Trade Productivity Research Articles

Fractal Investigation and Maximal Overlap Discrete Wavelet Transformation (MODWT)-based Machine Learning Framework for Forecasting Exchange Rates

Foreign currency is bought and sold in the financial markets, every minute, every day, on trading days, like any commodity or stocks of companies. The players in this market are (a) people with underlying interest in foreign currency such as exporters and importers who are continuously hedging in futures or options markets, (b) speculators and (c) arbitrageurs. This paper focuses on this microeconomic flavour of foreign currency as a continuously tradable product and presents a granular framework for forecasting the exchange rate. We initially investigate year-wise inherent nature of movements of three exchange rates, namely Indian rupee/US dollar, Indian rupee/euro and Indian rupee/Japanese yen, during 2011–2016 through Mandelbrot’s single fractal model. Subsequently, maximal overlap discrete wavelet transformation (MODWT) is used to decompose the time series of the individual exchange rates. Random forest and bagging are applied on the decomposed components for predictive modelling.

Exchange Rates, Prices and Trade Costs

The purchasing power parity (PPP) puzzle refers to the inability to reconcile the high short-run volatility of exchange rates with the glacial speed at which deviations from parity seem to damp out. Despite this, there is strong evidence of the long-run relationship between exchange rates and international price differentials. More recently, the alternative notion of non-linear mean reversion dynamics of rates is attracting substantial attention: as a consequence of various adjustment costs, there is a sizeable buffer region within which exchange rates can move independently of prices, generating persistent deviations from parity. This study seeks to integrate the idea of this “inaction band” with trade costs. When deviations fall within the band, movements in rates are close to a random walk; but when the threshold of the band is crossed, arbitrage causes movements back toward the band. To test this approach, we use a large number of disaggregated and highly tradable agricultural products over time in a large number of countries. We find some evidence in favour of the approach.

Distributive trade and regional productivity growth

ABSTRACTThe paper aims to investigate the relationship between distributive trade (wholesale and retail trade) and productivity growth across Italian provinces. In most studies, the potential determinants of productivity in the distributive trade have been investigated, while the impact of these activities on economic growth of the whole system has received less attention. By using panel data during the time period 2000–2013, the paper tests if the increase in the share of employees in distributive trade over the given period has promoted the productivity growth. This study applies both a random-effects model and, among the dynamic panel data estimators, a generalized method of moments estimator (GMM). In order to control both the issue of endogeneity, due to the presence of some potentially endogenous variables among the explanatory variables, and the problem of instrument proliferation, the GMM estimator is implemented together with a statistical method, which reduces the number of instruments when the set of endogenous variables is wide. The findings show that the distributive trade has a strong positive impact on the productivity growth. Moreover, this link is reinforced when we control the potential endogeneity. The results also support the idea that distributive trade can promote provincial convergence.

Trade Integration and the Trade Balance in China

We study China’s growth and integration (trade and financial) in a two-country DSGE model with a dynamic exporting decision, pricing-to-market, incomplete financial markets, and aggregate shocks to trade barriers, productivity, and preferences. We estimate the changes in technology, trade costs, and preferences accounting for the dynamics of China’s gross and net trade flows, export participation, real exchange rate, and growth from 1990 to 2014. We find a large unanticipated decline in bilateral trade barriers with persistent, but not permanent, innovations that include an important gradual, phased-in component. Since the Great Recession, average bilateral barriers have stabilized at low levels even as barriers on Chinese imports have risen substantially relative to exports. Trade stagnation since 2011 largely reflects the completed transition to past trade reforms rather than an increase in trade barriers or reversal in the expected pace of future integration. Trade is forecast to decline almost 1 percent per year starting in 2017. Changes in trade barriers are an important determinant of China’s trade balance and its accumulation of foreign assets, accounting for as much as 70 percent of the foreign assets accumulated by 2014. Shocks to trade barriers and in China are found to have increased ROW consumption by 11.9 percent and employment by 0.6 percent but lowered ROW output by less than 1 percent relative to 1990.

Are Creative Cities Good Places for Creative People? Notes on the Social Conditions for Cultural Production in Contemporary Economy

Purpose: This paper discusses the social conditions for cultural production in contemporary cities, in the context of a globalized economy, with rising importance of the integration of cognitive, symbolic and emotional elements into tradable products and services. Although the agglomeration dynamics of creative activities in urban contexts and the social or spatial inequalities related to processes of urban reorganization in Post-Fordist societies have been analysed in the last years, the interrelations between these aspects still lack adequate investigation and empirical analysis.Methodology/Approach: By synthetizing diverse theoretical contributions related to different levels and interactions arising from creative activities, their transformations into tradable products (commodification) and some of their spatial implications in the urban context (agglomeration, externalities, identity, place branding and gentrification), the article emphasizes the different benefits obtained by the agents involved in this process, potentially contributing for increasing social conflicts and to a process of cultural homogenization with negative implications on the uniqueness and authenticity of places.Findings: Benefits arising from the externalities generated by the agglomeration of cultural production and creative activities can be framed within the “Common Pool of Resources” approach, suggesting that a more balanced share of the benefits can be obtained by means of participatory processes for city planning and development.Research Limitation/implication: The paper is based on a conceptual approach and further empirical research can be useful in order to test the formulations proposed.Originality/Value of paper: This analysis leads to the identification of different questions for further research, by combining quantitative analysis for the measurement of cultural and creative externalities and modelling processes for the distribution of benefits arising from cultural production, with qualitative analysis related to participatory processes of urban planning and monitoring.

International trade and factor productivity as determinants of the real effective exchange rate

ABSTRACTUsing panel time-series models that deal with the problems of potential endogeneity and cross-sectional dependence, while also allowing for cross-country heterogeneity in the parameters of interest, we demonstrate that trade openness produces a depreciation of the real effective exchange rate.

Aid, the Real Exchange Rate and Why Policy Matters: The Cases of Morocco and Tunisia

Every form of foreign-exchange inflow, including aid, can potentially cause real-exchange rate appreciation, with adverse consequences for the production of tradables (‘Dutch Disease’). Whether it does so depends on the policy response to the inflow. This paper investigates the issue for Morocco and Tunisia, over 1980–2009. We find that aid led to a real appreciation in Morocco, but had no effect on Tunisia’s real exchange rate. This confirms the importance of the macroeconomic framework in which aid is provided, and the key role for infrastructure and other supply-side improvements in determining the final real-economy impact of aid and other inflows.

Trade in Intermediate Goods: Implications for Productivity and Welfare in Korea

There have been voluminous contributions such as Daudin et al. (2011), Johnson and Noguera (2012), Koopmans et al. (2010), and Trefler and Zhu (2010) in measuring value added trade based on input-output tables as generalizations of the vertical specialization measures following Hummels et al. (2001). These studies focused on trade in intermediate goods as a key feature of recent global trade. In the case of Korea, about 50% of total exports and 70% of its total imports are intermediate goods trade. This paper contributes to the discussion about the trade in intermediate goods and productivity by revisiting Basu (1995), Jones (2011), and Lee and Pyo (2007) to examine implications of trade in intermediate goods for macroeconomic business cycles and productivity and welfare at the current stage of Korean development. The major revision of the Basu (1995) model is attempted by decomposing intermediate goods into domestically produced intermediate inputs and imported intermediate inputs to investigate implications of the model in a small open economy. The major finding is that the procyclicality of the intermediate goods usage relative to labor usage and TFP changes in both value added and gross-output regressions are significantly weaker in a small open economy like Korea than the large economy of the United States. We also investigate the effects of misallocation and multiplier effects due to intermediate goods on industrial productivity and efficiency following the model of Jones (2011). Since the effects of misallocation can be intensified through the industrial input-output structure of the economy, we calculate the intermediate goods multiplier by Korea's 29 manufacturing industries. We find technical changes and the degree of inefficiency are related with the magnitude of multipliers, but we leave a fundamental identification problem to future research.

Distributions of positive correlations in sectoral value added growth in the global economic network*

International trade has grown considerably during the process of globalization. Complex supply chains for the production of goods have resulted in an increasingly connected International Trade Network (ITN). Traditionally, direct trade relations between industries have been regarded as mediators of supply and demand spillovers. With increasing network connectivity the question arises if higher-order relations become more important in explaining a national sector’s susceptibility to supply and demand changes of its trading partner. In this study we address this question by investigating empirically to what extent the topological properties of the ITN provide information about positive correlations in the production of two industry sectors. We observe that although direct trade relations between industries serve as important indicators for correlations in the industries’ value added growth, opportunities of substitution for required production inputs as well as second-order trade relations cannot be neglected. Our results contribute to a better understanding of the relation between trade and economic productivity and can serve as a basis for the improvement of crisis spreading models that evaluate contagion threats in the case of a node’s failure in the ITN.

Trade Protection and Productivity Differentials between Multinationals and Local Firms in Vietnamese Manufacturing

This paper investigates the how effective protection and firm ownership affected firm productivity in Vietnam during 2005-2010. In labour-intensive industries and industries with intermediate labour intensity, the level of effective protection in an industry had a significantly negative effect on firm productivity. Multinational enterprise (MNE) joint ventures (JVs) and state-owned enterprises (SOEs) had consistently higher productivity than private firms, with productivity usually being highest in JVs. Wholly-foreign MNEs (WOs) also had significantly higher productivity than private firms in 2005-2007, but lower productivity than JVs or SOEs, and in 2008-2010, WO-private differentials were insignificant. In capital-intensive industries, the pattern of productivity differentials (highest in JVs, followed by SOEs, WOs, and private firms) was similar in the earlier period, but not in the latter period or when all years were included in the sample. The level of effective protection also did not have a significant, independent effect on firm productivity in capital-intensive industries.

Breaking into tradables: Urban form and urban function in a developing city

Many cities in developing economies, particularly in Africa, are experiencing ‘urbanization without industrialization’. This paper conceptualizes this in a framework in which a city can produce non-tradable goods and – if it is sufficiently competitive – also internationally tradable goods, potentially subject to increasing returns to scale. A city is unlikely to produce tradables if it faces high urban and hinterland demand for non-tradables, or high costs of urban infrastructure and construction. The paper shows that, if there are increasing returns in tradable production, there may be multiple equilibria. The same initial conditions can support dichotomous outcomes, with cities either in a low-level (non-tradable only) equilibrium, or diversified in both tradable and non-tradable production. We demonstrate the importance of history and of expectations in determining outcomes. Essentially, a city can be built in a manner which makes it difficult to attract tradable production. This might be a consequence of low (and self-fulfilling expectations) or of history. Predictions of the model are consistent with a number of observed features of African cities.

Foreign Exchange Intervention and the Dutch Disease

We study the optimal foreign exchange (FX) intervention policy in response to a positive terms of trade shock and associated Dutch disease episode in a small open economy model. We find that during a Dutch disease episode tradable production drops below the socially optimal level, resulting in lower welfare under learningby- doing (LBD) externalities. FX reserves accumulation improves welfare by preventing a large appreciation of the real exchange rate and by inducing an efficient reallocation between the tradable and non-tradable sectors. For an empirically plausible parametrization of LBD externalities, the model predicts that in response to a 10 percent increase in commodity prices FX reserves should increase by 1.5 percent of GDP. We also find that the welfare gains from optimally using FX reserves are twice as high as the gains from relying only on monetary policy. These results suggest that FX intervention is a beneficial policy to counteract the loss of competitiveness during a Dutch disease episode.

Foreign Exchange Intervention and the Dutch Disease

We study the optimal foreign exchange (FX) intervention policy in response to a positive terms of trade shock and associated Dutch disease episode in a small open economy model. We find that during a Dutch disease episode tradable production drops below the socially optimal level, resulting in lower welfare under learningby- doing (LBD) externalities. FX reserves accumulation improves welfare by preventing a large appreciation of the real exchange rate and by inducing an efficient reallocation between the tradable and non-tradable sectors. For an empirically plausible parametrization of LBD externalities, the model predicts that in response to a 10 percent increase in commodity prices FX reserves should increase by 1.5 percent of GDP. We also find that the welfare gains from optimally using FX reserves are twice as high as the gains from relying only on monetary policy. These results suggest that FX intervention is a beneficial policy to counteract the loss of competitiveness during a Dutch disease episode.

BIBLIOMETRIC APPROACH TO TRACKING THE CONCEPT OF INTERNATIONAL COMPETITIVENESS

The main aim of paper is to identify the growth pattern in the international competitiveness literature, its core publications and key research domains on the basis of bibliometric data from the years 1945–2015. Citation data is collected from the ISI Web of Science Website, Scopus and Google Scholar, and analysed using HistCite, Pajek and VOSviewer software. Bibliometric indicators, network citation, key-route path methods and term co-occurrence methods are used. The results show that the theory of international competitiveness starts not from neoclassical theories of international trade, but from models of competition, even though competitiveness is mostly measured using trade/export performance. Krugman’s work on imperfect competitive markets and increasing returns of scale plays a most important role in knowledge diffusion on international competitiveness. The scientific development of analyzed concept is connected with six topics: trade performance, technology, liberalization, environmental regulations, location and productivity. These results give us a background for conducting practical analyses of international competitiveness, especially ones using synthetic indices.

India and BIMSTEC: A Comparative Study of the Trade Potential of India's Energy Sector Products in BIMSTEC and BIMSTEC 1 Region

The primary objectives of this study are to identify major tradable energy sector products of India and cluster them as per their trade potential and identify the scope of trade and welfare creation should the regional trade agreement (RTA) is established among BIMSTEC member countries. In this study, the scope of energy sector has been kept confined to products and equipment directly associated with energy access. Energy security has been kept outside the purview of this present study. We have used 6-digit Harmonized System (HS-codes) of classification for both renewable and non-renewable energy. Alist of 270 products and major equipment, associated with the production and distribution of renewable and non-renewable energy sector, have been identified for preliminary analysis of India’s trade potential of energy sector products in the region.Various clusters of products and equipment associated with energy sector have been formed. The clusters have been made on the basis of seven different parameters which are commonly used for analyzing trade data. For each product, values for these seven parameters have been estimated using historical trade data (2009-13). Primarily, WITS data has been used. And to understand intra-industry trade (IIT), the Grubel-Lloyd index has been used. FK index has been calculated to understand the potential of trade creation and threat of trade diversion of the trading partners. SMART package has been used to estimate welfare gains for BIMSTEC as well as BIMSTEC 1 member countries.

Trade and the Global Recession

We develop a dynamic multicountry general equilibrium model to investigate forces acting on the global economy during the Great Recession and ensuing recovery. Our multisector framework accounts completely for countries' trade, investment, production, and GDPs in terms of different sets of shocks. Applying the model to 21 countries, we investigate the 29 percent drop in world trade in manufactures during the period 2008–2009. A shift in final spending away from tradable sectors, largely caused by declines in durables investment efficiency, accounts for most of the collapse in trade relative to GDP. Shocks to trade frictions, productivity, and demand play minor roles. (JEL E3, F1, F4)

A multi-sectoral balance-of-payments-constrained growth model with sectoral heterogeneity

This study builds a multi-sectoral balance-of-payments-constrained growth model that incorporates structural heterogeneity between sectors and countries, such as differences in labor productivity, price competition, shares of exports and imports, and the quality of commodities. The model in the current paper generates more comprehensive results than those presented by Thirlwall (1979), Blecker (1998), and Araujo and Lima (2007), even though it contains their properties and reproduces their implications. Furthermore, compared with these existing works, the current model sheds more light on the relationship between the trade structure, international competition, productivity dynamics, and economic growth. It also shows the differences between industrial and macroeconomic phenomena, by presenting an example that illustrates how changes in nominal wages, the Kaldor–Verdoorn effect, and the degree of market competition in both countries affect economic growth in the home country.

Contributions of Productivity and Relative Price Changes to Farm‐level Profitability Change

AbstractThis article investigates the sources of profitability change at the farm level, by farm size and specialization, with an application to a sample of 256 farms in Kansas from 1993 to 2010. Using the Lowe index method, profitability change is decomposed into changes in total factor productivity and terms of trade. The nonparametric data envelopment analysis method is used to further decompose total factor productivity into technical change and different measures of output‐oriented efficiency change. Finally, the system‐Generalized Methods of Moments approach is employed to investigate the dynamic relationship between different components of productivity on farm profitability. Results indicate that profitability change is mainly driven by total factor productivity change. The main source of total factor productivity change is technical change. The upward‐shifting frontier results in declining technical efficiency. Results point towards the need to support research and development without ignoring efforts to encourage the uptake of existing technologies.

Domestic market integration and the law of one price in Brazil

ABSTRACTThis article presents the first assessment of domestic market integration in Brazil using the law of one price. The law of one price is tested using two panel unit root methodologies and a unique data set comprising price indices for 51 products across 11 metro-areas. We find that the law holds for most tradable products and, not surprisingly, nontradable products are found to be less likely to satisfy the law of one price. While these findings are consistent with evidence found for other countries, price convergence occurs very slowly in Brazil, suggesting relatively limited domestic market integration.

Ownership, trade, and productivity in Vietnam’s manufacturing firms

This paper examines the interrelations among ownership, trade, and firm productivity in Vietnam, a developing transition economy. Based on a firm-level panel data for the period 2000–2008, the empirical results show that foreign-owned enterprises (FOEs) experience higher productivity than do their domestic counterparts, whereas private firms (POEs) are not expected to outperform state-owned enterprises (SOEs) in productivity. Trade executes a productivity-enhancing effect for Vietnamese firms, but this effect only applies for FOEs and POEs, and not for SOEs. Vietnam access to the WTO produces tough competition and improves SOEs’ productivity. Various robustness checks support our findings.