The ETS in China and Europe: dynamics,policy options and global sustainability perspectives

The Emission Trading Schemes of China and Europe show that China’s envisaged national ETS could bring a major contribution in the international approach against global warming; new perspectives on the use of composite sustainability indicators are also highlighted. China’s regional pilot schemes will converge to a (more) uniform price of emission allowances. As China is a major economic and political actor in the world economy, China’s progress with ETS is important. At the same time, China’s progress in the field of green international competitiveness – standing for a positive revealed comparative advantage in environmentally friendly goods – in the period 2000–2015 is considerable and the improved positioning of China in the EIIW-vita sustainability indicator shows considerable technological dynamics in Asia. The European ETS is working, but it suffers from the rather low price of emission allowances. The long-term time horizon of 2050 in the EU climate policy is rather ambitious and it is unclear whether or not a consistent G20 approach can be achieved – with the EU, China, Japan and the US cooperating amongst each other. There is a lack of a specialized climate stabilization institution in the world economy, the traditional anchoring of climate policy in the UN weakens the practical pressure for efficient cooperation since the UN is very heterogeneous in terms of per capita income and GHG emissions per unit of GDP; G20 might be an institution that is suitable for effective policy cooperation. More initiatives in the field of recycling could be useful.     

A Structural Break Analysis of Fiscal Deficit Process in Nigeria

The study examined the sustainability of fiscal policy process in Nigeria for the period 1961 to 2013, using ARDL cointegrating method between government revenue and government expenditure. The Bai-Perron multiple break point tests showed that there was structural shift in variables in 1981 which accounted for unsustainable fiscal deficit throughout the period. It was however, found that fiscal deficit before 1981(1961–1980) was weakly sustainable, while the estimation after 1981(1982–2013) indicated strong sustainability of fiscal policy in Nigeria. We therefore recommend that government should continue with the policies put in place by successive governments since 1982 to ensure stability of macroeconomics environment.     

Estimating sectoral product quality under quality heterogeneity

This paper estimates product quality at the sectoral level using data from a panel of twelve manufacturing sectors in nineteen OECD countries during the years 1995–2006. The author first derives a gravity model from a firm-heterogeneity model of trade, then measures product quality as the residual of the gravity model. In estimating the gravity model, the author employs the two-step procedure of Helpman et al. (Q J Econ 123(2):441–487, 2008) to correct for biases caused by selection in trade and firm heterogeneity. When aggregated into the country level, the used overall quality metrics do not systematically differ from Hallak and Schott’s (Q J Econ 126(1):417–474, 2011). In line with existing literature, sectoral quality estimates are found positively correlated with sectoral unit prices as well as countries’ income per capita. And the quality gap between rich and poor countries is more pronounced in capital- and skill-intensive sectors. In addition, the autor finds beta- and sigma-convergence in sectoral product quality across countries.     

The role of direct flights in trade costs

Effects of direct flights on trade costs are investigated using micro price data at the city level. After controlling for local retail/distribution costs, traded input prices are obtained to be further used in the measurement of trade costs across cities through arbitrage conditions. The existence of a direct flight enters trade costs regressions negatively and significantly. The results are shown to be robust to the consideration of many control variables, nonlinearities in the effects of distance on trade costs, possible endogeneity of having direct flights between cities and alternative definitions of the data. The direct flights that are shown to be determined by bilateral air services agreements are further shown to reduce trade costs through an endogeneity analysis; the main policy implications are twofold: (i) international trade policies through aviation services, such as Open Skies Agreements of the US, are alternative trade policy tools to reduce international trade barriers; (ii) direct flights facilitate the integration of internal markets as in the case of European Union.     

Explaining the size differences of exporter premia: theory and evidence

Two decades of research have established pronounced exporter productivity premia (EPP) and exporter size premia (ESP). Yet, we do not know why such exporter premia differ so widely in magnitude across countries or sectors? We take this question to the theory and to the data. We derive the sectoral EPP and ESP in a standard heterogeneous firms trade model and apply the insights from the model to guide our empirical investigation of detailed Danish firm-level data. We show that a significant share of the observed variation in EPP and ESP across sectors can be accounted for by sector differences in the underlying variation in productivity dispersion, variable trade costs, the ratio of fixed export costs to fixed costs of production, and the elasticity of demand.     

Modelling the volatility of commodities prices using a stochastic volatility model with random level shifts

We use the approach of Qu and Perron (Econom J 16(3):309–339, 2013) for the modeling and inference of volatility of a set of commodity prices in the presence of random level shifts of unknown timing, magnitude and frequency. Our approach contributes to the study of commodities in several aspects. First, we test for the presence of a genuine long-memory process in the volatility of commodities. Second, we determine that the random level shifts are certainly the main source of variation in the commodity price volatility. Finally, we estimate the volatility and its components as latent variables, thereby making it possible to evaluate their level of correlation with macroeconomic variables in small open economies such as Latin-American countries where the dependence on commodity price volatility is high. We use six commodity series: agriculture, livestock, gold, oil, industrial metals and a general commodity index. All series cover the period from January 1983 until December 2013 in daily frequency. The results show that although the occurrence of a level shift is rare, (about once every 1.5 or 1.8 years), this component clearly contributes most to the variation in the volatility. Furthermore, isolating the level shift component from the overall volatility indicates a strong relationship of this component with a set of business cycle indicators of several Latin American countries.     

Assessing aggregate reallocation effects with heterogeneous inputs,and evidence across countries

Theoretically, reallocating an input from a firm where the input has low marginal product to a firm where the input has high marginal product would increase aggregate productivity without any underlying change in technology. This paper argues that measuring these reallocation effects requires accounting for detailed input types because, for example, differences in wages across producers often reflect the skill mix of workers, not allocative inefficiency. The paper develops an approach to measuring reallocation that accounts for worker skill and the composition of capital assets, thus focuses on the set of countries for which this information is available. The results show once input heterogeneity is accounted for, the effects of reallocation on aggregate productivity were small on average, but sizable in a subset of countries. Panel regressions indicate that reallocation effects are related to population distribution and government effectiveness.     

Export survival and the dynamics of experience

This paper focuses on developing countries’ pioneer exports to the OECD and obtains several important results on export dynamics, linking export experience and export survival. Using product level data at the SITC 5-digit level for 114 developing countries over the 1962–2009 period, we show that prior export experience obtained in non-OECD markets significantly increases survival of pioneer exports toward the OECD. The experience does not need to last long, as gaining experience for more than two years does not confer any additional benefit. The effect of experience depreciates rapidly with time: a break in export experience prior to entering the OECD reduces the advantage on survival. Finally, the role of prior export experience is particularly relevant for survival in the first two years upon entry into the OECD. The geographic dynamic of export experience reveals that experience is acquired in neighboring, easy to access markets before reaching more distant, richer partners and ultimately serving the OECD with a higher probability of survival.     

Heterogeneous effects of bilateral investment treaties

Bilateral investment treaties (BITs) are an increasingly used policy instrument to encourage FDI inflows, particularly inflows into developing countries. In this paper we estimate a gravity model of FDI flows from a sample of OECD countries to a broader sample of developing economies, examining the impact of BITs on these flows. BITs are signed between highly heterogeneous country-pairs, with important differences found in terms of the institutional and economic distance between BIT signatories. These differences may help explain the mixed results on the effects of BITs on FDI flows in the existing literature, with our exploration of non-linearities in this relationship suggesting that the effects of BITs are increasing in the difference in GDP and GDP per capita between source and host. BITs appear to have no impact upon FDI flows for country-pairs that are too dissimilar in terms of the strength of their political institutions.