Productivity versus Employment: Quantifying the Economic Effects of an EU-Japan Free Trade Agreement (with Erdal Yalcin), The World Economy 38 (6), 2015, 935-961
Revised version of CESifo Working Paper No. 4319, 2013, Download
The European Union and Japan have recently launched negotiations about a bilateral free trade agreement as means of economic stimulation, with trade as a driving force to create growth and wealth. Since customs duties are already low, the success of the liberalization process hinges on the potential elimination of non-tariff barriers. The purpose of this paper is to shed light on two possible liberalization scenarios, a less ambitious and a comprehensive trade liberalization. In contrast to classical studies our paper builds on the modern trade literature, accounting for the dominance of intra-industry trade between the two economies and the existence of heterogeneous firms. Furthermore, we model a search-and-matching labor market allowing us to quantify employment effects of trade liberalization. We find that a comprehensive liberalization increases Japanese GDP by 0.86 per cent, whereas the EU only experiences an additional 0.21 per cent of real GDP growth. Most of the growth in real GDP is due to firms? efficiency gains, while unemployment is only reduced by a small amount. Other world regions experience small reductions of GDP due to trade diversion effects.
Trade in Ideas: Outsourcing and Knowledge Spillovers (with Mario Larch and Markus Zimmer), International Economics and Economic Policy, 12 (2), 2015, 935-961
Revised version of Ifo Working Paper No. 173, 2013, Download
Inspired by the theory of variety-expanding product innovation we derive a testable relationship of outsourcing on the growth rate of knowledge. We estimate this relation- ship with a firm-level dataset, which is a unique match of PATSTAT patent data and the Amadeus dataset. We find evidence that forward spillovers are stronger than backward spillovers, where forward spillovers are defined as spillovers going down the value chain from producers to users of intermediate inputs. Moreover, we conclude that inter- industry spillovers are stronger than intra-industry spillovers. This holds when consider- ing only the more important forward spillovers as well as when considering both directions of knowledge flows.
Managerial Versus Production Wages: Offshoring, Country Size and Endowments (with Wilhelm Kohler), Canadian Journal of Economics 47 (1), 2014, 250-271
Revised version of University of Tuebingen Working Papers in Economics and Finance No. 13, 2011, Download
We explore the role of trade in differentiated final goods as well offshoring of tasks for inequality both within and between countries, emphasizing the distinction between managerial and production labor. We extend Grossman and Rossi-Hansberg (2012), where task trade is driven by external economies of scale, by considering asymmetric endowments. Identifying possible equilibrium patterns of task trade, we find little scope for two-way trade if endowments are asymmetric. Our numerical simulations identify non-monotonicities between the level of offshoring and measures of within-country as well as between-country inequality.
The Structure of Europe: International Input-Output Analysis with Trade in Intermediate Inputs and Capital Flows (with Mario Larch and Markus Zimmer), Review of Development Economics 18 (3), 2014, 461-474
Revised version of Ifo Working Paper No. 161, 2013, Download
In this paper we theoretically derive an international Rybczynski matrix. Its elements indicate the aggregate output change in a country when endowment with one or more factors in the same or another country is increased. This allows us to characterize the production structure in 11 countries of the European Union. Starting from a baseline case with free trade in final goods only, we analyze two types of interaction between countries: international trade of intermediate inputs and internationally mobile capital.
The structure of the German economy (with Mario Larch and Markus Zimmer), Applied Economics 46 (27), 2014, 3274-3283
Revised version of Ifo Working Paper No. 180, 2013, Download
Exploiting the information contained in an economy?s input-output matrix and using the novel approach developed by Fisher and Marshall (2011), we calculate Rybczynski effects and Stolper-Samuelson effects for Germany in 2007. We show how sectoral output and factor remuneration react to exogenous changes of factor endowments and product prices, respectively. These calculations are implemented using two different models comprising one with labor and capital as the classical production factors and one where we introduce patent stock as an additional factor of production. In the former, we further differentiate between a scenario where all production factors are mobile and one with sector-specific capital. In the latter analysis we measure the impact of innovation- targeting policy action for sectoral output. Positive Rybczynski effects of patents and high-skilled workers are strongest in knowledge-intensive sectors, while other sectors contract. The introduction of patents as a further production factor has only minor influence on the Rybczynski effects of other factors.
Gravity with google maps: the border puzzle revisited, Economics Bulletin 33 (3), 2013, 2414-2421Download
I calculate road travel times between the capitals of US states and Canadian provinces with Google Maps. With this measure of trade cost I estimate the US-Canada border effect for aggregate and industry-level trade flows in line with the method introduced by Anderson and van Wincoop (2003), as well as using linear fixed effects and Poisson estimation. I find a high degree of heterogeneity in the resulting coefficients.
Trading Tasks: A Dynamic Theory of Offshoring, Ifo Working Paper No. 150, 2012, Download
This paper is a dynamic extension of the well-known theory of trade in tasks. In my model, a firm's offshoring decision is governed by production cost savings, but also considers potential imitation risk. I show that such a consideration reduces the level of offshoring compared to a static optimization and that adjustment of offshoring volume with respect to changes in offshoring costs or labor endowment is characterized by overshooting and subsequent movement toward a steady state. Moreover, I find that offshoring affects wages via more channels than are apparent in static models. More precisely, I identify a short-run intertemporal profit effect and a long-run composition effect, both of which depend on the endogenous rate of product imitation. These effects can reverse well-known static wage effects from offshoring, such as the labor supply effect and productivity effect. The dynamic adjustment predicted by this model has important implications for empirical strategies seeking to identify a meaningful correlation of offshoring and relative wages.
Dimensions and Effects of a Transatlantic Free Trade Agreement Between the EU and US (with Gabriel Felbermayr, Mario Larch, Lisandra Flach, and Erdal Yalcin), 2013, Study commissioned by German Federal Ministry of Economics and Technology, January 2013, Executive Summary, Download
On behalf of the German Federal Ministry of Economics and Technology, the Ifo Institute has conducted a study on the dimensions and effects of a free trade agreement between the EU and the US. This document presents an overview of the most important results. To anticipate the key findings: The study predicts that a comprehensive free trade agreement, which lowers non-tariff barriers (NTBs) significantly, increases German exports to the US. This is driven by a substantial boost to sales of medium-sized firms. Trade liberalization increases the average real wage by about 1.6%, while it leads to a marginally lower unemployment rate. The study does not expect a lasting negative impact on the international trading regime.
How offshoring shapes effectiveness of intellectual property rights
It is well known that developing countries can attract FDI inflows by implementing strong intellectual property rights (IPR). In this paper I show that this mechanism is independent of the effect of IPR protection on the actual imitation risk for multinational enterprises which may increase with an initial strenghtening of IPR protection. Moreover, I show that incentives for innovation depend crucially on the cost of international offshoring. While a linear offshoring cost schedule always mandates perfect IPR protection to maximize the rate of innovation, for convex offshoring costs there may be an interior solution for the innovation-maximizing level of IPR protection.