Economic Theories of Political (Dis)integration

Abstract.  This paper surveys the recent political economy literature on countries' incentives to form international unions and/or to disintegrate in smaller jurisdictions. The main factors that affect these incentives are (i) economic integration, (ii) the international order, (iii) international spillovers and (iv) the institutional setting. Some implications are drawn for the current debate in Europe on the political effects of economic integration, on the enlargement process and on the distribution of prerogatives between the European Union and national governments.     

Dynamics of Trade Integration and Technological Convergence

The issue of the impact of trade on economic performance and labour markets has been intensively discussed in recent literature on trade liberalization and globalization, where the debate was mainly about identifying the relative impact of trade and technology. The bulk of the existing literature in this area employs, almost without exception, a static Heckscher-Ohlin framework that seems not to be a suitable tool for analysing the ongoing dynamics. This paper presents a dynamic multi-sectoral framework with heterogenous labour to explore the issue of trade liberalization and sectoral catching-up in productivity levels. The model is basically an input-output framework with Schumpeterian features; the latter are modelled as the impact of transitory rents that result from uneven productivity growth and technological catching-up upon the price and quantity systems of the trading economies. Relative productivity and wage rate dynamics across sectors determine the comparative costs and the dynamics of trade specialization. In the Appendix, the equilibrium solutions of the model are derived.     

International propagation of shocks: A dynamic factor model using survey forecasts

This paper studies the pathways for the propagation of shocks across the G7 and major Asia-Pacific countries using multi-horizon forecasts of real GDP growth from 1995 to 2017. We show that if the forecasts are efficient in the long run, the results obtained using these forecasts are comparable to those obtained from the actual outturns. We measure global business cycle connectedness and study the impacts of both country-specific shocks and common international shocks using a panel factor structural VAR model. Our results suggest that there is a strong convergence of business cycles within the group of industrialized countries, as well as within the group of developing economies during non-recessionary periods. In particular, we find an increased decoupling between the industrialized and developing economies after the 2008 recession. However, the direction of shock spillovers during recessions and other crisis periods varies, depending on the nature and origin of the episode.     

构建双循环新发展格局开启中国经济新征程

以国内经济循环为主体,国内国际双循环的经济发展态势是大国经济发展的一个趋势性事实,不以人的意志为转移。新发展格局体现了战略关切取向从效率和公平、零壁垒和零关税向安全的调整。经济学和经济发展的两个最重要的理论关切是效率和公平。当考虑到国际关系时,国际自由竞争的经济学逻辑,就是没有贸易壁垒和低关税,最好是零关税、零壁垒,那么国内国际的经济循环就可以一体化。这就是市场经济的国内循环与国际循环的基本逻辑。从根本的理论逻辑来说,要逐步形成以国内大循环为主体、国内国际双循环相互促进的“新”发展格局,就是在原有的理论逻辑中加入安全因素。由于对安全的深度关切,在国内国际双循环中,必须形成更具安全关切性的新发展格局,并使之成为国家经济发展战略的重要内容。国内循环为主体基于规则博弈的纵深化。国内国际双循环的背景是经济全球化,而经济全球化的格局本身也在发生深刻变化。世界各国经济主体的行为不一样,各国所构建的市场规则体系也很不一样。新冠肺炎疫情之后,中国经济发展战略取向将突出两个问题:一是安全性,二是畅通性。只是安全而不畅通就没有效率,只是畅通而失去安全则难以可持续地循环畅通。构建经济双循环新发展格局首先要判断中美之争的实质是规则之争,中国经济崛起之后,经济全球化已不再遵循英国美国曾经主导的那个发展格局的基本逻辑,不再是把全世界的规则变成同质化(西方化),而是要解决不同国家如何形成适应国情的规则,以及不同的规则空间如何进行衔接的问题,这就国内国际双循环的“新发展格局”。     

The effects of U.S. monetary policy on Colombia and Panama (2002–2007)

I study the economies of Colombia (floating exchange rate) and Panama (dollarized) to illustrate how the monetary policy of a large economy can export capital structure distortions to small open economies that follow different exchange rate regimes. The paper contributes to the literature on international business cycles in two ways. First, it adds to recent research that extends the Mises–Hayek business cycle theory to an international context. Second, most current research abstracts from effects on the production structures of emerging market economies when analyzing the transmission of monetary policy shocks. This paper seeks to fill this gap by studying structural effects of U.S. monetary policy on the economies of Colombia (floating exchange rate) and Panama (dollarized).     

National Economic Policy Simulations with Global Interdependencies: A Sensitivity Analysis for Germany

Policy simulations for national economies with econometric models, in general, are done using a standalone national model with exogenous export values and import prices. In a globalised world, such an exercise is critical, since the policy in question may change the export prices and the import volumes of the particular country and induce via international trade a change of the economic activities of the global economy and a feedback to the export values and import prices of the particular country. This paper presents a sensitivity analysis for Germany comparing the impacts of a shock on investment in a standalone simulation using the multisector model INFORGE with the results, which occur, if the same model is linked to the global multicountry/multisector model GINFORS endogenising Germany`s export values and import prices. The results are striking: the effect on real GDP is 50% higher in the global simulation than in the standalone case. Because of the specialisation in trade the differences on the sector level are even stronger.     

The short and long-run impact of globalization if firms differ in factor input ratios

Empirical evidence has shown that exporters are more capital intensive than non-exporters. Based on this evidence, I construct a two-factor general equilibrium model with firm heterogeneity in factor intensities, monopolistic competition, scale economies and international trade. This setting can explain several empirical regularities on international trade, factor market competition, factor relocations and factor returns: (i) exporters are more capital intensive than non-exporters, regardless of a country's relative factor endowments; (ii) finite supply of capital limits a country's export activities; (iii) trade liberalization increases the relative return to capital; (iv) new profit opportunities in export markets change the distribution of firms towards the more capital intensive ones. Finally, I extend the setting to endogenous capital accumulation and show that trade liberalization induces economic growth and, in the long-run, benefits all factors in real terms.     

POLITICAL BUDGET CYCLES: MANIPULATION BY LEADERS VERSUS MANIPULATION BY RESEARCHERS? EVIDENCE FROM A META‐REGRESSION ANALYSIS

Despite a long history of research on political budget cycles, their existence and magnitude are still in question. By conducting a systematic analysis of the existing literature, we intend to clarify the debate. Based on data collected from 1037 regressions in 46 studies, our meta‐analysis suggests that little, if any, systematic evidence can be found in the research record that national leaders do manipulate fiscal tools in order to be reelected. However, it is much more clear that researchers selectively report that national leaders do manipulate fiscal tools in order to be reelected. The publication selection bias highlighted has nonetheless been reduced during the past 25 years of research. We also show that the incumbents' strategies differ depending on which tools they use. Finally, the nature and quality of political institutions appear to be the factors which most affect the political budget cycles.     

Using MCDA to assist an Intermunicipal community develop a resilience strategy in face of the pandemic caused by the SARS-CoV-2

The topic of regional economic resilience has been the subject of intense debate in the academic and political fields over the past decade and gained a new sense of urgency because of the pandemic caused by the SARS-CoV-2 virus as territories faced relevant impacts on their economies and social structures. The economic downturn, the increase in unemployment, and the deterioration of social conditions lead policy makers to search for solutions to make their territories more resilient to this type of event. The current article discusses how multicriteria decision analysis (MCDA) was used to help a Portuguese Intermunicipal Community, formed by 16 councils, develop a strategy to make its territory more cohesive, competitive, sustainable, and resilient. In addition to discussing an innovative application of a MCDA technique, this article illustrates how, through a MCDA approach, it was possible to reach a consensus among several policymakers, despite each of them having their own political agendas.     

Equity market and money supply spillovers and economic growth in BRICS economies: A global vector autoregressive approach

Previous studies report that private credit as a proxy of financial development contributes to economic growth in BRICS economies. This paper employs three additional measures of financial development, namely equity market, money supply and market capitalization, and further investigates cross-country evidence on the impact of equity market and money supply spillovers on economic growth in BRICS economies. Utilizing a Global Vector Autoregressive (GVAR) framework and quarterly data from 1989Q1 and to 2012Q4 from BRICS economies, we find that equity market and money supply variables do not predict the contributions of financial development in each BRICS member in boosting economic growth in the other member countries. However, market capitalization significantly influences economic growth. These results suggest that, besides private credit, market capitalization is another key channel of promoting growth in individual economies and the region. Policy implications of the findings are discussed.     

MEASUREMENT,EVOLUTION, DETERMINANTS,AND CONSEQUENCES OF STATE CAPACITY: A REVIEW OF RECENT RESEARCH

There is increasing realization that state capacity is a fundamental ingredient for effective governance, and is a crucial element of long‐run economic development. This paper offers an overview of the strengths and limitations in current empirical research on the measurement of state capacity. The paper also surveys the fast emerging literature on the determinants and effects of state capacity. We argue that existing measures on governance quality used in cross‐national research can be usefully exploited to capture different aspects of state capacity, and show that post the end of the Cold War, developing economies have experienced improvements in legal, administrative and bureaucratic capacity, but the gap with advanced economies is still wide. Future research should address the short temporal coverage of available measures of state capacity, as well as providing a systematic quantitative assessment of the determinants of capacity and of its effects on development outcomes, such as health and education, which have not received sufficient scrutiny.     

The Rise of Ethnicity under China's Market Reforms

This article investigates the dynamic relationship between economic development and the identification of ethnic minorities and argues that identification of China's ethnic minorities manifests itself at various levels. At the national level, the introduction of market mechanisms and economic growth initiatives have been concentrated predominantly in the coastal areas and metropolises, and are thus increasingly distant from ethnic minorities, a disproportionate majority of which reside in the western parts of the country. This growing regional disparity has placed ethnic regions and populations in a distinctly unfavourable position in terms of economic engagement and development. Regional development in the ethnic‐minority homelands has been characterized by the representation and reinvention of ethnic cultural traditions and the production of cultural economies. Unequal economic growth has resulted in a massive migration of ethnic minorities to the cities. Simultaneously, urban development has reinforced ethnic identity, particularly through urban labour‐market development. Urban and regional development has, in turn, led to the production, activation and magnification of ethnic identity at individual and group levels.     

Financial development and economic growth in a microfounded small open economy model

The global financial crisis since 2008 revived the debate on whether or not and to what extent financial development contributes to economic growth. This paper reviews different theoretical schools of thought and empirical findings on this nexus, building on which we aim to develop a unified, microfounded model in a small open economy setting to accommodate various theoretical possibilities and empirical observations. The model is then calibrated to match some well-documented stylized facts. Numerical simulations show that, in the long run, the welfare-maximizing level of financial develop is lower than the growth-maximizing level. In the short run, the price channel (through world interest rate) dominates the quantity-channel (through financial productivity), suggesting a vital role of international cooperation in tackling systemic risk of the global financial system.     

America's decoupling from China: A perspective from stock markets

America's decoupling-from-China debate started after July 2018, reached its peak in August 2020, and is likely to continue even if it may not be a high priority for the Biden administration. Many studies have examined various aspects of this issue, especially the potential economic impacts on the US economy. Unlike previous research, this study looks at the response of stock markets. Using Google Trends data, this study created a weekly dataset from January 2020 to June 2021 to measure investor sentiment towards the US decoupling from China. Employing the generalised autoregressive conditional heteroskedasticity (GARCH) models, the study finds that concern over decoupling is associated with significant variations in stock market prices. From this we can infer that the overall effects of decoupling on the US economy are likely to be considerable.     

Economic integration in Africa

There is a renewed interest in the debate on integration in Africa since the creation of the African Union in 2002. This study investigates the feasibility of a full-fledged economic union in Africa. Towards this goal, we examine the short- and long-term relationships among key macro-variables in eight largest African economies during the period from 1976 to 2005. We observe the existence of common long-term trends in real output, price level, private consumption, government consumption, investment and trade flows among these eight countries. In addition, we observe that there exists common cycles (short-term relationships) in real output, investment and trade flows for these countries. These two critical findings indicate the presence of macroeconomic interdependence among these countries which is a crucial factor for the success of integration in Africa led by these eight countries.     

新兴经济体发展对国际社会的影响力研究

当今世界经济呈现多极化趋势,新兴经济体成为世界经济增长的主要动力,对世界政治经济格局产生深刻影响。本文阐述新兴经济体在政治、经济、社会等各方面发展状况,分析新兴经济体的发展对国际社会的影响力。新兴经济体的发展促进了世界经济、国际贸易的稳步发展和产业结构调整,为消除世界范围的贫困和维护世界和平做出了积极的贡献,为发展中国家加快发展和加强“区域化”多边合作提供了可借鉴模式,同时对全球治理结构转型和国际秩序重塑产生一定影响。     

Gender equality and economic complexity

This study is the first attempt to examine the influence of gender equality on economic complexity. Specifically, we investigate the effects of four aspects (employment, health, education, rights) of gender equality with 20 variables in an economic complexity index. To deal with potential endogeneity, we used the two-step system–generalized method of moments approach with an unbalanced panel of data on 119 economies from 1991 to 2017. First, labor participation in industry or service sectors as well as wage and salaried employment by women appears to improve economic complexity, while women’s employment in agriculture, contributions to family workers, self-employment, and vulnerable employment have a negative impact. Second, better health conditions for women increase economic complexity. Third, gender equality in education has a positive impact on economic complexity. Fourth, the empowerment of women in terms of socioeconomic-political rights is a positive factor for economic complexity. Overall, gender equality has great benefits for economic complexity.     

Dynamic gains from North American free trade in an equilibrium model of the current account

The benefits of economic integration in North America are explored by quantifying the gains that the two small open economies of the region can obtain from free trade in financial assets as a vehicle to smooth consumption. Numerical simulations of a stochastic intertemporal equilibrium model are used to estimate the effects of free financial asset trading on economic activity and welfare. The results suggest that in Mexico, where business cycles have been larger and access to world markets has been more limited, free asset trading would produce more benefits that in Canada, where the risk of business cycles is smaller.     

How Important is Foreign Direct Investment?

The degree of multinationality of an economy's production is determined by the extent of production in other economies by domestically-owned firms, and by production located in the economy in question by foreign-owned firms. In the absence of direct measures, international production (that is, production under foreign ownership) is normally measured at a national level by outward and inward foreign direct investment (FDI) stocks. Unfortunately, the existing practice of reporting FDI stocks on a historical cost basis (i.e. book values) is unsatisfactory, because it does not take into account the age distribution of stocks, thus making accurate international comparisons of FDI stocks almost impossible (see e.g. Cantwell, 1984, 1992; Bellak and Cantwell, 1996). We have re-estimated the FDI stocks of Japan, Germany, the US and the UK at replacement values using a perpetual inventory model (PIM). The results cast doubt on some of the conventional wisdoms about international production, derived from historic cost data.