Exchange rate and foreign GDP elasticities of Swiss exports across sectors and destination countries

This article uses a detailed breakdown of Swiss trade flows to identify how the impact of the two main determinants of Switzerland’s exports – foreign demand and the real exchange rate – varies across sectors and export destinations. Our main findings are that (i) both foreign demand and exchange rate elasticities vary substantially across both export sectors and export destinations. (ii) Foreign demand trends are more important for structural considerations than the exchange rate. This is due to the fact that exports of the two largest export sectors are relatively sensitive to long-run foreign demand developments while they are relatively insensitive to changes in the exchange rate. (iii) The sectoral structure of Switzerland’s exports has shifted towards goods that have a lower short-run demand elasticity and a higher long-run demand elasticity. Goods exports are thus less influenced by business cycle fluctuations while they benefit more from long-term growth trends. (iv) The export share of sectors with a relatively low exchange rate elasticity has increased. However, this result is mainly driven by the strong rise in exports of chemicals and pharmaceuticals as well as precision instruments and watches, which are also the two important sectors responsible for the Swiss trade surplus.     

GAINS FROM TRADE WITH VARIABLE TRADE ELASTICITIES

We measure gains from trade in multisector economies with nonhomothetic preferences where changes in trade costs generate reallocation of expenditure across sectors. We show how to measure the trade elasticity and how it relates to welfare. In this environment, the trade elasticity now varies both across countries and with levels of trade costs. In an application, we find that the trade elasticity varies substantially across countries and that the gains from moving from autarky to observed trade are on average between 24% and 28% greater than in a model where the trade elasticity is constant.     

Public expenditure distribution,voting, and growth

In this paper, we study why the misallocation of resources across different productive sectors tends to persist over time. To this end, we propose a general equilibrium model that delivers two structural relations. On one hand, the public expenditure distribution influences the future sectoral composition of the economy. On the other hand, the distribution of vested interests across sectors determines public policy decisions. The model predicts that different initial sectoral compositions entail different future streams of public expenditure and therefore different development paths.     

Productivity and convergence across U.S. States and industries

We examine the sources of aggregate labor productivity movements and convergence in the U.S. states from 1963 to 1989. Productivity levels vary widely across sectors and across states, as do sectoral output and employment shares. The main finding is the diverse performance of sectors regarding convergence. Using both cross-section and time series methods, we find convergence in labor productivity for both manufacturing and mining. However, we find that convergence does not hold for all sectors over the period. Decomposing aggregate convergence into industry productivity gains and changing sectoral shares of output, we find the manufacturing sector to be responsible for the bulk of cross-state convergence.     

A new approach to determining sectoral priorities in an economy: input–Output elasticities

This paper uses input–Output elasticities to identify important economic sectors. Elasticities of output employment and income are used to identify key sectors of the Greek economy. A comparison of the rankings of economic sectors based on input–output elasticities with those based on net backward linkages indicates significant divergence in sectoral rankings obtained from the two approaches. The elasticity approach yields more consistent estimates of sectoral output employment and income potentials than the net backward linkage approach. Measured in terms of the potential to generate output employment and income agriculture services and textiles are found to be the key sectors for the Greek economy.     

Investment, Pass-Through, and Exchange Rates: A Cross-Country Comparison

Using detailed data from the United States, Canada, the United Kingdom, and Japan, we examine the implications of exchange rates for time series of sectoral investment. Both theoretically and empirically, we show that investment responsiveness to exchange rates varies over time, positively in relation to sectoral reliance on export share and negatively with respect to the share of imported inputs in production. Important differences exist in investment endogeneity across high- and low-price-over-cost markup sectors, with investment in low-markup sectors often significantly more responsive to exchange rates. Cross-country differences in investment response are only partially explained by industrial organization arguments.     

How important is the intermediate input channel in explaining sectoral employment comovement over the business cycle?

This paper investigates both analytically and quantitatively the role of intersectoral linkages in explaining sectoral employment comovement over the business cycle. We use a multisector dynamic stochastic general equilibrium model calibrated to the 2-digit SIC level intermediate input-use and capital-use tables and sectoral productivity shocks. With indivisible labor implying constant marginal utility of leisure, intersectoral linkages at the disaggregated level generate strong employment comovement across sectors. With divisible labor, however, procyclical marginal utility of leisure can dominate intersectoral linkages, implying some negative comovement. It further requires some form of the difficulty in reallocating labor across sectors, so that the substitutability of labor supply across sectors is relatively low. With divisible labor, a limited substitution of labor hours across sectors is shown to generate strong employment comovement over the business cycle.     

Sectoral regularities of productivity growth in developing countries--a Kaldorian interpretation

This paper provides a Kaldorian interpretation for empiricalregularities of productivity growth at the sectoral level ofthe economy. The statistical evidence is based on a datasetdrawn from internationally compatible time series for employmentand value added in 30 developing countries. Based on novel non-linearstatistical techniques the findings show: (i) a regular patternof positive sectoral employment elasticities with respect tooutput growth; (ii) robust differences across sectors in themagnitude of the employment elasticities; and (iii) employmentelasticities for all sectors that are significantly less thanunity, suggesting strong evidence for increasing returns atthe sector level of the economy.     

Tradability and market penetration costs: Explaining foreign market servicing intensities

Industry level data shows striking differences among sectors in ratios of exports to FDI sales. We identify the elements behind the sectoral differences in the mode of foreign market servicing in the context of a general equilibrium model of monopolistic competition. Our calibration exercise shows that traditional margins such as transportation, fixed entry costs, utility weights, and dispersion of firm productivity are not enough to capture the observed sectoral differences, as is commonly assumed. We propose augmenting the model to allow for sectoral differences in intangible costs of operating in a foreign market in order to explain these observations.     

Offshoring and jobs: The myriad channels of influence

Offshoring reallocates jobs inside firms, between firms, and across sectors, affecting the economy-wide unemployment rate. We study these channels in a model with labor market frictions and two sectors—a differentiated-good sector comprising heterogeneous firms that can offshore, and a homogeneous-good sector. A decline in offshoring costs affects intrafirm and intrasectoral reallocation of jobs in the differentiated-good sector through a selection effect, a productivity effect, and a job-relocation effect. The key parameters determining the impact of offshoring on jobs at various margins, as well as on the economy-wide unemployment rate, are the elasticity of substitution between inputs, the elasticity of substitution between varieties of differentiated goods, and the elasticity of demand for differentiated goods as a whole. Changes in search frictions affect unemployment both directly and through their interaction with offshoring.     

Sudden stops, financial frictions, and labor market flows: Evidence from Latin America

While the aggregate effects of sudden stops and international financial crises are well known, the disaggregated channels through which they work are not well explored yet. In this paper, using job flows from a sectoral panel dataset for four Latin American countries, we find that sudden stops are characterized as periods of lower job creation and increased job destruction. Moreover, these effects are heterogeneous across sectors: we find that when a sudden stop occurs, sectors with higher dependence on external financing experience lower job creation. In turn, sectors with higher liquidity needs experience significantly larger job destruction. This evidence is consistent with the idea that dependence on external financing affects mainly the creation margin and that exposure to liquidity conditions affects mainly the destruction margin. Overall, our results provide evidence of financial frictions being an important transmission channel of sudden stops and in the restructuring process in general.     

Regional divergence and club convergence in India

This paper examines regional divergence in income across different states in India, and estimates convergence clubs endogenously. The paper makes two useful contributions. First, the data is analyzed using a novel method due to Phillips and Sul (2007) leading to different conclusions in comparison to past studies, and secondly sectoral level data is employed which to our knowledge has not been employed in the literature before. Applying the novel approach to panel data relating to fifteen major states of India for the period 1968/69–2008/09, the results display significant divergence in per capita income across states at the aggregate and sectoral levels. There is also evidence of convergence clubs and variations in the number and composition of clubs across sectors. While three clubs are identified at the aggregate level, at the sectoral level we find three clubs in the industrial sector, two clubs are identified in both the agriculture and services sectors. The final part of the paper deals with the policy implications.     

Productivity Trends in Europe: Implications for Real Exchange Rates, Real Interest Rates, and Inflation

The paper examines a long–run (neoclassical) framework in which differences in productivity growth across sectors and countries lead to inflation differentials. In a currency union, these inflation differentials imply cross–country differentials in real interest rates. The authors estimate the likely size of these differentials for European Union countries, discuss the potential costs of persistent inflation differentials, and comment on the conflicts they may cause within Economic and Monetary Union (EMU). The analytical framework is a variant of the Balassa–Samuelson "productivity hypotheisis," which relates sectoral productivity trends to trends in the relative price of home goods.     

Technological Progress and Sectoral Shares

This paper studies the effect of differences in the rate of technological progress between sectors on their relative sizes. There are two sectors: a stagnant sector, where productivity does not change over time, and a progressive sector, where costs decrease over time. We consider a conjectural variation approach which encompasses perfect competition, oligopoly and monopoly. The evolution of the relative shares of the stagnant and progressive sectors over time depends on the type of competition, cost levels and the price elasticity of demand. The relationship with the cost disease literature is discussed.     

The determinants of trade performance: influence of R&D on export flows

A theoretical model is presented, in which supply side differences between countries determine international trade flows. This model is empirically tested at a sectoral level for a group of EU countries, within a framework that focuses on changes through time and differences between countries. The results show that the validity of the theoretical model is limited at sectoral level. However, as expected, we find that the variable representing technological differences is significant and correctly signed for high-technology sectors. The evidence points to the existence of different production functions across countries and to the importance of supply side factors in determining the direction and the terms of trade.     

The sensitivity of climate-economy CGE models to energy-related elasticity parameters: Implications for climate policy design

A dynamic climate-economy CGE model based on the GTAP framework is used to analyse how sensitive simulation results are to alternative values assumed by several types of elasticity of substitution in energy-related linkages. Input substitutability in the production function is also tested for the relationship between capital and energy in different manufacturing sectors. The simulation exercise reveals that the model produces highly differentiated results when different sets of elasticity parameters are adopted. As a general result, lower substitutability values correspond to a reduction in the flexibility of energy substitution possibilities, making carbon abatement efforts more expensive. Moreover, this restriction generates changes in the distribution of costs associated with abatement efforts across regions. This brings to severe implications on international competitiveness especially for energy-intensive industrial sectors. The direct implication derived from this work is that in order to use CGE models to assess the amount and distribution of mitigation costs and to inform the international community involved in discussing the feasibility of climate policies, the use of empirically estimated behavioural parameters at the highest possible disaggregation level is highly recommended.     

Dynamics of sectoral business cycle comovement

Sectoral comovement accounts for a considerable share of the variance of aggregate variables. However, little is known about its time-varying aspects by now. In this article, a multivariate DCC- GARCH framework is employed to study dynamics of sectoral comovement across manufacturing sectors both in the United States and in Germany. To account for possible nonlinearities, asymmetric effects in conditional volatilities as well as in conditional correlations are being assessed. We find that comovement across sectors is not stable but shows irregular movements. Particularly, contractions tend to be more synchronized than expansions in manufacturing sector. Moreover, we examine the role of various aggregate factors for the fluctuations in conditional correlations. Our findings reveal that both the non-constant variability of common factors and the changes in the effects of these factors play role for the fluctuations in sectoral comovement.     

The effectiveness of international diversification: whole markets versus sectors

A hedging approach is used to examine the effect of sectoral factors on the effectiveness of international diversification. By using data covering seven countries and various sectors, we find that international diversification is more effective when assets from developed markets only are used and when multiasset portfolios are used instead two-asset portfolios. The results also reveal that international diversification across whole markets is more effective than diversification across sectors. These results reflect the pattern of return correlation.     

The Elasticity of Poverty with respect to Sectoral Growth in Africa

The African continent has grown by more than 4 percent yearly on average during the past decade. However, the link between this remarkable growth rate and poverty reduction is neither obvious nor simple. This paper focuses on the elasticity of poverty with respect to GDP growth at the sectoral level and takes into account the fact that economic growth may affect poverty directly as well as indirectly through sectoral labor share intensity. It develops a methodology that sheds light on the contribution of sectoral growth to poverty reduction country‐by‐country in Africa, guiding policy recommendations. As the composition of growth matters at least as much as its overall intensity, it is key to identify the sectors that have the strongest impact on poverty reduction and unleash their potential; if growth happens to concentrate in sectors with scarce pro‐poor potential, like commodity‐driven growth, redistributive strategies are necessary to compensate the weak effect on poverty.     

Increasing linkages among European regions. The role of sectoral composition

This paper analyses changes in economic regional interlinkages in Europe over time and investigates the factors that could explain the dynamics of these changes. Our four main findings are the following: (i) we detect a significant surge in regional synchronisation after the Great Recession; (ii) we identify the regions most interrelated with the rest of Europe, namely, Ile de France, Inner London and Lombardia; (iii) we find that sectoral composition explains regional synchronisation in Europe, mainly after the Great Recession and (iv) we document that sectoral composition has important implications for aggregate economic fluctuations, in particular, that similarities in services-related sectors across regions explain a nonlinear relationship between sectoral composition and regional business cycle synchronisation. We also propose a new method to measure time-varying synchronisation in small samples that combines regime-switching models and dynamic model averaging.