1,721,056 research outputs found
Traders, courts, and the home bias puzzle
Full text linkRecent evidence shows that the “home bias puzzle” in international trade may be associated with the mere presence of national borders (McCallum (1995)). In this paper we provide a theoretical framework to explain why borders may matter so much for trade. Our argument is that even between perfectly integrated and similar countries the legal system differs, so that legal costs are higher when business is done abroad. Using a matchig model of trade, we show that the home bias is associated with both less searching foreign sellers in the home market and a lower probability of cross-border matches being accepted. In industries characterized by high turnover legal costs may reduce trade because reducing the mass of searching foreign sellers and increasing at the same time that of searching domestic sellers
The relationship between government and export sector wages and implications for competitiveness
Full text linkIn 2012, the general government sector employed on average about 15% of the labour force in the euro area. Since most countries in the euro area are now trying to consolidate public finances, whilst also trying to boost competitiveness for external rebalancing and to reduce unemployment, it is crucial to assess whether there is any wage spillover from the public to the export sector, in particular under conditions of fiscal stress. This section shows that there has been a link between government and manufacturing wages over the long-run, which is much closer when the government employs a large share of the labour force. Government size dimension is especially important during fiscal consolidation. If the government wage bill is inflated due to unjustified wage premia for example, limiting government wage growth is a fiscal strategy that may, among other effects, deliver competitiveness gains that contribute to external rebalancing and help boost employment in the tradable sector
Distance and foreign direct investment when contracts are incomplete
No full textWe introduce incomplete contracts in a model where multinational firms from a certain country ("North") can decide to serve a foreign market ("South") through exports or through horizontal foreign direct investment (FDI). FDI relies on the supply of specialized intermediate inputs that could be supplied either by northern suppliers or by suppliers located in South. Intermediate sourcing contracts are complete in North but not in South. Were southern contracts also complete, FDI would arise only when trade barriers are high enough. Incomplete contracts in South generate, instead, a non-linear relation between trade barriers and FDI as foreign investment emerges also when trade barriers are low enough. The reason is the positive effect that low trade barriers have on the bargaining power of final producers with respect to their southern suppliers. © 2007 by the European Economic Association
The adjustment mechanism in the Euro Area
No full textThis paper analyses the adjustment mechanism in the euro area prior to the crisis. Results show that the real exchange rate adjusted to redress cyclical divergences and that after monetary unification, real exchange rate dynamics became less reactive to country-specific shocks but also less persistent. Regulations affecting price and wage nominal flexibility and employment protection play a role in the adjustment mechanism. Indicators of product and labour regulations appear to matter for both the reaction of price competitiveness to cyclical divergences and for the inertia of competitiveness indicators
Trade, wages and superstars
No full textWe study the effects of 'globalization' on income inequality in an economy where sellers with higher skills enjoy larger market shares and higher earnings. In our 'global' economy: (a) innovations in production and communication technologies enable suppliers to reach a larger mass of consumers and to improve the (perceived) quality of their products, and (b) trade barriers fall. When transport costs fall, income is redistributed away from the non-exporting to the exporting sector of the economy. As the latter turns out to employ workers of higher skill and pay, the effect is to raise wage inequality. Whether the least skilled stand to lose or gain from improved production or communication technologies, in contrast, depends on how technological change relates with skills. The model provides an intuitive explanation for why changes in wage premia are significantly associated with the export status of firms in recent firm-level empirical investigations. (C) 2001 Elsevier Science B.V. All rights reserved
Co-movements between public and private wages in the EU: what factors and with what policy implications?
Full text linkThis paper assesses the relationship between public and private wages in the EU, as measured by general government and manufacturing compensations, respectively. We find that the long-run relation between the two is stronger when the government is a large employer. Manufacturing compensations are better aligned with productivity and unemployment when general government compensations, to which they generally respond, are set through bargaining. Finally, manufacturing compensations react in the same way whether those in the general government sector are increased or cut, a relation that seems to hold also under fiscal consolidation provided the government is a large employer
Reforms and re-elections in OECD countries
No full textEconomic reform is sometimes seen as damaging to a government’s re-election chances, but anecdotal evidence from OECD countries would not seem to strongly support this perception. This paper tests this hypothesis on a sample of 21 OECD countries over the period 1985–2003, controlling for other economic and political factors that may affect re-election. It is found that the chances of re-election for incumbent governments are not significantly affected by their record of pro-market reforms. However, the electoral impact of reform is found to differ strongly depending on which types of policies are considered. In particular, reform measures that are more likely to hurt large groups of ‘insiders’ seem electorally more damaging. A series of framework conditions appears to affect the impact of reforms on re-elections. Reformist governments in countries with rigid product and labour markets tend to be voted out of office, suggesting the existence of a ‘rigidity trap’. While fiscal stimulus is not an effective instrument to ‘sweeten the pill’ and raise the odds of re-election, the presence of liberal financial markets appears to soften electoral resistance to structural reform. The latter finding is of particular relevance in the current financial crisis: forward-looking governments should not rush to over-regulate financial markets in order not to compromise the feasibility of product and labour market reforms
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