Roberta De Santis

Trade intensity and output synchronisation: The endogeneity properties of EMU

Guglielmo Maria Caporale et al. — Thu, 28 Mar 2013 02:37:27 PDT

Using annual bilateral data over the period 1988-2011 for a panel of 24 industrialised and emerging economies, we analyse in a time-varying framework the determinants of output synchronisation in EMU (European Monetary Union) distinguishing between core and peripheral member states. The results support the specialisation paradigm rather than the endogeneity hypothesis. Evidence is found in the euro period of diverging patterns between the core and the peripheral EMU countries raising questions about the future stability of EMU.

Impact of environmental regulations on trade in the main EU countries: conflict or synergy?

Roberta De Santis — Thu, 26 Jul 2012 08:28:34 PDT

In an increasingly integrated world with declining trade barriers, environmental regulations can have a decisive role in shaping countries’ comparative advantages. The conventional wisdom about environmental protection is that it comes at an additional cost on firms imposed by the government, which may erode their global competitiveness. However, this paradigm has been challenged by some analysts. In particular, Porter (1991) and Porter and Van der Linde (1995) argue that pollution is often associated with a waste of resources and that more stringent environmental policies can stimulate innovations that may over-compensate for the costs of complying with these policies. This is known as the Porter hypothesis. While there is a broad empirical literature on the impact of trade on environment the empirical literature on the impact of environmental regulations on trade flows is relatively scarce, very heterogeneous and presents mixed results. The innovative feature of this paper is its attempts to estimate, in a gravity setting, augmented with a proxi of environmental stringency, the impact of three major Multilateral Environmental Agreements (MEAs) on 15 EU countries bilateral exports. According to our estimates, in the period 1988-2008, to be member of MEAs had a positive average impact on EU15 bilateral exports. This evidence can be partly explained by a possible trade diversion effect with respect to countries that did not sign MEAs, and a corresponding trade creation effect among members of the environmental agreements. Furthermore, evidence coming from interaction effects estimates seems to show that for exporting countries having signed the UNFCCC and the Montreal agreements, partly mitigates (by the amount of the estimated coefficient ) the negative impact of having a relatively more stringent environmental regulation on bilateral trade. This result could have important policy implications for the future international trade- environmental negotiations.

The impact of growth on biodiversity: an empirical assessment.

Roberta De Santis — Thu, 26 Jul 2012 08:20:17 PDT

Whether the Environmental Kutznets curve relationship holds for biodiversity or not remains an open issue. While there are several studies investigating the EKC relationship for biodiversity, they suffer from some limitations and the empirical evidence is inconclusive. More specifically, with few exceptions, the previous EKC studies for biodiversity looked into the diversity of a particular species or a number of species rather than a broader measure of biodiversity. In addition, these studies do not control for some economic factors that could directly or indirectly affect the biodiversity stock such as trade and foreign direct investments (FDI). International trade, in fact, could influence the biodiversity trough the effects on economic growth, production specialization and technological innovation diffusion. The presence or not of FDI in a country could be of help in assessing the “pollution haven” hypothesis that has obvious feedbacks on biodiversity.

The innovative features of this paper are its attempts to estimate a ECK for biodiversity using an overall index of biodiversity terrestrial and marine and the inclusion in the traditional ECK equation of proxies for trade and FDI. We also tested the impact on biodiversity of the membership in international agreements for biodiversity protection. According to our estimates for the main OECD countries in the period 1990-2010, the ECK hypothesis is partially verified. Rising incomes are first associated with increasing biodiversity (decreasing ES) then with decreasing biodiversity (increasing ES) and eventually with increasing biodiversity again (decreasing ES).

The single currency’s effects on Eurozone sectoral trade: winners and losers?

Roberta De Santis et al. — Mon, 17 Dec 2007 08:12:04 PST

In this paper we study the effect of the single currency across industries for euro area members. This analysis may help to shed light on the main factors influencing the euro effect on trade flows. We intend to verify whether these factors are specific to individual sectors and/or countries or common to the entire euro area. We use a dynamic specification of an augmented gravity equation. Following the most recent econometric literature, we apply the “System GMM” dynamic panel data estimator of Blundell and Bond to avoid inconsistency and biases in the estimates, and introduce controls for heterogeneity. Aggregate sector results average out country-level behaviours that, on their turn, are affected by different (unobserved) responses of firms, endowed with diverse production costs, to the enhancing and dampening impacts due to the euro. Due to this reason, the cancelling out at aggregate level of heterogenous behaviours induces an aggregation bias. So it is not surprising that when moving from sector to sector/country analysis the picture becomes much more variegated, with the emergence of a whole range of winners and lossers among industries in the different nation. Our empirical results are in line with theoretical framework we assumed as reference that considers the possibility of both stimulative and dampening effects coming from trade integration and points out the fact that sector exports impacts are the aggregation results of firm-level heterogenous behaviours.

International Openness, Technology and Productivity: An empirical Investigation for Italy

Roberta De Santis — Wed, 12 Dec 2007 05:39:58 PST

Is international openness associated with faster economic growth? This paper tries to establish the effect of technology and market opening on labour productivity in Italy. The simple model developed in this paper shows that more open economies have higher rate of technical progress, higher productivity and higher GDP. The model assumes that there are two sources of technical progress growth: a domestic source, associated with innovation (i.e. R&D) and an international one, related to the rate at which the country is able to imitate technological progress originated in the leading innovating nations. According to this model in Italy the internationalisation process, due to the excess of sheltered sectors over the exposed ones, may cause, on average, a lowering of the Italian productivity.

“The determinants of FDI inflows in Europe: the role of the institutional context and Italy's relative position”

Roberta De Santis et al. — Wed, 12 Dec 2007 02:26:36 PST

Worldwide Foreign Direct Investment (FDI) flows have showed an impressive upward trend over the past two decades, which prompted the expansion of international production and the economies' globalisation process. Developed countries were both the main sources and destinations of those flows: in 1999 they accounted for 92 % of global outflows and 74 % of global inflows.

In 1999, the EU area was the world's main outward investor and inward host area for FDI. Among European countries, Italy has lagged behind in the internationalisation process. Insofar as FDI inflows contribute to the country’s accumulation process, the situation is worrying.

The present paper tries to analyse Italy’s relative disadvantage, by focusing on FDI location determinants. An empirical analysis is performed to define FDI inflows determinants common to a narrow group of (most representative) industrialised countries. Then, on the basis of the empirical results, Italy's endowment of factors affecting FDI is compared to the one of other major European countries included in the sample.

The results of empirical estimates reinforce the evidence stemming from the descriptive analysis: Italy’s appeal as FDI host country is poor compared to other major European countries. In fact comparing the FDI determinants' endowments of the European countries, Italy ranks low for competitiveness in terms of employers' social security contributions, Government interference with the market and R&D expenditure.

In order to reduce this gap, Italy should improve its location-specific advantages. These determinants are in fact the only factors the host Governments can directly influence. Thus, a suitable policy might improve a country's FDI attractiveness by creating a more FDI-friendly institutional context.

A prespective on real exchange rate determination in Italy during the convergence process towards the EMU: The traded non-traded model

Roberta De Santis — Wed, 12 Dec 2007 02:23:26 PST

This paper attempts to provide a perspective on real exchange rate determination in Italy during the convergence process towards the EMU. It focuses on some structural determinants of real exchange rates such as the behaviour of traded non traded prices, Government expenditure and interest rates differentials.

This paper investigates whether, the traded non traded model can be used to provide a measure of the deviation from equilibrium of the Italian Lira ECU real exchange rate.

Current Account Imbalances and The Role of Exchange Rate: The Case of US Economy

Roberta De Santis — Wed, 12 Dec 2007 02:17:40 PST

The object of this research is to analyse the relationship between current account imbalances and exchange rate. In particular, the aim of this paper is to investigate the case of the US current account deficit. The origins of the US external deficit – around 6.4% of GDP in 2006- the timing of the adjustment and the policy implications, are all sources of a widespread debate. At the centre of the debate there are two issues the one of the required adjustment in the dollar exchange rates for global rebalancing and/or the one of the likelihood of currency crisis occurrence in the US. In this research we start from the assumption that sooner or later the US imbalances have to be corrected. We perform some simulation exercises trying to evaluate what is going to be the different effectiveness of the adjustment mechanisms and what is going to be the impact of such an adjustment on the main countries.

According to our simulations the correction of the US current account deficit through a depreciation of the nominal dollar exchange rate of the 10% would not be of great entity, in spite of a “second round effect” due to the increase of the fed funds rate to contain inflation. The cost of the adjustment would be paid mainly by China. In fact, because of the high percentage of exports as GDP components, the Chinese economy would be penalised by the loss of competitiveness due to the depreciation of the dollar exchange rate. The effects on euro area GDP, under the assumption of a BCE reaction to the euro appreciation, would be lower but not to neglect.

A fiscal policy adjustment process would improve the federal government account but the effect on the current account deficit would be lesser than the one obtained through the exchange rate adjustment and more costly for US. However the adjustment cost for the other industrialised countries would be very low.

The EMU: A Challenging Goal for the “New” Member States of the European Union?

roberta De Santis — Wed, 12 Dec 2007 01:54:10 PST

Currently, thirteen of the European Union’s 27 Member States form the euro area. Therefore, Denmark and the United Kingdom have a special “opt-out” status and Sweden does not fulfil all the required criteria. For the 2004 and 2007 entrants, joining the Economic and Monetary Union (EMU) is an ambitious objective. So far only Slovenia achieved this goal, on the 1st of January 2007. Cyprus, Estonia, Latvia, Lithuania, Malta, Slovakia already entered the “waiting room” for the EMU while the three largest new member States – Czech Republic, Hungary and Poland – remained outside the ERM II. Bulgaria and Romania, which joined the EU in 2007, are expected to join ERM II and, eventually, the EMU as soon as possible. This paper intends to provide an analysis of the current state and the prospects of the “enlargement” of the euro zone and to discuss some of the issues related.

"Taxes and Location of Foreign Direct Investments: an Empirical Analysys for the European Union Countries,"

roberta De Santis et al. — Wed, 12 Dec 2007 01:47:20 PST

This paper aims at verifying the impact of fiscal variables in the multinational firms' localisation choices within the European Union Member States. In particular, the sensitivity of bilateral foreign direct investments towards EU member countries to the receiving country's fiscal characteristics is tested. Among fiscal variables, the empirical analysis shows that FDI inflows in the European Union countries are influenced by the total fiscal wedge on labour more than the corporate tax rate. This suggests that Multinationals, while making their localisation choices, focus their attention on the overall tax and contribution burden more than on single corporate tax rates, which indeed provide only a partial (even though immediate) information. The estimated elasticities of FDI inflows to fiscal variables suggest that a high-taxation country might draw considerable benefits in terms of FDI through a relatively modest tax rate reduction. This means that not necessarily each Member State must switch to very low tax rates (for example those of Ireland) to obtain an optimal combination between costs (associated to the tax rate reduction) and benefits (linked to the tax base enlargement, i.e. larger FDI flows).

"Has Trade any Importance in the Transmission of Currency Shocks?,"

roberta De Santis — Wed, 12 Dec 2007 01:44:16 PST

The object of this study is to assess the role of trade in the transmission of currency shocks across geographically close countries. The analysis will focus on identifying and comparing the degree of vulnerability of new EU member states from the Central and Eastern European countries (CEECs) to currency shocks. We interpret the interactions that a centre-periphery model identifies for periphery countries as a possible description of existing interdependencies among CEECs. According to the centre periphery model discussed by Corsetti et al. (1998b), “if there is no pass-through, then direct bilateral trade links may play a more important role than competition in the third market in determining the transmission of exchange rate shocks in the periphery. If there is full pass-through, a high share of bilateral trade within a region can actually limit the extent of beggar-thy-neighbour effects.” These effects are emphasised by a high degree of export similarity among the countries in the periphery. As a result of the heterogeneity in pass-through and trade structures, it is very difficult to derive a unitary policy implication on the potential sustainability of the exchange rate mechanism (ERM) II. Yet it is possible to single out the country pairs in which the likelihood of transmitting currency shocks is higher. Preliminary results point out that (other things being equal and given the contained intra-periphery trade) the transmission of currency disturbances is lower if the disturbance originates in countries with low a pass-through rate (the Slovak and Czech Republics, Estonia and Latvia) and higher if it originates in countries with a high pass-through rate (Poland, Hungary and Slovenia).

"The Euro's Effect on Trade in a Dynamic Setting"

roberta De Santis et al. — Wed, 12 Dec 2007 01:38:44 PST

This paper provides an update of de Nardis and Vicarelli (2003) estimates of the euro effect on trade integration of EMU economies, taking into account aggregate bilateral exports of 23 OECD countries for the sample period 1988-2003. In this paper we utilize the dynamic panel data estimator proposed by Blundell and Bond (1998) and introduce controls for heterogeneity. The results of our dynamic specification of the gravity equation lead to an estimate of the intra-Eurozone pro-trade effect, following the adoption of the single currency, as high as around 4%. This finding, slightly lower than our previous work results, is in line with very recent empirical literature using dynamic specification of gravity equation. It is also consistent with the already tight trade links characterizing the economies that embraced the euro and with the possibility that the trade impact involved the introduction of new goods rather than the expansion, due to lower transaction costs, of the incumbent products

The ``Deeper" and the ``Wider" EU Strategies of Trade Integration: An Empirical Evaluation of EU Common Commercial Policy Effects

Roberta De Santis et al. — Wed, 12 Dec 2007 01:27:42 PST

Since the post war period, the EU Common Commercial Policy (CCP) has moved in two directions mainly through Preferential Trade agreements (PTAs): a ``deeper" (internal) trade integration process intended to reinforce trade relations among European countries (i.e. Custom Union, Single Market, European Monetary Union, Enlargement Process), and a ``wider" (external) integration process intended to reinforce trade relations with third countries.

Surprisingly, there are very few empirical studies in the literature which specifically quantify the effects of the overall EU PTAs on the European countries’ trade flows. This paper seeks to fill this gap by conducting an empirical investigation on whether and how the CCP had a significant impact on European countries' imports. It adopts an extended version of the gravity model. In line with recent studies, it uses a Hausman Taylor estimator, controls for heterogeneity and includes a set of variables to proxy for the ``multilateral trade resistance index"

According to our results, the EU ``free trade area" has been a successful experiment in trade liberalisation. However, the positive and significant coefficient of PTAs signed by the EU with third countries may somehow have limited the occurrence of trade diversion effects. Indeed, the coefficient of the trade diversion dummy is significant but relatively small.

Hub-and-Spoke or else? Free trade agreements in the 'enlarged' European Union

Luca De Benedictis et al. — Wed, 12 Dec 2007 01:27:41 PST

The object of this paper is to estimate if and how the Central European Free Trade Agreement (CEFTA) and the Baltic Free Trade Agreement (BFTA) exerted a significant impact on intra-European trade, effectively reducing the influence of the European Association Agreements (EAs) in shaping the European trade structure has a hub-and-spoke system – with the EU15 being the hub and the CEECs the spoke. This paper analyses bilateral trade flows between eight CEECs and EU-23. We estimate a gravity equation using a system GMM dynamic panel data approach. Results support the assumptions that gravity forces and “persistence effects” matter. With respect to the effect of free trade agreements, evidence is found that Free trade agreements between CEECs matter: There is evidence that the presence of intra-periphery agreements helped expand intra-periphery trade and limited the emergence of a “hub-and-spoke” relationship between CEECs and EU. This results have important policy implications for the trade strategy of “future” EU members of the Southeastern European Countries as well as of the Southern Mediterranean Countries. According to the empirical results, these countries should move towards a regional free-trade area as exemplified by the CEFTA and the BFTA to avoid “hub-and-spoke” effects.