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International economicsIRES research in international economics focuses on trade and factor mobility. This includes trade policy evaluation, the modeling of trade policy with heterogeneous firms, tax policy evaluation, antidumping, safeguards and WTO dispute settlement cases.
The faculty members involved are Frédéric Docquier, Fabio Mariani, Florian Mayneris, and Hylke Vandenbussche. The team also includes several young researchers and collaborators from other universities.
Ten recent selected publications:
Trade theory and trade policies The effectiveness of trade policies when firms are heterogeneous is one of our main interests. Neo-classical models build on the assumption of a representative firm, but recent empirical work refutes the predictions based on these models. The availability of firm-level data has lead to the understanding that, even in narrowly defined industries, firms can be very different from each other. Neo-classical trade models predict that industries can be classified as either import-competing or export-oriented. Firm-level analysis has revealed that exporting and non-exporting firms can co-exist in narrowly defined industries. Other important stylized facts are, for example, that exporting firms are larger in size, more productive and pay higher wages than non-exporting firms in an industry. Inspired by these findings, a new generation of models has introduced heterogeneity among monopolistic firms, and yielded predictions that are more in line with empirical results. One downside of this new approach is that these models are less well-suited for studying issues of trade policy, due to their complexity. The purpose of this project is to contribute to the growing literature on the effects of trade policy on heterogeneous firms. This project is led by Hylke Vandenbussche and involves five researchers, Christian Viegelahn, Francesco Di Comite, Laura Rovegno, Ilke Van Beveren (Katholiek Universiteit van Leuven) and Arastou Khatibi. A related issue concerns the links between trade policies and trade flows. As stated above, an important stylized fact is the proliferation of antidumping laws that occurred at the end of the 20th century, when the number of countries with trade protection laws doubled. This change offers us the chance to carry out a unique policy experiment by which we can study the trade-chilling effects of trade policy laws. Using a gravity approach to worldwide bilateral trade flows, this project investigates the extent to which the adoption and use of antidumping laws affects the trade flows of the new adopters. Previous research has only looked at how antidumping affects product-level trade in the targeted products. But there could be spillover effects both horizontally and vertically which may result in aggregate effects of antidumping protection. Spillovers beyond the targeted products may occur because of trade diversion, trade destruction of substitute products, trade enhancement of downstream products, FDI effects, retaliation effects, collusion effects, etc. Therefore in this study we turn to aggregate bilateral trade flows to see if trade protection reduces trade. This project is being conducted by Hylke Vandenbussche, in collaboration with Maurizio Zanardi (University of Brussels) and Jan van Hove (Katholiek Universiteit van Leuven). Export participation and firm-level performance It is well known that exporting firms are, on average, bigger and more productive than domestic firms. An important debate developed over the direction of causality in the 1990s and 2000s: do better firms become exporters (selection) or does exporting increase productivity (learning-by-exporting)? However, this may be a chicken-and-egg debate, since, as recent research has shown, firms generally make productivity/capacity enhancing investments when they decide to enter the export market. A related issue is the heterogeneous response of firms entering the export market in terms of investment: do the initially more productive firms invest more and grow more than the others, or do the initially less productive ones catch up when they enter the export market? Conflicting results appear in the literature, and there are several possible explanations for this. Credit constraints in particular can shape the relationship between initial productivity/size, entry to the export market, and investment. This topic is being investigated by Florian Mayneris. Investments in innovative activities will also be studied in collaboration with Nicolas Berman (IHEI Geneva) and Vincent Rebeyrol (Toulouse School of Economics)
Demand-driven determinants of trade flows Trade theory usually emphasizes the role of supply-side determinants of trade flows (productivity, relative endowments, size etc.). However, in a world where goods are more and more differentiated, consumer preferences should play a role in the determination of countries’ comparative advantages. In particular, both the average income and the distribution of income should impact on the quality of the goods demanded by consumers. Not only should wealthier consumers prefer higher quality goods, but aggregate demand can also be biased towards high or low quality according to the distribution of revenues that underlies the average income. This bias in aggregate demand at the national level can in turn impact on the comparative advantages of countries. We investigate this question in the context of European integration. Recent enlargements have significantly increased the European Union’s (EU) heterogeneity in terms of average income and income inequalities. Average income and income distribution could have an impact on the way Eastern countries integrate with the rest of the EU commercially, and thus on the type of competition that exists between old and new EU members. We are studying this question, both theoretically and empirically, through the analysis of very detailed data on bilateral trade flows at the product level. This project is being conducted by Hélène Latzer and Florian Mayneris. Geographical mobility of labor Research on the geographical mobility of labor is related to research on the determinants of the international mobility of labor. The first objective is to characterize the dynamics of international migration, in relation to immigration policies at the destination. Ever since Ravenstein in the 19th century, many economists, demographers and geographers have been trying to understand the rules governing the human migration. Established migrants’ networks play an important role in the migration decisions of young people. By relying on network information, newcomers can reach relatively better and safer decisions when they are uncertain or have imperfect information. In the absence of migration data by educational attainment, the analysis of the migration-network hypothesis and the dynamics of diasporas has remained poor. Taking advantage of new databases which include education level, the goals of our research are (i) to revisit the determinants of international labor mobility and (ii) to characterize the dynamics of migrant diasporas (defined as the stock of people born in country i and living in country j). The dynamics of diasporas is the outcome of a complex combination of self-selection (endogenous decisions by heterogeneous individuals to leave their country) and out-selection mechanisms (host-country decisions to accept immigrants, reflected in their immigration policies). How do the characteristics of existing diasporas (size, education level, gender structure) affect the size and structure of current migration flows? How do existing diasporas impact on the effectiveness of immigration policy reforms? In particular, would more selective immigration policies generate important effects on the structure of EU immigration flows? These are the questions addressed by this project. Our preliminary results show that the proportion of male migrants and the average education level both decrease as the size of the diasporas increases, suggestion that women and low-skilled people are more affected by the endogenous costs of moving and by family reunion programs. We are now quantifying the speed of adjustment to this phenomenon by studying the relations between the structure of existing diasporas and the characteristics of migration flows. In addition, we are exploring counter-migration flows (the question of whether the existing diaspora from i to j induces a migration flow from j to i), a concept that has been largely ignored in the current literature. The project is led by Frédéric Docquier and involves Abdeslam Marfouk (IWEPS) and Sara Salomone. Another project concerns the links between migration and crime. Its starting point is the fact that, contrary to popular perception, empirical evidence shows that crime rates are not necessarily higher among immigrants than among natives. However, in most cases, second-generation immigrants are more involved in criminal activities than natives. We try to explain these stylized facts in the framework of a two-country, endogenous "career choice" model. Agents may choose between working honestly and engaging in criminal activities. Depending on whether career crossovers are possible after migration to a richer economy, there may be different consequences for immigrants’ crime rates. Socioeconomic and institutional differences between countries, and immigration policies are just two of the factors which may affect the results. In particular, if immigration policies become too restrictive, illegal immigration may increase, thus inducing an adverse selection of immigrants. In addition, the benchmark model can explain why immigrants often replace natives in criminal activities (the substitution effect). This project is led by Fabio Mariani. The political economy of immigration policies is another topic of research. As shown in many recent studies, low-skill migration generates huge gains for migrants, their families and, most importantly, the sending countries. By relaxing labor-market constraints at origin and inducing large rates of remittance, low-skill migration should be seen as an explicit component of the development policy of the rich world. In its report on Global Economic Prospects, the World Bank found that international remittances received by developing countries (around 170 billion dollars in 2005, two thirds of which was sent from developed countries) had doubled since 2000 and were twice the size of official development aid. Official records still underestimate the full scale of remittances. Although the impact on growth is unclear, remittances obviously play an important role in reducing poverty in developing countries. Migration has other economic implications for poor countries beyond remittances. It raises the demand for low-skill workers at the margin, leading to higher wages, lower unemployment and greater labor-force participation. It creates ties between countries, reducing transaction and informational costs. Hence, it is not surprising that development agencies promote low-skilled migration. Although movements of capital, goods and services are growing in importance, the movement of workers is impeded by restrictive policies in rich countries. Such regulations have important economic costs for developing countries, and prevent global inequality from declining. Clearly, "breaking the gridlock on international labor migration" requires solutions that are politically acceptable in rich countries. A political economy framework is useful for explaining immigration restrictions in advanced countries. This research project aims to characterize the variables affecting natives' ideas about immigration into rich countries and finding incentive mechanisms that could break the low-skill immigration deadlock. Our analysis builds on theoretical foundations and numerical experiments based on properly calibrated models. This project is being conducted by David de la Croix and Frédéric Docquier. Assimilation policies are the third pillar of immigration policies (together with quantitative restrictions (quotas) and qualitative selection of immigrants (skill requirements, for instance)). A project on the political economy of immigrants’ naturalization is inspired by the observation that OECD countries adopt very different naturalization policies. This is especially true with respect to the concession of citizenship and/or voting rights to legal immigrants: in fact, the residency-time requirement to apply for (active) citizenship varies widely across countries. To try to explain this phenomenon, we are building political economy models in which self-interested natives decide when voting rights should be granted to foreign-born workers. This choice is driven by the maximization of net gains from immigration. This project is led by Fabio Mariani.
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13/10/2010
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