions in host countries. The EU-Turkey Statement in 2016 triggered the development of changes in the legal framework of international protection and migration policy. The Statement paved the way for the preparation of regulations on work permits for persons under temporary and international protection (Official Gazette, 2016). Legal developments targeted the acceleration of the economic integration of refugees into the Turkish labour market through formal employment. However, the difficulties in getting formal work permits resulted in only 132,000 issued until 2019. This indicates that approximately 4% of the STP working population has formal employment (UN Turkey, 2020). This percentage more or less matches the International Labor Organization (ILO) estimations (ILO, 2020). As a result, the majority of the refugee population is working informally, underpaid (Balkan & Tümen, 2016), without formal social and health security mechanisms, in unskilled jobs that are not wanted by Turkish citizens (Sunata, 2017). Informal employment has been a key element contributing to the lack of durable solutions and a protracted process. In Turkey, informal employment is widespread even among the host community members. It is estimated that there is about 30% of labour in host community among all sectors working unregistered. Informal employment is higher in sectors such as agriculture but significantly lower in the industrial sector. The COVID- 19 pandemic has also aggravated the increasingly poor state of the Turkish economy (Akay Ertürk, 2020). Previously, there were continuous efforts through FRIT (Facility for Refugees in Turkey) and 3RP (Regional Refugee and Resilience Plan) projects with programmes focusing on improving the employability of refugees in the Turkish labour market as well as support for the entrepreneurship capacities of the refugees in accessing the formal labour market. However, under the current economic conditions these projects are failing to generate a significant long-term impact on employment for refugees (Özçürümez & İçduygu, 2020). These projects provide short-term trainings or restricted employment possibilities while including a very limited number of participants. In addition, the COVID-19 pandemic conditions have shown that these livelihood support arrangements when they are not based on rights-based approaches overtime can transform back into humanitarian aid services (Kale & Yavçan, 2020). Long-term policy planning needs to include other incentive mechanisms that will cover multi-country and multi-region solutions. In the long run, if vulnerable populations in the host societies turn into the most vulnerable requiring humanitarian and emergency aid, the incentive for secondary movements to third countries can be high.
Topic:
International Trade and Finance, Regional Cooperation, European Union, and International Community
Political Geography:
Europe and Turkey

14. FDI Spillover Effects on Innovation Activities of Knowledge-using and Knowledge-creating Firms: Evidence from an Emerging Economy

Author:
Iraj Hashi, Mehtap Hisarciklilar, Slavo Radošević, Nebojša Stojčić, and Nina Vujanović
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
The beneficial effects of innovation for firms’ performance and competitiveness are well documented, but it has been suggested in recent years that innovation regimes differ between advanced and emerging economies. While advanced economies rely on knowledge generation, their emerging counterparts follow mainly a knowledge-use regime through the application of existing knowledge and technology. Climbing up the technological ladder can be helped through spillovers from foreign investors to local firms. We investigate whether FDI spillovers influence different phases of the innovation process (from decision to innovate to productivity) among knowledge-using and knowledge-creating firms in an emerging European economy. The results show that the innovation process in emerging economies is closer to the imitation than the creation of novel products. Local firms benefit from foreign counterparts in the early phase of the innovation process. Stronger FDI effects are found among firms that undertake innovation through knowledge use rather than through knowledge generation.
Topic:
Emerging Markets, International Trade and Finance, Foreign Direct Investment, Economy, Investment, and Knowledge Systems
Political Geography:
Europe

15. Cutting through the Value Chain: The Long-Run Effects of Decoupling the East from the West

Author:
Gabriel Felbermayr, Alexander Sandkamp, and Hendrik Mahlkow
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
With ever-increasing political tensions between China and Russia on one side and the EU and the US on the other, it only seems a matter of time until protectionist policies cause a decoupling of global value chains. This paper uses a computable general equilibrium trade model calibrated with the latest version of the GTAP database to simulate the effect of doubling non-tariff barriers - both unilateral and reciprocal - between the two blocks on trade and welfare. Imposing trade barriers almost completely eliminates bilateral imports. In addition, changes in price levels lead to higher imports and lower exports of the imposing country group from and to the rest of the world. The targeted country group increases exports to the rest of the world and reduces imports. Welfare falls in all countries involved, suggesting that governments should strive to cooperate rather than turning away from each other. By imposing a trade war on Russia, the political West could inflict severe damage on the Russian economy because of the latter’s smaller relative size.
Topic:
International Cooperation, International Trade and Finance, European Union, Conflict, Trade Wars, Protectionism, and Rivalry
Political Geography:
Russia, China, Europe, Asia, North America, and United States of America

16. EU in Search of a WTO-Compatible Carbon Border Adjustment Mechanism

Author:
Cecilia Bellora and Lionel Fontagné
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
To meet the targets of the EU’s ”Fit for 55” package, the European Commission proposes to implement a Carbon Border Adjustment Mechanism (CBAM). The CBAM is firstly intended to avoid carbon leakages, but it also deals with the thorny issue of the compliance by European producers in carbon-intensive industries. In addition, its design, as voted by the European Council on March 15, 2022, questions the compatibility of the CBAM with World Trade Organization (WTO) rules. The CBAM puts a price on carbon contained in imported products whose production-related emissions have not been taxed (or not at the same level as in the European Union) by the exporter country, in order to offset the difference in carbon prices at the border. This paper aims to quantify the economic and environmental impacts of different CBAM design choices with the aim of complying with WTO rules. Different from the previous literature, we evaluate the various options with a dynamic general equilibrium model featuring imperfect competition, global value chains, green-house gas emissions and endogenous price of emission quotas. We show that CBAM is effective in reducing carbon leakages. But its design leads to an increase in the price of carbon quotas in the European Emission Trading System (ETS) market. Losses in competitiveness on export markets are expected, also for downstream sectors not covered by the EU ETS nor the CBAM. Eventually, offsetting the difference in carbon prices at the border comes at a cost to the enforcing jurisdiction, suggesting that the CBAM was not designed as a beggar-thy-neighbour policy.
Topic:
Energy Policy, International Trade and Finance, Regional Cooperation, European Union, Carbon Emissions, WTO, and Green Transition
Political Geography:
Europe

17. Regional Diffusion of Foreign Demand Shocks Through Trade and Ownership Networks

Author:
Lionel Fontagné and Gianluca Santoni
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
International demand shocks are transmitted within the trade and ownership firms' networks and impact directly or indirectly domestic firm productivity and labor misallocation. Considering manufacturing firms for Italy, Spain and France over the period 2009-2017, we quantify these transmission channels from the global economy to the domestic firms, and within the domestic economy across locations, sectors and firms. We compute in a shift share fashion international demand shock at the district-sector-year level as plausibly exogenous to individual firms. Our results confirm that global shocks are transmitted through trade networks and that this transmission is largely mediated by firms' ownership networks both across and within the borders of the three countries.
Topic:
Economics, International Trade and Finance, Demand, and Productivity
Political Geography:
Europe, France, Spain, and Italy

18. Post-Covid-19 EU-Southern Neighbourhood Trade Relations

Author:
Katarzyna Sidlo, Esmat Mostafa Kamel, Hussein Suleiman, and Guillaume Van der Loo
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
IEMed/EuroMeSCo
Abstract:
The European Union (EU) is a key trade partner, both in terms of goods and services, for the countries in its Southern Neighbourhood (SN): Morocco, Algeria, Tunisia, Egypt, Israel, Palestine,[1] Jordan and Lebanon.[2] The economic (and otherwise) relationship between the two partners is governed by the Euro-Mediterranean Association Agreements (EMAAs), which came into force from the early to mid-2000s. The ongoing COVID-19 pandemic has, however, affected the trade exchange between the two, just as it has an adverse impact on trade globally. As pointed out in the second chapter of this policy study, one of the sectors of great importance to both the EU and the SN is agri-foods. Despite a general drop in merchandise trade, the agri-food exports from the EU actually increased globally by 0.5% during the first 10 months of the pandemic compared to the same period the year before, up to €151.8 billion. In the case of the SN, exports of agri-foods during the first three quarters of 2020 (year-on-year) grew particularly strongly in the case of Morocco (27.2%) and Algeria (20.3%) and decreased most visibly in the case of Lebanon (-37.9%). As for exports from the EU to the SN, during the same period a particularly impressive growth was witnessed in the case of Tunisia (40.3%) but the value of agri-food imports of Morocco also went up (8.4%). Trade in services, as analysed in chapter three, was hit more severely than trade in goods and declined significantly in all countries in the region during the first months of the pandemic. For Morocco, for instance, during the first three quarters of 2020 it plummeted by almost 60% (year-on-year). Because of lockdowns and travel bans, the tourism sector was among the hardest hit, even though the countries in the SN are mostly visited by travellers from nearby markets: the SN region or Europe – in 2019 the latter constituted between 29.4% (Tunisia) and 68.2% (Morocco) of all arrivals (after excluding nationals of SN countries who live abroad). As a result, tourism revenues plummeted (in Palestine, for instance, by an estimated 68%) and a significant number of people were made redundant; before the pandemic, between just under 6% (Algeria and Israel) and nearly 20% (Lebanon) of all (formally employed) workers were employed in the travel and tourism sector. The disturbances outlined above have adversely impacted food security in the region, as initial data presented in chapter four suggests. While isolating the impact of the COVID-19 pandemic on food security is difficult, as many other factors – such as bad harvest due to weather conditions in Morocco – were in play in 2020, the pandemic clearly affected both supply of and demand for foodstuffs. Some countries were more affected than others, as has already been mentioned above in the case of agri-food trade with the EU. At the same time, the impact on food security within the countries was also far from homogenous, with refugees (e.g., due to loss of work in informal sector) and poorer households – spending a bigger share of domestic budget on increasingly more expensive food products – more often forced to adopt emergency livelihood coping strategies, such as limitation of daily calory intake. Looking towards the post-COVID-19 trade relations, as outlined in chapter one of this study, the EU’s post-pandemic recovery plans and trade strategy review offer a new momentum for the SN countries to strengthen and modernise their framework for trade relations with the EU, to capitalise on potential re-shoring and near-shoring trends in EU and global value chains, and to promote (intra-) regional economic integration. However, the envisaged Deep and Comprehensive Free Trade Areas (DCFTAs) currently under negotiation with Tunisia and Morocco may not be the most realistic option at this stage. A more gradual approach based on sectoral agreements could be adopted in the short- to medium-term instead, leading to a DCFTA-like model of trade integration. Moreover, in order to strengthen the (intra-)regional economic and value chain integration, modernisation of the Pan-Euro-Mediterranean Convention should remain a priority. Finally, the modernisation of EU-SN trade relations should be linked and integrated into the broader (and longer-term) plans for EU-Africa trade relations, with an eye on the “continent-to-continent Free Trade Area” in the long run. Internally, governments in the SN should prioritise development of high productivity service sectors and work towards curbing their reliance on tourism and transportation. In order to achieve that goal, improving the quality of their institutions is as important as upgrading telecommunications infrastructure or adopting incentives such as tax breaks. More broadly, speeding up digital transformation would both facilitate servicification and reduce costs associated with merchandise trade.
Topic:
International Trade and Finance, Regional Cooperation, European Union, Pandemic, and COVID-19
Political Geography:
Europe and Mediterranean

19. Gains Associated with Linking the EU and Chinese ETS under Different Assumptions on Restrictions, Allowance Endowments, and international Trade

Author:
Malte Winkler, Sonja Peterson, and Sneha Thube
Publication Date:
05-2021
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Linking the EU and Chinese Emission Trading Systems (ETS) increases the cost-efficiency of reaching greenhouse gas mitigation targets, but both partners will benefit – if at all – to different degrees. Using the global computable-general equilibrium (CGE) model DART Kiel, we evaluate the effects of linking ETS in combination with 1) restricted allowances trading, 2) adjusted allowance endowments to compensate China, and 3) altered Armington elasticities when Nationally Determined Contribution (NDC) targets are met. We find that generally, both partners benefit from linking their respective trading systems. Yet, while the EU prefers full linking, China favors restricted allowance trading. Transfer payments through adjusted allowance endowments cannot sufficiently compensate China so as to make full linking as attractive as restricted trading. Gains associated with linking increase with higher Armington elasticities for China, but decrease for the EU. Overall, the EU and China favor differing options of linking ETS. Moreover, heterogeneous impacts across EU countries could cause dissent among EU regions, potentially increasing the difficulty of finding a linking solution favorable for all trading partners.
Topic:
Climate Change, Environment, International Trade and Finance, Regional Cooperation, and European Union
Political Geography:
China, Europe, and Asia

20. The EU-US Trade and technology Council: Mapping the Challenges and Opportunities for Transatlantic Cooperation on Trade, Climate, and Digital

Author:
Guillaume Van der Loo, Thijs Vandenbussche, and Andreas Aktoudianakis
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
EGMONT - The Royal Institute for International Relations
Abstract:
The EU-US Summit on 15 June 2021 marked the beginning of a renewed transatlantic partner- ship and set an ambitious joint agenda for EU-US cooperation post-COVID-19. The new Biden administration offers the EU the opportunity to re-establish transatlantic relations, which reached their lowest point since World War II under the turbulent Trump administration, and to address the bilateral disputes and tensions that have emerged, partly as a result of Trump’s ‘America First’ policies. One of the key deliverables of the Summit was the establishment of the EU-US Trade and Technology Council (TTC). The TTC aims to deepen EU-US relations on trade and investment and to avoid new technical barriers to trade by cooperating on key poli- cies such as technology, digital policy issues and supply chains. Despite the optimism in Brussels and Washington about renewing and strengthening transat- lantic cooperation, there are several challenges for EU-US cooperation. In the areas of trade, digital and climate in particular several differing views or outstanding disputes (most of them inherited by the Trump administration) will need to be addressed by the new TTC (the first meeting is scheduled on 29-30 September 2021) or other joint bodies. Only then will the EU and the US be able to deliver on the new ambitious transatlantic agenda. This paper will there- fore discuss the key challenges and opportunities for EU-US cooperation in the three inter- related areas of trade, digital and climate. For each of these areas, the outcome of the June 2021 EU-US Summit will be discussed and the challenges and opportunities for delivering on the renewed transatlantic agenda will be analysed. Moreover, this paper will present several policy recommendations, for the TTC or on EU-US cooperation in general, on how to advance the transatlantic partnership.
Topic:
Climate Change, Diplomacy, International Cooperation, International Trade and Finance, Science and Technology, European Union, Digitalization, and Summit
Political Geography:
Europe, North America, and United States of America