Showing papers in "The World Economy in 2023"
TL;DR: In this article , the effects of import competition on firm productivity were analyzed empirically using administrative firm-level panel data from German manufacturing and they found that only import competition from high-income countries is associated with positive incentives for firms to invest in productivity improvement, whereas import competition competition from middle-and low income countries is not.
Abstract: This study analyses empirically the effects of import competition on firm productivity (TFPQ) using administrative firm-level panel data from German manufacturing. We find that only import competition from high-income countries is associated with positive incentives for firms to invest in productivity improvement, whereas import competition from middle- and low-income countries is not. To rationalise these findings, we further look at the characteristics of imports from the two types of countries and the effects on R&D, employment and sales. We provide evidence that imports from high-income countries are relatively capital-intensive and technologically more sophisticated goods, at which German firms tend to be relatively good. Costly investment in productivity appears feasible reaction to such type of competition and we find no evidence for downscaling. Imports from middle- and low-wage countries are relatively labour-intensive and technologically less sophisticated goods, at which German firms tend to generally be at disadvantage. In this case, there are no incentives to invest in innovation and productivity and firms tend to decline in sales and employment.
4 citations
TL;DR: In this article , the authors examined the effects of digital trade policies from two dimensions: unilateral domestic regulations and bilateral trade agreements and found that domestic regulations recognized as digital trade barriers actually inhibit digital trade flows, and their negative effect is greater when the regulations are implemented by the importing country than the exporting one.
Abstract: As digital trade expands worldwide, the importance of policy factors in digital trade is garnering attention. However, the effectiveness of digital trade-related policies on digital trade flow is empirically underinvestigated because of challenging data requirements. To overcome this, we combine recently developed, but separately used digital trade-related datasets to empirically test how digital trade policies affect digital trade flows. In particular, we examine the effects of digital trade policies from two dimensions: unilateral domestic regulations and bilateral trade agreements. Our results reveal that a pair of countries experiences an increase in digital trade flow when they have a trade agreement containing digital trade-related provisions. This tendency is even stronger when digital trade agreements contain more specific rules. On the contrary, domestic regulations recognised as digital trade barriers actually inhibit digital trade flows, and their negative effect is greater when the regulations are implemented by the importing country than the exporting one. Decomposing the barriers into several areas of regulations, we examine which area is more crucial than the others. These results may seem rather obvious, but conversely, they confirm the validity of our approach to measure digital trade flows across countries and the relevance of the digital trade policy variables.
1 citations
TL;DR: In this article , the authors examined whether multinational corporations differ from domestic firms in the prevalence and size of the impact of COVID-19 on sales and found that trading MNCs experience a significantly smaller negative impact.
Abstract: Using a large multi-country firm-level data set from the World Bank Enterprise Survey, we examine whether multinational corporations (MNCs) differ from domestic firms in the prevalence and size of the impact of COVID-19 on sales. Our findings reveal significant differences between MNCs and domestic firms, especially when accounting for the interplay between foreign ownership and international trade. Exporting MNCs are significantly less likely to experience a negative sales impact; this finding is robust to controlling for firm characteristics including size, age and productivity and the use of a propensity score reweighting approach based on the likelihood that a firm was foreign owned prior to the onset of the pandemic. Regarding the impact of the pandemic on the level of sales decrease, trading MNCs experience a significantly smaller negative impact. However, MNCs with joint high levels of imports and exports sustain a larger negative effect. MNCs operating in countries and sectors characterised by a high degree of participation in international production networks are less affected by the pandemic. When controlling for the interaction between MNCs and international trade, we also find a direct positive effect of foreign ownership on the size of sales decrease, representing a liability of foreignness effect.
1 citations
TL;DR: In this paper , the spread of national cultural institutes (CI's) in a bilateral country pair has been studied using a gravity model, and the authors find that factors such as population, real GDP per capita, distance, a former coloniser-colony link, a common legal system, free trading agreement and a reciprocal relationship are significant factors in the formation of a CI foreign location.
Abstract: This paper documents the spread of national cultural institutes (CI's). We first build a data set of 32 cultural institutes that have foreign offices abroad. Using multiple primary sources, we compile data of the foreign locations of each CI from 1985 to the present. We next use network analysis to visualise and describe connections within the CI network. We then use a gravity model to estimate the formation of one or more CI's in a bilateral country pair. We find that factors such as population, real GDP per capita, distance, a former coloniser-colony link, a common legal system, free trading agreement and a reciprocal relationship are significant factors in the formation of a CI foreign location.
1 citations
TL;DR: In this article , the authors use a structural gravity model to obtain that different mechanisms of trade liberalisation complemented each other, through the reduction of Most Favoured Nation (MFN) tariffs, the expansion and deepening of existing plurilateral agreements and the incorporation of new deeper agreements.
Abstract: The world expansion of trade in manufactured goods has been more dynamic than production over the last 25 years. The greater trade openness was due more to the growth of extra-regional trade than to intra-regional trade. Regions and trade agreements performed heterogeneously. Using a structural gravity model, we obtain that different mechanisms of trade liberalisation complemented each other, through the reduction of Most Favoured Nation (MFN) tariffs, the expansion and deepening of existing plurilateral agreements and the incorporation of new deeper agreements. The contribution derived from the reduction of MFN tariffs stands out, followed in importance by the component of preference for openness and trade facilitation. The contribution of the preferential channel via preferential trade agreements has been more important for extra-regional than intra-regional trade. For Latin America, heterogeneity is the fundamental characteristic, from the protectionism of Argentina and Brazil to a better openness performance of the countries of Central America and the Caribbean, and the members of the Andean Community (CAN) with an intermediate behaviour. Mexico, Colombia, Chile and Peru, economies from different regions, are the most open in Latin America. The concept of open regionalism is highlighted: without non-discriminatory trade openness, there is no regionalism that can significantly reduce trade costs.
1 citations
TL;DR: This article assessed the distributional effects of the 2004 EU enlargement and found that EU accession cannot be held responsible for any significant changes in income inequalities in the New Member States, and that finding is robust to changes in the method of estimation, and also supported by dynamic panel data methods.
Abstract: Although addressing income inequalities is one of the main challenges in the European Union (EU), whether the EU has influenced income distributions, possibly causing a rise in inequalities, is still a heavily underexplored topic. Using the newest methodological developments associated with the counterfactual estimations, I assessed the distributional effects of the 2004 EU enlargement. The results indicate that EU accession cannot be held responsible for any significant changes in income inequalities in the New Member States. That finding is robust to changes in the method of estimation, and it is also supported by dynamic panel data methods.
1 citations
TL;DR: In this article , the authors analyse debt reduction through economic austerity in Italy, hyperinflation in Germany after World War I, inflation in Argentina since the 1980s, currency reform and financial repression in the United States and the United Kingdom after WW II.
Abstract: Rising public debt everywhere has raised the question of how to reduce debt again in the future. High public debt also seems to be an impediment for the exit of central banks from ultra-low interest rates and quantitative easing. Historical precedents and proposals have included austerity, haircuts and the generation of inflation. Each way has advantages and disadvantages, including uncertainty about effects and side effects. We approach the issue from an historical perspective, based on case studies of prominent approaches to debt reduction. We analyse debt reduction through economic austerity in Italy, hyperinflation in Germany after World War I, inflation in Argentina since the 1980s, currency reform in Germany after WW II, and financial repression in the United States and the United Kingdom after WW II. Finally, we discuss Ronald McKinnon's order of economic and financial liberalisation as well as the Chicago Plan combined with the introduction of central bank digital currencies as an option for the future.
1 citations
TL;DR: In this article , the authors analyzed the response to the COVID-19 pandemic of inbound tourism to Italy looking at variation across countries and provinces, and concluded that contagion risk considerations played a significant role in shaping international tourism patterns during the pandemic.
Abstract: This paper analyses the response to the COVID-19 pandemic of inbound tourism to Italy looking at variation across countries and provinces. To this end, it uses weekly data on the number of foreign visitors in Italy from January 2019 until February 2021, as provided by a primary mobile telephony operator. We document a very robust negative relation at the province level between the local epidemic situation and the inflow of foreign travellers. Moreover, provinces with a historically higher share in art-tourism, and those that used to be 'hotel intensive' were hit the most during the pandemic, while provinces with a more prevalent orientation to business tourism proved to be more resilient. Entry restrictions with varying degrees of strictness played a key role in explaining cross-country patterns. After controlling for these restrictions, we observed that the number of travellers that could arrive by private means of transportation decreased proportionally less. Overall, this evidence emphasises that contagion risk considerations played a significant role in shaping international tourism patterns during the pandemic.
1 citations
TL;DR: In this article , the authors studied the relationship between digitalisation, trade costs, quality upgrading and trade flows, using an extended version of a gravity model, based on information from various sources of data, and showed that sectoral digital intensity positively affects sectoral exports.
Abstract: This paper studies the relationships between digitalisation, trade costs, quality upgrading and trade flows, using an extended version of a gravity model. Based on information from various sources of data, we estimate these relationships sequentially for a sample of 18 manufacturing and 14 service sectors in 40 countries over the period 2000–2014. Using input–output tables from World Input–Output Database, we define an original measure of digitalisation at the country-sector level that reflects the use of digital inputs into a country's production function. Using trade databases from the CEPII and OECD, we estimate a series of gravity models of trade augmented with this measure of digitalisation. Our results show that sectoral digital intensity positively affects sectoral exports. We provide evidence that this result is not ruled out by other possible factors, such as internet adoption or participation in a global value chain. A heterogeneous analysis also reveals that the effect of digital intensity is stronger for manufacturing trade and for trade between emerging economies. We explore two possible mechanisms explaining this positive relationship. First, we find that digital intensity facilitates trade between countries by reducing communication and transport costs. Second, we show that digital intensity improves the quality of exported products.
TL;DR: In this paper , the authors transform a national-level dataset into a quasi-firm product level dataset and find that the sales margins of US distributors have shrunk substantially when the US dollar depreciated after the global financial crisis.
Abstract: By using information on the geographical locations of exporting firms, we transform a national-level dataset into a quasi-firm-product-level dataset. First, by restricting the dataset to the two exporting ports out of over 100 ports, consistent with the multiproduct exporter model, we find heterogeneity in the exchange rate pass-through (ERPT) among the auto models of a single automaker. We find weak evidence that the core product has a lower ERPT. Second, coupled with the manufacturer's suggested retail price in the US market, we find that the sales margins of US distributors have shrunk substantially, particularly when the US dollar depreciated after the global financial crisis. We find supporting evidence that a higher-quality product has a lower ERPT.
TL;DR: In this article , the authors quantified how the likelihood of trade misinvoicing responds to de facto capital controls by using a cross-country panel data set covering 1995-2017.
Abstract: This paper quantifies how the likelihood of trade misinvoicing responds to de jure capital controls by using a cross-country panel data set covering 1995–2017. On one hand, capital controls incentivise firms to misinvoice to circumvent the controls. On the other hand, the controls discourage these firms from misinvoicing by imposing punishments. Under the assumption of no interplay of a given country's capital controls and the misinvoicing behaviours of firms from other countries, de jure capital controls imposed by importing countries on outflows are shown to increase the likelihood of trade misinvoicing by importing firms. However, capital controls imposed by exporting countries are shown to significantly decrease trade misinvoicing by exporting firms.
TL;DR: In this paper , the impact of Japan's International Investment Agreements (IIAs) on the locational choice of Japanese firms' foreign direct investment (FDI) by considering the quality of IIAs was examined.
Abstract: In this study, we examine the impact of Japan's International Investment Agreements (IIAs) on the locational choice of Japanese firms' foreign direct investment (FDI) by considering the quality of IIAs. We estimate the conditional logit model covering 12,435 FDI cases by 3838 Japanese companies in 92 host countries, 16 manufacturing sectors and 12 non-manufacturing sectors from 2000 to 2019. We found that the presence of IIAs, particularly comprehensive and high-level ones, has a positive impact on Japan's FDI. On the contrary, the past incidence of investor–state disputes has a negative impact. These effects are found to be particularly strong for FDI by small- and medium-sized enterprises. High regulatory quality is found to attract FDI, whereas the positive impact of IIAs in attracting FDI is strong in a country with a low regulatory quality.
TL;DR: In this article , the authors investigated whether the US-China trade war has a different impact on domestic and multinational companies in China and found that multinational companies have about 8% higher revenue after the trade war than domestic ones.
Abstract: This short paper investigates whether the US–China trade war has a different impact on domestic and multinational companies in China. Using the Orbis database with the coverage of ownership structure, we can identify Chinese multinational companies that own foreign subsidiaries with at least 51% stake. Then, using a panel dataset of Chinese companies from 2011 to 2019, we compare revenues of multinational and domestic companies before and after the trade war. We have found that multinational companies have about 8% higher in revenue after the trade war than domestic ones. These findings are consistent with the recent literature on the real hedging channel that operation flexibility reduces the impacts of tariff shocks.
TL;DR: In this article , the authors examined the impact of the economic state on capital structure dynamics of Indian and Chinese listed firms using a 10-year sample period and found that the capital structure speed of adjustment is pro-cyclical for Indian firms, i.e., they exhibit faster adjustments during a good state of the economy than the bad state.
Abstract: We examine the impact of the economic state on capital structure dynamics of Indian and Chinese listed firms using a 10-year sample period. The empirical analysis is based on the standard partial adjustment mechanism. The economic state (in the base model) is categorised into a good and bad state based on the gross domestic product growth rate. Using system generalised method of moments estimation, our findings suggest that the capital structure speed of adjustment is pro-cyclical for Indian firms, i.e., they exhibit faster adjustments during a good state of the economy than the bad state. In contrast, the speed is countercyclical in the context of Chinese firms, i.e., they exhibit slower adjustments during a good state of the economy and vice versa. Furthermore, consistent with the existing literature, Indian firms do faster rebalancing than the Chinese ones. Our findings are robust across alternate measures of leverage as well as the economic state.
TL;DR: In this paper , the authors studied how foreign direct investment (FDI) inflows will fluctuate when the host country is hit by an epidemic outbreak and confirmed the validity of the uncertainty mechanism, which converts the health shock into risk factors in the real economy, by studying the industry-level heterogeneity and showing that the M&A in industries with lower redeployability is more sensitive to epidemic outbreaks.
Abstract: This paper studies how foreign direct investment (FDI) inflows will fluctuate when the host country is hit by an epidemic outbreak. By analysing historical outbreak and bilateral FDI data from 2001 to 2012, we find FDI inflows during an outbreak are 21.5% below the pre-outbreak average and 21.6% above the pre-outbreak average FDI inflows in the 3 years after the end of an outbreak, which highlights the compensatory FDI after the end of epidemic and implies the uncertainty mechanism. We confirm the validity of the uncertainty mechanism, which converts the health shock into risk factors in the real economy, by studying the industry-level heterogeneity and showing that the M&A in industries with lower redeployability is more sensitive to epidemic outbreaks. Finally, we explore country-level heterogeneity that may influence the relationship between epidemic outbreaks and FDI inflows. We find that countries with poor medical conditions suffer greater decreases in FDI inflows during outbreaks, and countries with poorer institutional quality do not experience compensatory FDI after an outbreak ends.
TL;DR: In this article , a product network-based analysis of the impact of the Russia-Ukraine war on the economy of third countries is presented, showing that post-Soviet and European countries have high exposure to Russian imports, confirming the energy dependence of these countries.
Abstract: This study provides a product network-based analysis of the impact of the Russia–Ukraine war on the economy of third countries. While recent studies based on input–output data already revealed several economic consequences of the conflict, our approach allows for more detail regarding geographical coverage and heterogeneity of the affected products. The method also provides a decomposition of exposures on a country-by-country basis. After identifying the most important products exported by Ukraine and Russia, we apply a comprehensive indicator of exposure and measure the dependence of third countries on products imported from Ukraine or Russia. Results reinforce that Ukraine dominates in iron and agricultural products, while Russia is important through exporting energy sources, raw materials and iron products. Post-Soviet and European countries have high exposure to Russian imports, confirming the energy dependence of these countries. Middle Eastern and African countries heavily depend on Ukraine, especially for grain imports, possibly causing food security problems. Using data on trade restructuring over the past year, we also analyse the relationship between trade exposure and the extent to which countries were willing to support Ukraine. Results show that it is not exposure itself, but the decrease of exposure over time which correlates with military support.
TL;DR: In this article , the authors focus on the climate benefits of tariff reform for a broad sample of Latin American and Caribbean countries, drawing on Shapiro's insights about the environmental bias of trade policy.
Abstract: The dire prospects of global warming have been increasing the pressure on policymakers to use trade policy as a mitigation tool, challenging trade economists' canonical ‘targeting principle’. Even though the justifications for this stance remain as valid as ever, it no longer seems feasible in a world that is already engaging actively in using trade policy for climate purposes. However, the search for second-best solutions remains warranted. In this paper, we focus on the climate benefits of tariff reform for a broad sample of Latin American and Caribbean countries, drawing on Shapiro's (2021, The Quarterly Journal of Economics, 136, 831) insights about the environmental bias of trade policy. Using a partial equilibrium approach and GTAP-MRIO data for 2014, we show that even though there is evidence of a negative bias towards ‘dirty goods’ in half of the countries studied, translating this into actionable tariff reforms is plagued by interpretation and implementation difficulties, as well as by jurisdictional and efficiency trade-offs. There are also questions about their efficacy in curbing greenhouse gas emissions.
TL;DR: In this article , the authors developed a dynamic model describing firms' decisions on their choice of sourcing country and found that firms tend to import from countries with which they already have an importing relationship.
Abstract: Information asymmetry can create substantial frictions when importing firms find it difficult to acquire information about foreign products. I use detailed China Customs Data to show that firms tend to import from countries with which they already have an importing relationship. This preference cannot be sorely explained by the sunk cost, and it still exists even if the firm, country, sector and year-related fixed effects are controlled. Motivated by these facts, I develop a dynamic model describing firms' decisions on their choice of sourcing country. This model incorporates both communication cost and satisfaction uncertainty, which are lower for familiar countries than for unfamiliar ones. By using this model, I estimate the benefits of importing from familiar countries measured by the probability improvement of receiving satisfactory products. I find that this probability can be improved by a maximum of 89.0% when importing from familiar countries instead of from unfamiliar ones. These results also support the prediction that the effective unit cost of intermediates is lower when importing from familiar countries.
TL;DR: In this article , the authors analyzed the existence of spatial dependence, considering geographical and economic proximity and comparing both measures, showing that economic proximity is even more important than geographical one. But the importance of the spillover effects to explain the CO2 emissions of the local country was not emphasized.
Abstract: In recent years, the effects of climate change have become a topic of growing interest in the literature. Many works claimed the importance of spillover effects while studying CO2 emissions. Most part of them considers these indirect effects from a geographical perspective. The reduction of transportation costs makes other factors more important. Thus, the main aim of this paper is to analyse the existence of spatial dependence, considering geographical and economic proximity and comparing both measures. Empirically, we make use of the World Input–Output database with a worldwide focus from 2000 to 2014. Based on an environmentally extended multiregional input–output model, we estimate the CO2 emissions embodied in the domestic production and international trade between countries. To analyse the dependence from both perspectives, we carry out a spatial econometric analysis and make use of two different spatial weight matrices. The results offer a new approach on this field, highlighting the importance of the spillover effects to explain the CO2 emissions of the local country, showing that economic proximity is even more important than geographical one.
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TL;DR: The World Economy Volume 46, Issue 3 p. 497-497 ISSUE INFORMATIONFree Access Issue Information First published: 17 March 2023 https://doi.org/10.1111/twec.13286 as mentioned in this paper .
Abstract: The World EconomyVolume 46, Issue 3 p. 497-497 ISSUE INFORMATIONFree Access Issue Information First published: 17 March 2023 https://doi.org/10.1111/twec.13286AboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Volume46, Issue3March 2023Pages 497-497 RelatedInformation
TL;DR: This paper studied the effect of trade liberalization and intellectual property rights (IPR) protection on the unemployment rate of migrants relative to non-migrants in 20 OECD countries over the period 2000-2014.
Abstract: We study the effect of trade liberalization and intellectual property rights (IPR) protection on the unemployment rate of migrants relative to non-migrants. We build a North-South trade and growth model with a positive steady state rate of migration. We find that bilateral trade liberalization decreases the relative unemployment rate of migrants when migration is low and increases the relative unemployment rate when the migration rate is high. The results do not rely on assumptions about network effects, the probability to find a job for a migrant is independent of the relative size of the migrant diaspora. IPR protection leads to a higher relative unemployment rate of migrants regardless of the size of migration. We empirically test and confirm the theoretical predictions on trade liberalization and IPR protection using data for 20 OECD (Organisation for Economic Co-operation and Development) countries over the period 2000-2014.
TL;DR: In this paper , the authors show that there exists a systematic relationship between the difference in declared and assessed import values of the shipment, and the duty rate charged to the importer, and demonstrate that higher duty rates are associated with a greater misdeclaration of imports.
Abstract: This paper provides direct evidence of attempted tax evasion in response to changes in tariff rates in a small open economy using transaction-level customs data for Pakistani importers. Our results show that there exists a systematic relationship between the difference in declared and assessed import values of the shipment, and the duty rate charged to the importer. We demonstrate that higher duty rates are associated with a greater misdeclaration of imports. In particular, a one-percentage point increase in duty rates, on average, is linked with 0.4% increase in under-invoicing of imports by Pakistani firms. The study explores several dimensions to examine the variation in estimates obtained across product types, import origins, modes of processing import transactions and the role of firm characteristics, such as, frequency of imports, in determining the extent of misdeclaration.
TL;DR: The authors examined the relationship between financial development and house prices in the Group of Seven (G7) countries over the period 1870-2016, using parametric panel data models that incorporated interactive fixed effects and non-parametric models that allow them to examine nonlinearities and the time-varying nature of the relationship.
Abstract: We examine the relationship between financial development and house prices in the Group of Seven (G7) countries over the period 1870–2016. We use parametric panel data models that incorporated interactive fixed effects and non-parametric models that allow us to examine non-linearities and the time-varying nature of the relationship. Our parametric estimates show a positive relationship between financial development and house prices. The results from our non-parametric model not only reinforce this finding but also shows evidence of a negative effect of financial development prior to the mid-twentieth century, suggesting a time-varying non-linear impact. We find that inequality and mortgage loans are mechanisms through which financial development transmits to house prices. Financial crisis moderates the relationship between financial development and house prices, although this works only through sovereign defaults. Our findings are robust to a suite of robustness and sensitivity checks.
TL;DR: In this paper , the authors examine the relations of the positions of member countries in the deep RTAs' network and the performance of those countries in fighting corruption, and find that the countries which hold dominant positions in the network may be associated with better performance in combating corruption.
Abstract: This paper adds to research on the international drivers of corruption and anti-corruption by focusing on the influence of regional trade agreements (RTAs). Using cross-national data and employing a social network analysis, we provide descriptions of the evolution of deep integration of RTAs' network in anti-corruption and transparency with a comprehensive view in which we utilise the network's Closeness, Harmonic, Betweenness, Eigenvector, and PageRank centralities to demonstrate the positions of member countries. We examine the relations of the positions of member countries in the deep RTAs' network and the performance of those countries in fighting corruption. Our empirical results suggest that the countries which hold dominant positions in the deep RTAs' network may be associated with better performance in fighting corruption. At the same time, countries which may have traditionally lagged in the enforcement of anti-bribery and corruption laws will benefit through the transfer of best practices and technical expertise in rulemaking and enforcement by using their positions in the deep RTAs' network. Furthermore, our results indicate that the provisions related to anti-corruption or transparency in RTAs will play more important roles in fighting public sector corruption for member countries. The findings are robust to alternate corruption and governance measures.
TL;DR: In this article , the analysis of transport Kuznets curve (TKC) for passengers in 31 Chinese provinces using data from 1980 to 2018 and a comprehensive non-parametric econometric analysis approach is presented.
Abstract: This study pioneers the analysis of transport Kuznets curve (TKC) for passengers in 31 Chinese provinces using data from 1980 to 2018 and a comprehensive non-parametric econometric analysis approach. The empirical analysis finds convergence among most of the provinces in terms of travel frequency and economic growth, as well as the nexus between the variables. There is a non-linear positive effect of economic growth on travel frequency in all 31 provinces, and evidence for the existence of TKC – in full or in part – in 30 provinces. The study provides the initial motivation for policymakers to undertake policies and projects commensurate with each province's transport growth nexus.
TL;DR: In this article , the authors investigated the impact of extra-EU workers on labour productivity in Italy by using an econometric strategy that accounts for firms' observed heterogeneity and endogeneity issues.
Abstract: This paper investigates the impact of extra-EU workers on labour productivity in Italy. To this aim, we take advantage of firm-level data derived from the Rilevazione Imprese e Lavoro (RIL-AIDA) surveys merged with the AIDA-Bureau Van Dijk archive over the period 2007–2015. Using an econometric strategy that accounts for firms' observed heterogeneity and endogeneity issues, we obtain the following results. First, an increase in the share of extra-EU workers leads to a decline in labour productivity. Second, the relationship between extra-EU workers and productivity appears to be different between firms located in centre-north and those in southern regions. Third, the share of extra-EU workers is also associated with a decline in average wages and sales per employee, even though this effect is less than that observed for productivity. Our findings support the hypothesis that the demand of immigrants arises as a labour cost reduction strategy and hence tends to weaken firms' competitiveness.
TL;DR: This article examined the impact of labour market rigidity on trade and found that a rigid LMR reduces total exports, and this decrease is driven primarily by the intensive margin, which is the most important for long-run export growth.
Abstract: Countries differ, sometimes significantly, regarding their basic labour market structure. Despite the prevalence of theoretical literature, empirical studies examining the impact of labour market rigidity (LMR) on trade is sparse. Existing empirical studies have been limited to aggregate trade flows with cross-sectional estimations; a limited set of countries (e.g. OECD or Latin America) or to the period after 1990. We utilise a gravity model of trade to examine the impact of LMR on exports for 145 countries between 1964 and 2004. We utilise dis-aggregated product-level trade data and decompose total exports into the extensive and the intensive margin to examine this relationship. We also utilise total aggregate international trade relative to domestic sales, which allows for the identification of LMR-trade relationship, even in the presence of multilateral trade resistance controls. Finally, we estimate the effect of LMR on exports (and the margins) by focusing on a sample of European OECD countries via the difference-in-differences estimation. In all cases, we find that a rigid LMR reduces total exports, and this decrease is driven primarily by the intensive margin. Our findings are relevant as recent studies have found the intensive margin to be more important for long-run export growth and especially for developing countries.