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.     

WHITHER PANAMA? CONSTRUCTING A CONSISTENT AND BALANCED WORLD SUT SYSTEM INCLUDING INTERNATIONAL TRADE AND TRANSPORT MARGINS

This paper extends work done within the World Input–Output Database project (WIOD), which compiled supply and use tables (SUTs) for 40 countries, covering about 85% of the world economy, by adding SUTs for the “rest of the world” (RoW), the approximately 15% of the world economy not covered by the 40 countries included in the WIOD database, ensuring a consistent and balanced world SUT system. The term “consistency” means that at the world level, all flows of goods and services balance, properly accounting for trade and transport services used in international trade (the “cif-fob difference”). This results in SUTs for the RoW which, together with bilateral trade matrices for all commodities (and together with the 40 national SUTs from the WIOD project), describe a consistent SUT system at the world level.     

INCOME DISTRIBUTION,TECHNICAL CHANGE AND THE DYNAMICS OF INTERNATIONAL ECONOMIC INTEGRATION

This paper explores the features of a dynamic multisectoral model that focuses on the relationship between income distribution, growth and international specialization. The model is explored both for the steady‐state properties and the transitory dynamics of integrated economies. Income inequality affects the patterns of growth and international specialization as the model uses non‐linear Engel curves and hence different income groups are characterized by different expenditure patterns. At the same time income distribution is also reflected in the relative wage rates of skilled to unskilled workers, i.e. the skill premium, and hence the wage structure affects comparative costs of industries which have different skill intensities. The model is applied to a situation that analyses qualitatively different economic development strategies of catching‐up economies (a ‘Latin American’ scenario and a ‘East Asian’ scenario).     

Industrial Specialization,Catching‐up and Labour Market Dynamics

This paper presents a dynamic model as a heuristic tool to discuss some issues of changing industrial specialization which arise in the context of catching‐up processes of (technologically) less advanced economies and the impact which various scenarios of such catching‐up processes might have on the labour market dynamics both in the advanced and in the catching‐up economies. In analysing the evolution of international specialization, we demonstrate the twin pressures exerted upon the industrial structures of “northern” economies: competition from “type‐A southern” economies, which maintain a comparative competitive strength in labour‐intensive and less skill‐intensive branches, and competition from “type‐B catching‐up” economies, whose catching‐up increasingly focuses upon branches in which the initial productivity gaps and hence the scope for catching‐up are the highest. The contrast between these two catching‐up scenarios allows the explicit analysis of the implications of “comparative advantage switchovers” between northern and southern (type B) economies for labour market dynamics.     

Industrial Diversity, Trade Patterns, and Productivity Convergence

Recent developments in economic integration show rather diverse patterns of integration in the world economy. Some countries remain predominantly in the low-tech industries whereas other countries succeed in becoming competitive in high-tech industries as well. The authors postulate that a country positioning itself at the lower end of the spectrum of high-tech industries is more favorable to its long-term development than aiming at the upper end of low-tech industries. They argue that countries which specialize in the lower end of the medium–high-tech activities are rewarded by faster productivity increases also in the upper end of the high-tech industries. In contrast, early specialization in medium–low-tech branches yields positive spillovers, mainly in the low-tech sector, which is not conducive to increasing activity in high-tech industries. The authors sketch a theoretical outline of this idea and present econometric results, including four aggregate manufacturing branches across 37 countries.     

Preferential trade agreements and the structure of international trade

In this paper we examine the impact of membership in preferential trade agreements (PTAs) on trade between PTA members. Rather than considering the impact of PTA membership on the volume of trade we consider the impact of membership on the structure of trade. For a large sample of countries over the period 1962–2000 we find that membership in a PTA is associated with an increase in the extent of intra-industry trade. Our results indicate that this is especially the case for PTAs formed between richer countries, with the effects of PTAs between poorer countries found to be smaller.     

Offshoring and the skill structure of labour demand

In this paper we examine the link between international outsourcing—or offshoring—and the skill structure of labour demand for a sample of 40 countries over the period 1995–2009. The paper uses data from the recently compiled World Input–Output Database to estimate a system of variable factor demand equations. These data allow us to exploit both a cross-country and cross-industry dimension and split employment into three skill categories. Our results indicate that while offshoring has impacted negatively upon all skill levels within industries, the largest impacts have been observed for medium-skilled workers. Such results are consistent with recent evidence indicating that medium-skilled workers have suffered to a greater extent than other skill types in recent years.     

Trade policy and global value chains: tariffs versus non-tariff measures

Review of World Economics - Globalisation is increasingly characterised by intertwined geographical and local production processes through global value chains (GVCs). In the presence of GVCs,...     

Russia’s invasion of Ukraine: assessment of the humanitarian,economic, and financial impact in the short and medium term

What are the economic effects of the Ukraine war for Ukraine, Russia, and the rest of Europe? In this study, the Vienna Institute for International Economic Studies (wiiw) sheds light on the immediate consequences on the one hand, but also on the medium-term structural changes caused by the largest armed conflict in Europe since the Second World War. The Russian invasion of Ukraine has triggered a humanitarian crisis. Pre-war, almost 19 m people lived in those regions that are currently directly affected. Refugee inflows to the rest of Europe are likely to be at least three times greater than in 2015/2016. As Black Sea ports come under Russian assault, Ukraine has lost its ability to sell more than half of its exports, primarily agricultural commodities and metals. Western financial support will become ever more important as the war continues. Turning to Russia, sanctions will have a very serious impact on that country’s economy and financial sector. Despite being partly hamstrung by the fact that a large proportion of Russian reserve assets are frozen in the EU and G7, the central bank managed to stabilise financial markets by a combination of confidence-building and hard-steering measures: capital controls, FX controls, regulatory easing for financial institutions, and a doubling of the key policy rate. The medium-term and long-term outlook is negative. As a result of the war and the sanctions, the rest of Europe faces a surge in already high inflation; this will weigh on real incomes and will depress economic growth. Many European countries rely heavily on Russia for oil and gas imports: import shares are over 75% in Czechia, Latvia, Hungary, Slovakia, and Bulgaria with respect to natural gas; Slovakia, Lithuania, Poland, and Finland with respect to oil and petroleum; and Cyprus, Estonia, Latvia, Denmark, Lithuania, Greece, and Bulgaria with respect to solid fuels. Aside from energy, the fallout via trade for the rest of Europe is likely to be small. Non-energy trade and investment links between Russia and many European countries have declined in importance since 2013. There are four main areas of structural change and lasting impact for the EU (and Europe more broadly) as a result of Russia’s invasion of Ukraine. First, the EU will get more serious about defence. Second, the green transition will gather pace. Third, broader Eurasian economic integration will be unwound. And fourth, the EU accession prospects for countries in Southeast Europe could (and should) improve.