Competing successfully in a globalising world: Lessons from Lancashire
Nicholas Crafts, Nikolaus Wolf, 22 October 2013
Europeans worry about competition from low-wage economies. This column looks at the basis of the success of the 19th-century Lancashire cotton industry faced with a similar situation. The message is that the productivity benefits of a successful agglomeration can underpin both high wages and competitive advantage in world trade. Policymakers can support such agglomerations by easing land-use restrictions, promoting investments in transport, and providing local public goods.
The ‘first globalisation’ of the 19th century – driven by the substantial falls in trade costs associated with the age of steam – saw the ‘First Unbundling’ (Baldwin 2006), in which industrial production and consumption became spatially separated, often by large distances.
Topics: Economic history, International trade
Tags: agglomeration, cities, cotton, globalisation, Industrial Revolution, industrialisation, Lancashire, trade, wages
Rethinking competitiveness: The global value chain revolution
Marcel Timmer, Bart Los, Robert Stehrer, Gaaitzen de Vries, 26 June 2013
The rise of global value chains (GVCs) is posing new challenges to analyses of countries’ competitiveness. Commonly used measures such as gross exports and revealed comparative advantage are becoming obsolete. This column presents a new measure called ‘global-value-chain income’ that is based on the value added by countries along the international production chain. It shows how this measure can be derived from existing industry-level data and how it changes our view on a country’s competitive strengths.
The rise of global value chains is posing new challenges to analyses of international trade and countries’ competitiveness. Traditional measures are based on the assumption that all activities in the production of a good take place in the domestic economy, using domestic input only.
Topics: International trade
Tags: global value chains, globalisation
Is financial globalisation in retreat? And if so, does it matter?
Richard Dobbs, Susan Lund, 19 June 2013
Is financial globalisation in retreat? This column suggests it might be. There’s been a recent and significant retreat in European financial integration and a retrenchment of global banking (although capital inflows into emerging markets and FDI are only just below their recent peaks). What are we to make of this shift? A more compartmentalised global financial system could certainly reduce the likelihood of a financial crisis spreading from one country to the next. But there is now a danger that the pendulum could swing too far, Policymakers should therefore do more to remove limitations on FDI and investor purchases of foreign equities and bonds, balancing the trade-off between the need for stability and the need to provide financing for economic growth.
Cross-border capital flows – including foreign direct investment, investor purchases of foreign bonds and equities, and cross-border lending – rose from $0.5 trillion in 1980 to a peak of $11.8 trillion in 2007 as national financial markets grew ever more tightly integrated.
Topics: International finance
The 'Good Global Citizen' remit for the international community: A novel responsibility for the IMF
Biagio Bossone, Roberta Marra, 16 March 2013
Since 2008, we have learned that the root causes of global economic instability are more than the sum of domestic instabilities. This column calls for a broad reconsideration of the principles underpinning current global economic governance; arguing that in a globalised world, isolated domestic economic policymaking is not enough. The international community needs to adhere to a ‘Good Global Citizen’ remit – housed by the IMF – if we are to tackle global economic policy under collective responsibility.
A fundamental lesson from the Great Recession is that global instability is more than the sum of domestic instabilities of single countries (Borio 2011). Not only do country exposures to global factors matter a lot: those same global factors, while they are considered to be exogenous from each country, are in fact endogenous to their collective behaviour.
Topics: Global crisis, Global governance
Tags: globalisation, Group of Lecce, IMF
Can trade policy set information free?
Susan Ariel Aaronson, 22 December 2012
The internet is an expanding opportunity for growth. This column argues that in recent years, however, policymakers and market actors have been undermining its potential. Governments and market actors are reducing both access to information and freedom of expression, as well as moving towards a splintered, non-global internet. Commitment to an open, free and global internet will be hard, but if bilateral, regional or multilateral trade agreements encourage interoperability, we might see some harmony among signatories’ privacy, online piracy, and security policies.
Although the internet is creating a virtuous circle of expanding global growth, opportunity, and information flows (Lendle et al. 2012), policymakers and market actors are taking steps that undermine access to information, reduce freedom of expression and splinter the internet (Herald 2012).
Topics: Frontiers of economic research, International trade
Tags: globalisation, internet, technology, trade
Value-added exchange rates
Rudolfs Bems, Robert Johnson, 6 December 2012
With the rise of complex, globalised supply chains is the real effective exchange rate (REER), the most commonly used measure of competitiveness, now outdated? If it is, what should replace it? This column presents a ‘Value-Added REER’ and shows that it differs substantially from the conventional REER. Because it is possible to construct a new Value-Added REER from existing data, policymakers interested in improving their understanding of competitiveness might well consider including it in their toolbox.
Real effective exchange rates (REERs) are widely used to gauge competitiveness. Yet conventional REERs, based on gross trade flows and consumer price indexes (CPIs), are not well suited to that role when imports are used to produce exports – i.e., with vertical specialisation in trade.
Topics: Competition policy, Global economy, International trade
Tags: China, competitiveness, Germany, global imbalances, globalisation, iPhone, supply chains, trade
Myths about trade, jobs, and competitiveness
Charles Roxburgh, Richard Dobbs, Jan Mischke, 31 May 2012
Are emerging markets a threat to jobs and competitiveness for the industrialised countries? This column argues that such concerns are often based on myths. Armed with the facts, policymakers in mature economies should focus on the opportunities emerging markets present rather than viewing them as a threat.
This is not a happy time for mature economies. They are facing:
Topics: Development, International trade
Tags: competitiveness, emerging markets, globalisation, jobs, protectionism
New-paradigm globalisation and networked FDI: Evidence from Japan
Richard Baldwin, Toshihiro Okubo, 24 May 2012
New-paradigm globalisation – driven by lower coordination costs rather than trade costs – is changing the nature of international commerce, the political economy of trade liberalisation, the nature of trade agreements and much more. This column, using data on Japanese multinationls, presents evidence that the nature of FDI is also changing away from the traditional classification of ‘horizontal’ or ‘vertical’.
International trade theory is going through another revolution – the third in three decades.
Topics: International trade
Tags: FDI, globalisation, Japan
The renminbi’s prospects as a global reserve currency
Eswar Prasad, Lei (Sandy) Ye, 16 February 2012
Is China’s currency destined to become the dominant global reserve currency? This column argues that despite not yet having a flexible exchange rate or open capital account, China’s government is pursuing ‘liberalisation with Chinese characteristics’. It argues that the renminbi will become a reserve currency within the next decade, eroding but not displacing the dollar’s dominance.
Popular discussions about the prospects of China’s currency – the renminbi – range from the view that it is on the threshold of becoming the dominant global reserve currency to the concern that rapid capital-account opening poses serious risks for China.
Topics: International finance, International trade
Tags: China, exchange-rate policy, globalisation, renminbi
Lawrence Summers and the uselessness of learning foreign languages
Victor Ginsburgh, 8 February 2012
English is the dominant language of the Internet, business, and world trade. Do we need another? This column applies an economist’s rationale to the question.
“I don't speak English. Kurdish I speak, and Turkish, and gypsy language. But I don't speak barbarian languages.”
“English! German! Ya! French! All the barbarian”.
—Yasar Kemal, a Turkish writer whose words are quoted by Paul Theroux in The Great Railway Bazaar
Topics: Education, Politics and economics
Tags: education, English, globalisation, language skills