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The business environment in emerging economies Prof. Olivier Cadot Spring Semester, 2014

The business environment in emerging economies Prof. Olivier Cadot Spring Semester, 2014. Seminar objectives. Get the big picture How is the world economy evolving? What is the role of emerging economies Basic differences between industrial and emerging economies

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The business environment in emerging economies Prof. Olivier Cadot Spring Semester, 2014

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  1. The business environment in emerging economies Prof. Olivier Cadot Spring Semester, 2014

  2. Seminar objectives • Get the big picture • How is the world economy evolving? What is the role of emerging economies • Basic differences between industrial and emerging economies • What do we know about economic development? Understand to anticipate • Learn to analyze data • Do and present descriptive statistics • Do and interpret basic regression analysis • Understand indices • Learn to present and discuss your ideas • Select what you communicate • Give a «narrative» to your analysis • Provide constructive comments to others

  3. Seminar evaluation • Hands-on data analysis exercise • Get data • Organize it (cleaning, formatting) • Analyse it (descriptive statistics, econometric analysis) • Present your results • Group project • Topic to be agreed with instructor/assistant • Original contribution (not just review of the literature) • Data analysis • Discussion of group projects • Optional: In-class case presentation and discussion

  4. Seminar Format and schedule Six introductory sessions February 20, 27; March 6, 13, 20, 27 Group work, phase I (topic determination & data gathering): April Group meetings with professor/asssistant, round I: Week of April 15 Group work, phase II (analysis and preliminary draft): May Group meetings with professor/assistant, round II: Week of May 12 Assignment of «discussant» roles Presentations and discussion: May 15, 22, 29

  5. Suggestive list of paper topics • Governance in extractive industries • Country competitiveness analysis • Measuring «logistics friendliness» • Export entrepreneurship • Statistical analysis of competitiveness and other indices • Public-private partnerships in public utilities, with a focus on water privatization • Free-trade agreements • Product standards, technical regulations, and competition • NGO management & accountability • Project impact analysis

  6. Understanding globalization

  7. Trade grows faster than production Trade growth vs. GDP growth Openness ratio

  8. Shifting patterns, shifting center of gravity 2015 Source: JM Grether and N Mathys (2006), “Is the World’s Economic Center of Gravity Already in Asia?”, mimeo, Univ. of Lausanne

  9. The rise of Asian players Service exports: India, 1975-2010

  10. The decline of the rich countries Growth 1950-2010: By region Growth 1950-2010: Developed vs. developing Second great divergence At PPP Income shares: current USD

  11. The worldwide distribution of income, 1970-80 Income distribution over time: World, 1970-80 Source: Sala i Martin 2002

  12. The worldwide distribution of income, 1990-98 Income distribution over time: World 1990-98 Source: Sala i Martin 2002

  13. Who’s left on the road side? Average income growth, bottom 20% GDP growth and growth of bottom 20% income GDP growth Remaining confined in fragile states The global poverty reduction is also visible in Africa

  14. Differences in values (i): Hofstede (1980) Individualism Power acceptance “Masculinity” (competitiveness) Risk aversion Source : http://www.clearlycultural.com/geert-hofstede-cultural-dimensions/uncertainty-avoidance-index/

  15. Differences in values (ii): A cultural distance index Intra-country fragmentation index Inter-country distance index (Thoenig et al. 2009)

  16. Has cultural distance shrunk?

  17. Determinants of cultural distance

  18. The internationalization of companies Inward and outward FDI flows Inward Outward

  19. Global trade patterns 628 628 242 375 75 250 55 263 263 427 105 1’395 Source: Adapted from The Economist, A Survey of Logistics, 17 June 2006, p. 5. Million US dollars

  20. Trade in value added Start from a material balance equation Invert it to get the “inverse Leontieff matrix” (output requirements per unit of final demand) Define the share of value added in gross output in country r, call it V Combine with Leontieff matrices to get VA as a share of gross output And with gross exports to get VA as a share of gross exports

  21. Breaking down the uses of value added Measuring trade flows in terms of gross exports generates multiple counting Absorbed domestically As final good Foreign VA Exported For local absorption As intermediate Domestic VA To third countries For export For re-export back home Multiple counting in trade stats

  22. The value content of exports: A puzzle On aggregate, the domestic content of exports correlates negatively with GDP per capita A possible explanation: Aggregation bias

  23. Expanding the input-output matrix to break down the uses of VA Standard IO table Expanded IO table Breakdown estimated using trade data

  24. … and isolating VA exported in intermediate products Gross exports

  25. Decomposition of gross exports varies a lot across countries

  26. Back to the VA breakdown: Global value chain participation Absorbed domestically As final good Foreign VA For local absorption Exported As intermediate Domestic VA For re-export back home For export GLOBAL VALUE CHAIN To third countries

  27. A country downstream in the value chain Absorbed domestically As final good Foreign VA For local absorption Exported As intermediate Domestic VA For re-export back home For export GLOBAL VALUE CHAIN To third countries

  28. A country upstream in the value chain Absorbed domestically As final good Foreign VA For local absorption Exported As intermediate Domestic VA For re-export back home For export GLOBAL VALUE CHAIN To third countries

  29. Indices of GVC position and participation

  30. Participation and position in electronic GVCs Well integrated, downstream Well integrated, upstream Poorly integrated, little use of foreign intermediates downstream upstream Source: Adapted from Koopman et al. (2011), Figure 2

  31. Capturing the gains along a GVC: The ipod Re-captured by Apple Capital Labor Japan US Human capital, R&D Korea China Source: Adapted from Dedrick et al. 2008

  32. How much domestic VA in exports? • Approach • Start from input-output table • Allocate VA to different uses in proportion to gross output • Calculate the fraction of domestic VA in gross exports

  33. A second look at global trade imbalances 45o line • Compare U.S. bilateral trade deficit with • China (red) • Japan (purple)

  34. What does it change to look at value added? RCA RCA in finished metal products (ISIC 28) Source: Koopman et al. (2011)

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