Gravity or Dummies? The Limits of Identification in Gravity Estimations

Trade economists often estimate gravity equations of international trade with fixed effects. Anderson and van Wincoop (2003, American Economic Review 93, 170–192) have shown the importance of controlling for multilateral trade resistances when estimating a gravity equation. This can be done by including exporter-time and importer-time fixed effects in a panel or exporter and importer fixed effects in a cross section estimation. I argue that this approach limits the identifiability of policy parameters that capture the effect of certain ”club memberships” (EU, NAFTA, euro area, WTO, etc.) on trade flows. I show that, in the baseline case, only one effect can be identified, which precludes, for example, the estimation of separate effects on the exporter and the importer side. The magnitude, and even the sign, of the estimated club effect are very sensitive to the precise identification assumptions, which are often left unspecified in empirical studies. The underlying problem is that club membership provides some, but very little bilateral variation. When heterogeneous club effects are to be identified, the membership dummies can become perfectly collinear with the fixed effects. Empirical researchers may not be aware of the lack of identification, because standard estimation techniques often permit them to run perfectly collinear regressions. I illustrate the findings with estimating the effect of EU enlargement in 2004 on the trade flows of new and old members. Finally, I discuss potential solutions.

Lumpy Trade and the Welfare Effects of Administrative Barriers

Using detailed U.S. and Spanish export data, we document that administrative trade costs of per shipment nature (documentation, customs clearance and inspection) lead to less frequent and larger-sized shipments, i.e. more lumpiness, in international trade. We build a model to analyze these effects and their welfare consequences. Exporters decide not only how much to sell at a given price, but also how to break up total trade into individual shipments. Consumers value frequent shipments, because they enable them to consume close to their preferred dates. Having fewer shipments hence entails a welfare cost. Calibrating the model to observed shipping frequencies and per-shipment costs, we show that countries would gain 2--3 percent of their GDP by eliminating such barriers. This suggests that trade volumes alone are insufficient to understand the gains from trade.

Forecasting Inflation - A Case Study on the Czech, Hungarian, Polish, Slovakian and Slovenian Central Banks

The paper examines the inflation forecasting practice and the related institutional framework at the central banks of five Central European countries (the Czech Republic, Hungary, Poland, Slovakia and Slovenia). The first part of the paper presents the general aspects of the comparative analysis, which primarily follow the requirements of inflation targeting monetary regimes. The second part consists of individual country case studies, which give detailed description of the institutional framework and forecasting practice at the five central banks considered.

Administrative barriers to trade

We build a model of administrative barriers to trade to understand how they affect trade volumes, shipping decisions and welfare. Because administrative costs are incurred with every shipment, exporters have to decide how to break up total trade into individual shipments. Consumers value frequent shipments, because they enable them to consume close to their preferred dates. Hence per-shipment costs create a welfare loss.We derive a gravity equation in our model and show that administrative costs can be expressed as bilateral ad-valorem trade costs. We estimate the ad-valorem equivalent in Spanish shipment-level export data and find it to be large. A 50% reduction in per-shipment costs is equivalent to a 9 percentage point reduction in tariffs. Our model and estimates help explain why policy makers emphasize trade facilitation and why trade within customs unions is larger than trade within free trade areas. © 2015 The Authors

Magyar vállalatok haszonkulcsai

Tanulmányunkban bemutatjuk a vállalati haszonkulcsok becslésére alkalmazható módszereket, kiemelve a viszonylag kis adatigényű és kevés feltevést alkalmazó De Loecker–Warzynski [2012] módszertanát. E módszer segítségével vállalati haszonkulcsokat becsülünk a legalább öt főt foglalkoztató magyar feldolgozóipari vállalatok 2001 és 2012 közötti adatain, majd elemezzük a haszonkulcsok összefüggését a vállalati jellemzőkkel. Megmutatjuk, hogy a nagyobb piaci részesedésű, fiatal, alacsonyabb béreket fizető és fejlett régióban működő vállalatok haszonkulcsai magasabbak, mint az azonos iparágban működő társaiké. Külön elemezzük a külkereskedelem szerepét, rámutatva, hogy az importálás még a termelékenység figyelembevétele után is nagyobb haszonkulccsal társul, míg az exportálók magasabb haszonkulcsa inkább a termelékenyebb vállalatok önszelekciójából származik. Journal of Economic Literature (JEL) kód: D22, D24, F14, L11, L60

Per-shipment costs and the lumpiness of international trade

Using detailed U.S. and Spanish export data, we document that trade costs of a per-shipment nature are associated with less frequent and larger shipments (i.e., more lumpiness) in international trade. This finding is pervasive across broad product categories, but most apparent for industrial supplies, parts and accessories, and food products. © 2015 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Adjustment of global imbalances: Illustrative scenarios for Hungary

In this study we examine the impact on Hungary of a possible correction of global imbalances. We distinguished four different channels of the global adjustment process, which are widely referred to in the literature (fiscal tightening in the U.S.; housing price correction in the US; an increase in the risk premium of dollar assets; increase in domestic demand in the Asian region) and analyzed them through model simulations. We constructed global scenarios using the NIGEM model, while we captured the domestic impacts using the Quarterly Projection Model (NEM) of the Magyar Nemzeti Bank. According to our results, both the global and domestic effects differ significantly with respect to whether the correction originates from the U.S. or Asia and whether it is a result of policy or market processes. We found that a possible global correction will pass through to Hungary mainly through the Eurozone countries, thus its main impact will be relatively dampened. The responses of domestic macroeconomic variables depend on our assumptions on the reaction of monetary policy and the developments in the risk premium on forint denominated assets.monetary policy, global inbalalnces, forecasting, simulation.

Globalization and the markups of European firms

We use a unique cross - section survey of manufacturing firms from four European countries (France, Germany, Italy, Spain) linked with bal ance sheet data to study the relationship between key aspects of globalization and firm - level markups. The main results are: (i) Exporting is positively correlated with markups; (ii) Importing intermediate inputs and outsourcing are also positively correla ted with markups; (iii) Firms with affiliates have higher markups than other firms, while simply membership in a group or being foreign - owned seem to be less important; (iv) Perceived competition from low - cost markets is negatively correlated with markups; (v) Higher quality production and innovation, especially if it results in IP, has a strong positive relationship with markups; (vi) While these variables are correlated, they are significant in a joint model including all four groups, and `fully globalize d' firms tend to charge around 100% higher markups than non - globalized firms

Employment to Output Elasticities & Reforms towards Flexicurity : Evidence from OECD Countries

ACKNOWLEDGMENTS This work was supported by the NORFACE ERA-NET (New Opportunities for Research Funding Agency Co-operation in Europe Network) Welfare State Futures Programme, Grant Number 462-14-120. We thank Nils Braakmann, Sebastian Könings, Steve Matusz, Fredrik Sjöholm, John Skåtun, Allan Sørensen, participants of the NORFACE Welfare State Futures Programme “Globalisation, Labour Markets and the Welfare State” final workshop, and two anonymous referees for their valuable comments. Open Access funding enabled and organized by Projekt DEAL.Peer reviewedPublisher PD