Intermediate Goods Sector Research Articles

How do foreign-owned suppliers affect economic performance? Evidence from Italian manufacturing firms

This paper examines how the presence of foreign-owned suppliers (Inward FDI in intermediate good sectors, called input IFDI) affects both the productivity and outward FDI propensity of domestic firms. Using data from Italian manufacturing firms over the period 2005–2012, we find that the degree of a firm's involvement in innovation activities is crucial. More specifically, input IFDI, on average, boosts aggregate productivity in sectors where the majority of firms are involved in innovation activities. These industry productivity gains are due to efficiency improvements within firms, as well as the reallocation of market shares towards more efficient firms. Conversely, in sectors where few firms are involved in innovation activities, input IFDI, on average, leads to productivity losses within firms, entailing larger market share reallocation towards the best performing firms. Our findings further demonstrate that in those sectors with a high degree of innovation activity, input IFDI increases domestic firms' propensity to invest abroad, whereas the opposite is true for the other sectors.

CO2 emissions embodied in bilateral trade in China: An input-output analysis

The effects of export goods on CO2 emissions in China were calculated using input-output analysis via the hypothetical extraction method (HEM). The seven largest export partners of China were taken into account for the analysis: the US, Japan, South Korea, Germany, India, the UK and the Netherlands. First, using input-output analysis, the effects of CO2 emissions were allocated between the non-tradable goods, total export goods, exported final goods and exported intermediate goods sectors. Then, using a weighted multipliers approach, efficiency in CO2 emissions was allocated among the sectors. It was found that although non-tradable goods caused the highest CO2 emissions, export goods, especially intermediate goods showed the largest growth in emissions. In addition, export goods contributed more to emissions efficiency. Second, the HEM was implemented to explore which countries had significant effects on both emissions and emissions efficiency. The US was the largest source of CO2 emissions in China in terms of final goods. Nevertheless, the US also increased the role of exported intermediate goods on emissions. It was also an important country in stimulating efficiency in CO2 emissions. Hence, China does not have a chance to decrease its export performance against the countries such as the US, as their demand is the source of efficiency in CO2 emissions. However, it can focus on exported intermediate goods to mitigate emissions, and take the US into account for new policies.

Aggregate Properties of Open Economy Models with Expanding Varieties

Abstract We present a unified framework to study interconnections between business cycle and international trade models. This unified framework is built upon the standard competitive, representative-firm international real business cycle model and features production externalities in the intermediate and final goods sectors. Our main theoretical result is that this unified framework is equivalent in aggregate implications to dynamic international trade models featuring monopolistic competition, endogenous entry and exit, and heterogeneous firms. We show that a negative capital externality in the intermediate good sector is required to fit the data. This presents a puzzle for the literature because when viewed through the lens of our unified framework, we demonstrate that the standard assumptions used in dynamic trade models imply a positive capital externality.

Technology sharing incentives for monopolistic firms

ABSTRACT The present study theoretically examines the effects of free technology sharing by a monopolistic final-goods firm with other final-goods firms. I consider two cases: first, where there exists one final-goods firm in the final-goods market and second, where there exist two final-goods firms in the final-goods market. Given the free entry of firms into the differentiated intermediate-goods market, the results show that when another firm enters the final-goods market and transforms it into a two-firm oligopoly, cost efficiency improves because of an increase in the number of intermediate-goods firms. Furthermore, there is a possibility that the incumbent firm’s profits increase not only for a two-firm oligopoly, but also for an oligopoly with three or more firms. Thus, this study concludes that free technology sharing can improve incumbent firms’ profits. When the impact of an increased number of firms entering the intermediate-goods sector on the final good’s unit cost is high, free technology sharing benefits incumbent firms’ profits. While some prior studies show the potential for firms to increase their profits through licencing and the provision of technology, this study considers that technology is shared free of charge in an economy where the number of differentiated intermediate-goods firms is endogenously determined.

Fiscal and monetary effects on environmental quality, growth, and welfare

This paper examines the effect of fiscal and monetary policies on economic growth, inflation, environmental quality, and welfare. To this end, the horizontal-R&D growth model is extended to include pollution generated in the intermediate-goods production, and the demand for money through cash-in-advance (CIA) constraints on intermediate-goods production and R&D investment. Fiscal policy embodied in the taxation of pollution decreases output, profits, inflation, and wages in the intermediate-goods sector, reallocating labor to R&D that is the engine of economic growth. As it reduces pollution, it increases welfare if there are strong preferences for a clean environment. In turn, since the inflation rate is an increasing function of the nominal interest rate, the effects of changes in this monetary policy variable extend to the effects of changes in the inflation rate. An increase in the nominal interest rate penalizes employment, wages and output in the R&D sector relatively more if the respective CIA constraint is more demanding and thus economic growth decreases. As it also reduces pollution since decreases intermediate-goods production, it increases welfare if the preferences for a clean environment are strong enough.

Non-resource revenues and the resource curse in different institutional structures: The DIGNAR-MTFF model

Numerous studies have examined the resource curse using different perspectives. This study investigates how the resource curse occurs in three countries with different institutional structures using a new model. The DIGNAR-MTFF model introduced and presented in this article is a combination of the DIGNAR model and the FMM-MTFF model. This model includes a consistent framework for industrial production, the inflow of intermediate goods, public investment inefficiencies, learning-by-doing externalities in foreign and intermediate goods sectors, and absorptive capacity constraints. In this research, the Input-Output Table data for Saudi Arabia, Mexico, and Norway in 2015 have been used. A simplified three-sector version of the Input-Output table compares the model's output for countries. The model is used under a specific scenario with different oil revenue cycles. The results for Saudi Arabia, a country with a specific institutional structure characterized by high dependence on oil revenues, show that the effects of abundant resources on non-resource incomes are severely negative indicating that Saudi Arabia experienced the Dutch disease with more intensity. The Dutch disease was less severe in Norway and Mexico, which have broader tax systems based on different institutional structures. The model's results show the role of an efficient tax system in overcoming natural resources' revenue cycles and the independence of the economies from these revenue cycles thus avoiding the resource curse.

The macroeconomic effects of funding U.S. infrastructure

This paper quantitatively assesses the macroeconomic effects of the recently agreed U.S. bipartisan infrastructure spending bill in a general equilibrium model with a mix of neoclassical and new-Keynesian features. We add to the relevant literature by allowing for a more detailed tax structure, different types of infrastructure spending and linkages between the final and intermediate goods sectors. We find long-run output multipliers above unity if the rising public debt, triggered by the increase in infrastructure spending, is stabilised by rises in consumption, dividend and labour income taxes and less than unity for corporate taxes. We also find that self-financing rates associated with infrastructure spending are not generally above 50% despite underprovided private and particularly public capital. Finally, a sensitivity analysis reveals that intersectoral linkages and zero-interest rate policy are critical determinants of multiplier size.

Pricing Behaviour and Menu Costs in Multi‐product Firms

This paper investigates the micro‐foundations of pricing behaviour using monthly producer prices for Norwegian multi‐product firms. We find both infrequent and many small price changes together with a high degree of within‐firm synchronization. This points at fixed menu costs featuring scope economies, at additional linear and convex price adjustment costs, and at the presence of firm‐specific shocks. The structural estimates and a simulation support the view that in order to understand pricing behaviour and the effectiveness of monetary policy, the analysis of multi‐product firms and a richer price adjustment technology in the intermediate goods sector is valuable.

World trade growth has peaked, risks skew to downside

▪ World goods trade volumes have been edging downward since March, and our survey‐based indicator suggests further short‐term weakness. There is much variation across sectors and economies, but overall, risks to our trade forecasts for 2021 and especially 2022 now look skewed to the downside. ▪ The weakening trend in goods trade is visible in both advanced and emerging markets, but with an uneven pattern across economies. Asian trade levels have moderated, and trade in the US and euro area looks flat. Trade is weak in the Middle East and Africa but rising in Latin America. ▪ The slowdown partly represents Chinese exports retreating from artificially high growth rates associated with the pandemic. But less benign factors are also in play, including ongoing restrictions, port closures and soaring shipping rates. ▪ Sectoral problems are also playing a part. Most notable among these is the weakness in world trade in vehicles, in turn related to chip shortages. Intermediate and consumer goods sectors are generally performing better. ▪ Services trade has been improving, with travel and transport services starting to rebound and other service sectors also posting annual growth. But the recovery has been patchy across economies, and levels of services trade remain low. Services trade is unlikely to offset flagging growth in goods trade. ▪ Travel and tourism services account for 60%–80% of total services exports in many important economies including Turkey, Mexico, Thailand, Australia, and Spain. Their heavy reliance on these sectors will be an ongoing problem given persisting restrictions. Prospects are better for services exporters like the US, Japan, Germany, the Netherlands, and the UK.

As estratégias do Grupo Votorantim em meio à desindustrialização do Brasil: internacionalização, revisão do portfólio e mudanças na gestão do grupo (1980-2019)

O Grupo Votorantim foi criado em 1891, na cidade paulista de Sorocaba (Brasil). Desde 1930, passou a concentrar suas atividades no setor de bens intermediários (cimento, zinco, alumínio, produtos químicos e siderúrgicos), expandindo-se junto ao processo de industrialização do Brasil e convertendo-se no maior grupo privado da indústria nacional. Todavia, a partir dos anos 1980 — com a crise da dívida externa —, o modelo de industrialização liderado pelo Estado se perdeu e iniciou-se a desindustrialização do país. Neste artigo, analisam-se as estratégias da Votorantim para se adaptar à instabilidade econômica do Brasil pós-1980, utilizando como fonte os relatórios anuais do Grupo e apreendendo as seguintes estratégias: internacionalização, revisão do portfólio e mudanças na gestão do grupo no período de 1980 a 2019.

The Mechanism of Driving Green Growth and Decreasing Energy Security Risks by Innovation in China

The role of innovation for economic growth has been proved by studies. However, whether innovation can decrease environmental cost and energy security risks remains to be studied. To explore the theoretical mechanism of driving green economic growth by innovation, we constructed a four-sector endogenous growth model, including the final-goods sector, the intermediate-goods sector, the Research and Development (R&D) sector, and the energy sector. Then we measured the innovation-driven effect of green growth and calculated the green added value of 40 industries in China during 2005–2016. Based on the calculations, we used a threshold regression model to test the mechanism of driving green growth and decreasing energy security risks by innovation. The results showed that: (1) the innovation-driven effect on green growth increased from 0.2729 in 2005 to 0.3446 in 2016. (2) The proportion of green added value in the traditionally added value increased from 79.54% in 2005 to 92.25% in 2016. (3) Innovation had a threshold effect on green growth: the role of innovation in driving green growth weakened in the long term, but not in the short term (4) Innovation also had a threshold effect on energy security risk: after the innovation-driven effect crossed the threshold, innovation decreased energy security risk more significantly.

Directed Technical Change and the British Industrial Revolution

We build a directed technical change model where one intermediate goods sector uses a fixed quantity of biomass energy (“wood”) and another uses coal at a fixed price, matching stylized facts for the British Industrial Revolution. Unlike previous research, we do not assume the level or growth rate of productivity is inherently higher in the coal-using sector. Analytically, greater initial wood scarcity, initial relative knowledge of coal-using technologies, and/or population growth will boost an industrial revolution, while the converse may prevent one forever. An industrial revolution, with eventual dominance by the coal-using sector, is the model’s main dynamic outcome, but not inevitable if inter-good substitutability is high enough. Empirical calibration for 1560–1900 produces historically plausible results for changes in energy-related variables during British industrialization, and through counterfactual simulations confirms that it was the growing relative scarcity of wood caused by population growth that resulted in innovation to develop coal-using machines.

Da fábrica sorocabana ao conglomerado nacional: uma análise da história do Grupo Votorantim (1891-1980)

A Votorantim, um dos principais grupos empresariais atuando na economia brasileira, tem sua origem que remonta ao ano de 1891, quando o banco União de São Paulo criou a Fábrica Têxtil Votorantim no município paulista de Sorocaba. Com a falência do banco União em 1917, a empresa foi leiloada e, nos anos subsequentes, seu controle acionário foi adquirido pelo português Antonio Pereira Ignácio, um importante industrial do setor têxtil paulista e que fez da Votorantim a principal firma do ramo têxtil algodoeiro de São Paulo nas décadas de 1920 e 1930. Todavia, a partir dos anos 1930, o Grupo Votorantim passou a concentrar esforços no setor de bens intermediários – cimento, produtos químicos, alumínio, aço e ferro – através da constituição das seguintes empresas: Fábrica de Cimento Santa Helena (1936), Siderúrgica Barra Mansa (1937), Cia. Nitro-Química (1937) e a Cia. Brasileira de Alumínio (1955). Tendo em vista a escassez de análises sobre como teria se dado a conversão do Grupo Votorantim do setor de bens de consumo finais à indústria de base, o artigo aborda esta guinada realçando: a correlação entre o Grupo e o projeto industrializante do presidente Getúlio Vargas, os recursos produtivos preexistentes e a expertise industrial de seus dirigentes. A pesquisa calca-se em documentação primária constituída de: relatórios da diretoria do Grupo Votorantim, demonstrações de lucros e perdas e balanços patrimoniais. Como resultado, o artigo traz uma contribuição ao debate sobre a formação de grupos econômicos em economias periféricas, ao demonstrar que, no caso da Votorantim, a geração de receitas pelo próprio Grupo foi o instrumento principal de financiamento à criação das novas empresas no setor de bens intermediários do Brasil.

A Unified Model of International Business Cycles and Trade

We present a general, competitive open economy business cycle model with capital accumulation, trade in intermediate goods, production externalities in the intermediate and final goods sectors, and iceberg trade costs. Our main theoretical result shows that models developed in the modern international trade literature that feature comparative advantage, monopolistic competition and cost of entry, and firm heterogeneity and cost of exporting are isomorphic, in terms of aggregate equilibrium, to versions of this competitive dynamic model under appropriate restrictions on the externalities. In particular, the restrictions apply on the overall scale of externalities, the split of externalities between the different factors of production, and the identity of the sectors with production externalities. Our quantitative exercise assesses whether various restricted versions of the general model, in forms they are typically considered in the literature, are able to resolve the well-known aggregate empirical puzzles in international business cycle models. Our theoretical result on isomorphism between models then provides insights on why they fail to do so in many instances. We thus provide a unified theoretical and quantitative treatment of the international business cycles and trade literatures in a general dynamic framework.

Who should bear the pain of price competition? A Kaleckian approach

Ongoing globalization and the rise of neoliberalism have intensified price competition in domestic and international markets. If we consider a cost reduction owing to price competition, an important question arises: what is the most effective way of reducing costs to stimulate output and growth? By constructing a Kaleckian model with an intermediate goods sector and a final goods sector, we show that reducing the mark-up rate in the latter sector rather than the former promotes capacity utilization and capital accumulation. Moreover, we show that transferring the burden of the cost reduction onto workers in the intermediate goods sector decreases the demand and growth rate.

Directed Technical Change and the British Industrial Revolution

We build a directed technical change model of the British Industrial Revolution where one intermediate goods sector uses a fixed renewable energy (“wood”) quantity, and another uses coal at a fixed price. With a high enough elasticity of substitution between the two goods in producing final output, an industrial revolution, where over time the coal-using sector grows relative to the wood-using sector and its growth accelerates, is not inevitable. However, greater initial scarcity of wood and/or higher population growth puts the economy on a path to an industrial revolution. The converse slows industrialization, or even prevents it forever.

The Nexus Between Carbon Emission, Energy Consumption, Economic Growth And Changing Economic Structure In India: A Multivariate Cointegration Approach

India, one of the fastest growing economies of the world is also one of the largest CO2 emitters in the world. Challenge before the country is to reduce this alarming emission levels without hindering its growth prospects. Against this backdrop, the present paper studies the dynamic causal relationships between India's CO2 emission, energy consumption, GDP growth and changing economic structure. The study uses cointegration and causality analysis for the same. ARDL bound testing approach along with Johansen-Juselius maximum likelihood procedure is applied to examine the existence of long run equilibrium relationship among the variables. Causal linkages between the variables are studied using Granger causality test in Vector Error Correction model framework. For this the study uses data on India for-CO2 emissions, primary energy consumption, GDP per capita and structural variables like, agriculture and service value added, urbanization, production of capital and intermediate goods and employment. Primary energy consumption, per capita GDP and trade openness explain variations in CO2 emissions over long run. Elasticity of CO2 emission with respect to energy consumption is 2 percent in long run and 1.8 per cent in short run. CO2 emissions are less responsive to changes in per capita GDP (0.52) and trade openness (0.10). Both trade openness and GDP per capita growth lower emissions by producing and exporting more labor-intensive environment friendly goods. Causality analysis shows that trade openness Granger causes CO2 emission both in short run and in long run while CO2 emission Granger causes service value added and production of capital and intermediate goods in the short run. Output in these sectors in turn Granger cause employment in the long run. Given the nature of causality, there is no way that India can reduce energy consumption in service sector or in capital and intermediate goods sector. Thus, faced with growing concern over rising emission levels and requirements to meet its growth potentials, India should take policies aiming at greater investment in and usage of cleaner energy, conservation of energy and improving energy efficiency. This way it can strike a balance between reducing its emission levels while maintaining its current growth momentum.

Determinants of Different Types of Imports: Evidence from Korea

This paper analyzes the determinants of different types of imported goods. We develop a model in which final good and intermediate good sectors...

From Wood to Coal: Directed Technical Change and the British Industrial Revolution

We build a directed technical change model where one intermediate goods sector uses a fixed quantity of biomass energy (“wood”) and another uses coal at a fixed price, matching stylized facts for the British Industrial Revolution. Unlike previous research, we do not assume that the level or growth rate of productivity is inherently higher in the coal-using sector. Analytically, greater initial wood scarcity, initial relative knowledge of coal-using technologies, and/or population growth will boost an industrial revolution, while the converse may prevent one forever. An industrial revolution, with accelerating growth in the coal-using sector, is the dominant dynamic outcome, but not inevitable if inter-good substitutability is high enough. Empirical calibration for 1560-1900 produces historically plausible results for changes in energy-related variables during British industrialization, and through counterfactual simulations confirms that it was the growing relative scarcity of wood caused by population growth that resulted in innovation to develop coal-using machines.

Effects of patent protection on economic growth and welfare in a two-R&D-sector economy

This paper examines the effects of patent protection in a growth model, where final goods firms and intermediate goods firms engage in R&D. The results show that: (i) strengthening patent protection is likely to increase the technology level of the final goods sector relative to the intermediate goods sector in most cases; (ii) if R&D productivity in the final goods sector is lower than that in the intermediate goods sector, the relationship between patent protection and economic growth is an inverted-U shape; and (iii) an increase in R&D productivity in the intermediate goods sector can reduce the welfare-maximizing level of patent protection.