Monday, October 3, 2011

Links of Interest (2011-10-03)-- Export, FDI, Growth, Social Protection, Economics Blog

Key takeaways regarding trade finance during the 2008–09 trade collapse (Trade finance was not the main driver during the trade collapse in 2008, but the shortfall in finance did have some impact. But, tighter trade finance had “significant adverse effects on trade flows”. Inter-firm trade credit may be more resilient than bank-intermediated trade finance in times of crisis. Trade finance among supply chains affect output during crisis but recovery fast during recovery. SMEs have been particularly vulnerable to the tightening of trade finance conditions.

Foreign Direct Investment under Weak Rule of Law: Theory and Evidence from China (If you have strong economic fundamentals, then it trumps over weak rule of law in attracting FDI)

This paper develops a self-enforcing contract model to show that better economic fundamentals can help when there is weak rule of law---but with order---to attract foreign direct investment, whereas lowering taxes does not necessarily help. Using a cross-region Chinese dataset, the analysis finds evidence consistent with the theoretical analysis. Regional variations in tax rates and the perceived quality of formal contracting institutions are not correlated with regional inflows of foreign direct investment, but leadership characteristics are. Most conventional economic factors have the predicted effects on foreign direct investment. The finding that foreign direct investment is lower in locations where domestic private firms have better access to finance and where the air quality is poor is new to the literature.

The Impact of Economics Blogs

There is a proliferation of economics blogs, with increasing numbers of economists attracting large numbers of readers, yet little is known about the impact of this new medium. Using a variety of experimental and non-experimental techniques, this study quantifies some of their effects. First, links from blogs cause a striking increase in the number of abstract views and downloads of economics papers. Second, blogging raises the profile of the blogger (and his or her institution) and boosts their reputation above economists with similar publication records. Finally, a blog can transform attitudes about some of the topics it covers.

Applying the Growth Identification and Facilitation Framework: The Case of Nigeria

This paper applies the Growth Identification and Facilitation Framework developed by Lin and Monga (2010) to Nigeria. It identifies as appropriate comparator countries China, India, Indonesia, and Vietnam, and selects a wide range of industries in which these comparator countries may be losing their comparative advantage and which may therefore lend themselves to targeted interventions of the government to fast-track growth. These industries include food processing, light manufacturing, suitcases, shoes, car parts, and petrochemicals. The paper also discusses binding constraints to growth in each of these value chains as well as mechanisms through which governance-related issues in the implementation of industrial policy could be addressed.

Temporary trade barriers database (see which countries imposed trade barriers during the crises)

The Rise of Emerging Markets Requires a New WTO (“In the midst of a rapidly-changing global economic order, the World Trade Organization (WTO) must adapt its role and its tools if it is to stay relevant and help facilitate meaningful reform on trade” argue Uri Dadush and William Shaw)

Export Quality Diverges between Rich and Poor Countries (rich countries have high quality products and faster export growth rate, impacting growth and development)

Country export quality (measured by unit values) is correlated with income level suggesting that studying quality dynamics potentially offers insights into the development process. This paper uses highly disaggregated trade data to explore the export quality (unit value) dynamics of goods exported to the United States over the 1990-2000 period. In addition to finding considerable heterogeneity in the relative quality of exports across countries and across goods within countries, the authors find that the rate of quality growth varies substantially across countries, as well. Specifically, the fastest growth is seen in exports from the richer (OECD) countries, implying an evolving divergence in product quality across regions. This divergence obtains despite evidence of conditional convergence in quality over time- goods with lower initial relative quality levels experience faster growth in quality. The data suggest that part of this divergence is driven by the product mix itself -- OECD exported products experience intrinsically higher growth rates. This is consistent with the argument of Hausmann, Hwang and Rodrik (2007) that what countries export does matter for growth. However, it is partly driven by a higher growth rate of quality in the richer countries independent of convergence effects, suggesting that other country-specific factors impeding overall convergence are at work. Finally, there is very limited technological "leap-frogging" by countries across product lines as the relative quality of new exports, on average, is roughly the same as incumbent exports, both in richer countries and elsewhere.

Is Infrastructure Productive? (long-run elasticity of output with respect to the synthetic infrastructure index ranges between 0.07 and 0.10)

How much does public infrastructure capital contribute to aggregate productivity and output? Such quantitative assessments are critical, especially for policymakers considering investments in public infrastructure. In a new working paper, César Calderón Enrique Moral-Benito, and Luis Servén devise a new approach that overcomes the constraints faced by previous research. They estimate the aggregate production function of all infrastructure using a framework that includes infrastructure assets, human capital and non-infrastructure physical capital for 88 countries in 1960-2000. The authors use physical measures, not monetary ones such as investment or capital stock figures, to estimate infrastructure stocks. Why? First, public expenditure may not reflect trends in public capital stock, especially when inefficiency and corruption plague project selection and government procurement practices. Second, the authors want to measure the impact of infrastructure capital due to government spending, as well as the accompanying increased participation by the private sector, in global infrastructure since the 1990s. The authors' estimate of the output elasticity of infrastructure, between 0.07 and 0.10, is robust to changes in economic specification and the synthetic index of infrastructure. The finding implies that observed differences in the ratio of aggregate infrastructure to output across countries offer a useful guide to the differences in the marginal productivity of infrastructure.

Making the Transition: From Middle-Income to Advanced Economies (secret: investing early in improving the quality of education and inducing high investment in research and development. By opening up to world trade and using tax incentives and access to subsidized credit, successful countries were able to attract foreign direct investment in high-technology sectors, argue Alejandro Foxley and Fernando Sossdorf)

Making globalization socially sustainable (social protection, investment in public goods and well-functioning markets are vital to make globalization socially sustainable)