Does China＇s Huge External Surplus Imply an Undervalued Renminbi？

A pegged exchange rate regime has been pivotal to China's export-led development strategy. However, its huge trade surpluses and massive build up of international reserves have been matched by large deficits for major trading partners, creating acute policy concerns abroad, especially in the USA. This paper provides a straightforward conceptual framework for interpreting the effect of China's exchange rate policy on its own trade balance and that of trading partners in the context of discrepant economic growth rates. It shows how pegging the exchange rate when output is outstripping expenditure induces China's trade surpluses and counterpart deficits for its trading partners. An important corollary is that given its strictly regulated capital account, China's persistently large surpluses imply a significantly undervalued renminbi, which should gradually become more flexible.     

Employment in domestic plants and foreign affiliates: A note on the elasticity of substitution

Conclusions For a high-wage country like Austria, it is commonly expected that growing employment in foreign affiliates substitutes jobs at home. This paper provides a simple framework for estimating the determinants of relative labor demand (abroad in relation to that at home) bilaterally. It is based on the relationship of (dis)economies and transportation costs under the hypothesis that goods trade is an imperfect substitute for foreign production in the case of horizontal investments, while with respect to vertical investments, goods trade is solely dependent on relative market size. The estimates are based on bilateral industry-level data on foreign affiliates and the domestic activities of Austrian manufacturing firms, covering the period 1990–1996, the 10 most important host countries and 7 industrial sectors.     

China＇s Trade Acceleration and the Deepening of an East Asian Regional Production Network

China＇s recent surge in trade has been associated with its deepening but contrasting trade relations with its two groups of key trading partners. On the one hand, China＇ s trade surpluses with the USA and the EU have risen rapidly, reaching US$144bn and US$91bn in 2006, respectively. On the other hand, China is importing heavily from its Asian neighbors. This diverging pattern of trade relations between China and its main trading partners reflects the continuous expansion and intensification of a complex cross-border production network in Asia, particularly for consumer electronics. In the process of deepening manufacturing sharing, China serves as an essential export platform for firms headquartered in the more advanced economies. These firms export intermediate goods from the relatively more advanced Asian economies to their affiliates in China where these inputs are assembled and then shipped to key export markets, including primarily the USA and the EU. One apparent outcome of the growing processing and assembly trade is the increased interdependency among Asian economies, which are now more dependent on each other than ever. It has also led to substantial structural changes and technological upgrading in China＇ s traded goods.     

An impact of economic integration through trade: on business cycles for 10 East Asian countries

Many recent studies about East Asian countries discussed “natural” economic integration through trade, but there are few rigorous empirical studies on how their economies were affected by the evolution of economic integration within the region. This paper investigates the effect of bilateral trade dependence on the co-movement of business cycles for 10 East Asian countries. We find that economic fluctuations tend to be more synchronized within the region as trade interdependence among them deepens. This finding suggests the necessity of cooperative efforts to prevent or adjust unfavorable future economic crisis in East Asia.     

Role of China in the development of trade and FDI cooperation with BRICS countries

BRICS countries (Brazil, Russia, India, China, South Africa) over the next 50 years could become the driving force in the world economy. They have the huge joint potential and wide opportunities. Further growth of their economies requires creation of their closer partnership in trade and investments. China is playing the leading role in this process, as a main investor and importer of FDI (foreign direct investment) and trade partner in BRICS group. Trade and investment cooperation of BRICS countries is a new paradigm of the formation of their economic growth. This problem is important, but still insufficiently studied and not enough reflected in the economic researches. For the first time, author developed and tested the methodology of the determining the Intra-BRICS potential of trade and investment cooperation and getting the synergistic effect of the economic interaction of BRICS countries. Trade and investment cooperation of China with other BRICS countries exerts very strong impact on the development of their economies. China continue to deepen its economic ties with other BRICS countries and open up its financial market to serve as a cushion against rising global uncertainty. Development of Intra-BRICS trade and investment cooperation is very important in the context of trade war imposed by the USA against China.     

Optimal currency shares in international reserves: The impact of the euro and the prospects for the dollar

Foreign exchange reserve accumulation has risen dramatically in recent years. The introduction of the euro, greater liquidity in other major currencies, and the rising current account deficits and external debt of the United States have increased the pressure on central banks to diversify away from the US dollar. A major portfolio shift would significantly affect exchange rates and the status of the dollar as the dominant international currency. We develop a dynamic mean-variance optimization framework with portfolio rebalancing costs to estimate optimal portfolio weights among the main international currencies. Making various assumptions on expected currency returns and the variance–covariance structure, we assess how the euro has changed this allocation. We then perform simulations for the optimal currency allocations of four large emerging market countries (Brazil, Russia, India and China), adding constraints that reflect a central bank's desire to hold a sizable portion of its portfolio in the currencies of its peg, its foreign debt and its international trade. Our main results are: (i) The optimizer can match the large share of the US dollar in reserves, when the dollar is the reference (risk-free) currency. (ii) The optimum portfolios show a much lower weight for the euro than is observed. This suggests that the euro may already enjoy an enhanced role as an international reserve currency (“punching above its weight”). (iii) Growth in issuance of euro-denominated securities, a rise in euro zone trade with key emerging markets, and increased use of the euro as a currency peg, would all work towards raising the optimal euro shares, with the last factor being quantitatively the most important. J. Japanese Int. Economies 20 (4) (2006) 508–547.     

New Evidence on the Gains from Trade

We summarize the evidence on the gains from trade in monopolistic competition models, arising from three sources: (i) price reductions due to increasing returns to scale; (ii) increased product variety available to consumers; (iii) self-selection of firms with only the most efficient firms surviving after trade liberalization. There is little direct evidence to support the first source of gains from trade, though some indirect evidence from the European Union. The second and third sources of gains from trade find strong empirical support from studies from various countries, relying on new models and new empirical methods. JEL no. F10, F12, F15     

The Effect of the Liberalization of Investment Policies on Employment and Investment of Multinational Corporations in Africa

Abstract: There has been a remarkable shift in the attitudes towards globalization. Specifically, the discussion among academics and policymakers has shifted from whether globalization should be encouraged to how countries can position themselves to benefit from globalization. This paper focuses on one aspect of globalization — the liberalization of investment policies — and analyzes its impact on employment and investments by multinational corporations in Africa. We use data for 33 countries over the period 1984–2003 and we employ a dynamic panel estimator for our analysis. There are two major findings. First, liberalization has a significant and positive effect on investment. Second, liberalization does not have a direct impact on multinational employment — the effect is indirect: liberalization stimulates multinational investments which in turn increases multinational employment. By increasing investment and employment from multinational firms, these liberalization programs contribute to poverty alleviation.     

Spoilt for choice? Multinational corporations and the geography of international production

This paper questions the view that foreign direct investment(FDI) is producing an integrated world production and tradingsystem. Although multinational firms have a greater choice oflocations than in the past, their recent investments abroadhave taken place within a regional, rather than global, framework.The upsurge of FDI flows from North to South has been attractedby just a handful of fast-growing developing countries. Thepaper disputes the claim that the road to development is forpoor countries to attract FDI on the scale observed in suchcountries as Malaysia. This claim involves a fallacy of composition.While FDI can make a valuable contribution, most countries willhave to rely mainly on their own resources and indigenous producers.The paper argues that current proposals for a Multilateral Agreementon Investment neglect both the regional aspects of integrationand the need of poorer countries to promote their domestic supplycapabilities. Conflicts of interest which are ignored in thecurrent rhetoric suggest the continuing relevance of a strategicpolicy approach to international production.     

Multinational Enterprises and New Trade Theory: Evidence for the Convergence Hypothesis

According to the 'convergence hypothesis' multinational companies will tend to displace national firms and trade as total market size increases and as countries converge in relative size, factor endowments, and production costs. Using a recent model developed by Markusen and Venables (1998) as a theoretical framework, we explicitly develop, and address the properties of, empirical measures to proxy displacement of national firms by multinationals. These measures are then used to test the convergence hypothesis for a panel of data of country pairs over the years 1985–1996. Our results based on aggregate country level data provide some empirical support for the convergence hypothesis.     

Has political risk scared mineral investment away from the deposits in developing countries?

In reply to recent assertions of a sharp diversion of metal mineral exploration and mining investment from developing to industrialized countries, the author argues that these worries are misdirected because they concentrate entirely on foreign direct investment and fail to consider the changes in other forms of mineral investments in developing countries. This paper shows that despite the political and economic changes which have diminished the willingness of multinational mining firms to undertake new traditional direct investment commitments in the Thrid World, the share of developing countries in Western World metal mineral activity is rising.     

Five Stylized Facts on Belt and Road Countries and Their Trade Patterns

The Belt and Road Initiative (BRI) offers investment opportunities for several Eurasian countries but not all of them attract investments in the same way. This paper investigates the geographical distribution of BRI projects completed between 2013 and 2020. The analysis shows that pre-existing trade patterns are related to the likelihood of a country receiving completed BRI projects. We single out and provide evidence in support of five stylized facts. First, BRI countries with completed projects tend to be poorer and larger. Second, projects are more likely to occur in countries with intense intermediate trade with China. Third, the countries that received projects have more diversified export structures and their sectoral specialization overlaps with that of China. Fourth, among middle-high-income countries, the allocation of projects tends to favor those with high levels of intra-industry trade. Fifth, among BRI countries with projects, the complexity or sophistication of the goods traded increases faster with income. These findings suggest that fostering trade integration has direct benefits and may also contribute to further BRI investments.     

Financial Reporting and Trade Credit: Evidence from Mandatory IFRS Adoption*

We investigate the effect of mandatory IFRS adoption on trade credit. We document that firms in countries that adopt IFRS receive more trade credit from their suppliers, consistent with improved financial reporting quality and comparability playing a role in facilitating informal financing. This increase is larger for countries with a low level of societal trust, a poor pre‐IFRS‐adoption information environment, and stronger legal enforcement. These cross‐sectional results suggest that the conditions under which higher‐quality information is made publicly available affect suppliers' decisions to provide trade credit. This increase is also larger for firms with greater exposure to foreign markets, a finding that highlights the importance of more comparable international financial reporting standards in facilitating cross‐country trade credit. We also find that IFRS adoption has a stronger positive effect on trade credit for firms with greater liquidity needs. Finally, we find that firms in countries that adopt IFRS also extend more trade credit to their customers. Overall, our results support the notion that financial reporting can have a causal effect on trade credit.     

What role for IMF surveillance?

This paper reviews two recent reports on the international monetary system, one by the Group of 10 (industrial countries) and the other by the Group of 24 (developing countries). It contrasts their recommendations for improving policy surveillance by the International Monetary Fund. Its own recommendations include the strengthening of “enhanced surveillance” to make it more formal without making it more onerous, the introduction of “shadow conditionality” to give guidance to governments about their eligibility to draw on the Fund, and the further development of multilateral surveillance along lines proposed at the Tokyo Summit. It would broaden that process, however, by shifting the focus from policy compatibility, defined with reference to exchange-rate behavior, to policy quality, defined with reference to the behavior of global aggregates such as the growth rate of world trade. The paper examines the use of target zones to manage exchange rates and argues that it would not weaken the case for multilateral surveillance, which is needed not only in setting the zones but also to make sure that policies adopted by participating countries do not impart an inflationary or deflationary bias to the international economy.     

Trade Protection in Five EU Member Candidate Countries by Exchange Rate Adjustment,Customs Tariffs,and Nontariff Measures

Five central European candidate member countries for EU accession (Czech Republic, Hungary, Poland, Slovakia, Slovenia = CE-5) entered into the transition period with undervalued exchange rates to stimulate exports and protect domestic industries. However, this policy was not maintained. During 1993–1995, real currency appreciation increased competitive pressure by foreign firms. To protect domestic firms, governments applied high third-country tariffs, temporary import taxes, and numerous administrative barriers to trade. As countervailing pressure by the EU and the U.S. increased and current account deficits soared in 1996 and 1997, the five countries more and more brought exchange rate policies in line with the changes in purchasing power parity.There seems to be a positive correlation between large current account deficits and the more intense use of nontariff protectionist measures. Using exchange rate measures, Slovenia keeps the current account rather balanced. It employs many less nontariff protectionist measures than the other four countries, which show strong tendencies towards real exchange rate appreciation.     

Indirect exporters and importers

This paper analyses the relation between firms’ productivity and the different modes of participation in international trade. In particular, it accounts for the possibility that firms can not only export their products, but also internationally source their inputs, either directly or indirectly. Using a cross section of firm level data for several advanced and developing economies, the study confirms the productivity-sorting prediction according to which domestic firms are less efficient than those that resort to an export intermediary, while the latter are less productive than producers which export directly. We show that the same sorting exists on the import side. By considering firms involved in both exporting and importing activities, we also find that direct two-way traders are on average more productive than firms trading indirectly on one of the two trade sides. The latter are in turn more efficient than indirect two-way traders. Finally, we investigate the effects of source-country characteristics on the sorting of firms into different modes of international trade.     

China and India’s economic relations with African Countries – neo-colonialism eastern style?

A significant feature of globalisation is the advent of Chinese and Indian firms as overseas investors. Investments by these two countries though not large in volume have grown apace and given a new lease of life to writings on foreign direct investment. Most of these studies including the statistical studies on the determinants of these investments replicate the conclusions of studies on foreign investment in general. Although not large in volume investments of Chinese and Indian firms in natural resource extraction industries, including oil in African countries, have reignited the controversies on the contribution of foreign investment to development. This paper reviews the contribution of these studies and argues that a fresh perspective is required to analyse both the determinants and impact of foreign investment by China and India on the host economies. Their contribution to the development of the African countries may be much more substantial than that of investments by the developed countries mostly because of their experience and awareness of development issues.     

Does China Transfer Productivity Enhancing Technology to Sub‐Saharan Africa? Evidence from Manufacturing Firms*

Abstract: This paper considers whether trade between China and sub‐Saharan Africa results in productivity‐enhancing technology transfers to sub‐Saharan African manufacturing firms. As trade flows between countries potentially results in interactions that lead to technological improvements in the production of goods and services, we parameterize the level of total factor productivity for African manufacturing firms as a function of foreign direct investment flow, and for the country in which it operates, trade openness with China, and its interaction with foreign direct investment. With micro‐level data on manufacturing firms in five sub‐Saharan African countries, we estimate the parameters of firm‐level production functions between 1992 and 2004. Our parameter estimates reveal that across the firms and countries in our sample, there is no relationship between productivity‐enhancing foreign direct investment and trade with China. In addition, increasing trade openness with China has no effect on the growth rate of total factor productivity. To the extent that total factor productivity and its growth is a crucial determinant of economic growth and living standards in the long run, our results suggest that increasing trade openness with China is not a long‐run source of higher living standards for sub‐Saharan Africa.     

Trade and employment in Vietnam: how firms' trade matters

This paper aims to analyse how employment and wages change when a firm's trade status is altered. Using a detailed firm-level dataset of Vietnamese manufacturing enterprises, the study finds that how firms trade matters for firm employment and wages in Vietnam. The average effect of one-way trading (exporting or importing) is positive for both firms' total employment and female employment. Direct trading activities are associated with a higher level of employment than indirect trading activities by firms. The female employment effect of direct exports is nearly three times higher than direct imports. Indirect imports hurt firms' total employment and female employment. Both direct and indirect two-way traders experience higher growth in firm employment than direct-only traders. However, it is interesting to note that indirect two-way trading activities have a positive impact on female employment. Furthermore, the commencement of direct import is also associated with greater labour cost advantage.