T H E F R E N C H C E N T R E F O R R E S E A R C H
A N D S T U D I E S I N W O R L D E C O N O M Y
C O N T E N T S:
1978-2008: an Anniversary for 30 Years of Research
In 1978, when the CEPII was created by former Prime Minister Raymond Barre, it was far from evident for many people that Europe would face the shaking wave of globalisation that has been experienced since then. To be sure, Europe had already suffered a world economic shock - the first oil shock - and was about to face a second one. Capital flows were still highly regulated as well as services and China and the Soviet union were still out of the world economy. From the very beginning, the CEPII put together and harmonised data on the world economy to produce consistent analyses on ongoing deep changes in trade flows, sector specialisation, the international monetary system and new industrialised countries that were later to be renamed 'emerging countries'. Here we overview 30 years of CEPII's researches in two areas: international trade, and exchange rates, based on successive issues of La Lettre du CEPII.
Measuring countries specialisation has been a major concern from the very beginning of CEPII’s research life. A first indicator is proposed in 1979, which measures specialisation independently of trade balances. In the late 1970’s and early 1980’s, the focus then is on the dynamic aspect of specialisation (countries can build their comparative advantages) and on the distinction between its "intensity" and "quality", the latter depending on adaptation to world demand (1983). In1987, an innovative typology is proposed that makes a distinction between one-way trade (a product is either exported or imported), vertical two-way trade (a product is both exported and imported but at different levels of quality) and cross-trade of similar products (horizontal two-way trade). This typology, subsequently refined in the 1990’s, is widely used today. It led CEPII to build, alongside the Chelem database used since 1978, a new harmonised bilateral flow database, BACI, detailing bilateral trade volumes and values for some 5,000 products. To throw light on the trade negotiations launched by the WTO, in 2001 the CEPII built a general equilibrium model – MIRAGE – for simulating trade policies while accounting for the interaction of markets for goods, services and production factors, in quantities and prices, covering all national economies participating in negotiations. As negotiations are taking place at very detailed level of tariff lines, the model had to be linked to a detailed, exhaustive, bilateral database on obstacles to trade. To this end, the MAcMaps database was developed jointly by CEPII and the International Trade Centre. This model has been extensively used by the CEPII and partner institutes for studying the Doha agenda, but also regional integration and bilateral initiatives.
In September 1980, the dollar lies at a low level (the equivalent of 1.63 euro!). It can be read in a Lettre du CEPII that "the exchange rate has once again become an economic weapon" and that the dollar is under-valued against many currencies (with the notable exception of the yen) in terms of purchasing power parity, but also in terms of a standard incorporating levels of development (Balassa-Samuelson effect). In 1994, several years after Plaza and Louvre agreements, the CEPII notes the inability of international monetary system to prevent "long-term distortions of real exchange rates", the instability of nominal exchange rates and, already, the accumulation of current account imbalances. It lists three challenges that the international monetary system would have to meet: the spread of capital market liberalisation, the development of regional monetary co-operation agreements and the rise of emerging economies. It suggests that international co-ordination should no longer be based directly on exchange rates but, upstream, on the principles of economic policy. It calls for the reactivation of IMF multilateral monitoring of exchange rate policies, particularly those of emerging economies. International monetary co-ordination assumes agreement on "normal" or "equilibrium" exchange rate values. The CEPII’s research in this field since the mid-1990’s highlights, respectively, the uncertainty surrounding calculations of equilibrium exchange rates, the extent of exchange rate adjustments necessary to correct world-wide imbalances, the need to consider regional interaction in assessing exchange rate distortions and, finally, the need for a multilateral approach to exchange rate distortions. The period 1999-2007 started with a strong depreciation of the Euro against the dollar, followed by a spectacular rise. This volatility of the Euro came as no surprise to CEPII, which anticipated it in 1997. In 2000, the CEPII mentions the risk of “an upward overshooting, which it would perhaps be difficult to combat due to the potentially diverging interests of the players in European economic policy". As a matter of fact, the very strong rise of the euro since 2001 and, even more so, since 2006, has not created sufficient consensus in Europe to establish an exchange rate policy.
Global Overview of Trade Policies David Laborde May 2007 La Lettre du CEPII N° 267
WTO Trade Talks: a Bird in the Hand is Worth Two in the Bush Lionel Fontagné David Laborde Cristina Mitaritonna January 2007 La Lettre du CEPII N° 263
Argentina's Debt and the Decline of the IMF Jérôme Sgard January 2005 N° 241
Speculating on the Yuan Bronka Rzepkowski May 2004 N° 234
The World Market: Market Shares and Export Performances Angela Cheptea Guillaume Gaulier Soledad Zignago February 2004 N° 231
The WTO: in the Trough of the Trade Round Lionel Fontagné Sébastien Jean September 2003 N° 226
Sovereign Debt Crises and Multilateral Action Following the Rejection of the Krueger Proposal Jérôme Sgard May N° 223
Argentina One Year On: From a Monetary Crisis to a Financial Crisis Jérôme Sgard December 2002 N° 218
Euro/dollar : Every Body can Make Mistakes Agnès Bénassy-Quéré September 2002 N° 215
International Trade, Borders and Market Institutions Jérôme Sgard July-August 2002 N° 214
Market Access: the Objectives after Doha Lionel Fontagné Jean-Louis Guérin Sébastien Jean April 2002 N° 211
Can the Argentine Peso Resist Competition from the Dollar? Jérôme Sgard February 2002 N° 209
Rethinking the South's Openness Isabelle Bensidoun Agnès Chevallier Guillaume Gaulier October 2001 N° 205
Trade Integration and Monetary Integration Jean-Louis Guérin Amina Lahrèche-Révil September 2001 N° 204
How is Trade Protectionism to be Measured? Antoine Bouët Estelle Dhont-Peltrault November 2000 N° 195
The IMF and the Challenge of Global Governance Michel Aglietta Sandra Moatti October 2000 N° 194
Exchange Rate Regimes: With or Without the Sucre? Agnès Bénassy-Quéré June 2000 N° 191
The Ecuadorian Crisis and the International Financial Architecture Jérôme Sgard March 2000 N° 188
Openness, Competition and Multilateralism Michel Fouquin Guillaume Gaulier November 1999 N° 184
What Should the Framework for Opening up to the International Economy be? Jean-Louis Guérin July-August N° 181
The Devaluation of the Yuan: "A Little Impatience May Ruin a Great " (Confucious) Stéphane Dées Françoise Lemoine April N° 178
The economic literature on trade has widely acknowledged the role of multinational firms in current trade flows. However, this has only slightly affected the applied trade policy literature. For example, the main contributions to the economic assessment of the Doha round or to the WTO accession of various countries usually neglect all foreign direct investment (FDI) related issues.
This situation comes mainly from the lack of suitable databases for such studies. The widely used GTAP dataset does not include any FDI information. The aim of this work is to fill this gap by creating a FDI database suitable for applied general equilibrium (AGE) works. The problems, which have previously precluded such a construction, are twofold:
Christophe Gouel & Houssein Boumellassa
Sandra Poncet & Laura Hering
The Location of Japanese MNCs Affiliates: Agglomeration, Spillovers and Firm Heterogeneity
Our study builds on previous literature on the determinants of location choices of foreign affiliates by Japanese firms (Belderbos and Carree, 2002; Head et al., 1995; Fukao et al. 2003; Kimura and Kiyota, 2006). Our analysis based on the new economic geography theory assesses the importance of various determinants of FDI profitability. It focuses on the effect of market and supplier access, as well as production and trade costs and explores whether the effects of key determinants of locational choice vary substantially depending on the characteristics of the investing firm and the plant.
Our motivation is two-fold. First, we expect our results to shed light on the controversial productivity-internationalization nexus. It has become something of a stylized fact that ex-ante productivity determines the choice of whether or not to invest abroad (Greenaway and Kneller, 2007). However new evidence stresses that the productivity distribution between multinationals and non multinationals is not so clear cut. Further investigation of the determinants of location choices is thus required.
Our second motivation relates to the identification of potential barriers to internationalization of Japanese firms. We investigate whether Japanese parents of different productivity and size respond differently to host countries' features such as distance, institutional quality or access to markets and to networks and spillovers. Much evidence suggests that related firms tend to cluster in the same regions. We consider three forms of relatedness. The first two relate to the host location (1) affiliates in the same industry originating from the same country (Japan) and (2) downstream affiliates originating from the same country. The third form (3) captures proximity at home (in the same Japanese prefecture) to parents having affiliates in the same destination country. Clusters of related firms may form regional production networks, selling intermediate inputs to each other, sharing knowledge and thereby lowering production costs. We also investigate whether location choices are influenced by the presence of JETRO.
Sandra Poncet, Tomohiko Inui & Toshiyuki Matsuura
The Impact of Agricultural Policies on Developing Economies
Agricultural policies in industrialised countries are still at the very centre of multilateral talks at the World Trade Organisation (WTO). Industrialised countries, especially the European Union and the United States of America, are blamed for depressing world agricultural prices with their subsidies and for not granting a sufficient access to their markets.
The economic assessment of agricultural policies is usually undertaken in the GTAP framework that implies to work at a rather aggregate level, while trade policies are determined at the level of individual products. Trade policy aggregation and the conversion of trade barriers into their ad valorem equivalents can lead to some biases. It is all the more true in agriculture as border protection mainly takes the form of specific tariffs and tariff-rate quotas. We propose to overcome the possible biases by explicitly modelling agricultural trade flows and trade policies at the 6-digit level for European and American agricultural imports (648 HS6 positions).
The main conclusion that comes out of this work is the concentration of the gains from trade liberalisation in a limited number of products. Eight HS6 positions concentrate half of the trade increase. The [4–6] per cent of sensitive products of the Falconer proposal in the WTO negotiation covers [75–83] per cent of potential trade increase of developing countries exports to European and American markets. It means that the bulk of the liberalisation will occur in this list of sensitive products, whose specific treatment and consideration appear as crucial.
Christophe Gouel & Priscila Ramos
High Oil Prices Increase Regionalism
Oil prices have been multiplied by 5 recently, raising from about 20 to more than $US100 per barrel in less than a decade. Because of the rapid development of some large economies like China and India, oil prices are expected to grow further in the following decades. It is well known that oil shocks create many direct and indirect macroeconomic effects, on inflation, employment, GDP, real wages and productivity.
The objective of our research is to highlight another macroeconomic implication of oil shocks through trade, while using micro-type data. More precisely, we want to study the impact on the geographical distribution of trade costs and thereby trade flows. If one believes that an increase in oil prices makes products from distant partners more expensive than those of close ones, then one would expect oil prices to favor regionalism, while acting in parallel as a resistance force against long distance trade. As a consequence, oil price increases might then affect welfare in much the same way as regional trade agreements (RTAs) would do. An oil price shock would divert trade flows from more efficient (or low cost) partners to less efficient partners, resulting in a welfare loss for the importing country. For close exporters however, oil price shocks would then be welfare creating.
More rigorously, how can oil prices affect trade costs and thereby trade flows? Trade theory suggests that as long as transport costs are proportionally linked to oil prices, a global shock such as an increase in oil prices decreases imports from the rest of the world but without affecting bilateral market shares. That is because a global oil shock should increase all prices proportionally, thus leaving all relative prices unaffected.
If, however, transport costs do not respond proportionally to oil prices, market shares can be seriously altered. In our theory, we assume such a framework and then take it to the test. To fix ideas, we assume a general transport cost function whereby the cost of shipping a good implies variable but also fixed costs. This simple although realistic assumption makes the impact of oil shocks to depend on the extent to which transportation is governed by variable costs relative to fixed ones. It turns out that more distant economies suffer more from an increase in oil prices than closer trading partners. That is because oil prices affect variable costs, which share in total costs increases with longer distance. In a second step, we embody this new technology function of transport into a gravity equation of trade consistent with the latest literature on gravity (Anderson and Van Wincoop, 2003 and Baier and Bergstrand, 2007).
Based on Robert Feenstra’s US imports and fret charges dataset over 1974 to 2000, we find first that oil prices affect positively relative transport costs of distant partners and negatively those of closer ones to the US. Further, this results in an induced elasticity of relative market shares to oil prices of around 0.03 for Canada and Mexico, economies close to the US and around -0.03 for countries highly distant from the US. Keeping all other things equal, this means that an increase in oil prices by a factor of 5 in later years would have contributed to a 15% increase in US relative imports from its ALENA’s partners, at the expense of more distant trading partners.
Daniel Mirza & Habib Zitouna
CHELEM-GDP: New Basis for PPP Calculation
Geography has various impacts on economic activity. Regarding trade, geography can mean distance or closeness, obstacle or help. Regarding output, geography means nationwide space; borders delimit different price and cost systems, which depend on development levels, and social or economic policies. Using Purchasing Power Parities (PPPs) for currencies conversion blurs these borders, making possible comparisons of economies, in terms of output and welfare. It allows estimates for market potential in various world areas, their contribution to the world economy, and so, eases forecasts for world growth.
PPP rates are computed in the framework of the International Comparison Program (ICP) conducted by the ICP Global Office within the World Bank. The price for a basket of specific products and services for each country is calculated. The PPP rate is the rate making it possible to trade this basket for the reference basket, usually the US one. Then, purchasing power of different currencies can be compared. The latest estimates of ICP are the most comprehensive since the launching of the project in 1968. This recent regional survey has collected 2005 prices in 146 countries for about 1000 commodities. About one hundred developing countries are participating in the ICP project. For most of them, former data were very old: Indian data for instance dated back to 1985. China is now in the project. Of course, comprehensive data for the two major emerging economies have a big impact on the estimate of world GDP. And since the 2005 PPP rates for these two countries are much lower than assumed so far, that leads to significantly reduce their share in world GDP. Consequently, projections for world growth are revised downward (CEPII, 2008a ; Elekdag & Lall, 2008).
The 2008 version of CHELEM GDP-Database uses 2005 as the reference year for PPP GDPs (CEPII, 2008b). It uses the PCI data for 146 countries part of the project and estimates PPPs for more than fifty additional countries, in order to cover all countries or regions in the world. PPP GDP levels are extrapolated for the 1960-2006 period by applying to 2005 levels the GDP volume indices (2000 prices). Graph 1 compares the shares of the three major regions of the world in the global GDP, estimated with 2000 and 2005 PPP rates alternatively. By using the same volume indexes in both cases, the curves have, of course, similar slopes. The Asia-Oceania region recorded the largest growth over the past four decades. However, its level of catch-up vis-à-vis Eurafrica and America differs significantly depending on the year of reference for the PPPs. With the 2000 rates, there was a shift in the geographical breakdown of global GDP: since the start of the millennium the share of Asian countries exceeded those of the two other regions (38% in 2006). The new estimates indicate that with 31% of world GDP in 2006 the Asia-Oceania has not yet caught up with the level of production in America (32%) and is still below that of Eurafrica (37%). Nevertheless the Asian countries are and will remain for a long time the most dynamic in the world economy. Indeed, while their share in world production and trade is now close to that of the other two major regions, their population counts for 56% of the world population (Graph 2).
Source : CHELEM-GDP Database.
source: CHELEM-GDP-CIN Databases.
CEPII (2008a), Figure of the month, February
CEPII (2008b), CHELEM-GDP Database
Elekdag, S. & Lall, S. (2008), "Global Growth Estimates Trimmed After PPP Revisions", IMF Survey magazine, January 8
World Bank (2008), 2005 International Comparison Program-Tables of Final Results, February 26
Europe and the World - CEPII's 30th anniversary
The Euro and the Intensive and Extensive Margins of Trade: Evidence from French Firm Level Data
Antoine Berthou & Lionel Fontagné
On the Influence of Oil Prices on Economic Activity and Other Macroeconomic and Financial Variables
François Lescaroux & Valérie Mignon
An Impact Study of the EU-ACP Economic Partnership Agreements (EPAs) in the Six ACP Regions
The Brave New World of Cross-Regionalism
Equilibrium Exchange Rates: a Guidebook for the Euro-Dollar Rate
How Robust are Estimated Equilibrium Exchange Rates? A Panel BEER Approach
Testing the Finance-Growth Link: is There a Difference Between Developed and Developing Countries?
Gilles Dufrénot, Valérie Mignon & Anne Péguin-Feissolle
Labor Migration: Macroeconomic and Demographic Outlook for Europe and Neighborhood Regions
Vladimir Borgy & Xavier Chojnicki
CEPII Working Papers are available free, on-line, in PDF format; hard copies are also available on request.
ECONOMIE INTERNATIONALE, QUARTERLY
Saoussen Ben Gamra & Dominique Plihon
La demande de titres longs par les non-résidents explique-t-elle le bas niveau des taux longs publics américains ?
Outward Foreign Direct Investment and Intermediate Goods Exports: Evidence from the USA
Explaining Inflation Differentials in the Euro Area: Evidence from a Dynamic Panel Data Model
Crédit individuel et informalité sont-ils compatibles ? Une expérience brésilienne
LA LETTRE DU CEPII, QUARTERLY
China and India: the New Big Players in International Trade
N° 272 November 2007
After a long absence, China and India are returning to the world economic stage. Their penetration of international commerce/The breakthrough they have made in international trade has for the past decade borne witness to their/ strong presence in industries linked to the digital revolution. Their ascension is having knock-on/far-reaching effects on global supply and demand for goods and services. They are the kingpins/hubs of a new international division of labour and are making increasingly significant contributions to global growth, even though they cannot yet boost/pull the growth of the rest of the world by themselves. The Very Select Club of Exporting Firms
N° 271 October 2007
Globalization is everywhere. At least, that’s the impression that it gives: more and more countries are opening up to international trade and fewer and fewer sectors seem to be protected from international competition. This impression correctly matches traditional analyses, which consider that international trade is a matter of specialisation between sectors and mainly focus on barriers such as customs duties and transport costs. But access to fine grain data, at the level of each exporting firm, reveals a quite different landscape and enables us to paint a more accurate and more finely shaded picture of globalization. Analysis of the Custom and Excise and INSEE databases shows that the proportion of French firms that have a direct export activity is astonishingly low and that these businesses are clearly distinguished from the others: they are larger, more productive and pay their employees higher wages. In order to understand the real extent of the internationalisation of markets and better identify the barriers that really stand in the way of the export capacities of a country like France, we need to turn the spotlight on these "stars", which are the driving forces of globalization. China is Shipping more Products to the United States than Germany
N° 270 September 2007
Recent theoretical and empirical literature on international trade has renewed our understanding of specialisation and competition, especially between developed and emerging economies. Specialisation operates at the level of varieties instead of product or sector-level. Furthermore, competition selects the most productive firms and the best performing of their products. Using this dual approach, we investigated the market for manufactured imports in the United States. The emerging countries are winning large market shares there, particularly for the most technological products. It is especially in this field that some of them are managing to combine an increase in market share with a higher value of the products exported. How can older industrialised countries face up to this competition? The comparison between two export champions, China and Germany, illustrates how market positioning and the selection effect operate in the US market.
Lionel Fontagné & Rodrigo Paillacar
Monetary Policy and Exchange Rates: the Euro and the Dollar
|The contents of this Newsletter were finalised April 21, 2008|