Production Of Intermediate Goods Research Articles

Reassessing China's virtual water trade with a global value chain framework: Participation, inequality and multi-scenario analysis

With the rise of global value chain (GVC), traditional accounting methods for virtual water (VW) trade have failed to reflect the inherent VW flow generated by the production of intermediate goods in shared production processes. Here, we reassess China's VW consumption in 2020 based on a new GVC framework, and propose the concept of VW consumption embodied in forward and backward GVC activities (VWF/VWB). We clarify China's role in GVC activities and reveal VWF/VWB inequalities under multiple scenarios. Our results show that the maximum share of VWF and VWB reaches 64.4% and 86.1%, respectively, far exceeding the traditional trade share. China's VWB primarily sources from developing countries in Asia, while VWF primarily serves the United States. VWF/VWB inequalities are exacerbated by China's GVC activities and exhibit considerable variation under multiple scenarios. Our findings provide new insights into reconciling China's GVC participation and narrowing regional disparities in VW consumption.

Global directed technical change model with fiscal and monetary policies, and public debt

We develop an endogenous growth model with North–South interactions, monetary policy, and a multi-dimensional role for fiscal policy. To boost economic performance, the government of the less developed country subsidizes R&D and intermediate goods production. Besides, to account for the effects of excessive public debt, we introduce a negative externality on productivity and a risk premium effect. Our findings reveal that the steady-state growth rate of both economies depends positively on the subsidies in the South and negatively on the public debt’s externality on productivity and the risk premium affecting the indebted economy. Additionally, public debt externalities increase the equilibrium wage inequality, making it more significant in the South. To minimize these effects, both countries can agree to mutualize their debts to overcome the risk premium. Then, the economy’s steady-state growth rate would increase in both countries. Finally, several policy implications were retrieved.

Identifying critical transmission sectors by a new approach: Intermediate-based accounting

Identifying transmission sectors that may not be revealed by existing indicators, such as production-based emission (PBE) and consumption-based emission (CBE) accounting, is significant in emission reduction policies and provides insights into novel opportunities for companies and industries to reduce emissions. This study proposed an intermediate-based emission (IBE) accounting approach that considers indirect emissions from intermediate goods production and a case study was conducted using Exiobase 3.8. The highest IBE sector was ‘basic iron’ (1131 Mt-CO2), and the sector’s IBE was higher than its PBE (1052 Mt-CO2). Additionally, the material sector, such as aluminum products (326 Mt-CO2), was identified as a key transmission sector, although PBE (21 Mt-CO2) and CBE (3 Mt-CO2) of the sector is very low. In addition, IBEs were observed to be closely related to overall supply chain emissions in Germany, Japan, and Asia, and cooperation is required to reduce the emissions. The method enables approaching supply chains with large emissions from three perspectives (production-, consumption-, and intermediate-based accounting) and exploration of the emission reduction responsibilities of the three key sectors. The utility and discussion of the approach are consistent with Scope 3 emissions and facilitate fair allocation of emission reduction responsibilities to a larger number of countries and industries.

Exports of intermediate goods and innovation: Evidence from China’s firms

Based on the experience of developed countries, the production and export of intermediate goods have been observed to foster innovation within firms. This study investigates whether China's export of intermediate products has significantly enhanced the independent innovation capability of China’s firms. Using microdata and patent applications as a measure of innovation, we adopt the staggered PSM-DID method to explore the influence of China’s intermediate exports on firm innovation. We find that China's export of intermediate goods positively influences firm innovation, particularly utility patents. Domestic firms benefit more from this effect than foreign firms, and medium-high technology industries experience the most significant innovation impact. The export of intermediate goods stimulates innovation through the following channels: scale economies and employment structure optimization. These findings shed light on China's evolving innovation landscape.

The race between offshoring and automation in explaining wage polarization

AbstractOffshoring and automation are sources of wage polarization. We reassess these two determinants of wage polarization in a single directed technical change setup that encompasses routine and nonroutine production. We empirically establish the conditional positive relationship between automation and relocations on one side and wage polarization on the other. Theoretically, we show that wage polarization increases with automation and offshoring. In particular, wage polarization in favor of domestic (nonroutine) high(low)-skilled workers is positively affected by an increase in domestic (nonroutine) high(low)-skilled labor quantity and/or absolute productivity. Additionally, it is also positively influenced by a rise in foreign (routine) medium-skilled labor quantity and/or absolute productivity while negatively impacted by an increase in domestic (routine) medium-skilled labor quantity and/or absolute productivity. We show that the effect of offshoring on wage polarization diminishes with the degree of substitutability between routine and nonroutine sectors in the economy, with the share of machines in the production of intermediate goods, and with the scale effect. We quantitatively assess the impact through a thorough data-based calibration exercise, where the numerical results confirmed the theoretical findings.

Shirking and capital accumulation under oligopolistic competition

PurposeThe purpose of the paper is to study how technology choice is affected by capital accumulation when there is unemployment and firms engage in oligopolistic competition.Design/methodology/approachIn this infinite horizon model, unemployment results from the existence of efficiency wages. Consumers choose saving optimally, and there is capital accumulation. Firms producing intermediate goods engage in oligopolistic competition and choose technologies to maximize profits. A more advanced technology has a higher fixed cost but a lower marginal cost of production.FindingsIn the steady state, it is shown that an increase in population size or a decrease in the discount rate leads intermediate good producers to choose more advanced technologies and the wage rate increases. Interestingly, the equilibrium unemployment rate decreases with the size of the population.Originality/valueIn this model, unemployment results from the existence of efficiency wages and firms engage in oligopolistic competition. One difficulty with efficiency wage models is that saving is not allowed. However, in this model, consumers choose saving optimally, and capital accumulation is allowed. With oligopolistic competition, the authors show that an increase in population size or a decrease in the discount rate leads intermediate good producers to choose more advanced technologies and the wage rate increases. The equilibrium unemployment rate decreases with the size of the population.

How ICTs Moderate the Effect of Global Value Chains’ Participation on Economic Growth in Sub-Saharan Africa?

Using data from Sub-Saharan African (SSA) countries over the period 1990–2015, this study examines the effects of Global Value Chains’ (GVCs) participation on economic growth by distinguishing participation in upstream, participation in downstream and sectors-based participation. The study also focuses on how the economic growth effect of GVCs’ participation can be affected by the ICTs. The Driscoll and Kraay’ estimation approach applied to the cross-lagged panel model enabled to overcome the cross-sectional dependence, heteroscedasticity, errors’ autocorrelation and reverse causality problems. The generalized method of moments (GMM) is further employed for the robustness check. The findings are robust and indicate that the GVCs’ participation (general, upstream, downstream and sectorial) boosts economic growth in SSA countries. These positive effects hold and are even more intensive when the GVCs’ participation is modulated by the ICTs. Furthermore, the study demonstrates that SSA countries should focus on the downstream GVCs’ participation that is the production and export of the (high technologies) intermediate goods that are essential for the production activities of other GVCs’ stakeholders. For the sectors-based participation, the study seems to show that participation in the services sector promotes more economic growth, followed to some extent by the mining, agriculture and manufacturing sectors.

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.

Technology level and the global value chain

ABSTRACT This paper investigates the role of technology levels in shaping the structure of the global value chain (GVC) at the macro level. We incorporate the Ricardian comparative advantage into the production of intermediate goods involving both snake-and spider-type supply chains to capture the overall GVC integration. We analytically find that the country with a higher technology level produces the intermediate inputs at production stages involving a higher degree of complexity, which is consistent with the real data. Finally, we calibrate the GVC participation value and wages and document the good fit of our model to the real-world data.

Growth and welfare effects of corruption penalties

This paper analyses the steady-state effect of business corruption penalties on economic growth, corruption and welfare. To that end, the baseline horizontal R&D growth model is extended to include corruption, which is generated in intermediate goods production. Taxation on corruption depresses profits in production but also wages, leading to labor being reallocated from production to R&D, and, therefore, to a higher economic growth rate. Moreover, it also reduces corruption and increases welfare if preferences towards a corruption-free environment are strong enough. The results are in line with the data observed for 15 EU countries.

Offshoring via vertical FDI in a long-run Kaleckian Model

This paper develops a two-country Kaleckian model in which “Northern” firms invest a fixed fraction of total investment in foreign affiliates in the low-wage “South” in order to offshore the production of intermediate goods over time. On the back of this setup follows an analysis of the macroeconomic implications of offshoring in the short and long run. Offshoring through vertical FDI is found to lead to a falling wage share and a simultaneously falling price level and rising markup in the North, whereas the effect on equilibrium capacity utilization may be positive or negative. Regardless of the effect on capacity utilization and firm profitability, we can show that the structural change implied by offshoring leads to lower rates of capital accumulation and employment in the North in the short run. The long-run effects on Northern employment and growth, on the other hand, depend crucially on the long-run accumulation rate of the Northern-owned multinational firms and on whether wages in the North and the South endogenously converge. The model appears well suited to shed light on many real-world macroeconomic phenomena, such as rising FDI flows, falling wage shares, rising markups in an era of low inflation, hysteresis, and secular stagnation.

The economy of the North-East region of Brazil based on the 2011 regional input-output matrix

This paper seeks to determine the leading sectors of the economy of the North-East region of Brazil based on input-output matrix methodology and the economic structure of 2011. For that purpose, the regional input-output matrix was updated from 2004 to 2011 and, subsequently, the Rasmussen-Hirschman linkage indices, field of influence and pure linkage indices were calculated, along with the type I and II multipliers of production, employment and income. The results confirm the importance of the textile and chemical sectors, along with those related to the oil industry, and show that the production of intermediate goods is one of the characteristics of the North-East region’s economy.

The Choice of Technology and Economic Geography

Empirical evidence shows that firms located in regions with larger population size are on average larger and more productive. To explain this empirical observation, firms producing intermediate goods are assumed to choose their technologies with different levels of fixed and marginal costs. In this general equilibrium model of economic geography, intermediate good producers engage in oligopolistic competition. The model is tractable and leads to interesting and analytical results. An intermediate good producer in the region with a higher population produces a higher level of output and has a lower marginal cost of production regardless of the existence of regional trade. With regional trade, if a worker moves from the region with a lower number of workers to the region with a higher number of workers, intermediate good producers in both regions choose less advanced technologies.

Economic Growth in the Western Balkans: A Panel Analysis

Abstract This paper investigates how typical macroeconomic indicators affect the economic growth of Western Balkans countries. A static panel empirical investigation for the period 2010 to 2019 has been conducted using GDP growth rate as the dependent variable, while independent variables in focus include foreign direct investments, remittances, unemployment rate, population growth rate, and control of corruption. The most interesting finding is that a rising share of remittances positively affects economic growth. This might indicate that even when remittances are used for non-investment purposes, they might increase domestic production of consumption and intermediate goods. There is also evidence of a non-linear relationship between FDI and economic growth, which may be a consequence of undeveloped capacities to use the positive side of FDI. To foster economic growth policy-makers should focus on reforms that target sectors that show sharp declines in FDI and remittances inflows, including also a need for better control of corruption in the region.

Knowledge Accumulation, Privacy, and Growth in a Data Economy

We build an endogenous growth model with consumer-generated data as a new key factor for knowledge accumulation. Consumers balance between providing data for profit and potential privacy infringement. Intermediate good producers use data to innovate and contribute to the final good production, which fuels economic growth. Data are dynamically nonrival with flexible ownership while their production is endogenous and policy-dependent. Although a decentralized economy can grow at the same rate (but are at different levels) as the social optimum on the Balanced Growth Path, the R&D sector underemploys labor and overuses data—an inefficiency mitigated by subsidizing innovators instead of direct data regulation. As a data economy emerges and matures, consumers’ data provision endogenously declines after a transitional acceleration, allaying long-run privacy concerns but portending initial growth traps that call for interventions. This paper was accepted by Kay Giesecke, finance.

Assessing the impact of Covid-19 pandemic in Turkey with a novel economic uncertainty index

PurposeThis study aims to measure economic uncertainty in Turkey by a novel economic uncertainty index (EUI) employing principal component analysis (PCA). We assess the impact of Covid-19 pandemic in Turkey with our constructed uncertainty index.Design/methodology/approachIn order to obtain the EUI, this study employs a dimension reduction method of PCA using 14 macroeconomic indicators that spans from January 2011 to July 2020. The first principal component is picked as a proxy for the economic uncertainty in Turkey which explains 52% of total variation in entire sample. In the second part of our analysis, with our constructed EUI we conduct a structural vector autoregressions (SVAR) analysis simulating the Covid-19-induced uncertainty shock to the real economy.FindingsOur EUI sensitively detects important economic/political events in Turkey as well as Covid-19-induced uncertainty rising to extremely high levels during the outbreak. Our SVAR results imply a significant decline in economic activity and in the sub-indices as well. Namely, industrial production drops immediately by 8.2% and cumulative loss over 8 months will be 15% on average. The losses in the capital and intermediate goods are estimated to be 18 and 25% respectively. Forecast error variance decomposition results imply that uncertainty shocks preserve its explanatory power in the long run, and intermediate goods production is more vulnerable to uncertainty shocks than overall industrial production and capital goods production.Practical implicationsThe results indicate that monetary and fiscal policy should aim to decrease uncertainty during Covid-19. Moreover, since investment expenditures are affected severely during the outbreak, policymakers should impose investment subsidies.Originality/valueThis is the first study constructing a novel EUI which sensitively captures the critical economic/political events in Turkey. Moreover, we assess the impact of Covid-19-driven uncertainty on Turkish Economy with a SVAR model.

Market access, domestic and Japanese supplier access, vertical agglomerations and overseas locations of Japanese food multinational firms in East Asia: comparison of the 1985–1999 and 2000–2009 periods

In this paper, we present an analysis of the determinants for overseas location choices of production sites for Japanese agriculture-based food industry multinational firms (MNF) in East Asia for 1985–2009 with a conditional logit model based on new economic geography (NEG). Especially, two periods 1985–1999 (weak agglomeration period) and 2000–2009 (strong agglomeration period) were focused on for the degree of agglomeration of Japanese food MNFs in East Asia, and overseas locations of all-goods and final goods production sites. Results illustrate the following four points. First, for all-goods production sites during the weak agglomeration period (1985–1999), we found that market access (MA) and domestic market access (DMA) in the target country, but not MA in neighboring countries (FMA) are determinant factors. In addition, supplier access (SA) and SA from surrounding countries (FSA), but not the domestic supplier access (DSA) in the target country and the SA from Japan (JFSA), are determinant factors. This is contrary to our expectations. Second, for all-goods production sites during the strong agglomeration period (2000–2009), we found MA and DMA are determinant factors, but FMA is not. DSA and JFSA, but not SA and FSA, are also determinant factors as expected. Third, due to rapid expansion of the domestic market in East Asia during 2000–2009, the estimation results for final goods production sites during the strong agglomeration period (2000–2009) revealed that the final goods production sites are located in the target country because of (1) MA and DMA but not FMA; (2) the DSA of materials and intermediate goods production sites and domestic agricultural output; and (3) inexpensive labor, infrastructure improvements, incentive policies, vertical agglomerations, and freeness of trade. Finally, the above two-period analysis demonstrates that it is necessary to take into account changes in the Japanese and global economic structures when setting the estimation period for Japanese food firms and choosing overseas locations.

Dispersed consumption versus compressed output: Assessing the sectoral effects of a pandemic

I process credit-card consumption data through an input–output model of sectoral linkages to impute the sector-level output responses to the Covid-19 pandemic. The sector-level consumption responses are highly dispersed and even positive for some. Yet, all sectors suffer from output losses. Production of intermediate goods stabilises output. Consequently, the sectoral dispersion of final consumption is higher than the sectoral dispersion of output produced. Sectors that provide intermediate goods are affected less by the pandemic. Many service sectors face the largest losses in output since they depend the most on final consumption.

Effet de l'émigration sur la transformation structurelle de la Communauté Économique des États de l'Afrique de l'Ouest

L'objectif de cet article est d'étudier l'effet de l'émigration sur la transformation structurelle de la Communauté Économique des États de l'Afrique de l'Ouest (CEDEAO). La transformation structurelle est mesurée par la réallocation de la main-d'œuvre du secteur industriel et du secteur des services. La méthode des moindres carrés ordinaires dynamiques est utilisée et a révélé que l'émigration contribue négativement à la réallo- cation de la main-d'oeuvre du secteur industriel. Seul le taux d'émigration total affecte négativement la réallocation de la main-d'oeuvre du secteur des services. Aucune relation statistique n'existe entre les autres taux d'émigration et la réallocation de la main-d'oeuvre du secteur des services. Les pays de la CEDEAO doivent encourager les politiques axées sur la capitalisation des compétences des émigrants à travers les écoles d'été à l'instar de la Banque Africaine de Développement. Ils doivent également soutenir le développement industriel tout en encourageant la production agricole des biens intermédiaires destinés à la production industrielle. Cette synergie favorise la réallocation de la main-d'oeuvre du secteur agricole vers le secteur industriel puis vers le secteur des services et aboutir à la transformation structurelle des économies, tant souhaitée par l'Union Africaine.

Technology Level And The Global Value Chain

This paper investigates the role of technology levels in shaping the structure of the global value chain (GVC) at the macro level. We incorporate Ricardian comparative advantage into the production of intermediate goods involving both snake- and spider-type supply chains to capture the overall GVC integration. We analytically find that the country with a higher technology level produces the intermediate inputs at production stages involving a higher degree of difficulty, which is consistent with the real data. Furthermore, we verify how well the model fits the observed data by executing the calibration procedure using data from the World Input-Output Database. Our findings indicate strong correlations between calibrated outcomes and the observed data, as high as 87.3% for the GVC participation value and 79.3% for the real wage, proving that our model is a plausible representation of the structure of the GVC.