Non-traded Goods Research Articles

The role of oil revenue in shaping Iraq's public budget

The objective of this paper was to give a wide overview of the background of Iraq’s economy during last five decades. From the previous studies, it is evident that oil export has made a significant contribution to the Iraqi economy. This contribution, as we have analyzed took the form of periodic injections of purchasing power into the domestic economy. However, changes in the country's earnings were mostly influenced by crude oil revenues, reflecting global prices of oil and daily level of oil production. Then the fluctuating oil price and production levels disturb this injection and also disturb whole Iraqi economy. Due to changing oil revenue, the structure of Iraqi economy significantly changed from tradable goods sectors to non-tradable goods sector. Apart from that the contribution of oil sector to GDP has significantly increase and government expenditure also increased sharply. The outcomes is shown in data via tables and figures throughout the period of 1970-2013.

Exchange-rate regime and sectorial profitability in a small open economy: evidence from Argentina’s recent experience

This paper studies, both theoretically and empirically, tradable ( T ) and non-tradable ( N ) profit rates dynamics in a small, price-taker peripheral economy under foreign exchange controls and parallel exchange rates (ER). Using a state-space econometric representation of the Argentine economy for the period 2016–2023, we found evidence to support three main hypotheses derived from the theoretical models. First, an official exchange rate depreciation increases tradable goods profit rates but has no short-term effect on non-tradeable goods profitability. Second, the rise of the parallel exchange rate increases sector N ’s profit rate but has no effect on T ’s. Moreover, this effect depends on the magnitude of the ER gap in a positive, but non-linear way. Third and finally, over sufficient time, both profit rates tend to influence each other, through the action of competition. This means that, eventually, and increase (depreciation) in the official exchange rate exerts its influence on sector N ’s profit rate; while, if sufficiently persistent and big enough, a rise in the financial ER ends up affecting sector T ’s profit rate too.

A Lucas island model to analyse labour movement choice between cities based on personal characteristics

The labour movement has been a key factor for cities’ development and caused regional inequality between cities. Although empirical studies have been conducted to investigate it, little theoretical evidence has been provided to find out the underlying mechanism. This paper describes and derives a Lucas-Prescott style island model to study the location choices of the heterogeneous agents by utilising endogenous technology growth, which in turn influences personal human capital growth. It leads to the U-shape curve of the inequality of wage income with the technology of these islands but not in terms of total income. In the extended two-goods model, the magnitude of the implications is increased by the impact of non-tradable goods price. Together with empirical research using the US census data, this paper finds that skilled labours with less endowed wealth tend to live in large cities for its high salary. On the other hand, those less-skilled but with more endowed wealth tend to live in cities with better environment, which drives up the price level of non-tradable goods in these cities. This explains the population concentration in the super cities and the high housing price-wage ratio in some beautiful cities, which provides theoretical basement for further empirical studies about labour movement in other cities

Inflation and income distribution in Brazil from a Kaleckian perspective*

This article shows that income inequality and inflation in Brazil are multidimensional phenomena linked to the unemployment rate and to the foreign sector. Consequently, the relationship between inflation and income distribution depends on the source of inflationary pressures, as evident in the 2000 to 2020 period. This reflects significant differences in the dynamics of inflation in the tradable and non-tradable goods sectors and is consistent with the Kaleckian framework. Yet, a missing inequality puzzle is identified, suggesting that changes in the Industry sector’s relation with the foreign sector altered some of the relationships analyzed. The article also investigates the influence of the foreign sector on the intensity of the domestic distributive conflict in Brazil and discusses some implications of an intensified distributive conflict in terms of policies and regulations that alter the bargaining power of workers.

The Growth Model of the Automotive Industry in Türkiye: An Input-Output Analysis via the Hypothetical Extraction Method

Purpose: The objective of this research was to ascertain if the portion of the automotive industry that engages in non-tradable goods or export goods is the principal driving force behind the industry's expansion. The purpose of this paper is to fill the gap by focusing on the automotive industry as its principal area of investigation. Methodology: Productivity growth in the automotive industry was estimated utilizing an innovative hypothetical extraction method (HEM) for both the non-tradable goods sector and the export goods sector. Following that, the weighted multipliers approach is employed to allocate the productivity across the non-tradable goods and export goods of the automotive industry. Findings: The findings indicate that the automotive industry maintains a strategy of development driven by exports. Production targeted for the domestic market is subject to significant limitations. Multinational automobile corporations tend to employ the strategy of exporting. The growth model of the automotive industry is significantly influenced by various institutional elements, including the Customs Union, taxes, and vertical integration. Originality: Although the automotive industry is an essential industry for exports, its growth model has not been comprehensively scrutinized. This study primarily focuses on investigating the growth model of the Turkish automotive industry and the institutional factors that influenced its strategic decisions.

Sovereign risk and Dutch disease

I study how, in the presence of default risk, the Dutch disease amplifies an inefficiency in the sectoral allocation of capital. In a sovereign default model with commodities and production of traded and non-traded goods, default incentives increase when more capital is allocated to non-traded production. Households do not internalize this, giving rise to an inefficiently large non-traded sector. Commodity windfalls amplify this inefficiency through the classic Dutch disease mechanism. I characterize state-contingent subsidies that implement the efficient allocation and compare them to a simpler subsidy rule that ameliorates the externality. Evidence from spreads, natural-resource rents, and sectoral investment data support the main findings of the model.

Some Reflections on Two Significant Contributions of Ron Jones: Specificity of Factors and Non-traded Goods

This article pays tribute to Professor Ronald W. Jones by reflecting upon how two significant, yet simple and elegant, analytical structures developed by him have been used by researchers to address a wide set of issues relevant for developed and developing countries alike and hold the potential to analyse some unexplored issues of relevance in the future. One is the specific-factor model, and the other is the composite-traded and non-traded model that came out of his Frank Graham Lecture in 1976. These two important competitive general equilibrium structures provide significant and relevant departures from the Ricardian and Heckscher–Ohlin–Samuelson models, highlighting the role of both factor scarcity and local demand. JEL Codes: F11, F13, F21

Economic geography of talent migration and agglomeration in China: A dual-driver framework

The long-standing debate on the role of economic factors and amenities on talent migration and redistribution foreshadows the importance of spatial economic theoretical thinking in resolving the effects of duality, a point yet to be conclusively addressed in the existing literature. Situated within the framework of new economic geography (NEG), this article introduces an innovative theoretical model – the Dual-Driver (DD) framework– aiming at comprehending the nuanced dual impact of economic and amenity factors on talent movements between regions. While the DD framework retains the mechanisms of increasing returns to scale, iceberg transportation cost, and talent agglomeration presented in the NEG models, it depicts, for the first time, the self-reinforcing mechanisms between non-traded goods (i.e., amenities) and talent agglomeration. The model describes a logic of talent movements influenced by the dual drivers of regional economic factors (nominal wage, the diversity of local manufacturing products) and amenities (the diversity and quality of amenities, transfer payment for talent), among which the economic effects play a predominant role versus the amenity effects. Empirical evidence has been given by the geographical analysis of China's internal talent migration between 2000 and 2015 and the corresponding econometric analysis using the Poisson pseudo-maximum likelihood (PPML) estimation. Our findings furnish a theoretical perspective for comprehending talent geography and offer policy insights into China's logic of talent migration.

Urban Transit Infrastructure and Inequality

Abstract We propose a quantitative spatial model featuring heterogeneous worker groups and their travel to consume non-tradable goods and services. We consider the opening of the Downtown Line (DTL) in Singapore, which connected regions where high-income households have residential amenities to where non-traded sectors are productive. Leveraging transit farecard data, we show that high-income workers saw large welfare gains but low-income workers gained little. Everyone enjoyed improved access to consumption opportunities, but low-income jobs in non-tradables moved to less attractive workplaces. Abstracting from consumption travel understates the disparate impact across worker groups three-fold.

Fluctuations of the Real Exchange Rate and the Structure of the Iraqi Economy

This paper analyzes how a boom in the oil sector affects the relative prices of non-tradable goods compared to tradable goods, the real exchange rate, and the competitiveness of Iraq’s broader economy. As the oil sector booms, Iraq’s currency appreciates, which reduces the competitiveness of the country’s traditional export sectors. This thesis investigates the presence of Dutch Disease in Iraq, an area previously unexplored. It evaluates the impact of growing oil revenues on the non-oil sectors of the economy and provides empirical evidence showing a contraction in the tradable goods sector and an appreciation of the real exchange rate. The findings suggest that Iraq experienced symptoms of Dutch Disease, including real exchange rate appreciation, a shrinking tradable goods sector, and an expanding non-tradable goods sector. Ultimately, the appreciation of the real exchange rate is responsible for shifting Iraq‘s economy from manufacturing and agriculture (tradable sectors) to construction and services (non-tradable sectors).

The persistent urbanising effect of refugee camps: evidence from Tanzania, 1985–2015

ABSTRACT With the rise of forced displacement, attention has turned to the economic impact of refugees. However, few studies investigate long-term impacts. We use data for Tanzania for the period 1985–2015 to examine the effect of camps on urbanisation and local development, exploiting a unique satellite-derived dataset of high spatial resolution and temporal frequency. We show a modest but significant effect of refugee camps on built-up area up to a 100 km distance. We then match camp locations to regional gross domestic product, local consumption spending and employment patterns. Output in areas with camps grew at a faster rate during camp operation, but closure of camps was associated with change in economic activity. Activity induced by camps is largely in non-tradeable goods and services rather than inducing longer run structural transformation.

The Brexit Vote, Productivity Growth, and Macroeconomic Adjustments in the U.K.

Abstract The U.K. economy experienced significant macroeconomic adjustments following the 2016 referendum on its withdrawal from the European Union. To understand these adjustments, this paper presents empirical facts using novel U.K. macroeconomic data and estimates a small open economy model with tradable and non-tradable sectors. We demonstrate that the referendum outcome can be interpreted as news about a future decline in productivity growth in the tradable sector. An immediate fall in the relative price of non-tradable goods induces a temporary “sweet spot” for tradable producers. Economic activity in the tradable sector expands in the short run, while the non-tradable sector contracts. Aggregate output, consumption, and investment growth decelerate.

Free-rider Problems in Eurozone: Inflation, Productivity, and Exchange Rate

The Eurozone is experiencing historically high inflation. Following the pandemic recession, the Eurozone as a 19-country currency bloc must strike a balance between credibility and economic development. Rather than a bleak economic outlook, the ECB anticipates a brisk post-pandemic recovery. However, the current situation forces the ECB to choose between Euro credibility and economic prospects. This paper begins by explaining how the Eurozone was created using theories about the fixed exchange rate system and currency union. The article then explains the Euro as a public good from the standpoint of a free-rider problem. When there is no distinction between tradeable and non-tradeable sectors, labor mobility and product mobility can address the majority of concerns. However, in the real world, non-tradeable goods and services abound, and the Eurozone must contend with historically high inflation. As a result, the following section introduces the Balassa-Samuelson Effect to examine Eurozone inflation rates.

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.

Production structure, tradability and fiscal spending multipliers

We assess the role that nontradable goods play as a determinant of fiscal spending multipliers, making use of a two-sector model. While fiscal multipliers increase with the share of nontradable goods, an inverted U-shaped relationship exists between multiplier size and the import share. Employing an interacted panel VAR model for EU countries, we estimate the effect of the share of nontradable goods on fiscal spending multipliers. Our empirical results provide strong evidence for the predictions of the theoretical model. They imply that the drag of fiscal consolidations is on average smaller in countries with a low share of nontradable goods.

Traversing the Macroeconomic Terrain: An Exploration of South Korea’s Economic Responsiveness to Cross-Border E-Commerce Production Technology Alterations in the Global Arena

The principal aim of this study is to discern the implications of technology shocks in the sphere of cross-border e-commerce on the macroeconomic indices of South Korea. Leveraging Bayesian estimation techniques, we scrutinized quarterly data from the inaugural quarter of 2000 through to the first quarter of 2022 to perform an empirical exploration. Deductions drawn from the impulse response function indicate that a positive perturbation in the technology of sustainable cross-border e-commerce production instigated a swell in output and investment for both non-tradable and cross-border e-commerce goods producers. Conversely, the sector of traditional tradable goods exhibited a decrease in output and investment. Additionally, this favorable technology shock appears to have amplified household consumption and employment, along with wages in the non-tradable and sustainable cross-border e-commerce goods sectors. In stark contrast, the traditional tradable sector demonstrated a decline in household consumption, employment, and wages. Intriguingly, the technology shock also exerted an influence on the pricing system, causing a rise in the prices of non-tradable goods and cross-border e-commerce goods. On the other hand, the prices of traditional tradable goods experienced a downward turn. These insights provide a pathway to an understanding of how advancements in sustainable e-commerce technology can mold an array of macroeconomic factors in a digitally evolved economy such as South Korea.

Exchange rates and monetary policy when tradable and nontradable goods are complements

This paper examines the implications of complementarity between tradable and nontradable goods for exchange rates and monetary policy in a two-country general equilibrium model. In doing so, it revisits well-known findings in the New Open Economy Macroeconomics literature that exchange rates are proportional to relative national money supplies and that optimal monetary policies respond only to domestic shocks. These results depend on a number of simplifying assumptions, including a unitary elasticity of substitution between tradable and nontradable goods. When this assumption is replaced by a more-realistic one of complementarity, exchange rates depend on relative productivity in addition to money supplies when prices are flexible. When prices are sticky, complementarity amplifies the effect of changes in relative money supplies on the exchange rate and creates additional spillover effects from changes in the foreign money supply to domestic consumption. With complementarity, optimal monetary policies respond to external as well as internal shocks.

Sectoral fiscal multipliers and technology in open economy

Our evidence reveals that the rise in real GDP is uniformly distributed across sectors following a government spending shock while labor growth is concentrated in non-traded industries. A rationale behind these two findings lies in technology which responds endogenously to the government spending shock. While technology improvements are concentrated in traded industries, technological change is biased toward labor (capital) in non-traded (traded) industries. To account for our evidence, we consider a semi-small open economy model with tradables and non-tradables where both capital and technology can be used more intensively. While financial openness amplifies the biasedness of the demand shock toward non-traded goods, labor mobility costs, imperfect substitutability between home- and foreign-produced traded goods and endogenous capital utilization are necessary conditions for giving rise to traded technology improvement. The model can reproduce the size of fiscal multipliers once we let technology adjustment costs together with factor-biased technological change vary across sectors.

Understanding Pandemic Crisis in a Dependent Economy: A Structuralist Analysis

The pandemic crisis and associated lockdown have led to diminution in demand on one hand and different types of supply side bottlenecks on the other. The article makes a theoretical attempt to assess macroeconomic dimensions of COVID-19 along with consequences of such crisis using a two-sector dependent economy model. In particular, the article investigates the implications of unanticipated adverse shock such as COVID-19 and wage cut for the dynamic interaction of Tobin’s q, price of non-traded goods and the exchange rate and sectoral composition of output and level of employment. The effects of expansionary fiscal policy and increase in risk premium are also highlighted as the part of concluding remarks. The results in this article critically depend on the difference in the speeds of adjustments in the Tobin’s q, exchange rate and price of non-traded goods and different types of cross effects emanating from changes in interconnected macroeconomic variables. While the pandemic crisis leads to contraction of all the sectors and decrease in level of employment in the short-run with uncertain medium-run implications, the wage cut somewhat arrests the fall in employment. JEL Codes: E24, F41, G12

Non-tradables in Brazilian economic history

PurposeThe purpose is to market a reinterpretation of Brazilian economic history highlighting the importance of non-tradable goods to understand major historical developments such as the lack of industrialization in the mining boom; the rise and contribution of industries to development in the early 20th century; indexation as hyperinflation in the late 20th century; growth and cycles in the early 21st century.Design/methodology/approachSection 2 introduces analytical perspectives on the relationship between non-tradables, transport costs and external shocks. Section 3 presents a historical overview of the gold and coffee cycles in the Brazilian economy, which highlights the crucial role played by transport costs in the genesis of industrialization. Thus, in a more precise way, industrialization was not an import substitution process but the substitution of non-tradables by the domestic tradable manufactures.FindingsSection 4 shows that Brazilian statistical records and historiography disregard this characterization and, to that extent, underestimate economic growth in the primary export phase (1872–1920) and overestimate growth rates in the industrialization period (1920–1940). Section 5 shifts to the end of the 20th century to analyze the relationship between non-tradables, indexation and hyperinflation. Section 6 concludes with a brief discussion of the role played by the terms of trade and non-tradables in the unfolding of the 2014 economic crisis.Originality/valueDistance from international markets and a continental geographic size made transport costs in Brazil historically prohibitive: the relevance of non-tradables in the Brazilian economic history. While the theme is not new, it seldom received proper attention in the historiography.