António Afonso, Florence Huart, João Tovar Jalles, Piotr Stanek
We analyze the role of international reserves and sovereign debt in the determination and international transmission of interest rates. We develop a model that describes the money market equilibrium with capital account openness. It predicts that higher levels of international reserves lead to lower interest rates whereas the effect of higher government debt is ambiguous. We then test empirically these predictions on a panel of 128 countries over 1985–2019. We find that: (i) the transmission of U.S. interest rates to domestic interest rates is stronger in emerging market economies (EMEs) than in advanced economies (AEs) for short‐term interest rates (STIR), and vice versa for long‐term interest rates (LTIR); (ii) international reserves help counteract the transmission of the U.S. policy rate on STIR in EMEs; (iii) a higher sovereign debt level is associated with lower interest rates in EMEs (liquidity effect), but higher interest rates in developing economies (risk premium effect).
{"title":"Determinants and international transmission of interest rates: Do foreign reserves and sovereign debt matter?","authors":"António Afonso, Florence Huart, João Tovar Jalles, Piotr Stanek","doi":"10.1111/roie.12776","DOIUrl":"https://doi.org/10.1111/roie.12776","url":null,"abstract":"We analyze the role of international reserves and sovereign debt in the determination and international transmission of interest rates. We develop a model that describes the money market equilibrium with capital account openness. It predicts that higher levels of international reserves lead to lower interest rates whereas the effect of higher government debt is ambiguous. We then test empirically these predictions on a panel of 128 countries over 1985–2019. We find that: (i) the transmission of U.S. interest rates to domestic interest rates is stronger in emerging market economies (EMEs) than in advanced economies (AEs) for short‐term interest rates (STIR), and vice versa for long‐term interest rates (LTIR); (ii) international reserves help counteract the transmission of the U.S. policy rate on STIR in EMEs; (iii) a higher sovereign debt level is associated with lower interest rates in EMEs (liquidity effect), but higher interest rates in developing economies (risk premium effect).","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2024-08-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142182851","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We present a footloose capital model in a two‐country economy and the manufacturing and natural resource sectors with heterogeneous manufacturing firms to analyze the impacts of trade liberalization and technological progress on the net capital flows, net export, and social welfare. Our main analytical result is that a lagged country initially experiences capital outflow due to the high technological gap in the manufacturing sector with increasing returns to scale, then capital inflow due to the home market effect. This corresponds with the fact that China was a net importer of manufactured goods initially, and became a net exporter recently. These results are consistent with the data obtained after the reform and opening‐up policy in 1978.
{"title":"A footloose capital model of economic development","authors":"T. Tabuchi, Congcong Wang, Xiwei Zhu","doi":"10.1111/roie.12775","DOIUrl":"https://doi.org/10.1111/roie.12775","url":null,"abstract":"We present a footloose capital model in a two‐country economy and the manufacturing and natural resource sectors with heterogeneous manufacturing firms to analyze the impacts of trade liberalization and technological progress on the net capital flows, net export, and social welfare. Our main analytical result is that a lagged country initially experiences capital outflow due to the high technological gap in the manufacturing sector with increasing returns to scale, then capital inflow due to the home market effect. This corresponds with the fact that China was a net importer of manufactured goods initially, and became a net exporter recently. These results are consistent with the data obtained after the reform and opening‐up policy in 1978.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2024-07-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141808428","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Léo‐Spencer Keungne Kouotang, Armand Brice Ngoupeyou, Hussein Nji Fifen Ngangue
This article develops a continuous time stochastic model for determining the optimal international reserves management policy when the data generating process of international reserves is a geometric Brownian motion. The policy is a two‐parameter control‐limit that consists of an appropriate and a ceiling level on reserves holdings, given an exogenous floor on international reserves. The optimal solution is determined so as to minimize the total costs of international reserves holdings. It is proved that our results extend the framework of Frenkel and Jovanovic when the logarithm of international reserves is an arithmetic Brownian motion. We also explain that Jung paper does not extend Frenkel and Jovanovic model as claimed by the former. The model is calibrated to derive the optimal level and liquidity tranche size upper bound of international reserves of the CEMAC monetary union.
{"title":"Optimal management of international reserves","authors":"Léo‐Spencer Keungne Kouotang, Armand Brice Ngoupeyou, Hussein Nji Fifen Ngangue","doi":"10.1111/roie.12773","DOIUrl":"https://doi.org/10.1111/roie.12773","url":null,"abstract":"This article develops a continuous time stochastic model for determining the optimal international reserves management policy when the data generating process of international reserves is a geometric Brownian motion. The policy is a two‐parameter control‐limit that consists of an appropriate and a ceiling level on reserves holdings, given an exogenous floor on international reserves. The optimal solution is determined so as to minimize the total costs of international reserves holdings. It is proved that our results extend the framework of Frenkel and Jovanovic when the logarithm of international reserves is an arithmetic Brownian motion. We also explain that Jung paper does not extend Frenkel and Jovanovic model as claimed by the former. The model is calibrated to derive the optimal level and liquidity tranche size upper bound of international reserves of the CEMAC monetary union.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2024-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141645052","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Foreign direct investment (FDI) nowadays mostly corresponds to activities in urban areas. This study provides the first global analysis of the determinants of urban FDI (UFDI). We assemble and exploit a unique database on the location choices of multinational enterprises in urban areas worldwide to investigate the relevance of local, national, and dynamic drivers of cities' international attractiveness. We find that attractive cities are large, productive, endowed with transport infrastructure able to move goods and people within and beyond their borders, abundant in educated people, and embedded in attractive national spaces. Cities combining all these attributes tend to attract service activities. Attractiveness is persistent but can evolve depending on economic dynamism. A variance decomposition analysis indicates that the location choices of UFDI are mainly driven by city‐level determinants, notably transport infrastructure.
{"title":"International attractiveness of cities: The drivers of urban FDI","authors":"Pierre-Henri Bono, Quentin David, Rodolphe Desbordes","doi":"10.1111/roie.12774","DOIUrl":"https://doi.org/10.1111/roie.12774","url":null,"abstract":"Foreign direct investment (FDI) nowadays mostly corresponds to activities in urban areas. This study provides the first global analysis of the determinants of urban FDI (UFDI). We assemble and exploit a unique database on the location choices of multinational enterprises in urban areas worldwide to investigate the relevance of local, national, and dynamic drivers of cities' international attractiveness. We find that attractive cities are large, productive, endowed with transport infrastructure able to move goods and people within and beyond their borders, abundant in educated people, and embedded in attractive national spaces. Cities combining all these attributes tend to attract service activities. Attractiveness is persistent but can evolve depending on economic dynamism. A variance decomposition analysis indicates that the location choices of UFDI are mainly driven by city‐level determinants, notably transport infrastructure.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2024-07-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141648144","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this article, I study export quality as a channel through which immigrant workers affect the export prices and markups of French manufacturing firms. I find that the share of immigrant workers in a local labor market is positively associated with firm‐level export prices and quality and that this quality advantage translates to higher markups. I present evidence for the mechanism accounting for these relationships and find that the presence of immigrant workers is positively associated with firms importing higher‐price (higher‐quality) intermediate inputs, which are key to producing higher‐price (higher‐quality) exports. The hypothesized economic mechanism is that immigrant workers help firms overcome informational barriers to sourcing higher‐price (higher‐quality) inputs from abroad. I provide evidence consistent with immigrant workers having specialized knowledge of the upstream market.
{"title":"Firm‐level prices, quality, and markups: The role of immigrant workers","authors":"Giulia Sabbadini","doi":"10.1111/roie.12772","DOIUrl":"https://doi.org/10.1111/roie.12772","url":null,"abstract":"In this article, I study export quality as a channel through which immigrant workers affect the export prices and markups of French manufacturing firms. I find that the share of immigrant workers in a local labor market is positively associated with firm‐level export prices and quality and that this quality advantage translates to higher markups. I present evidence for the mechanism accounting for these relationships and find that the presence of immigrant workers is positively associated with firms importing higher‐price (higher‐quality) intermediate inputs, which are key to producing higher‐price (higher‐quality) exports. The hypothesized economic mechanism is that immigrant workers help firms overcome informational barriers to sourcing higher‐price (higher‐quality) inputs from abroad. I provide evidence consistent with immigrant workers having specialized knowledge of the upstream market.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2024-07-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141585538","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The paper presents a unified framework for analyzing the impact of corporate taxation on R&D and exporting, considering firm productivity heterogeneity and sunk costs. We empirically examine three hypotheses using data from 7819 European firms spanning 2001–2014. We propose that: (a) an increase in corporate tax reduces the likelihood of innovation, (b) an increase in corporate tax reduces the likelihood of exporting, and (c) firms that innovate are more likely to enter foreign markets. On average, a high Effective Average Tax Rate (EATR) lowers the probability of investing in R&D and exporting by 2.3% and 1.41%, respectively. For firms with low Total Factor Productivity (TFP), the adverse effect of taxation on R&D investment ranges from 3.71% in our baseline analysis to 12.9% in our sensitivity analysis. Interestingly, while EATR positively influences the export decisions of high‐TFP firms, a higher EATR can reduce the export probability by up to 25.5% for firms at the lower end of the TFP distribution. Our findings demonstrate a causal relationship between firm heterogeneity and their capacity to mitigate the distortions caused by higher taxes. From a policy perspective, our results suggest that fostering innovation is essential for firms aiming to expand into international markets.
{"title":"Corporate tax, R&D and export decisions: Evidence from European firms","authors":"Ioannis Bournakis, Desiderio Romero‐Jordán","doi":"10.1111/roie.12771","DOIUrl":"https://doi.org/10.1111/roie.12771","url":null,"abstract":"The paper presents a unified framework for analyzing the impact of corporate taxation on R&D and exporting, considering firm productivity heterogeneity and sunk costs. We empirically examine three hypotheses using data from 7819 European firms spanning 2001–2014. We propose that: (a) an increase in corporate tax reduces the likelihood of innovation, (b) an increase in corporate tax reduces the likelihood of exporting, and (c) firms that innovate are more likely to enter foreign markets. On average, a high Effective Average Tax Rate (EATR) lowers the probability of investing in R&D and exporting by 2.3% and 1.41%, respectively. For firms with low Total Factor Productivity (TFP), the adverse effect of taxation on R&D investment ranges from 3.71% in our baseline analysis to 12.9% in our sensitivity analysis. Interestingly, while EATR positively influences the export decisions of high‐TFP firms, a higher EATR can reduce the export probability by up to 25.5% for firms at the lower end of the TFP distribution. Our findings demonstrate a causal relationship between firm heterogeneity and their capacity to mitigate the distortions caused by higher taxes. From a policy perspective, our results suggest that fostering innovation is essential for firms aiming to expand into international markets.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2024-06-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141506966","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper estimates Engel curves on the foreign content (outsourcing) and the foreign environmental taxes embedded in the consumption of final goods and services in the United States (U.S.). We estimate Engel curves using U.S. household income and consumption information from 1996 to 2011 and find that they are concave and shift down over time. Importantly, our results suggest a coherent picture where the foreign content and the foreign environmental taxes in U.S. household consumption bundles decreased on average over time primarily because of a composition effect where the significant income increase has led to a shift in consumption towards goods and services with lower foreign content and lower foreign environmental taxes. Both effects represent a movement along their respective Engel curves. Consequently, other effects besides income changes play a minor role in the evolution of consumer decisions and their relationship with foreign content and environmental taxes.
{"title":"Engel curves on outsourcing and foreign environmental taxes: A valued‐added approach","authors":"Ailun Li, Leilei Shen, Peri Silva","doi":"10.1111/roie.12768","DOIUrl":"https://doi.org/10.1111/roie.12768","url":null,"abstract":"This paper estimates Engel curves on the foreign content (outsourcing) and the foreign environmental taxes embedded in the consumption of final goods and services in the United States (U.S.). We estimate Engel curves using U.S. household income and consumption information from 1996 to 2011 and find that they are concave and shift down over time. Importantly, our results suggest a coherent picture where the foreign content and the foreign environmental taxes in U.S. household consumption bundles decreased on average over time primarily because of a composition effect where the significant income increase has led to a shift in consumption towards goods and services with lower foreign content and lower foreign environmental taxes. Both effects represent a movement along their respective Engel curves. Consequently, other effects besides income changes play a minor role in the evolution of consumer decisions and their relationship with foreign content and environmental taxes.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2024-06-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141344152","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper, we examine the persistence of benefits from foreign ownership, which informs the proper FDI policies. We exploit the divestment of foreign affiliates in South Korea from 2007 to 2019 as a quasi‐experiment to estimate such persistence of benefits. Our empirical analysis at firm‐level based on the propensity score reweighted difference‐in‐differences model leads to several conclusions. First, on average, the productivity benefit from foreign ownership does not persist after the divestment. Second, the productivity benefit of foreign ownership is persistent in firms with a higher absorptive capacity, measured by R&D intensity, intangible assets, and skilled workers. Such persistence is strengthened if the former foreign affiliate has a longer duration of ownership before the divestment. It suggests that absorptive capacity and time input are helpful for foreign affiliates to persistently absorb knowledge from their owners. Finally, we find that the productivity benefits of foreign ownership are less persistent at former foreign affiliates relying more on external trade.
{"title":"Persistence in the benefits of foreign ownership: Evidence from divestment","authors":"Chun‐Yu Ho, Ji Hee Sung, Won Sung","doi":"10.1111/roie.12767","DOIUrl":"https://doi.org/10.1111/roie.12767","url":null,"abstract":"In this paper, we examine the persistence of benefits from foreign ownership, which informs the proper FDI policies. We exploit the divestment of foreign affiliates in South Korea from 2007 to 2019 as a quasi‐experiment to estimate such persistence of benefits. Our empirical analysis at firm‐level based on the propensity score reweighted difference‐in‐differences model leads to several conclusions. First, on average, the productivity benefit from foreign ownership does not persist after the divestment. Second, the productivity benefit of foreign ownership is persistent in firms with a higher absorptive capacity, measured by R&D intensity, intangible assets, and skilled workers. Such persistence is strengthened if the former foreign affiliate has a longer duration of ownership before the divestment. It suggests that absorptive capacity and time input are helpful for foreign affiliates to persistently absorb knowledge from their owners. Finally, we find that the productivity benefits of foreign ownership are less persistent at former foreign affiliates relying more on external trade.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2024-06-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141339299","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
US–China trade is widely thought to have contributed significantly to the decline in US manufacturing employment, sometimes called the China syndrome. Flipping the point of view, we examine its impact on Chinese local labor markets between 2000 and 2010. In prefectures most exposed to export growth, there is a pronounced increase in manufacturing employment, primarily among young, low‐educated, rural people and more for blue‐collar workers. Beyond manufacturing, there is a decline in agricultural, yet an expansion in service employment, exhibiting substantial heterogeneity across demographics. The export‐driven structural transformation is profound and long‐lasting out to 2020. Among nonworking people, export growth primarily increases school attendance and the share of people relying on family support, suggesting an income effect.
{"title":"The flip side of the China syndrome: Local labor market effects in China","authors":"Difei Ouyang, Weidi Yuan","doi":"10.1111/roie.12766","DOIUrl":"https://doi.org/10.1111/roie.12766","url":null,"abstract":"US–China trade is widely thought to have contributed significantly to the decline in US manufacturing employment, sometimes called the China syndrome. Flipping the point of view, we examine its impact on Chinese local labor markets between 2000 and 2010. In prefectures most exposed to export growth, there is a pronounced increase in manufacturing employment, primarily among young, low‐educated, rural people and more for blue‐collar workers. Beyond manufacturing, there is a decline in agricultural, yet an expansion in service employment, exhibiting substantial heterogeneity across demographics. The export‐driven structural transformation is profound and long‐lasting out to 2020. Among nonworking people, export growth primarily increases school attendance and the share of people relying on family support, suggesting an income effect.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2024-06-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141375500","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This article focuses on the welfare effects of the interaction of a rule of indirect tax harmonization under the destination principle and the provision of public goods that are global in nature. It stresses the role of international transfers between governments set in order to equalize the social (i.e., worldwide) marginal cost of public funds across countries. Under this condition, it is shown how the combination of the tax and expenditure side of such a “harmonizing fiscal policy” can give rise to a potential Pareto improvement. This requires considering aggregate revenue effects (and the ensuing effects on the provision of public goods) of the fiscal reform jointly with under/over provision of public goods in the (first‐best) Samuelson sense.
{"title":"Harmonizing fiscal policy: Indirect taxes and global public goods","authors":"M. Lopez‐Garcia","doi":"10.1111/roie.12769","DOIUrl":"https://doi.org/10.1111/roie.12769","url":null,"abstract":"This article focuses on the welfare effects of the interaction of a rule of indirect tax harmonization under the destination principle and the provision of public goods that are global in nature. It stresses the role of international transfers between governments set in order to equalize the social (i.e., worldwide) marginal cost of public funds across countries. Under this condition, it is shown how the combination of the tax and expenditure side of such a “harmonizing fiscal policy” can give rise to a potential Pareto improvement. This requires considering aggregate revenue effects (and the ensuing effects on the provision of public goods) of the fiscal reform jointly with under/over provision of public goods in the (first‐best) Samuelson sense.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2024-06-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141375131","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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