United States-Canada Trade and Economic Relationship: Prospects and Challenges

[Excerpt] The terrorist attacks of 2001 focused attention on the U.S.-Canadian border. Several bilateral initiatives have been undertaken to minimize disruption to commerce from added border security. The focus on the border has renewed interest in some quarters in greater economic integration, either through incremental measures such as greater regulatory cooperation or potentially larger goals such as a customs or monetary union. Congressional interest has focused mostly on trade disputes, and also on the ability of the two nations to continue their traditional volume of trade with heightened security on the border

Export Diversification and Specialization in South Africa: Extent and Impact

Should developing countries focus on diversifying their export basket or should they instead specialize their exports according to their existing comparative advantage? In this paper we attempt to answer this question by reviewing the literature on export diversification and specialization, by investigating the extent of export diversification and specialization in South Africa over the period 1962-2000 and its relationship to GDP per capita. We use a computable general equilibrium (CGE) model to investigate the economy-wide impacts of greater export diversification versus greater export specialization. We find tentative evidence of a U-shaped relationship between per capita GDP and export specialization. Also, Granger causality test suggests that export diversification induces changes in GDP per capita. Our CGE simulations find that export diversification results in higher GDP growth and employment. The main channel for this observation is that greater export diversification results in a more substantial increase in exports (of between 1.28 and 7.03 per cent) than in the case of greater export specialization. We conclude by discussing some policy implications.exports, diversification, specialization, South Africa, general equilibrium modelling

Globalisation and euro area trade: Interactions and challenges

As a major player in world trade, the euro area is strongly influenced by globalisation, but is far from being a passive spectator. The paper analyses how the euro area’s trade specialization has changed in response to stronger international competition and the emergence of new global players, evaluating results and possible challenges ahead. The message remains mixed. On the positive side, the export specialisation of the euro area is increasing in some mediumhigh or high-tech sectors where productivity growth is strong and demand robust, such as pharmaceuticals, also by a more intensive recourse to importing intermediate goods from low-cost countries. On the other hand, in comparison to other industrialised economies, the euro area has been somewhat slower in moving towards research-intensive goods and away from labour-intensive sectors. While this could reflect data classification issues, it may also be a sign of structural rigidities in the euro area, which hinder adjustment processes.

Globalisation and the competitiveness of the euro area

Against the background of increasing competition and other significant structural changes implied by globalisation, maintaining and enhancing competitiveness has evolved into one of the prime concerns in most countries. Following up on previous work (see in particular ECB Occasional Papers No. 30 and No. 55), this Occasional Paper examines the latest developments and prospects for the competitiveness and trade performance of the euro area and the euro area countries. Starting from an analysis of most commonly used, traditional competitiveness indicators, the paper largely confirms the findings of previous studies that there have been substantial adjustments in euro area trade. Euro area firms have taken advantage of the new opportunities offered by globalisation, and have at the same time been increasingly challenged by emerging economies. This is primarily reflected in the loss of export market shares which have been recorded over the last decade. While these can partly be related to the losses in the euro area’s price competitiveness, further adjustment also seems warranted with regard to the export specialisation. Compared with other advanced competitors, the euro area remains relatively more specialised in labourintensive categories of goods and has shown only a few signs of a stronger specialisation in research-intensive goods. Nevertheless, the paper generally calls for a more cautious approach when assessing the prospects for euro area competitiveness, as globalisation has made it increasingly difficult to define and measure competitiveness. Stressing the need to take a broader view on competitiveness, specifically with a stronger emphasis on productivity performance, the paper also introduces a more elaborate framework that takes into account the interactions between country-specific factors and firm-level productivity. It thus makes it possible to construct more broadly defined competitiveness measures. Pointing to four key factors determining the global competitiveness of euro area countries – market accessibility, market size, technological leadership of firms and institutional set-up – the analysis provides further arguments for continuing efforts to increase market integration and strengthen the competitive environment within Europe as a mean of enhancing resource allocation and coping with the challenges globalisation creates. JEL Classification: F15, F43, O52Globalisation, competitiveness, productivity

Economic benefits from colonial assets : the case of the Netherlands and Indonesia 1870-1958

This paper explores the question whether and to what extent the economic relations between the Netherlands and its former colony Indonesia could be crucial to explaining `metropolitan' economic development and `peripheral' underdevelopment. It first surveys the literature on economic explanations for imperialism and the historiography involving Netherlands-Indonesia relations. The paper then generalises the broad economic importance to the Dutch economy of having Indonesia as a colony. The paper argues that the economic relevance shifted from trade to financial relations since ca.1900. Ready access to the Dutch capital market is likely to have advantaged economic development in Indonesia, albeit at the price of a shift in company ownership and a continuous transfer of dividend and interest payments to the Netherlands. The Dutch economy benefited from the relations with Indonesia, but was not particularly dependent on this relationship. This is demonstrated by the fact that after the decolonisation of Indonesia the economic ties between the two countries were severed during the 1950s. The Dutch economy entered a period of rapid growth, while the loss of ready access to the Dutch capital market contributed to economic stagnation in Indonesia.

The effect of import competition on firm productivity and innovation: does the distance to technology frontier matter?

How does foreign competition affect growth and innovation in China? Using our unique measures of proximity of Chinese firms and industries to the world technology frontier, we find that despite vast sectoral heterogeneity, Chinese manufacturing industries have undergone rapid technological upgrading over the period of 2000–06. The distance to the world production frontier of firms and industries plays an important role in shaping the nexus between the competition pressure from foreign imports and domestic firms' growth and innovation behaviour. Our results support the theoretical predictions of Aghion et al. (2005, The Quarterly Journal of Economics, pp. 701–728) that import competition stimulates the domestic firms' productivity growth and R&D expenditure if firms and their industries are close to the world frontier, but discourages such incentives for laggard firms and industries. The two forces highlighted by the model operate for imports under the ordinary-trade regime, for collective and private firms, and for imports originated from high-income countries. Our findings are robust after controlling the influence of foreign investment, the reverse causality of regressors and the short-term business cycle fluctuations

The happy few: the internationalisation of European firms

The 2007 report from the research network European Firms and International Markets (EFIM) is the first systematic, cross-country, firm-level research of the features of European firms that compete in international markets.