With the rise of global value chains, trade in intermediates now accounts for more than two-thirds of total trade. This column provides evidence that trade in parts and components of capital goods between new and old EU countries is driven by wage differences across countries. It further shows that wage differences play an important role in the ex ante investment decision to establish a new production network.
Many countries exempt foreign-sourced income from taxation at home, with income taxed only in the source country. In 2009, the UK moved from a system of tax credit to a system of tax exemption of foreign-earned income of firms. This column looks at the effects of this reform on firm behaviour. Immediately following the reform, firms were induced to pay significantly more dividends to the UK and decreased their investments. But neither effect persisted in the long run.
Digital technologies are having dramatic impacts on consumers, businesses, and markets. These developments have reignited the debate over the definition and measurement of common economic statistics such as GDP. This column examines the measurement challenges posed by digital innovation on the economic landscape. It shows how existing approaches are unable to capture certain elements of the consumer surplus created by digital innovation. It further demonstrates how they can misrepresent market-level shifts, leading to false assessments of production and growth.
Expectations play a key role in assessing how oil price fluctuations affect the economy. This column explores how consumers, policymakers, financial market participants, and economists form expectations about the price of crude oil, the differences in these expectations, and why future realisations of the price of oil so often differ substantially from these expectations. Differences in oil price expectations are shown to matter for quantifying oil price shocks and their transmission.
Parallels are often drawn between the Great Recession of the past decade and the economic turmoil of the interwar period. In terms of global trade, these comparisons are based on obsolete and incomplete data. This column re-estimates world trade since the beginning of the 19th century using a new database. The effect of the Great Recession on trade growth is sizeable but fairly small compared with the joint effect of the two world wars and the Great Depression. However, the effects will become more and more comparable if the current trade stagnation continues.
Other Recent Columns:
- Socially disadvantaged groups and microfinance in India
- Making agglomeration ‘metabolised’ for innovation
- Institutions and social networks
- Job characteristics and offshoring: Evidence from Germany
- American productivity growth during the Great Depression
- Identifying the risks from corporate currency mismatches in emerging economies
- Evaluating access to universal digital highways
- China’s growth prospects
- The nature and effectiveness of central-bank communication
- Clubs and the WTO post-Nairobi
- Floating-rate loans and the impact of monetary policy
- US immigration’s electoral impact: New evidence
- Identifying prisoners of the middle-income trap
- Financial structure and growth revisited
- FDI ‘waves’ and cross-border acquisitions
- Internet access, voting patterns and government policy
- Replacing dual employment protection with a single labour contract
- Networks and macroeconomic shocks
- Vaccines, drugs, and Zipf distributions
- The pitfalls of Eurozone bilateral trade imbalance measures