Do Labor Market Institutions Affect International Comparative Advantage? An Empirical Investigation

The aim of this paper is to explore the different determinants of international comparative advantage. Starting from a theoretically well founded neoclassical framework, where specialization depends on relative factor endowments and technological differences, we study the role of the institutional diversity in the labor market. We use an international trade model where endogenous effort is included in an otherwise standard production function. Since the effort level can be affected by country-specific labor institutions, the institutional context may in turn be able to influence the international comparative advantage. After illustrating the theoretical motivations for such an effect, we implement a rigorous econometric analysis on a group of OECD countries to test its empirical validity. We obtain that institutions have an important role in explaining the relative economic performance of a number of manufacturing sectors. In particular, stronger labor market institutions are found to advantage capital-intensive sectors and disadvantage labor-intensive ones. Policy implications are derived and discussedComparative Advantage, Labor Market Institutions, International Specialization

A Two-Country NATREX Model for the Euro/Dollar

This paper develops a NATREX (NATural Real EXchange rate) model for two large economies, the Eurozone and the United States, which are fully specified and allowed to interact. After description of the theoretical framework grounding on dynamic disequilibrium modelling approach in continuous time, we implement empirical analysis. First, we estimate the model in its structural form as a simultaneous nonlinear differential equation system for the 1975-2003 period. Second, we simulate the Euro/USD NATREX series in- and out-of-sample by using parameters estimates. The simulated equilibrium real exchange rate enables us to determine a benchmark against which the dynamics of the actual real exchange rate can be measured.NATREX, equilibrium exchange rate, Euro/USD, structural approach, continuous time econometrics, misalignment

Politics-Business Interaction Paths

Most pre-crisis explanations of the various corporate governance systems have considered the separation between ownership and control to be an advantage of the Anglo-American economies. They have also attributed the failure of other countries to achieve these efficient arrangements to their different legal and/or electoral systems. In this paper we compare this view with the co-evolution approach based on the hypothesis that politics and corporate governance influence each other, generating complex interactions of financial and labour market institutions. Countries cluster along different complementary politics-business interaction paths and there is no reason to expect, or to device policies for, their convergence to a single model of corporate governance. We argue that this hypothesis provides a more convincing explanation of the past histories of major capitalist economies and can suggest some useful possible scenarios of their future institutional development. Bayesian model comparison suggests that the co-evolution approach turns out at least as influential as the competing theories in explaining shareholder and worker protection determination.employment protection, corporate governance, ownership concentration, Bayesian model estimation, Bayesian model comparison

A Two-Country NATREX Model for the Euro/Dollar

This paper develops a NATREX (NATural Real EXchange rate) model for two large economies, the Eurozone and the United States. The NATREX approach has already been adopted to explain the medium-long term dynamics of the real exchange rate in a number of industrial countries. So far, however, it has been applied to a one-country framework where the "rest of the world" is treated as given. In this paper, we build a NATREX model where the two economies are fully specified and allowed to interact. Our theoretical model offers the basis for empirical estimation of the euro/dollar equilibrium exchange rate that will be carried out in future research. JEL classification: F31; F36; F47Key words: NATREX; equilibrium exchange rate; euro/dollar; structural approach

International Trade, Factor Mobility and the Persistence of Cultural-Institutional Diversity

Cultural and institutional differences among nations may result in differences in the ratios of marginal costs of goods in autarchy and thus be the basis of specialization and comparative advantage, as long as these differences are not eliminated by trade. We provide an evolutionary model of endogenous preferences and institutions under autarchy, trade and factor mobility in which multiple asymptotically stable cultural-institutional conventions may exist, among which transitions may occur as a result of decentralized and un-coordinated actions of employers or employees. We show that: i) specialization and trade may arise and enhance welfare even when the countries are identical other than their cultural-institutional equilibria; ii) trade liberalization does not lead to convergence, it reinforces the cultural-institutional differences upon which comparative advantage is based and may thus impede even Pareto-improving cultural-institutional transitions; and iii) by contrast, greater mobility of factors of production favors decentralized transitions to a superior cultural-institutional convention by reducing the minimum number of cultural or institutional innovators necessary to induce a transition.institutions, incomplete contracts, evolutionary game theory, culture, trade integration, factor mobility, globalization

Neo-Protectionism and the European Lobbies

This paper empirically explores the connection between two recent phenomena in the European scenario: the dramatic upsurge of non-tariff trade measures and the remarkable rise in the role of European business lobbies. While these two facts have been widely recognized by the international trade and the political economy literature, empirical investigation into the connection between the two has so far been impeded by the lack of data. To identify European special interest groups and their influence on policy decisions, we construct an original dataset by collecting information on the participation of national and international organizations in the European Commission consultations on trade issues and by merging it with newly released information on non-tariff measures aggregated at the tariff-line level. Drawing upon the panel structure of the dataset, we find that European lobbies exert an important influence on the policy-makers, even after controlling for product fixed effects and a number of product and industrial variables. Between two possible interpretations of this finding, either that participation in meetings captures political pressure (possibly including the supply of biased information) on policy-decisions or that it involves, rather, transmission of true information, our empirical results tend to favor the former. Nonetheless, we are inclined to rule out the possibility that registration in consultations is in itself just signaling for active involvement in lobbying action, since we find evidence that actual meeting attendance has a larger impact on policy decision than registration only

Urban wage premia, cost of living, and collective bargaining

In this paper, we estimate the urban wage premia (UWP) in Italy, with its economy characterized by the interplay between collective bargaining and spatial heterogeneity in the cost of living. We implement a reduced-form regression analysis using both nominal and real (in temporal and spatial terms) wages. Our dataset for the 2005-2015 period includes, for workers’ characteristics, unique administrative data provided by Italian Social Security Institute and, for the local CPI computation, housing prices collected by Italian Revenue Agency. For employees covered by collective bargaining, we find a zero UWP in nominal terms and a negative and non-negligible UWP in real terms (-5%). To capture the role played by centralized wage settings, we also consider various groups of self-employed workers, who are not covered by national labour agreements, while living in the same locations and enjoying the same amenities as employees. We find that the UWP for self-employed workers are up to 25 times greater than for employees. Moreover, sorting proves more notable in the case of self-employed workers, i.e. the larger UWP provide the higher incentives for high-skilled individuals and better firms to locate in cities. Our findings are confirmed on extending the analysis along the wage distribution

Successful strategies to help developing countries boost exports

Increasing exports ranks among the highest priorities of any government wishing to stimulate economic growth. There is, however, still strong disagreement on how governments should intervene. For instance, it has often been argued that the best governments can do is to eliminate the obstacles to the smooth functioning of market forces and provide information to exporting firms about destination markets and foreign competitors. This view is, of course, far from being unanimously shared

A Two-Country NATREX Model for the Euro/Dollar

This paper develops a NATREX (NATural Real EXchange rate) model for two large economies, the Eurozone and the United States. The NATREX approach has already been adopted to explain the medium-long term dynamics of the real exchange rate in a number of industrial countries. So far, however, it has been applied to a one-country framework where the "rest of the world" is treated as given. In this paper, we build a NATREX model where the two economies are fully specified and allowed to interact. Our theoretical model offers the basis for empirical estimation of the euro/dollar equilibrium exchange rate that will be carried out in future research. JEL classification: F31; F36; F4