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1. Mitigating Global Fragmentation in Digital Trade Governance: A Case Study

Author:
Douglas Lippoldt
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Digital trade is growing rapidly, and regulators are trying to keep up. Concerns about privacy, consumer protection and national security demand regulatory attention, but too much regulation risks stifling digital trade. Current-generation trade agreements need to find the right balance between regulatory and liberal approaches to e-commerce. This paper looks at how five leading digital economies (Canada, the European Union, Japan, Singapore and the United States) are using regional trade agreements to address concerns while enhancing trade.
Topic:
Economics, International Cooperation, International Trade and Finance, Governance, and Digitalization
Political Geography:
Global Focus

2. China/United States: Europe off Balance

Author:
Thomas Gomart and Marc Hecker
Publication Date:
04-2023
Content Type:
Special Report
Institution:
Institut français des relations internationales (IFRI)
Abstract:
As French President Emmanuel Macron (accompanied by Ursula von der Leyen) is on a state visit to China, some twenty Ifri researchers decipher the stakes of the U.S./China/Europe strategic triangle. This 16-text study follows Olaf Scholz’s visit to Beijing (November 2022) and precedes that of Emmanuel Macron (April 2023). It comes especially one year after the beginning of a geopolitical and geoeconomic shock of a rare magnitude: the invasion of Ukraine by Russia. The War in Ukraine or the Return of Bloc Geopolitics? The war in Ukraine has broken ties between the European Union (EU) and Russia for the foreseeable future, particularly in the field of energy, though not without consequences in the Middle East, Africa, and the Indo-Pacific. Furthermore, this war has become the main show of active indirect confrontation between the United States—which has provided military support to Ukrainians, with help from its European allies—and China, which has supported Russia politically and economically. In February 2022, Moscow and Beijing declared their “no limits friendship”; in March 2023, Xi Jinping offered his personal support to Vladimir Putin after the International Criminal Court issued a warrant for his arrest. In its position on the political settlement of the Ukraine crisis, presented in February 2023, China stated: “All parties should oppose the pursuit of one’s own security at the cost of others’ security, prevent bloc confrontation, and work together for peace and stability on the Eurasian Continent”. China is no more of a mediator than the United States: it would be unrealistic to believe so. We appear to be witnessing a return of bloc geopolitics, albeit in a starkly different context than that of the Cold War (1947-1991). Globalization has produced strong economic and technological interdependencies that make any prospect of decoupling very costly, if not impossible. Economic partners are no longer necessarily military allies, and vice versa. In other words, a gap is opening up between geopolitical perceptions and geoeconomic realities. The term “decoupling” is popular in the United States, though much less so elsewhere. The rejection of bloc geopolitics is particularly acute outside of the West, where a “pragmatic” approach to foreign policy is often promoted. The Saudi foreign minister summed this up during the World Policy Conference in December 2022: “Polarization is the last thing we need right now. […] We need to build bridges, strengthen connections, and find areas of cooperation”. A few months later, China pulled off an extraordinary diplomatic coup by brokering a deal to restore relations between Riyadh and Tehran. For the EU, the situation is particularly delicate: Europe is in the Western camp, but a severing of ties with Beijing would cause a crushing economic blow. In 2022, China accounted for more than 20% of the EU’s imports, while the United States accounted for around 12%. By 2030, the EU’s GDP is expected to rise to $20.5 trillion, compared to $30.5 trillion for the United States and $33.7 trillion for China. In January 2023, the President of the European Commission declared at Davos: “We still need to work and trade with China, especially when it comes to this transition. So, we need to refocus our approach on de-risking, rather than decoupling”. For its part, Beijing has encouraged European aspirations of “strategic autonomy”, understood in China as a form of detachment from the United States. At the same time, the EU is constantly strengthening its military, technological, financial and energy ties with the U.S. This collective study notes a hypothetical search for balance on the part of the Europeans, faced with a war on their territory (the Western peninsula of the heartland), who cannot escape Sino-American mechanisms, and who do not form a monolithic whole. It also analyzes the strategy of several important actors outside our continent, and shows that, from Ukraine to Taiwan, via Africa and the Middle East, Europeans have little room for maneuver. This is why the study proposes recommendations to try, at a crucial moment, to reinforce their positioning.
Topic:
Foreign Policy, Climate Change, International Trade and Finance, Science and Technology, European Union, and Industry
Political Geography:
China, Europe, and United States of America

3. 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

4. The African Continental Free Trade Area: A boon for the “Africa We Want” by 2063?

Author:
Jean-Cedric Kouam
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
The Nkafu Policy Institute
Abstract:
One of the major objectives set by the African Union (AU) in Agenda 2063, is to achieve a “prosperous Africa, based on inclusive and sustainable growth”. To ensure the prosperity of the people, especially of women and youth, member states have, in the first ten years of the adoption of this agenda, taken a number of initiatives to strengthen economic integration of the continent. Among these initiatives, the implementation of the African Continental Free Trade Area (AfCFTA) in January 2021, occupies a prominent place. In launching the AfCFTA, and making it effective, the intention of the AU is to overcome the historical fragmentation and isolation of the various African economies. The challenge is to open them up to new global trade opportunities and improve transport and communication links across the continent. However, not all AU member countries have ratified this major project. The objective of this article is to take stock of the economic integration process that has been set in motion with the effective entry into force of the AfCFTA. It highlights, on the one hand, the main reasons that justify the reluctance of states that have not yet signed the AfCFTA agreement and, on the other hand, outlines the opportunities offered by AfCFTA for an Africa that wants to emerge as a strong, united and influential player and partner on the world stage.
Topic:
International Trade and Finance, Regional Cooperation, Free Trade, and African Union
Political Geography:
Africa

5. Can the World Trade Organization be saved? Should it?

Author:
Alan Wm. Wolff
Publication Date:
05-2023
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Heads of state, trade ministers, and academics have repeatedly called for reforming the World Trade Organization (WTO), the institution charged with the stewardship of the global trading system. The durability and worth of the WTO are being increasingly questioned despite the fact that by almost all objective measures, it has been a great success, with world trade growing much faster than global GDP over the last 75 years. However, past success does not guarantee future performance. This Policy Brief examines the institution’s most serious defects and the multitude of challenges it faces. It suggests the institution needs to evolve to reach broad-based international trade agreements, adding much needed new rules to the world trade rulebook and developing effective means to settle disputes that would render the rules of the system enforceable once again.
Topic:
Economics, International Trade and Finance, Treaties and Agreements, and World Trade Organization
Political Geography:
Global Focus

6. Saving the WTO from the national security exception

Author:
Warren Maruyama and Alan Wm. Wolff
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
For any member of the World Trade Organization (WTO) not making alternative arrangements, enforceability of the rules of the global trading system, a distinguishing feature of the WTO, ceased to exist on December 11, 2019, because the United States blocked appointments to the Appellate Body of the WTO dispute settlement mechanism. A major obstacle to the United States accepting any resolution of this impasse—thus permitting dispute settlement to once again be binding on all WTO members—is settling the issue of whether claims of national security to legitimize trade measures are reviewable. This is a red line for the United States, which argues this claim is nonreviewable. In the emerging area of great power competition, the United States is unlikely to accept a return to fully effective WTO dispute settlement absent a compromise that finds determinations of national security nonjusticiable. This paper offers a compromise: There would be no adjudication of whether a trade measure was justified under the WTO’s national security exception, but those WTO members adversely affected would have an immediate right to rebalance trade concessions themselves by imposing retaliatory trade measures against the WTO member invoking the exception.
Topic:
Economics, International Trade and Finance, National Security, and World Trade Organization
Political Geography:
Global Focus

7. 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

8. Harnessing allied space capabilities

Author:
Robert Murray, Tiffany Vora, and Nicholas Eftimiades
Publication Date:
04-2023
Content Type:
Policy Brief
Institution:
Atlantic Council
Abstract:
The United States’ vast network of alliances and partnerships offers a competitive advantage—this is especially evident in outer space. Often characterized as a global commons, space holds value for all humankind across commercial, exploration, and security vectors. As technological advancements trigger a proliferation in spacefaring nations, the United States and its allies and partners are confronted with new challenges to and opportunities for collective action. This series examines how US space strategy can recognize the comparative advantages of allies and partners in space and best harness allied capabilities.
Topic:
Security, Defense Policy, International Trade and Finance, National Security, Science and Technology, Space, Institutions, and Defense Industry
Political Geography:
Europe, Eurasia, Canada, United States of America, and Indo-Pacific

9. The NewSpace market: Capital, control, and commercialization

Author:
Robert Murray
Publication Date:
04-2023
Content Type:
Working Paper
Institution:
Atlantic Council
Abstract:
Commercial opportunities in space-based technologies are expanding rapidly. From satellite communications and Earth observation to space tourism and asteroid mining, the potential for businesses to capitalize on these emerging technologies is vast and known as “NewSpace.”1 The NewSpace model is important for governments to understand because the dual-use nature of space, specifically its growing commercialization, will influence the types of space-based technologies that nations may leverage, and consequently, impact their national security paradigms. By capitalizing on the private sector’s agility and combining it with the essential research efforts and customer role played by the public sector, the NewSpace industry can play a critical function in addressing current and future national security challenges through public-private codevelopment. As the NewSpace industry expands, the role of government is evolving from being the primary developer and operator of space assets to facilitating their commercialization, while still prioritizing key advancements. US and allied governments can capitalize on this competitive landscape by strategically investing in areas that align with their national security objectives. However, it is crucial for them to first understand and adapt to their changing roles within this dynamic environment. Indeed, the benefits of the burgeoning NewSpace industry extend beyond the United States. International collaboration and competition in this area can lead to faster technological advancements and economic gains. The global NewSpace landscape is driving down costs, increasing access to space, and fostering innovation that can improve not only economic well-being, but also impact national security models. To that end, this memo will examine the broad state of the space market, discuss the industry drivers, and propose recommendations for US and allied policymakers as they consider future government investments in those enabling space-based activities that support wider national security ambitions.
Topic:
Defense Policy, International Trade and Finance, National Security, Science and Technology, European Union, Space, and Defense Industry
Political Geography:
Russia, China, Eurasia, Canada, Asia, and United States of America

10. Impact of economic sanctions on net commodity-producing and net commodity-consuming countries

Author:
Sergio R. Vale and Eduardo Viola
Publication Date:
01-2023
Content Type:
Journal Article
Journal:
Revista Brasileira de Política Internacional (RBPI)
Institution:
Instituto Brasileiro de Relações Internacionais (IBRI)
Abstract:
The war in Ukraine has had a marked economic impact. However, since Russia is a net producer of important commodities, the impact of sanctions on its economy was less than expected. But what would happen if there was a war involving a country that was a net importer of commodities? In the case of a possible China-US conflict over Taiwan, the impact on the world economy would be different, with a deeper recession around the world, but the impact on the Brazilian economy would still be positive on account of the possibility that would remain of agricultural exports to China.
Topic:
Agriculture, Economics, International Trade and Finance, Sanctions, Commodities, and Exports
Political Geography:
Russia, China, Europe, Ukraine, Taiwan, Asia, North America, and United States of America

11. Current Capabilities and Future Potential of African Textile and Apparel Industries

Author:
Lindsay Whitfield and Chema Triki
Publication Date:
01-2023
Content Type:
Policy Brief
Institution:
Centre for Business and Development Studies (CBDS), Copenhagen Business School
Abstract:
The textile and apparel industry is a globalised industry characterised by a high degree of dependency and fragmentation in global supply chains. From the mid-20th century, cotton textile and apparel manufacturing production relocated from industrialised to developing countries, particularly in Asia, and was quickly followed by the emergence of the petrochemical industry and synthetic fibre production in East Asian countries, while South Asia continued to focus on cotton and natural fibres. China, Bangladesh, and Vietnam are currently the central players in global apparel supply chains, with China and increasingly Vietnam having vertically integrated industries with access to a diverse range of fabrics and thus a large product portfolio. The largest apparel consumer markets are concentrated in Europe, North America, and other wealthy countries such as Japan, as they have higher purchasing power and economically larger markets. Large emerging economies such as China and India largely supply their domestic markets but have not yet become major destination consumption markets for other developing economies. Changes in international trade over the past 30 years fostered the textile and apparel global value chain dynamic. These changes were marked by opening trade borders, lowering tariffs, tax breaks or subsidies offered by various governments, and free trade agreements. Low labour costs and lower production costs have shaped the decisions of global actors to relocate their operations from one country to another. Current global trends are set to transform the global value chains of textiles and apparel again. These trends include increasing production costs in China, the drive to shorten supply chains post-Covid pandemic through nearshoring and seeking countries with yarn-to-garment (or vertical) production capabilities, and a sustainability shift. These trends are leading global apparel buyers to diversify their sourcing away from China and Asia more generally and to consider new supply bases. These structural trends in the industry, together with the AfCFTA, represent a window of opportunity for African countries. African industry actors and their governments should build new textile and apparel industries that seek to participate in global and regional markets and engage with global technologies and international partnerships. Attracting foreign firms with the necessary technical, organisational, and managerial capabilities is essential. The AfCFTA represents a powerful tool to respond to the verticality need of the industry, considering the current production levels of raw materials, but also an opportunity to increase the number of African countries with industrial capabilities in textile and apparel. The ongoing negotiations on rules of origin will significantly impact the continent's potential to create synergetic regional value chains.
Topic:
Development, Industrial Policy, International Trade and Finance, Business, Supply Chains, and Textile Industry
Political Geography:
Africa

12. Formula for a Crisis: Protectionism and Supply Chain Resiliency—the Infant Formula Case Study

Author:
Scott Lincicome, Gabriella Beaumont-Smith, and Alfredo Carrillo Obregon
Publication Date:
01-2023
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
It has become accepted wisdom in Washington that the COVID-19 pandemic revealed how openness to international trade and investment increases U.S. vulnerability to economic shocks and contributes to widespread shortages of food, medicine, and other essential goods. This official narrative, however, ignores ample economic research showing that, while disruptions are inevitable in a modern economy, the alternative to free trade—a protectionism‐​driven onshoring of global supply chains—carries its own risks and can even heighten vulnerability by inhibiting natural market adjustments to economic shocks. The infant formula crisis, which lasted for most of 2022 and was unique to the United States, provided an unfortunate real‐​world lesson in this regard.
Topic:
International Trade and Finance, Free Trade, Resilience, COVID-19, and Supply Chains
Political Geography:
North America and United States of America

13. 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

14. 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

15. 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

16. 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

17. 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

18. Regulatory Convergence within Technical Barriers to Trade

Author:
Mahdi Ghodsi
Publication Date:
09-2023
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This paper analyses how regulatory convergence in different categories of technical barriers to trade (TBTs) imposed on imports of goods in information and communications technology (ICT) globally affected the values, volumes, and unit values of imported goods during the period 1996-2019. Keywords cited in TBTs that are notified to the World Trade Organization (WTO) give an indication of the regulatory objectives behind the imposition of TBTs. MAST also classifies TBTs based on their applicability, procedural and administrative uses, factors which will also be taken into consideration in the analysis. However, objectives of TBTs may provide better insights to policymakers. TBTs are non-discriminatory measures that are imposed unilaterally on all trading partners and on domestic producers. It is not feasible to analyse unilateral TBTs in a gravity setting, as they are excluded by the introduction of country-product-time fixed effects that control for multilateral resistances. However, regulatory convergence in TBT categories is a bilateral time-varying variable that is analysed in a gravity model in this paper. The empirical results suggest that regulatory convergence between trading partners in some TBT categories stimulates import values and volumes. However, the impact is very heterogeneous across TBT objectives and classes and across ICT product categories.
Topic:
International Trade and Finance, Communications, World Trade Organization, Foreign Direct Investment, Regulation, Information Technology, and Competition
Political Geography:
Global Focus

19. Trade Balances and International Competitiveness in Cyber-physical, Digital Task-intensive, ICT Capital-intensive and Traditional Industries

Author:
Alexandra Bykova and Roman Stöllinger
Publication Date:
05-2023
Content Type:
Special Report
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
In this report, we analyse the international competitiveness of the EU in four industry groups over the period 1995-2018. The groups are delineated by specific factor intensities, where these intensities are assessed from digital tasks performed by labour services and ICT capital stocks. The EU’s positions relating to trade balances, revealed comparative advantages and unit value ratios are assessed relative to its main competitors, such as the US, China, Japan and South Korea. The trade specialisation patterns confirm EU advantages in traditional industries, which still represent the largest part of global trade, and in the group of digital task-intensive industries. In the cyber-physical group of industries, which are characterised by both high digital task and ICT capital intensities, the EU records a trade deficit, although this has been receding in recent years. Competitiveness indicators depict heterogeneity among EU countries. The loss of international competitiveness for some technology front-runners is a worrying sign. On the positive side, however, a reduction in trade deficits or an improvement in product quality and market shares is evident for certain EU countries, especially in the Central European region.
Topic:
International Trade and Finance, European Union, Trade, Digitalization, and International Competition
Political Geography:
Japan, China, Europe, Asia, South Korea, and United States of America

20. Export impact on dividend policy for big Colombian exporting firms, 2006–2014

Author:
Federico Merchan
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper studies the impact of exogenous export demand shocks on firms’ dividend policy using firm specific real exchange rate variation as instrumental variable. IV exclusion restriction is plausibly satisfied because real exchange rate shocks were unanticipated -partly explained because of international oil price fluctuation-, and first stage results confirm relevance condition fulfillment. The results indicate that big private Colombian exporting firms decree dividends as a way to mitigate the agency cost generated by exogeneous exports variation via higher free cash flow and cash flow volatility, especially in poor managerial quality firms. Evidence supports agency cost theory and denies signaling.
Topic:
Development, Emerging Markets, Globalization, International Trade and Finance, and Exports
Political Geography:
Global Focus

21. China as an International Lender of Last Resort

Author:
Sebastian Horn, Bradley C. Parks, Carmen M. Reinhart, and Christoph Trebesch
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
This paper shows that China has launched a new global system for cross-border rescue lending to countries in debt distress. We build the first comprehensive dataset on China’s overseas bailouts between 2000 and 2021 and provide new insights into China’s growing role in the global financial system. A key finding is that the global swap line network put in place by the People’s Bank of China is increasingly used as a financial rescue mechanism, with more than USD 170 billion in liquidity support extended to crisis countries, including repeated rollovers of swaps coming due. The swaps bolster gross reserves and are mostly drawn by distressed countries with low liquidity ratios. In addition, we show that Chinese state-owned banks and enterprises have given out an additional USD 70 billion in rescue loans for balance of payments support. Taken together, China’s overseas bailouts correspond to more than 20 percent of total IMF lending over the past decade and bailout amounts are growing fast. However, China’s rescue loans differ from those of established international lenders of last resort in that they (i) are opaque, (ii) carry relatively high interest rates, and (iii) are almost exclusively targeted to debtors of China's Belt and Road Initiative. These findings have implications for the international financial and monetary architecture, which is becoming more multipolar, less institutionalized, and less transparent.
Topic:
Debt, Emerging Markets, International Trade and Finance, Financial Crisis, Belt and Road Initiative (BRI), and Sovereign Debt
Political Geography:
Africa, China, and Asia

22. To Russia with Love? The Impact of Sanctions on Regime Support

Author:
Robert Gold, Julian Hinz, and Michele Valsecchi
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
Do economic sanctions affect internal support of sanctioned countries’ governments? To answer this question, we focus on the sanctions imposed on Russia in 2014 and identify their effect on voting behavior in both presidential and parliamentary elections. On the economic side, the sanctions significantly hurt Russia’s foreign trade — with regional-level variation. We use trade losses caused by the sanctions as measure for regional sanction exposure. For identification, we rely on a structural gravity model that allows us to compare observed trade flows to counterfactual flows in the absence of sanctions. Difference-in-differences estimations reveal that regime support significantly increases in response to the sanctions, at the expense of voting support of Communist parties. For the average Russian district, sanction exposure increases the vote share gained by president Putin and his party by 13 percent. Event studies and placebo estimations confirm the validity of our results.
Topic:
Globalization, International Trade and Finance, Sanctions, Economy, and Russia-Ukraine War
Political Geography:
Russia and Eurasia

23. 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

24. 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

25. 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

26. Africa’s Businesswomen – Underfunded or Underperforming?

Author:
Charles Ackah, Holger Görg, Aoife Hanley, and Cecília Hornok
Publication Date:
03-2023
Content Type:
Working Paper
Institution:
Kiel Institute for the World Economy (IfW)
Abstract:
While the recent success of Africa’s ‘Lionesses’ – successful female entrepreneurs - is internationally celebrated, less is known about how liquidity can fuel the success of the ‘Lionesses’ and other businesswomen. Using information from a panel of over 800 male- and female-owned businesses in Ghana (ISSER-IGC survey), we capture a measure of underfunding, in addition to data on supplier credit, equity and other finance sources. Our regressions reveal a female-to-male productivity gap of between -11 to -19 percent, values similar to estimates for other African countries. However, when the relationship between gender and productivity is mediated by financial constraints, the gender performance gap disappears. Accordingly, female business-owners who indicate that funding is not a problem, are associated with higher productivity than males, all things equal. In a finding new to the literature, our regressions reveal the importance of supplier credit for Africa’s businesswomen.
Topic:
Globalization, International Trade and Finance, Women, Business, Productivity, and Liquidity
Political Geography:
Africa and Ghana

27. Rewriting the Future of America’s Maritime Industry to Compete with China

Author:
Michael Roberts
Publication Date:
10-2023
Content Type:
Special Report
Institution:
Hudson Institute
Abstract:
For decades, companies outside the United States have dominated the international commercial shipping and shipbuilding industries. At various times since World War II, Japan, Korea, and certain European countries have been able to leverage their export-driven manufacturing economies and government support to become world leaders in commercial shipbuilding and major players in international shipping. The People’s Republic of China (PRC) has taken that strategy to a new level and now produces more than half the large commercial ships delivered annually, controls scores of seaports in dozens of foreign countries, and owns almost one-fifth of the global commercial fleet. American commercial shipbuilders and US flag shipping companies have long faced fierce headwinds in international markets and have seen support from the US government dwindle. The US reset its maritime policies in the 1990s when America was the sole superpower and the security benefits of a robust commercial maritime industry were in doubt. By the end of 2022, Americans owned only 3 percent of the 55,000 ships in the global commercial fleet, including just 178 large US flag cargo ships, 85 of which are committed to international trade (see tables 1 and 2 below for a breakdown of US and global commercial fleets). The emergence of the PRC as a challenger to America’s global leadership has forced sweeping changes in US policy and spending priorities to boost America’s economic and military security. This report recommends that the US reform its policies governing America’s commercial maritime industries because shipping and shipbuilding are core components of national power. These industries remain especially crucial in the twenty-first century, as international trade is more important to a healthy American economy today than ever before. Yet Americans have almost no control over the maritime logistics systems that feed the US economy. The pandemic-induced supply chain crisis showed how much damage can be done when those systems break down.
Topic:
International Trade and Finance, National Security, Maritime, Industry, Domestic Policy, and Supply Chains
Political Geography:
China, Asia, North America, and United States of America

28. The power of control: How the EU can shape the new era of strategic export restrictions

Author:
Tobias Gehrke and Julian Ringhof
Publication Date:
05-2023
Content Type:
Policy Brief
Institution:
European Council on Foreign Relations (ECFR)
Abstract:
Technology is increasingly a battleground in the strategic competition between the US and China. Western technology contributes to China’s military modernisation as well as the development of Russian weapon systems. The US is restricting trade in key technologies with China and pushing EU member states to follow its lead. To better defend its interests, the EU needs to develop clearer policies on China and security, including pursuing the ‘de-risking’ of its relations with Beijing. The EU must develop a new strategic technology doctrine and upgrade its export control policy. This more coherent stance will enable the EU both to act where necessary but also to defend itself and its member states from future pressure from China – and the US.
Topic:
Security, International Trade and Finance, European Union, and Exports
Political Geography:
China, Europe, and United States of America

29. EU-Pacific Talks: Trade relations with the Indo-Pacific

Author:
Eliška Prostřední
Publication Date:
04-2023
Content Type:
Special Report
Institution:
Europeum Institute for European Policy
Abstract:
Overall, the debate focused on the diversification of global trading partners and how to achieve it. Speakers also discussed the threats associated with dependence on only a few strong countries, which can then take the position of rule makers. The whole debate was linked to the possibilities of global trade with countries that are part of the Indo-Pacific region. Writes Eliska Prostřední in her report on the debate "EU-Pacific Talks: Trade relations with the Indo-Pacific".
Topic:
International Trade and Finance, Partnerships, Diversification, Trade, Debates, and Economic Dependence
Political Geography:
Europe and Indo-Pacific

30. Building Worker Power in Global Supply Chains: Lessons from Apparel, Cocoa, and Seafood

Author:
Judy Gearhart
Publication Date:
09-2023
Content Type:
Working Paper
Institution:
Accountability Research Center (ARC), American University
Abstract:
This working paper is about the campaigners and worker organizers in the global South and North who have challenged the persistent lack of government and corporate accountability for workers’ rights in the apparel, cocoa, and seafood industries. The transnational coalitions that have formed across these and other industries have driven significant innovations in global supply chain governance and reshaped international trade and development policies. This paper documents and draws lessons from the transnational organizing that has enabled these groups to sustain coalitions over many years, evolve their strategies and tactics for challenging power holders, and strengthen the influence of national global South organizers.
Topic:
Development, International Trade and Finance, Governance, Cocoa, Labor Rights, Supply Chains, Textile Industry, and Seafood
Political Geography:
Global South and Global North