Trends in Intra Firm Trade of USA

Trends in Intra Firm Trade of USA

 

 

Intra Firm Trade

Intra-firm trade consist of trade between parent companies of a compiling country with their affiliates abroad and trade of affiliates under foreign control in this compiling country with their foreign parent group.

Intra Industry Trade

Different types of trade are captured in measurements of intra-industry trade:

a) Trade in similar products (“horizontal trade”) with differentiated varieties (e.g. cars of a similar class and price range).

b) Trade in “vertically differentiated” products distinguished by quality and price (e.g. exports of high-quality clothing and imports of lower-quality clothing).

 

From GLOBALISATION AND INTRA-FIRM TRADE: AN EMPIRICAL NOTE

 

Products which are traded internationally, but which stay within the ambit of a multinational enterprise (MNE), represent a significant portion of foreign trade for several OECD countries. This type of trade is called intra-firm trade as opposed to international trade among unrelated parties, also called arm’s length trade. Intra-firm trade is an important part of the process of globalisation, by which is meant the increasing interdependence of markets and production in different countries through trade in goods and services, cross-border flows of capital, and exchanges of technology.

The phenomenon of intra-firm trade is of interest to trade policy makers, as well as to competition and tax authorities. The use of transfer pricing in intra-firm trade may introduce an element of uncertainty into the value of a fairly large part of international trade and into customs valuation needed for the application of tariffs or similar measures. Competition and tax issues may also arise from intra-firm trade to the extent that the latter may facilitate the dissimulation of real transaction prices between the parent company and its affiliates.

A surge in foreign direct investment (FDI) during the 1980s’ has been cited as evidence in favour of globalisation; it is argued that MNEs have played a central role in globalisation by extending their corporate networks beyond national boundaries through the establishment of foreign branches and subsidiaries. It is often assumed that intra-firm trade reflects these foreign production activities by MNEs, as they trans- fer their factors of production from one country to another.

Little attention has been paid so far to the phenomenon of intra-firm trade. The literature on the subject is still relatively limited and recent. This is partly because most international trade statistics do not distinguish between intra-firm trade and arm’s length trade.

 

From GLOBALISATION AND INTRA-FIRM TRADE: AN EMPIRICAL NOTE

In considering the interrelationship between globalisation and international trade, it is conceptually useful to distinguish between four types of international trade:

(A) intra industry, intra-firm trade;

(B) intra-industry, arm’s-length trade;

(C) inter-industry, intra firm trade;

(D) inter-industry, arm’s-length trade.

Intra-industry trade is defined as the mutual exchange of similar goods within the same product category (Grubel and Lloyd, 1975, and Greenaway and Milner, 1986).

Intra-industry trade is generally a function of product differentiation and may or may not involve intra-firm trade. If motor vehicles produced in France are exported to the United States and U.S.-built motor vehicles are exported to France, the two countries are said to be involved in intra-industry trade even though such trade is not necessarily intra-firm trade. Intra-industry trade can be readily calculated for any given product category, as only the traditional bilateral trade statistics for that product category are needed.

Intra firm trade is harder to quantify, since knowledge of the relationship between the firms involved in the transactions is necessary. Data on intra-firm trade are available only. through firm surveys, involving the preparation of questionnaires by national authorities.

Most trade in manufactured goods among OECD countries is of the intra-industry type.  Intra-industry trade is particularly important within Europe, and to a lesser extent, in North America, accounting for roughly 60 to 70 per cent of total trade in manufacture.  This trade generally concerns differentiated products exchanged between countries that are similar in terms of per capita income and relative factor endowments. It has also been argued that economies of scale play an important role in explaining the industry pattern of intra-industry trade.

On the other hand, trade between developed and developing countries (“North-South”) is mostly of the inter-industry type, reflecting large differences in relative factor endowments between the two groups of countries. Inter-industry trade among unrelated parties (type D) – e.g. international exchange of cotton cloth produced by northern manufacturers for wine produced by southern farmers .- is the type of trade which international trade textbooks traditionally deal with.

Trade in manufactured goods between developed countries is predominantly of the intra-industry type and often takes the form of intra-firm trade. An important example of intra-industry, intra-firm trade (Type A) is United States-Canada-Mexico automobile trade. Intra-firm trade is also the dominant pattern of U.S. exports to Canada and Europe in the case of non-electrical machinery and chemicals. Another example is trade in manufactured goods between Pacific Asian economies. These economies have seen a rapid increase in intra-industry trade as a proportion of their total trade over the last decade. Such increase in intra-industry trade in Pacific Asian economies can be primarily attributed to the globalisation of corporate activities by U.S. and Japanese firms and, more recently, by other Asian firms. This involves assembly-line production based on imported parts and components in different countries in East and South East Asia (Fukasaku, 1992; Gross, 1986).

 

 

IFT

 

From An Overview of U.S. Intrafirm-trade Data Sources

 

ift2

There are large differences in BEA data and Census data particularly for Imports.  There are some measurement issues.  Import data from Mexico and China show big errors.

 

From An Overview of U.S. Intrafirm-trade Data Sources

IFT3

 

From An Overview of U.S. Intrafirm-trade Data Sources

IFT4

 

Data sources of Intra Firm Trade

  • BEA (Intra Firm Trade Data)
  • US Census Bureau (Related party trade data)

 

From Intrafirm Trade and Vertical Fragmentation in U.S. Multinational Corporations

First, we show that, although intra-MNC trade represents an important fraction of aggregate U.S. exports and imports, the median manufacturing foreign affiliate ships nothing to — and receives nothing from — its parent in the United States. Intra-MNC trade is concentrated in a small group of large affiliates and large corporations: The largest five percent of affiliates accounts for around half of the total trade to and from the parent, while the largest five percent of corporations accounts for almost two thirds of total intra- MNC trade. This skewness is also observed within the corporation: Intra-MNC trade tends to be concentrated in a small number of an MNC’s largest foreign affiliates.

The lack of intra-MNC cross-border trade that we find for foreign affiliates of U.S. multinationals is more surprising than the similar finding in Atalay et al. (2014) for intrafirm trade within the United States. Factor price differences — the theoretical motivation for vertical fragmentation and the intrafirm trade that accompanies it — are much larger across countries than across U.S. cities. In this regard, Brainard (1993) first documented the weak relationship between factor endowments and intra-MNC trade across borders.

The skewness of intra-MNC trade towards large affiliates and corporations in our first finding is reminiscent of the skewness in the distributions of other international activities. Manufacturing exports are concentrated in large firms (Bernard and Jensen, 1995), and even larger firms own foreign affiliates (Helpman et al., 2004). These patterns are consistent with theories of the firm that are based on economies of scale in production. In Grossman et al. (2006), for example, the production of inputs for the entire multinational corporation is concentrated into a few large affiliates, which exploit the strong economies of scale in production. Affiliates created to supply a foreign market — as an alternative to exporting, in order to avoid transportation costs — are relatively small. The model predicts that a small number of large affiliates ship goods within the corporation, while numerous smaller affiliates serve local markets. The concentration of intra-MNC trade in the largest firms is also consistent with the contract theory of the multinational firm proposed by Antras and Helpman (2004): In their framework with heterogeneous firms, only the largest firms choose to integrate offshore activities.

Our second set of facts relates intra-MNC trade to the upstream and downstream links between the industries of the parent and affiliate, as defined by the U.S. input-output table. As previously shown in Alfaro and Charlton (2009), we find that multinational corporations own affiliates in industries that are vertically linked to the parent’s industry. The input-output coefficient between the affiliate’s and the parent’s industries of operation, however, is not related to the existence and the magnitude of the trade in goods between the two. These findings are similar to those in Atalay et al. (2014), who study multi-establishment firms within the United States: The ownership of vertically linked affiliates is not related to the transfer of goods within the boundaries of the firm.

 

 

 

Key Sources of Research:

 

GLOBALISATION AND INTRA-FIRM TRADE: AN EMPIRICAL NOTE

Marcos Bonturi and Kiichiro Fukasaku

1993

http://www.oecd.org/unitedstates/33948827.pdf

 

 

U.S. Direct Investment Abroad: Trends and Current Issues

James K. Jackson
Specialist in International Trade and Finance

June 29, 2017

https://fas.org/sgp/crs/misc/RS21118.pdf

 

Foreign Direct Investment in the United States (FDIUS): Final Results from the 2012 Benchmark Survey

 

https://www.bea.gov/international/fdius2012_final.htm

 

 

U.S. Direct Investment Abroad (USDIA): Revised 2009 Benchmark Data

https://www.bea.gov/international/usdia2009r.htm

 

U.S. Intrafirm Trade in Goods

By William J. Zeile

1997

https://www.bea.gov/scb/pdf/internat/bpa/1997/0297iid.pdf

 

Global Production: Firms, Contracts, and Trade Structure

Pol Antràs
Harvard University
June, 2015

http://scholar.harvard.edu/files/antras/files/global_production_slides.pdf

 

 

Trade in Goods Within Multinational Companies:
Survey-Based Data and Findings for the United States of America

William J. Zeile
U.S. Bureau of Economic Analysis
Washington, DC 20230
2003

https://www.bea.gov/papers/pdf/IFT_OECD_Zeile.pdf

 

 

An Overview of U.S. Intrafirm-trade Data Sources

Kim J. Ruhl
New York University Stern School of Business
May 2013

https://archive.nyu.edu/bitstream/2451/31994/2/Ruhl_USIntrafirm-tradeData_May2013.pdf

 

 

How Well is U.S. Intrafirm Trade Measured?

By KIM J. RUHL

20015

https://static1.squarespace.com/static/562636cfe4b043d43a7492bf/t/56746f21d8af102d24cf4264/1450471201862/How_Well_March_2015.pdf

 

 

 

An Overview of U.S. Intrafirm-trade Data Sources

Kim J. Ruhl
New York University Stern School of Business
May 2013

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.343.7532&rep=rep1&type=pdf

 

 

THE DETERMINANTS OF INTRAFIRM TRADE

Gregory Corcos

Delphine M. Irac

Giordano Miony

Thierry Verdier

First draft: January 26, 2008. This draft : December 9, 2010.

http://gregory.corcos.free.fr/coirmive.pdf

 

 

MULTINATIONAL FIRMS AND THE STRUCTURE OF INTERNATIONAL TRADE

Pol Antràs
Stephen R.Yeaple

Working Paper 18775

February 2013

http://www.nber.org/papers/w18775.pdf

 

 

INTRA-FIRM TRADE AND PRODUCT CONTRACTIBILITY (LONG VERSION)

Andrew B. Bernard
J. Bradford Jensen
Stephen J. Redding
Peter K. Schott

April 2010

http://www.nber.org/papers/w15881.pdf

 

 

FIRMS, CONTRACTS, AND TRADE STRUCTURE

POL ANTRAS

https://scholar.harvard.edu/files/antras/files/fcts.pdf

 

 

On Intra-firm Trade and Multinationals: Offshoring and Foreign Outsourcing in Manufacturing

  • Ashok Deo Bardhan
  • Dwight Jaffee

https://link.springer.com/chapter/10.1057%2F9780230522954_2

 

 

INTRAFIRM TRADE AND VERTICAL FRAGMENTATION IN U.S. MULTINATIONAL
CORPORATIONS

Natalia Ramondo
Veronica Rappoport
Kim J. Ruhl
August 2015

http://www.nber.org/papers/w21472.pdf

 

 

 

INTRA-FIRM TRADE: PATTERNS, DETERMINANTS AND POLICY IMPLICATIONS

Rainer Lanz,
Sébastien Miroudot,

OECD

https://www.biblioteca.fundacionicbc.edu.ar/images/d/d6/5kg9p39lrwnn.pdf

 

 

Intrafirm Trade and Product Contractibility

By Andrew B. Bernard, J. Bradford Jensen, Stephen J. Redding,
and Peter K. Schott

http://eprints.lse.ac.uk/28616/1/Intrafirm_trade_and_product_compatibility_(lsero).pdf

 

Vertical Specialization in Multinational Firms

Gordon H. Hanson

Raymond J. Mataloni, Jr.

Matthew J. Slaughter

Initial Draft: September 2002

https://www.princeton.edu/~erossi/courses_files/VertSpec.pdf

 

 

GLOBAL VALUE CHAINS SURVEYING DRIVERS AND MEASURES

João Amador and Sónia Cabral

2014

https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1739.en.pdf?13f6d86f40a3c60325f27cbc08a18742

https://www.bportugal.pt/sites/default/files/anexos/papers/wp20143.pdf

 

 

EU-US ECONOMIC LINKAGES:
THE ROLE OF MULTINATIONALS AND INTRA-FIRM TRADE

C. Lakatos and T. Fukui

2013

http://trade.ec.europa.eu/doclib/docs/2013/november/tradoc_151922.%202_November%202013.pdf

 

 

THREE ESSAYS ON INTRAFIRM TRADE

Sooyoung Lee

2015

http://scholar.colorado.edu/cgi/viewcontent.cgi?article=1061&context=econ_gradetds

 

 

 

On Intra-Firm Trade and Multinationals: Foreign Outsourcing and Offshoring in Manufacturing

Ashok Deo Bardhan

Dwight Jaffee

2004

https://pdfs.semanticscholar.org/9360/d993275ddc9ba520060c9022fb84435a4d6a.pdf

 

International Fragmentation of Production and the Intrafirm Trade
of U.S. Multinational Companies

Maria Borga and William J. Zeile

January 22, 2004

https://www.bea.gov/papers/pdf/intrafirmtradejanuary04.pdf

 

 

 

Globalization and trade flows: what you see is not what you get!

Andreas Maurer and Christophe Degain

https://www.wto.org/english/res_e/reser_e/ersd201012_e.pdf

 

 

How US corporations structure their international production chains

Natalia Ramondo, Veronica Rappoport, Kim Ruhl

07 October 2015

http://voxeu.org/article/international-production-networks-and-intra-firm-trade-new-evidence

 

 

 

WHY DO FIRMS OWN PRODUCTION CHAINS?

Enghin Atalay
Ali Hortacsu
Chad Syverson

April 2012

http://www.nber.org/papers/w18020.pdf

 

 

 

Vertical Integration and Input Flows

Enghin Atalay

Ali Hortaçsu

Chad Syverson

August, 2013

http://faculty.chicagobooth.edu/chad.syverson/research/verticalownership.pdf

http://ssc.wisc.edu/~eatalay/viplantevidence.pdf

 

 

Outsourcing versus Vertical Integration: A Dynamic Model of Industry Equilibrium.

Román Fossati

March 2014

http://webmeets.com/files/papers/EARIE/2014/101/1March2014-RomanFossati.pdf

 

 

Production Networks, Geography and Firm Performance

Andrew B. Bernardy

Andreas Moxnesz

Yukiko U. Saitox

This Version: May 2014 –

http://cepr.org/sites/default/files/MOXNES%20-%20j_network_ERWIT4.pdf

 

 

 

 

Vertical Integration and Firm Boundaries: The Evidence

FRANCINE LAFONTAINE AND MARGARET SLADE

2007

http://eva.fcs.edu.uy/pluginfile.php/52932/mod_resource/content/2/Lafontaine_Slade%20-%20Vertical%20integration%20and%20firm%20boundaries.pdf

 

 

 

 

Foreign affiliates with and without intra-firm trade:
Evidence from sub-Saharan Africa

Sotiris Blanas

Adnan Seric

http://www.unido.org/fileadmin/user_media/Research_and_Statistics/WPs_2010/WP_13.pdf

 

 

 

Outsourcing, Vertical Integration, and Cost Reduction

Simon Loertscher†

Michael H. Riordan‡

September 8, 2014

http://www.law.northwestern.edu/research-faculty/searlecenter/events/antitrust/documents/Loertscher_Outsourcing.pdf

 

 

 

VERTICAL PRODUCTION NETWORKS IN MULTINATIONAL FIRMS

Gordon H. Hanson
Raymond J. Mataloni, Jr.
Matthew J. Slaughter

May 2003

http://www.nber.org/papers/w9723.pdf

 

 

Network structure of production

Enghin Atalaya, Ali Hortaçsua,1, James Robertsb, and Chad Syversonc

Edited by Lars Peter Hansen, University of Chicago, Chicago, IL, and approved February 2, 2011 (received for review October 15, 2010)

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3069152/pdf/pnas.201015564.pdf

 

 

 

Cross-border Vertical Integration and Intra-firm Trade:
New evidence from Korean and Japanese firm-level data

Hyunbae CHUN

Jung HUR

Young Gak KIM

Hyeog Ug KWON

http://www.rieti.go.jp/jp/publications/dp/17e049.pdf

http://hompi.sogang.ac.kr/hchun/chun_aep_2017.pdf

 

 

 

Offshoring in the Global Economy
Lecture 1: Microeconomic Structure
Lecture 2: Macroeconomic Implications

Robert C. Feenstra

September 2008
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.294.715&rep=rep1&type=pdf

 

 

 

THE NETWORK STRUCTURE OF INTERNATIONAL TRADE

Thomas Chaney

January 2011

http://www.nber.org/papers/w16753.pdf

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FDI vs Outsourcing: Extending Boundaries or Extending Network Chains of Firms

FDI vs Outsourcing: Extending Boundaries or Extending Network Chains of Firms

 

Foreign Direct Investments of Firms can have three objectives:

  • Vertical Integration (Control of Supply Chain)
  • Horizontal Integration (Seeking Market Share)
  • Diversification ( Market Seeking)

In this post, Focus is on Sourcing of Goods and Services in FDI and Outsourcing Decisions of Firms.  That means focusing on supply chain related issues.

 

From GLOBAL SOURCING

A fi…rm that chooses to keep the production of an intermediate input within its boundaries can produce it at home or in a foreign country. When it keeps it at home, it engages in standard vertical integration. And when it makes it abroad, it engages in foreign direct investment (FDI) and intra-…firm trade. Alternatively, a …firm may choose to outsource an input in the home country or in a foreign country. When it buys the input at home, it engages in domestic outsourcing. And when it buys it abroad, it engages in foreign outsourcing, or arm’s-length trade.

Intel Corporation provides an example of the FDI strategy; it assembles most of its microchips in wholly-owned subsidiaries in China, Costa Rica, Malaysia, and the Philippines. On the other hand, Nike provides an example of the arm’s-length import strategy; it subcontracts most of its manufacturing to independent producers in Thailand, Indonesia, Cambodia, and Vietnam.

 

 

Intermediate Goods – Make vs.  Buy Decisions of Firms

 

Outsourcing2

 

From Integration of Trade and Disintegration of Production in the Global Economy

 

The rising integration of world markets has brought with it a disintegration of the production process, in which manufacturing or services activities done abroad are combined with those performed at home. Companies are now finding it profitable to outsource increasing amounts of the production process, a process which can happen either domestically or abroad. This represents a breakdown in the vertically-integrated mode of production – the so-called “Fordist” production, exemplified by the automobile industry – on which American manufacturing was built. A number of prominent researchers have referred to the importance of the idea that production occurs internationally: Bhagwati and Dehejia (1994) call this “kaleidoscope comparative advantage,” as firms shift location quickly; Krugman (1996) uses the phrase “slicing the value chain”; Leamer (1996) prefers “delocalization;” while Antweiler and Trefler (1997) introduce “intra-mediate trade.” There is no single measure that captures the full range of these activities, but I shall compare several different measures of foreign outsourcing, and argue that they have all increased since the 1970s.

 

Types of Supply Chain Relations:

  • Intra-firm Trade of MNCs
  • Foreign Outsourcing
  • Domestic Outsourcing
  • Vertical Integration

 

Key Terms:

  • Production Sharing
  • Vertical Integration
  • Fragmentation of Production
  • Global Value Chains
  • Outsourcing
  • Delocalization
  • Intermediate Goods Trade
  • FDI
  • Domestic Outsourcing
  • Production Offshoring
  • Onshoring
  • Economic Globalization
  • Value Added Tasks
  • Intra-firm Trade
  • Multinational Firms
  • Vertical Specialization
  • Vertical Disintegration
  • Transaction Cost Economics
  • Trade in Value Added Tasks
  • Vertical Production Networks
  • Production Unbundling

 

Key Sources of Research:

PHYSICAL CAPITAL, KNOWLEDGE CAPITAL AND THE CHOICE BETWEEN FDI AND OUTSOURCING

Yongmin Chen
Ignatius J. Horstmann
James R. Markusen

Working Paper 14515
http://www.nber.org/papers/w14515

December 2008

http://www.nber.org/papers/w14515.pdf

 

 

OUTSOURCING VERSUS FDI IN INDUSTRY EQUILIBRIUM

Gene M.Grossman
Elhanan Helpman

Working Paper 9300
http://www.nber.org/papers/w9300

October 2002

http://www.nber.org/papers/w9300.pdf

 

 

GLOBAL SOURCING

Pol Antràs
Elhanan Helpman

Working Paper 10082
http://www.nber.org/papers/w10082

November 2003

http://www.nber.org/papers/w10082.pdf

 

 

OUTSOURCING IN A GLOBAL ECONOMY

Gene M. Grossman
Elhanan Helpman

Working Paper 8728
http://www.nber.org/papers/w8728

January 2002

http://www.nber.org/papers/w8728.pdf

 

 

 

Globalization, Outsourcing, and Wage Inequality

Robert C. Feenstra

Gordon H. Hanson

January 1996

http://www.nber.org/papers/w5424.pdf

 

Global Production Sharing and Rising Inequality:  A Survey of Trade and wages

Robert C. Feenstra

Gordon H. Hanson

2001

http://www.nber.org/papers/w8372.pdf

 

 

TRADE, FDI, AND THE ORGANIZATION OF FIRMS

Elhanan Helpman

Working Paper 12091
http://www.nber.org/papers/w12091

March 2006

http://www.nber.org/papers/w12091.pdf

 

 

 

HOME AND HOST COUNTRY EFFECTS OF FDI

Robert E. Lipsey

Working Paper 9293
http://www.nber.org/papers/w9293

October 2002

http://www.nber.org/papers/w9293.pdf

 

 

Chapter Title: Introduction to “Foreign Direct Investment”

Chapter Author: Kenneth A. Froot
Chapter URL: http://www.nber.org/chapters/c6531

1992

http://www.nber.org/chapters/c6531.pdf

 

Chapter Title: Where Are the Multinationals Headed?

Chapter Author: Raymond Vernon
Chapter URL: http://www.nber.org/chapters/c6534

1992

http://www.nber.org/chapters/c6534.pdf

 

 

 

Determinants of Foreign Direct Investment: A Sectoral and Institutional
Approach

James P. Walsh and Jiangyan Yu

2010

https://www.imf.org/external/pubs/ft/wp/2010/wp10187.pdf

 

 

 

DETERMINANTS OF FOREIGN DIRECT INVESTMENT

Bruce A. Blonigen
Jeremy Piger

Working Paper 16704
http://www.nber.org/papers/w16704

January 2011

http://www.nber.org/papers/w16704.pdf

 

 

 

Determinants of Foreign Direct Investment in Developing Countries: A Comparative Analysis

Khondoker Abdul Mottaleba
Kaliappa Kalirajanb

2010

https://asiaandthepacificpolicystudies.crawford.anu.edu.au/acde/asarc/pdf/papers/2010/WP2010_13.pdf

 

 

 

Determinants of Foreign Direct Investment

Bruce A. Blonigen

Jeremy Piger

 

2014

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2535582

 

Trends and Determinants of Foreign Direct Investment in South Asia

World Bank

2013

http://documents.worldbank.org/curated/en/157221468164351904/pdf/ACS48460WP0P13055B00PUBLIC00A9RBBB1.pdf

 

 

Determinants of Foreign Direct Investment (FDI)

Yi Feng
Publication Date: Jun 2017

http://politics.oxfordre.com/view/10.1093/acrefore/9780190228637.001.0001/acrefore-9780190228637-e-559

http://politics.oxfordre.com/view/10.1093/acrefore/9780190228637.001.0001/acrefore-9780190228637-e-559?print=pdf

 

 

 

Foreign direct investment (FDI)

http://press.princeton.edu/chapters/s4IP1_8736.pdf

 

 

 

Foreign Direct Investment and the Multinational Enterprise: An Introduction

Steven Brakman and Harry Garretsen

2008

https://mitpress.mit.edu/sites/default/files/titles/content/9780262026451_sch_0001.pdf

 

 

 

AN EXTENSIVE EXPLORATION OF THEORIES OF FOREIGN DIRECT INVESTMENT

Patricia Lindelwa Makoni

http://virtusinterpress.org/IMG/pdf/10-22495_rgcv5i2c1art1.pdf

 

 

 

A selective review of foreign direct investment theories.

Nayak, Dinkar and Rahul N. Choudhury (2014).

ARTNeT Working Paper Series No. 143, March 2014,

https://www.econstor.eu/bitstream/10419/103862/1/782793517.pdf

 

 

Integration of Trade and Disintegration of Production in the Global Economy

Robert C. Feenstra

Revised, April 1998

 

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.39.7178&rep=rep1&type=pdf

 

 

 

The Distributional Effects of International Fragmentation,

Kohler, Wilhelm (2002)

Working Paper, Department of Economics, Johannes Kepler University of Linz, No. 0201

 

https://www.econstor.eu/bitstream/10419/73205/1/wp0201.pdf

 

 

 

International Fragmentation of Production and the Intrafirm Trade of U.S. Multinational Companies

Maria Borga and William J. Zeile
WP2004-02
January 22, 2004

Paper presented at:

The National Bureau of Economic Research/Conference on Research in Income and Wealth meeting on Firm-level Data, Trade, and Foreign Direct Investment, Cambridge, Massachusetts
August 7-8, 2003,
and
The OECD Committee on Industry and Business Environment/Working Party on Statistics
Session on Globalization,
Paris, France
November 3-4, 2003.

https://www.bea.gov/papers/pdf/intrafirmtradejanuary04.pdf

 

 

The governance of global value chains

Gary Gereffi
John Humphrey
Timothy Sturgeon
2005

http://www.fao.org/fileadmin/user_upload/fisheries/docs/GVC_Governance.pdf

 

The economic consequences of increased protectionism

Riksbank of Sweden

2017

http://www.riksbank.se/Documents/Rapporter/PPR/2017/170427/ppr_fordjupning_3_170427_eng.pdf

 

 

 

Deep integration and production networks: an empirical analysis

Gianluca Orefice
Nadia Rocha
World Trade Organization
Manuscript date: July 2011

https://www.wto.org/english/res_e/reser_e/ersd201111_e.pdf

 

 

 

Measuring success in the global economy: international trade, industrial
upgrading, and business function outsourcing in global value chains

Timothy J. Sturgeon and Gary Gereffi

http://unctad.org/en/docs/diaeiia200910a1_en.pdf

 

 

 

Topics in International Trade

Reading list

http://www.iwb.econ.uni-muenchen.de/studium_lehre/veranstaltungsarchiv/ss09/trade09/documents/readings-topics09.pdf

 

 

 

FOREIGN DIRECT INVESTMENT, TRADE, AND GLOBAL PRODUCTION NETWORKS
IN ASIA AND EUROPE

GPN Working Paper 2
October 2002

http://hummedia.manchester.ac.uk/schools/seed/geography/research/workingpapers/gpn/gpnwp2.pdf

 

 

Why has world trade grown faster than world output?

Mark Dean

Maria Sebastia-Barriel
http://www.columbia.edu/~md3405/Other_Paper_1.pdf

 

 

Vertical Specialization, Global Value Chains and the changing Geography of Trade: the Portuguese Rubber and Plastics Industry Case

João Carlos Lopes and Ana Santos

http://pascal.iseg.utl.pt/~depeco/wp/wp122015.pdf

 

 

The changing structure of trade linked to global production systems: What are the policy implications?

William MILBERG

 

https://static1.squarespace.com/static/53ce7840e4b01d2bd01192ee/t/53e8f8a5e4b0b053addadd1f/1407776933063/Changing-Structure-of-Trade-Linked-to-Global-Production-Systems.pdf

 

 

WHO PRODUCES FOR WHOM IN THE WORLD ECONOMY?

Guillaume Daudin (Lille-I (EQUIPPE) & Sciences Po (OFCE), Christine Rifflart, Danielle
Schweisguth (Sciences Po (OFCE))1

This version: July 2009

https://www.ofce.sciences-po.fr/pdf/dtravail/WP2009-18.pdf

 

THE NATURE AND GROWTH OF VERTICAL SPECIALIZATION IN WORLD TRADE

David Hummels
Jun Ishii
Kei-Mu Yi
March 1999

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.475.3874&rep=rep1&type=pdf

 

https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr72.pdf

 

 

Expansion Strategies of U.S. Multinational Firms

Gordon H. Hanson, Raymond J. Mataloni, and Matthew J. Slaughter

WP2001-01
May 10-11, 2001

Paper presented at:

The Brookings Trade Forum 2001, Washington, D.C.
May 10-11, 2001

https://www.bea.gov/papers/pdf/HMS1.PDF

 

 

INTERNATIONAL JOINT VENTURES AND THE BOUNDARIES OF THE FIRM

Mihir A. Desai C. Fritz Foley James R. Hines Jr.

Working Paper 9115 http://www.nber.org/papers/w9115
August 2002

 

http://dl.kli.re.kr/dl_image/IMG/02/000000005694/SERVICE/000000005694_01.PDF

 

 

 

The Globalization of Production

Gordon H. Hanson

 

http://www.nber.org/reporter/spring01/hanson.html

 

 

 

The Politics of Transnational Production Systems A Political Economy Perspective

Helge Hveem
Department of Political Science
University of Oslo

https://www2.warwick.ac.uk/fac/soc/pais/research/researchcentres/csgr/csgr-events/conferences/conference2007/papers/hveem.pdf

 

 The Architecture of Globalization: A Network Approach to International Economic Integration.

Raja Kali and Javier Reyes

Second Revision: October 9, 2006

http://comp.uark.edu/~kali/TradeNetwork.pdf

 

 

 

 

 

Paris School of Economics – Summer School on Trade

2017

https://www.parisschoolofeconomics.eu/IMG/pdf/trade-sumschool-pse-2017.pdf

 

 

Spain in the global value chains

2017

https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRevistas/ArticulosAnaliticos/2017/T3/files/beaa1703-art20e.pdf

 

 

 An Outsourcing Bibliography

Foreign Policy magazine

2004

An outsourcing bibliography

 

 

 

OFFSHORING, FOREIGN DIRECT INVESTMENT, AND THE STRUCTURE OF U.S. TRADE

2006

 

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.564.6639&rep=rep1&type=pdf

 

 

 A Survey of Literature on Research of Intra-firm Trade

WANG Li, SHEN Rui

http://www.seiofbluemountain.com/upload/product/201309/2013jrgjgc311b13.pdf

 

 

Global Value Chains

OECD, WTO and World Bank Group
Report prepared for submission to the G20 Trade Ministers Meeting Sydney, Australia, 19 July 2014

https://www.oecd.org/g20/topics/trade-and-investment/gvc_report_g20_july_2014.pdf

 

 

 

TRADE IN INTERMEDIATE GOODS AND SERVICES

OECD Trade Policy Working Paper No. 93
by Sébastien Miroudot, Rainer Lanz and Alexandros Ragoussis

https://www.oecd.org/trade/its/44056524.pdf

 

 

The Boundaries of Multinational Enterprises and the Theory of International Trade

James R. Markusen

 

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.551.4665&rep=rep1&type=pdf

 

 

Incomplete Contracts and the Boundaries of the Multinational Firm

Nathan Nunn

Daniel Trefler

June 2008

https://www.princeton.edu/~ies/IESWorkshop/NunnTreflerPaper.pdf

 

 

Slowdown in Global Investment (FDI) Flows

Slowdown in Global Investment (FDI) Flows

 

 

From Determinants of Foreign Direct Investment (FDI)

Foreign direct investment (FDI) is a major component of globalization, together with international trade. Its operation is made possible by movements of factors across countries, in particular, capital. By definition, FDI involves long-term cross-country commitments. According to International Monetary Fund (IMF), FDI entails the establishment of a “lasting interest” by a resident entity of one economy in an enterprise located in another economy (International Monetary Fund, 1993). Lasting interest implies a long-term relationship between the foreign investor and the overseas enterprise where the said investor holds significant influence over management. The IMF defines a direct investment enterprise as one in which a foreign investor holds at least 10% of the ordinary shares or voting power (International Monetary Fund, 1993). The Organization for Economic Cooperation and Development (OECD, 1996, p. 10) classifies enterprises of direct foreign investors into three groups: subsidiaries, in which a nonresident investor holds more than 50% of the ownership; associates, in which a nonresident investor’s shares range between 10 and 50%; and branches, which are unincorporated enterprises owned by a nonresident investor, wholly or jointly. Obviously, such definitions and the resultant measurements leave ambiguities and imprecisions. However, they do help maintain relative consistency in cross-country comparisons.

From 1995 to 2015, the world saw a dramatic increase in FDI. The FDI inflows in 2015 were 8.6 times those in 1995, an increase from about 0.2 trillion USD in 1995 to about 1.8 trillion USD in 2015. While FDI inflows to developed countries increased 8.6-fold, those to developing countries and transitional economies increased 23 times. In 1995, FDI inflows to developing and transitional economies were 17% of the world total, and in 2015 they accounted for 45%. FDI flows to OECD countries peaked in 2007, at about 1.3 trillion USD. Between 2013 and 2014, for the first time, developing countries received more FDI than developed countries (UNCTAD, 2016), though the developed world recaptured the position as the largest FDI recipient in 2015 (see Figure 1).

There is an ever-growing body of literature on FDI. As Markusen (2008) demonstrated, three strands of relevant literature exist:

  • the international business approach that is oriented toward the rationale of individual firms,
  • the macroeconomic approach that focuses on aggregate flows of FDI without making a distinction between direct and portfolio investments,
  • and the international trade theory approach, which increasingly moves closer to the international business approach, combining firm-level FDI analysis with aggregate analysis of capital flows.

 

 

From UNCTAD World Investment Report 2017

FDI2

 

 

Key Sources of Research:

 

2017 AT Kearney FDI Confidence Index

http://www.iberglobal.com/files/2017/fdi_index_atkearney.pdf

 

UNCTAD World Investment Report 2017

http://unctad.org/en/PublicationsLibrary/wir2017_en.pdf

 

 

Recent Developments in Trade and Investment

Pierre Sauvé
Trade and Competitiveness Global Practice
World Bank Group
MIKTA Workshop on Trade and Investment
Session 2
Geneva, 20 March 2017

https://www.wto.org/english/forums_e/business_e/pierre_sauve_world_bank.pdf

 

 

OECD FDI Data

https://data.oecd.org/fdi/fdi-flows.htm

 

 

UNCTAD FDI Data

http://unctad.org/en/Pages/DIAE/FDI%20Statistics/Interactive-database.aspx

 

 

GLOBAL FDI FLOWS SLIP IN 2016, MODEST RECOVERY EXPECTED IN 2017

http://unctad.org/en/PublicationsLibrary/webdiaeia2017d1_en.pdf

 

 

Cross border mergers make India favoured FDI route: UNCTAD

June 2017

 

http://www.deccanchronicle.com/business/economy/080617/cross-border-mergers-make-india-favoured-fdi-route-unctad.html

 

 

Cross-border M&As push global FDI flows to $1.76 trillion

June 2016

http://economictimes.indiatimes.com/news/international/business/cross-border-mas-push-global-fdi-flows-to-1-76-trillion/articleshow/52860326.cms

 

 

OECD Bilateral FDI Data

http://stats.oecd.org/index.aspx?DataSetCode=FDI_FLOW_PARTNER

 

 

UNCTAD Bilateral FDI Data

http://unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics-Bilateral.aspx

 

 

World Bank FDI Database

https://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD

 

 

FDI Markets

https://www.fdimarkets.com

 

 

FDI Reports

http://www.fdireports.com/home/index.cfm?CFID=16605395&CFTOKEN=534deb8f9bfff240-CA8D9CBD-9042-6C79-7D3F0DD68E9B6616&jsessionid=2030aa76f30310567d2372163935674e554c

 

 

Determinants of Foreign Direct Investment (FDI)

Yi Feng

Online Publication Date: Jun 2017

http://politics.oxfordre.com/view/10.1093/acrefore/9780190228637.001.0001/acrefore-9780190228637-e-559?print=pdf

Trends in Cross Border Mergers and Acquisitions

Trends in Cross Border Mergers and Acquisitions

 

From The Location of Cross-Border Mergers & Acquisitions in the USA

The vast majority of foreign direct investment (FDI) takes place in the form of cross-border mergers and acquisitions (M&As), see Evenett (2004). Analyzing the determinants and consequences of M&As is part of a large and growing literature in both (international) economics and (international) business. In economics, the dominant industrial organization (IO) literature does, however, typically not deal with the cross-border aspect of M&As, but instead concentrates on national M&As (Salant et al., 1983; O’Brien and Shaffer, 2005; Davis and Wilson, 2008; Egger and Hahn, 2010). A relatively small literature explicitly tries to include the cross-border aspect of M&As, but neglects the role of country factors that are central in international economics and international business to explain the structure and variation of cross-border transactions (Anand and Delios, 2002; Nocke and Yeaple, 2007, 2008, Bertrand and Zitouna, 2006; Fugmagalli and Vasconcelos, 2009, Halverson, 2012). The impact of country wide differences on cross-border M&As is taken explicitly into account by Neary (2004, 2007) who focuses on differences in comparative advantage between countries in a general equilibrium model to explain the occurrence of cross-border M&As. Empirical support for this idea is found by Brakman et al (2013), see also Blonigen et al (2014). In the international business literature – ever since the introduction of Dunning’s Ownership-Location-Internalization (OLI) framework – the mode of foreign entry and the choice of a foreign location have been central, but not explicitly modelled, as the OLI framework is more a taxonomy of relevant elements for location choice than a model (see for example Dunning, 2000).2

Both for the modern international business and international economics literature, however, whenever the location of cross-border M&As is taken into account, it usually refers to the host country as a whole. Where to locate the M&A within the host country is not analyzed. This amounts to assuming that if foreign firms have decided to engage in an M&A they choose a country but are indifferent regarding the target location within that country. This observation is the starting point for the present paper. In contrast to this observation with respect to cross-border M&As, the within country location choice with respect to greenfield FDI has been analyzed in depth. The seminal study by Head et al. (1995) was pivotal, and initiated a large and growing body of literature; see for example Fontagne and Mayer (2005); Basile et al., (2008); Defever, (2006); or Mataloni, (2011). Similar analyses for cross-border M&As are largely absent and this is striking because the bulk of FDI is in the shape of cross-border M&As. A priori, there is no reason to assume that the location decision of greenfield investments and M&As are similar. M&As, by definition, merge with or acquire existing firms at a specific location, whereas greenfield investments can, in principle, locate anywhere.

 

From Economic and Financial Integration and the Rise of Cross-Border M&As

FDI8

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI

  • Most of the Foreign Direct Investment (FDI) is in the form of Cross Border M&A.

 

The motivation for Cross Border M&A can be several:

  • Horizontal Integration ( Seeking Market Share)
  • Vertical Integration ( Control of Supply Chain)
  • Diversification (Market Seeking)

Research indicate that most of the cross border M&A are for seeking markets.

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI2

  • Cross Border Mergers have been rising since 1985.

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI3

 

  • Europe and North America dominate regions in which cross borders M&A are taking place.

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI4

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI6

 

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI5

From CROSS-BORDER MERGERS & ACQUISITIONS: THE FACTS AS A GUIDE FOR INTERNATIONAL ECONOMICS

FDI7

 

From  M&A Today: A Quick Pre-Financial Crisis Comparison

FDI9FTD10FDI11

Sources of M&A Data:

From Exploration of Mergers and Acquisitions Database: Deals in Emerging Asian Markets

There are four popular mergers and acquisitions databases,

  • SDC Platinum Mergers & Acquisitions (M&A) database,
  • Bloomberg M&A database,
  • Mergerstat M&A database,
  • ZEPHYR M&A database.

The SDC Platinum M&A Database covers domestic deals from 1979 to present and international deals from 1985 to present. Thomson Reuters states that the SDC includes more transactions than any other source and is widely used by the industry professionals and academic researchers.

The Bloomberg M&A database began putting the mergers and acquisitions product together in January 1998, with the intention of providing “100 percent coverage of all global deals as they were announced” (Ide, 2001). Bloomberg states that it has mergers and acquisitions staff in 12 offices worldwide compiling M&A data and relationships with over 800 legal and financial firms.

According to the Zimmerman (2006), the Mergerstat database covers both acquisitions and divestitures where at least one significant party is a U.S. company.

the ZEPHYR database covers transactions both inside and outside the U.S. and is particularly useful to study M&A deals in Europe (from 1997 forward for European transactions; from 2000 forward for North American transactions; global coverage begins in 2003).

 

Academic Libraries

 

Deloitte Consulting M&A Services

https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/solutions/merger-and-acquisition-services.html

 

KPMG Consulting

https://advisory.kpmg.us/content/kpmg-advisory/deal-advisory/ma-spotlight/ma-spotlight-june-2017.html?gclid=CjwKCAjwo4jOBRBmEiwABWNaMQAFeh6oDkE3FAlfCTiA8yKJkpHwuRPwcvBQlnZpFbm_JpODEt1AuRoC8t4QAvD_BwE

 

Thomson Reuters

https://financial.thomsonreuters.com/en/markets-industries/investment-banking-financial-advisory/mergers-and-acquisitions.html

 

PITCHBOOK.COM

http://get.pitchbook.com/mergers-and-acquisitions-data/?utm_term=mergers%20and%20acquisitions&utm_source=adwords&utm_campaign=ma&utm_content=ma&_bt=166828976390&_bm=p&_bn=g&gclid=CjwKCAjwo4jOBRBmEiwABWNaMSspbwSShK79f6OskgjShGv0_8c8qgrnqF35qv2Fu9t9ZvgwfzfTpxoCaa8QAvD_BwE

White and Case

http://mergers.whitecase.com

 

IMAA-Institute.org

https://imaa-institute.org/mergers-and-acquisitions-statistics/

FACTSET / MERGERSTAT

https://www.factset.com/data/company_data/mergers_acq

 

Bureau Van Dijk/ZEPHYR

https://www.bvdinfo.com/bvd/media/reports/global-fy-2016.pdf

 

STATISTA

https://www.statista.com/topics/1146/mergers-and-acquisitions/

UNCTAD / World Investment Report

http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/World_Investment_Report.aspx

Wilmer and Hale Law Firm

https://www.wilmerhale.com/uploadedFiles/Shared_Content/Editorial/Publications/Documents/2017-WilmerHale-MA-Report.pdf

 

Dealogic.com

http://www.dealogic.com/insight/ma-outlook-2017/

Please also see other related posts:

Mergers and Acquisitions – Long Term Trends and Waves

External Balance sheets of Nations

Low Interest Rates and International Investment Position of USA

 

Key sources of Research:

CROSS-BORDER MERGERS AND ACQUISITIONS:
ON REVEALED COMPARATIVE ADVANTAGE AND MERGER WAVES

Steven Brakman
Harry Garretsen
Charles van Marrewijk

2008

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1087886https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1087886

 

Cross-Border Mergers & Acquisitions: The Facts as a Guide for International Economics

CESifo Working Paper Series No. 1823

 

Steven Brakman

Harry Garretsen

Charles van Marrewijk

 

Date Written: October 2006

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=940348

 

Cross-border Mergers and Acquisitions: Their Role in Industrial Globalisation

2000

Nam-Hoon Kang and Sara Johansson

 

http://www.oecd-ilibrary.org/docserver/download/137157251088.pdf?expires=1505877469&id=id&accname=guest&checksum=BA90C157DC1196BE6E7C3CE1726D31FF

 

 

Theoretical foundations of cross-border mergers and acquisitions: A review of current research and recommendations for the future

Katsuhiko Shimizua,*, Michael A. Hittb,1, Deepa Vaidyanathc,2, Vincenzo Pisanod,3

Available online 24 July 2004

 

 

 Determinants of Cross-Border Mergers and Acquisitions

Isil Erel / Rose C. Liao /  Michael S. Weisbach

March 15, 2011

https://fisher.osu.edu/supplements/10/9864/ELW_JFRound3Revision.pdf

The Cross-Border Mergers and Acquisitions Wave of the Late 1990s

Simon J. Evenett

 

http://www.nber.org/chapters/c9545.pdf

 

 

 

The Macroeconomic Determinants of Cross Border Mergers and Acquisitions and Greenfield Investments

Paula Neto; Antonio Brandão; António Cerqueira

2010

 

https://www.researchgate.net/profile/Antonio_Brandao3/publication/46466162_The_Macroeconomic_Determinants_of_Cross_Border_Mergers_and_Acquisitions_and_Greenfield_Investments/links/0912f50c5ab64daab5000000.pdf

 

 

The Impact of FDI, Cross Border Mergers and Acquisitions and Greenfield Investments on Economic Growth

Paula Neto; Antonio Brandão; António Cerqueira

2010

https://www.researchgate.net/profile/Antonio_Brandao3/publication/24111675_The_Impact_of_FDI_Cross_Border_Mergers_and_Acquisitions_and_Greenfield_Investments_on_Economic_Growth/links/0912f50c5ab651626b000000.pdf

 

Exploration of Mergers and Acquisitions Database: Deals in Emerging Asian Markets

 

http://www.myacme.org/ijmtp/IJMTPV14N1/3%20IJMTP14005%20Draft%203%20final.pdf

 

 

Cross Border Mergers and Acquisitions

Scott Whitaker

2016

 

 

Economic and Financial Integration and the Rise of Cross-Border M&As

STEVEN BRAKMAN

GUS GARITA

HARRY GARRETSEN

CHARLES VAN MARREWIJK

March 2009

 

 

 

The Location of Cross-Border Mergers & Acquisitions in the USA

Steven Brakman
Harry Garretsen
Charles Van Marrewijk

CESIFO WORKING PAPER NO. 5331

APRIL 2015

 

 

M&A Today: A Quick Pre-Financial Crisis Comparison

2017

 

https://financial.thomsonreuters.com/content/dam/openweb/documents/pdf/financial/pre-financial-crisis-comparison.pdf

 

 

 

 

Cross-Border Mergers and Acquisitions and Financial Development:
Evidence from Emerging Asia

Douglas H. Brooks and Juthathip Jongwanich

No. 249 | February 2011

 

https://www.adb.org/sites/default/files/publication/28703/economics-wp249.pdf

 

 

 

MERGERS AND ACQISITIONS (M&As)

Prepared by
Directorate for Financial and Enterprise Affairs, Investment Division, OECD

May 2004

 

https://www.imf.org/External/NP/sta/bop/pdf/diteg4a.pdf

 

 

 

OECD BENCHMARK DEFINITION OF FOREIGN DIRECT INVESTMENT:

FOURTH EDITION –

ISBN 978-92-64-04573-6 – © OECD 2008

 

https://www.oecd.org/daf/inv/investmentstatisticsandanalysis/40193734.pdf

 

 

 

Economic and Other Impacts of Foreign Corporate Takeovers in OECD Countries

 

https://www.oecd.org/daf/inv/investment-policy/40476100.pdf

 

 

 

A Comparative Analysis of the Economic Effects of Cross-Border Mergers and Acquisitions in European Countries

Anita Maček

 

https://cdn.intechopen.com/pdfs-wm/38482.pdf

 

 

Trading Down: NAFTA, TPP, TATIP and Economic Globalization

Trading Down: NAFTA, TPP, TATIP and Economic Globalization

Top Institutions and Economists Now Say Globalization Increases Inequality

World Bank, IMF, BIS, NBER, McKinsey Now Admit that Globalization Increases Inequality

We’ve all heard that globalization lifts all boats and increases our prosperity …

But mainstream economists and organizations are now starting to say that globalization increases inequality.

The National Bureau of Economic Research – the largest economics research organization in the United States, with many Nobel economists and Chairmen of the Council of Economic Advisers as members –  published,  a report in May finding:

Recent globalization trends have increased U.S. inequality by disproportionately raising top incomes.

***

Rising import competition has adversely affected manufacturing employment, led firms to upgrade their production and caused labor earnings to fall.

NBER explains that globalization allows executives to gain the system to their advantage:

This paper examines the role of globalization in the rapid increase in top incomes. Using a comprehensive data set of thousands of executives at U.S. firms from 1993-2013, we find that exports, along with technology and firm size, have contributed to rising executive compensation. Isolating changes in exports that are unrelated to the executive’s talent and actions, we show that globalization has affected executive pay not only through market channels but also through non-market channels. Furthermore, exogenous export shocks raise executive compensation mostly through bonus payments in poor-governance settings, in line with the hypothesis that globalization has enhanced the executive’s rent capture opportunities. Overall, these results indicate that globalization has played a more central role in the rapid growth of executive compensation and U.S. inequality than previously thought, and that rent capture is an important part of this story.

A World Bank document says globalization “may have led to rising wage inequality”. It  notes:

Recent evidence for the US suggests that adjustment costs for those employed in sectors exposed to import competition from China are much higher than previously thought.

***

Trade may have contributed to rising inequality in high income economies ….

The World Bank also cites Nobel prize-winning economist Eric Maskin’s view that globalization increases inequality because it increases the mismatch between the skills of different workers.

A report by the International Monetary Fund notes:

High trade and financial flows between countries, partly enabled by technological advances, are commonly cited as driving income inequality …. In advanced economies, the ability of firms to adopt laborsaving technologies and offshoring has been cited as an important driver of the decline in manufacturing and rising skill premium (Feenstra and Hanson 1996, 1999, 2003) ….

***

Increased financial flows, particularly foreign direct investment (FDI) and portfolio flows have been shown to increase income inequality in both advanced and emerging market economies (Freeman 2010). One potential explanation is the concentration of foreign assets and liabilities in relatively higher skill- and technology-intensive sectors, which pushes up the demand for and wages of higher skilled workers. In addition, FDI could induce skill-specific technological change, be associated with skill-specific wage bargaining, and result in more training for skilled than unskilled workers (Willem te Velde 2003). Moreover, low-skill, outward FDI from advanced economies may in effect be relatively high-skilled, inward FDI in developing economies (Figini and Görg 2011), thus exacerbating the demand for high-skilled workers in recipient countries. Financial deregulation and globalization have also been cited as factors underlying the increase in financial wealth, relative skill intensity, and wages in the finance industry, one of the fastest growing sectors in advanced economies (Phillipon and Reshef 2012; Furceri and Loungani 2013).

The Bank of International Settlements – the “Central Banks’ Central Bank” – also notes  that globalization isn’t all peaches and cream.  The Financial Times explains :

A trio of recent papers by top officials from the Bank for International Settlements goes further, however, arguing that financial globalisation itself makes booms and busts far more frequent and destabilising than they otherwise would be.

McKinsey & Company notes:

Even as globalization has narrowed inequality among countries, it has aggravated income inequality within them.

The Economist points out:

Most economists have been blindsided by the backlash [against globalization]. A few saw it coming. It is worth studying their reasoning ….

***

Branko Milanovic of the City University of New York believes such costs perpetuate a cycle of globalisation. He argues that periods of global integration and technological progress generate rising inequality ….

Supporters of economic integration underestimated the risks … that big slices of society would feel left behind ….

The New York Times reported:

Were the experts wrong about the benefits of trade for the American economy?

***

Voters’ anger and frustration, driven in part by relentless globalization and technological change [has made Trump and Sanders popular, and] is already having a big impact on America’s future, shaking a once-solid consensus that freer trade is, necessarily, a good thing.

“The economic populism of the presidential campaign has forced the recognition that expanded trade is a double-edged sword,” wrote Jared Bernstein, former economic adviser to Vice President Joseph R. Biden Jr.

What seems most striking is that the angry working class — dismissed so often as myopic, unable to understand the economic trade-offs presented by trade — appears to have understood what the experts are only belatedly finding to be true: The benefits from trade to the American economy may not always justify its costs.

In a recent study, three economists — David Autor at the Massachusetts Institute of Technology, David Dorn at the University of Zurich and Gordon Hanson at the University of California, San Diego — raised a profound challenge to all of us brought up to believe that economies quickly recover from trade shocks. In theory, a developed industrial country like the United States adjusts to import competition by moving workers into more advanced industries that can successfully compete in global markets.

They examined the experience of American workers after China erupted onto world markets some two decades ago. The presumed adjustment, they concluded, never happened. Or at least hasn’t happened yet. Wages remain low and unemployment high in the most affected local job markets. Nationally, there is no sign of offsetting job gains elsewhere in the economy. What’s more, they found that sagging wages in local labor markets exposed to Chinese competition reduced earnings by $213 per adult per year.

In another study they wrote with Daron Acemoglu and Brendan Price from M.I.T., they estimated that rising Chinese imports from 1999 to 2011 cost up to 2.4 million American jobs.

“These results should cause us to rethink the short- and medium-run gains from trade,” they argued. “Having failed to anticipate how significant the dislocations from trade might be, it is incumbent on the literature to more convincingly estimate the gains from trade, such that the case for free trade is not based on the sway of theory alone, but on a foundation of evidence that illuminates who gains, who loses, by how much, and under what conditions.”

***

The case for globalization based on the fact that it helps expand the economic pie by 3 percent becomes much weaker when it also changes the distribution of the slices by 50 percent, Mr. Autor argued.

And Steve Keen – economics professor and Head of the School of Economics, History and Politics at Kingston University in London – notes:

Plenty of people will try to convince you that globalization and free trade could benefit everyone, if only the gains were more fairly shared. The only problem with the party, they’ll say, is that the neighbours weren’t invited. We’ll share the benefits more equally now, we promise. Let’s keep the party going. Globalization and Free Trade are good.

This belief is shared by almost all politicians in both parties, and it’s an article of faith for the economics profession.

***

It’s a fallacy based on a fantasy, and it has been ever since David Ricardo dreamed up the idea of “Comparative Advantage and the Gains from Trade” two centuries ago.

***

[Globalization’s] little shell and pea trick is therefore like most conventional economic theory: it’s neat, plausible, and wrong. It’s the product of armchair thinking by people who never put foot in the factories that their economic theories turned into rust buckets.

So the gains from trade for everyone and for every country that could supposedly be shared more fairly simply aren’t there in the first place. Specialization is a con job—but one that the Washington elite fell for (to its benefit, of course). Rather than making a country better off, specialization makes it worse off, with scrapped machinery that’s no longer useful for anything, and with less ways to invent new industries from which growth actually comes.-

Excellent real-world research by Harvard University’s “Atlas of Economic Complexity” has found diversity, not specialization, is the “magic ingredient” that actually generates growth. Successful countries have a diversified set of industries, and they grow more rapidly than more specialized economies because they can invent new industries by melding existing ones.

***

Of course, specialization, and the trade it necessitates, generates plenty of financial services and insurance fees, and plenty of international junkets to negotiate trade deals. The wealthy elite that hangs out in the Washington party benefits, but the country as a whole loses, especially its working class.

Some Big Companies Losing Interest In Globalization

Ironically, the Washington Post noted in 2015 that the giant multinational corporations themselves are losing interest in globalization … and many are starting to bring the factories back home:

Yet despite all this activity and enthusiasm, hardly any of the promised returns from globalization have materialized, and what was until recently a taboo topic inside multinationals — to wit, should we reconsider, even rein in, our global growth strategy? — has become an urgent, if still hushed, discussion.

***

Given the failures of globalization, virtually every major company is struggling to find the most productive international business model.

***

Reshoring — or relocating manufacturing operations back to Western factories from emerging nations — is one option. As labor costs escalate in places such as China, Thailand, Brazil and South Africa, companies are finding that making products in, say, the United States that are destined for North American markets is much more cost-efficient. The gains are even more significant when productivity of emerging countries is taken into account.

***

Moreover, new disruptive manufacturing technologies — such as 3-D printing, which allows on-site production of components and parts at assembly plants — make the idea of locating factories where the assembled products will be sold more practicable.

***

GE, Whirlpool, Stanley Black & Decker, Peerless and many others have reopened shuttered factories or built new ones in the United States.

 Key Sources of Research

 

Trading Down: Unemployment, Inequality and Other Risks of the Trans-Pacific Partnership Agreement

 

Jeronim Capaldo and Alex Izurieta

with Jomo Kwame Sundaram

January 2016

 

http://www.ase.tufts.edu/gdae/Pubs/wp/16-01Capaldo-IzurietaTPP.pdf

 

 

The Trans-Atlantic Trade and Investment Partnership: European Disintegration, Unemployment and Instability

Jeronim Capaldo

October 2014

 

http://ase.tufts.edu/gdae/Pubs/wp/14-03CapaldoTTIP.pdf

 

 

 Revisiting the Link between Trade, Growth and Inequality:
Lessons for Latin America and the Caribbean

by Kimberly Beaton, Aliona Cebotari, and Andras Komaromi

 

 

ECONOMIC GLOBALIZATION AND INCOME INEQUALITY IN THE UNITED STATES

 

http://www.colorado.edu/ibs/intdev/johno/papers/inequality.pdf

 

 

Data Fail: The Divergence between Rosy International Trade Commission Projections and U.S. Trade Agreements’ Actual Outcomes

Tradewatch.com

May 2016

https://www.citizen.org/sites/default/files/usitc-tpp-prebuttal.pdf

 

Globalization, Outsourcing, and Wage Inequality

Robert C. Feenstra, Gordon H. Hanson

NBER Working Paper No. 5424
Issued in January 1996

http://www.nber.org/papers/w5424

Economic Inequality in the United States

Janet Yellen

2006

http://www.frbsf.org/our-district/press/presidents-speeches/yellen-speeches/2006/november/economic-inequality-in-the-united-states/

http://www.frbsf.org/economic-research/publications/economic-letter/2006/december/economic-inequality-in-the-united-states/

 

 

What’s caused the rise in income inequality in the US?

WEF

2015

https://www.weforum.org/agenda/2015/05/whats-caused-the-rise-in-income-inequality-in-the-us/

 

Worsening American Income: Inequality: Is world trade to blame?

Gary Burtless

https://www.brookings.edu/articles/worsening-american-income-inequality-is-world-trade-to-blame/

 

 

Income inequality in the United States: What do we know and what does it mean? Issues by the Numbers, July 2017

Dr. Daniel Bachman

July 12, 2017

https://dupress.deloitte.com/dup-us-en/economy/issues-by-the-numbers/july-2017/rising-income-inequality-gap-united-states.html

 

 

Top Institutions and Economists Now Say Globalization Increases Inequality

August 20, 2017

Washington Post Blog

http://www.washingtonsblog.com/2017/08/globalization-increases-inequality-destabilizes-economies-political-systems.html

Boundary Spanning in Multinational and Transnational Corporations

Boundary Spanning in Multinational and Transnational Corporations

What are:

  • Boundaries
  • Boundary Spanners
  • Gate Keepers

How do Boundaries evolve?

How do we coordinate and manage across Boundaries?

 

From BOUNDARY SPANNING IN GLOBAL ORGANIZATIONS

BACKGROUND TO SPECIAL ISSUE

Global organizations are inherently complex. Rapidly developing emerging markets and increasing spatial dispersion of innovative activities coupled with digital convergence create the need for continuously developing new ways of coordinating, organizing, and re-configuring of organizational structures and routines across inter and intra-organizational boundaries.

Early studies discussed the roles of gatekeepers in the context of technology transfer between different departments or functional areas within organizations. In more recent research, one stream has explored the role of boundary objects as contextual aids for cross-boundary knowledge sharing. A complementary stream has begun to investigate individuals as boundary spanners and their roles in effectively operating across complex inter- and intra-organizational, socio-cultural and geographic boundaries. Individuals are the nested antecedent to organizational level actions and therefore deserve careful theoretical and empirical deliberation.

Existing research on boundary spanning is mainly conceptual or based on a limited number of case studies. The research suggests that a small number of managers with unique skill sets or personality traits have emerged as critical facilitators for cross-boundary coordination. Boundaries can be both explicit as between parents and subsidiaries of multinational enterprises, and also implicit as between line managers and top management. For example, middle managers have been argued to perform the role of boundary spanners between line managers and top management in a general organizational context. A delineation of explicit and implicit boundaries across organizational subunits as well as within organizational subunits is important to understand the boundary spanning function.

From a managerial perspective, little is known about the characteristics of boundary spanners and whether their capabilities are inherent or can be developed. Although the literature has provided some useful insights, most existing research treats the individual actors and the organizational environment as two discrete dimensions. Further, the boundary-spanning role is essentially associated with structural holes and bridging ties, so key questions arise as to how they affect organizations and organizational capabilities, and how organizational structures foster or hinder boundary spanning.

From an organizational architecture perspective little is known about the specificities of boundaries and how they manifest themselves other than those that are explicit in the form of hierarchies, functional domains, or geographic territories. In global organizations, organizational subunits often become embedded in geographical contexts that differ in terms of culture, institutions, language, etc. These organizational realities create implicit boundaries in many dimensions, e.g., cultural and psychic distance, institutional incompatibilities as well as linguistic issues that may be labeled “lost in translation”. The boundary spanning function in such organizations includes a wide range of coordination mechanisms, which need to be explored in greater detail.

The boundary spanning phenomenon provides an opportunity for moving beyond emblematic borrowing of individual level theories and applying them to organizational level research. This will move the research agenda toward addressing both micro-macro linkage and macro-micro linkages systematically, thus substantially advancing theory.

With this special issue we seek to connect different, though loosely related research domains. The buoying microfoundations of strategy discussion, research on strategy as practice, and behavioral strategy could be particularly fertile areas for such an approach. In addition, this special issue seeks to foster cross- fertilization from and between different epistemological orientations. This includes research in the areas of industrial and organizational psychology and behavioral economics, among others.

TYPES OF SUBMISSION SOLICITED

Building on extant research, we seek contributions that either add empirical insights or/and advance theory building regarding the boundary spanning functions in global organizations as well as the characteristics, development and roles of boundary spanners, a special type of manager that allows organizations to manage more effectively across intra- and inter-organizational boundaries.

We are interested in theoretical, empirical and analytical submissions. We welcome submissions that address both, organizational and managerial based approaches to boundary spanning.

The submission to this special issue must go beyond anecdotal descriptions of the phenomenon and represent a substantial contribution to theory development. The topics that the special issue intends to cover include (but are not limited to):

Definition: What are explicit and implicit boundaries, how do they manifest themselves materially, contextually, intellectually, perceptually and from a structural and/or managerial coordination perspective?

Evolution of boundaries: How do boundaries arise, become entrenched in some circumstances and dissolve in others? To what extent do boundaries evolve dynamically over time and how do boundary- spanning roles emerge? How can analyses of boundaries improve our understanding of conflicts and conflict resolution in general?

Organizational versus managerial level of analysis: Is boundary spanning an organizational capability or a managerial skill or both? What is the role of management in either fostering or hindering boundary spanning? What are managerial or individual boundary spanning skills and how are they developed? How can our understanding of well-known organizational functions (middle managers, staff vs. line managers, etc.) be improved using an analysis of boundaries?

Boundary spanning, a cause or effect: Is the boundary spanning function a cause or an effect? In some contexts, the boundary spanning function could be an outcome of particular forms of organizational values or structures, while in others it could be a means of creating and reinforcing them.

Boundary spanning versus boundary setting: Is boundary spanning always a good thing? Are there situations in which boundary setting (and the associated specialization) is more important than boundary spanning?

Boundary spanners versus gatekeepers: What are the individual, functional and conceptual similarities that boundary spanners and gatekeepers share with each other? What are the differences that distinguish them from each other?

Organizational adaption: How do global organizations adapt over time to new boundary challenges and what are the organizational structures that make boundary spanners more or less effective?

Intra versus inter organizational perspective: Are there fundamental differences between “inter” and “intra” organizational boundary spanning activities? How does boundary spanning relate to the dialectical process of change implementation (theses) and resistance to change (antitheses) in complex/global organizations?

Role of external context in boundary spanning: In global organizations, organizational subunits often become embedded in geographical contexts that differ in terms of culture, institutions, language, etc. How do these differences affect the boundary spanning function as well as the effectiveness of boundary spanners?

From BOUNDARY SPANNING IN GLOBAL ORGANIZATIONS

What are Boundaries?

Early research defined boundaries as distinctive lines that separate what is within an organization and what is in the external environment with which it interacts (Aldrich and Herker 1977; Friedman and Podolny, 1992). Thus a boundary defines an entity. But boundaries also exist within organizations, either in the form of clearly defined subunits, like MNE HQs and their dispersed subsidiaries, or less clearly defined boundaries, based on, for example, different cultures, demographics, and professions. In organization theory, seminal works from both the economics (Coase, 1937) as well as the sociology (Weick, 1995) paradigms view boundary definition as a core function as well as an essential property. In classical transaction cost economics, the firm’s fundamental decision is to decide what activities are undertaken within its boundaries and what activities are implemented through market transactions (Williamson, 1979; Gibbons, 1999). In the theory of sense-making, an organization is identified in terms of those who share a common identity, often operationalized through their understanding of the external environment (Weick, 1988; 1995).

These two pillars of organization theory provide us with complementary perspectives on the nature of boundaries. The economics perspective is based on an external, explicitly defined notion of legal ownership; the boundary distinguishes between what the organization owns and what it does not (Demsetz, 1983). The sociology perspective is based on an internal, tacit notion of belonging (Durkheim, 1938) whereby the boundary appears between those who identify with the organization and those who do not.

The complementarity of these two perspectives is evident from that fact that they generate co-evolutionary, dynamic boundary drivers. Common ownership often underpins the creation of routines and operating procedures that build common syntax and semantics which eventually result in a common basis of sense-making. A strong organizationally derived identity – as seen in “corporate culture” (Guiso et al, 2015) or “political culture” (Mudambi and Navarra, 2003) – often drives acquisition and location decisions that result in common ownership.

Both economics-based and sociology-based boundaries are intangible, but they often give rise to tangible structures like national borders, factory gates and other physical boundary markers (Hernes, 2004). However, these are merely representations of the underlying reality that is based on the complementary notions of boundaries. It is possible that over time, physical edifices may strengthen boundaries, but they rarely create them.

Key sources of Research:

Exploring the Role of Boundary Spanning in Distributed Networks of Knowledge

Eli Hustad and Aurilla Aurelie Bechina

 

 

The Importance of Boundary-Spanners in Global Supply Chains and Logistics Management in the 21st Century

Timothy Kiessling Michael Harvey Garry Garrison

 

http://faculty.mu.edu.sa/public/uploads/1357370196.704415399747.pdf

 

 

Boundary Spanning in Global Organizations

Andreas P. J. Schotter

Ram Mudambi

Yves L. Doz

16 January 2017

https://www.researchgate.net/profile/Andreas_Schotter/publication/312477172_Boundary_Spanning_in_Global_Organizations/links/58a46f0eaca27206d978705c/Boundary-Spanning-in-Global-Organizations.pdf

http://onlinelibrary.wiley.com/doi/10.1111/joms.12256/full

https://globaledge.msu.edu/content/uploads/boundary-spanners-special-issue-call.pdf

Boundary spanning behaviors of expatriates

Kevin Y. Au, John Fukuda

Journal of World Business, 37, 285-296.

2002

 

 

Global Mobility Policies, Social Positioning and the Boundary Spanning Work of Expatriate Managers

 

http://www.uni-bielefeld.de/soz/ab10/bi.was/Mense-Petermann_Spiegel-2016.pdf

 

 

Crowding at the frontier: knowledge brokers, gatekeepers, boundary spanners and marginal-intersecting individuals

Aurore Haas

 

http://www.strategie-aims.com/events/conferences/24-xxiiieme-conference-de-l-aims/communications/3164-crowding-at-the-frontier-a-review-of-gatekeepers-and-boundary-spanners/download

 

 

Boundary Spanning Leadership: Tactics to Bridge Social Identity Groups in Organizations

Chris Ernst and Jeffrey Yip

 

http://www.jeffreyyip.net/uploads/1/6/7/8/16787140/boundary_spanning_leadership.pdf

 

Boundary Spanning Leadership

Mission Critical Perspectives from the Executive Suite

 

Loosely Coupled Systems: A Reconceptualization

Orton, J. Douglas; Weick, Karl E.
Academy of Management. The Academy of Management Review; Apr 1990;

http://dimetic.dime-eu.org/dimetic_files/OrtonWeickAMR1990.pdf

Beyond brokering: Sourcing agents, boundary work and working conditions in global supply chains

 

January 17, 2017

http://journals.sagepub.com/doi/pdf/10.1177/0018726716684200

 

 

BEYOND BOUNDARY SPANNERS: THE ‘COLLECTIVE BRIDGE’ AS AN EFFICIENT INTERUNIT STRUCTURE FOR TRANSFERRING COLLECTIVE KNOWLEDGE

ZHENG JANE ZHAO and JAIDEEP ANAND

School of Business, University of Kansas, Lawrence, Kansas, U.S.A. 2 Fisher College of Business, Ohio State University, Columbus, Ohio, U.S.A.

2013

https://www.academia.edu/30068422/Beyond_Boundary_Spanners_The_Collective_Bridge_as_an_Efficient_Interunit_Structure_for_Transferring_Collective_Knowledge

 

 

A MULTILEVEL PERSPECTIVE ON KNOWLEDGE TRANSFER: EVIDENCE FROM THE CHINESE AUTOMOTIVE INDUSTRY

ZHENG JANE ZHAO and JAIDEEP ANAND

2009

School of Business, University of Kansas, Lawrence, Kansas, U.S.A. 2 Fisher College of Business, Ohio State University, Columbus, Ohio, U.S.A.

https://www.academia.edu/30068443/A_multilevel_perspective_on_knowledge_transfer_evidence_from_the_Chinese_automotive_industry

 

 

FROM CORE TO PERIPHERY AND BACK: A STUDY ON THE DELIBERATE SHAPING OF KNOWLEDGE FLOWS IN INTERFIRM DYADS AND NETWORKS

ANDREA LIPPARINI, GIANNI LORENZONI, and SIMONE FERRIANI

Department of Management, University of Bologna, Bologna, Italy 2 Cass Business School, City University London, London, U.K.

2013

https://www.academia.edu/19192371/From_core_to_periphery_and_back_A_study_on_the_deliberate_shaping_of_knowledge_flows_in_interfirm_dyads_and_networks

 

 

NETWORK STRUCTURE AND INNOVATION: THE LEVERAGING OF A DUAL NETWORK AS A DISTINCTIVE RELATIONAL CAPABILITY

ANTONIO CAPALDO* Catholic University of the Sacred Heart, Milan, Italy

2007

https://www.academia.edu/414380/Capaldo_A._2007._Network_Structure_and_Innovation_The_Leveraging_of_a_Dual_Network_As_a_Distinctive_Relational_Capability._Strategic_Management_Journal_28_6_585-608

 

On Inequality of Wealth and Income – Causes and Consequences

 On Inequality of Wealth and Income – Causes and Consequences

 

Disparity in Wealth and Income of American workers/household is a hot public policy/economic/social/political issue.

  • Wealth (Stock)
  • Income (Flow)

what are the causes and consequences of Inequality on economics and society?

 

From TRENDS IN INCOME INEQUALITY AND ITS IMPACT ON ECONOMIC GROWTH (OECD)

The disparity in the distribution of household incomes has been rising over the past three decades in a vast majority of OECD countries and such long-term trend was interrupted only temporarily in the first years of the Great Recession. Addressing these trends has moved to the top of the policy agenda in many countries. This is partly due to worries that a persistently unbalanced sharing of the growth dividend will result in social resentment, fuelling populist and protectionist sentiments, and leading to political instability. Recent discussions, particularly in the US, about increased inequality being one possible cause of the 2008 financial crisis also contributed to its relevance for policy making. But another growing reason for the strong interest of policy makers in inequality is concern about whether the cumulatively large and sometimes rapid increase in inequality might have an effect on economic growth and on the pace of exit from the current recession. Is inequality a pre-requisite for growth? Or does a greater dispersion of incomes across individuals rather undermine growth? And which are the short and long-term consequences of redistributive policies on growth?

From Causes and Consequences of Income Inequality: A Global Perspective (IMF)

Widening income inequality is the defining challenge of our time. In advanced economies, the gap between the rich and poor is at its highest level in decades. Inequality trends have been more mixed in emerging markets and developing countries (EMDCs), with some countries experiencing declining inequality, but pervasive inequities in access to education, health care, and finance remain. Not surprisingly then, the extent of inequality, its drivers, and what to do about it have become some of the most hotly debated issues by policymakers and researchers alike. Against this background, the objective of this paper is two-fold.

First, we show why policymakers need to focus on the poor and the middle class. Earlier IMF work has shown that income inequality matters for growth and its sustainability. Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom 20 percent (the poor) is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels.

Second, we investigate what explains the divergent trends in inequality developments across advanced economies and EMDCs, with a particular focus on the poor and the middle class. While most existing studies have focused on advanced countries and looked at the drivers of the Gini coefficient and the income of the rich, this study explores a more diverse group of countries and pays particular attention to the income shares of the poor and the middle class—the main engines of growth. Our analysis suggests that

  • Technological progress and the resulting rise in the skill premium (positives for growth and productivity) and the decline of some labor market institutions have contributed to inequality in both advanced economies and EMDCs. Globalization has played a smaller but reinforcing role. Interestingly, we find that rising skill premium is associated with widening income disparities in advanced countries, while financial deepening is associated with rising inequality in EMDCs, suggesting scope for policies that promote financial inclusion.

  • Policies that focus on the poor and the middle class can mitigate inequality. Irrespective of the level of economic development, better access to education and health care and well-targeted social policies, while ensuring that labor market institutions do not excessively penalize the poor, can help raise the income share for the poor and the middle class.

  • There is no one-size-fits-all approach to tackling inequality. The nature of appropriate policies depends on the underlying drivers and country-specific policy and institutional settings. In advanced economies, policies should focus on reforms to increase human capital and skills, coupled with making tax systems more progressive. In EMDCs, ensuring financial deepening is accompanied with greater financial inclusion and creating incentives for lowering informality would be important. More generally, complementarities between growth and income equalityobjectives suggest that policies aimed at raising average living standards can also influence the distribution of income and ensure a more inclusive prosperity.

From World changes in inequality: an overview of facts, causes, consequences and policies (BIS)

Public concern about inequality has grown substantially in recent years. Politicians and journalists descant with increasing frequency on the increase in inequality as a threat to social stability, laying the blame on globalisation and its attendant so-called neo-liberal policies. There is certainly much truth in such views. However, the lack of rigour in the public debate is striking, and one may doubt whether a constructive discussion of inequality, its causes and its economic, social and political consequences can take place without more clarity. Is it really the case that inequality is everywhere increasing more or less continuously, as actually seems to be happening in the United States? What type of inequality are we talking about: earnings, market income, household disposable income per consumption unit, wealth? What matters most: the inequality of opportunity or the inequality of economic outcome, including income? What kind of measure should be used? The recently highly publicised share of the top 5, 1.1% taken from tax data may not evolve in the same way as the familiar Gini coefficient defined on disposable incomes. And, then, what is known about the nature of the unequalising forces that seem to affect our economies and what tools might be available to counteract them?

In an international survey conducted in 2010, people were asked how they thought inequality had changed over the previous 10 years.1 In few countries was the perception of inequality trends in agreement with what could be observed from standard statistical sources about inequality. US citizens felt inequality had remained the same, whereas it was surging by most accounts, Brazilians found it was also increasing despite the fact that, for the first time in over 40 years, inequality was declining, while French and Dutch people thought that inequality had increased although the usual inequality coefficients were remarkably stable.

Good policies must rely on precise diagnostics. It is the purpose of this paper to take stock of what is known at this stage about the evolution of inequality around the world. In so doing, it will be shown that an ever-increasing degree of inequality at all times and everywhere over the last 30 years is far from the reality, and that there is a high degree of specificity across countries. In turn, this suggests that the combination of equalising and unequalising forces may be quite different from one country to another. Some factors may be common and truly global but others may be country-specific, the outcome being quite variable across countries. It also follows that tools to correct inequality, if need be, may have to differ in nature depending on the causes of increased inequality.

Tackling all these issues in depth is beyond the scope of this paper. My aim is only to offer an overview of what is observed and the main ideas being debated in the field of economic inequality. The paper is organised as follows. It starts with a quick “tour d‘horizon“ of the evidence for the evolution of various dimensions of economic inequality. It then tackles the issue of the potential causes, identifying what may be seen as common to most countries and what may be specific. Finally, it touches upon the consequences of excessive inequality and the tools available to counter it, emphasising the rising constraints imposed by globalisation.

Causes of Inequality

  • Shareholder Capitalism
  • Focus on Cost Minimization
  • Focus on ROIC and Economic Value Added (EVA)
  • Consolidation – Mergers and Acquisitions
  • Free Trade Agreements – NAFTA
  • Increased Outsourcing
  • Global Commodity Chains
  • Global Production Networks
  • Global Value Chains
  • Lack of Educated Workforce
  • Lack of protection for Low income earners
  • Compensation for Executives vs Labor
  • Unemployment, Underemployment
  • Value of High Skilled Technical Workers
  • Technological Change
  • Skills Obsolescence

Consequences of Inequality

  • Impact on Effective Demand
  • Slows Economic Growth
  • Decreased Economic Mobility
  • Health and Social effects
  • Living Standards at the Bottom (Poverty)
  • Intergenerational Mobility
  • Democratic Process and Social Justice
  • Reduced Consumption
  • Financial Crisis
  • Social Cohesion
  • Global Imbalances
  • Hampers Poverty reduction
  • Access to Health services
  • Access to Financial Services
  • Access to Education

 

Key Sources of Research:

 

The Age of Inequality

Edited by Jeremy Gantz

2017

 

 

The Price of Inequality

Joseph Stiglitz

2012

A Firm-Level Perspective on the Role of Rents in the Rise in Inequality

Jason Furman

Peter Orszag

October 16, 2015

http://gabriel-zucman.eu/files/teaching/FurmanOrszag15.pdf

Firming Up Inequality

Jae Song, David J. Price Fatih Guvenen, Nicholas Bloom

2015

http://eprints.lse.ac.uk/62587/1/dp1354.pdf

 

 

 TOWARDS A BROADER VIEW OF COMPETITION POLICY

 

Joseph E. Stiglitz

University Professor, Columbia University,

Chief Economist at the Roosevelt Institute

June 2017

https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/Towards%20a%20Broader%20View%20of%20Competition%20Policy_0.pdf

 

 

ACCOUNTING FOR RISING CORPORATE PROFITS: INTANGIBLES OR REGULATORY RENTS?

Boston University School of Law
Law & Economics Working Paper No. 16-18

November 9, 2016

https://www.bu.edu/law/files/2016/11/Accounting-for-Rising-Corporate-Profits.pdf

Inequality: Facts, Explanations, and Policies

Jason Furman
Chairman, Council of Economic Advisers

City College of New York New York, NY

October 17, 2016

https://obamawhitehouse.archives.gov/sites/default/files/page/files/20161017_furman_ccny_inequality_cea.pdf

Domestic Outsourcing, Rent Seeking, and Increasing Inequality

 Eileen Appelbaum

First Published July 21, 2017

http://journals.sagepub.com/doi/abs/10.1177/0486613417697121

 

Global Concentration and the Rise of China

Caroline Freund and Dario Sidhu

Peterson Institute for International Economics

http://econ.au.dk/fileadmin/Economics_Business/Research/Seminars/2016/Global_Concentration_Final.pdf

How Could Wage Inequality within and Across Enterprises Be Reduced?

Columbia Business School Research Paper No. 17-62

Posted: 10 Jun 2017 Last revised: 17 Aug 2017

Christian Moser

Columbia University

Date Written: December 15, 2016

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2983691

 

 

 

The Fall of the Labor Share and the Rise of Superstar Firms

David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, John Van Reenen

NBER Working Paper No. 23396
Issued in May 2017

http://www.nber.org/papers/w23396

Inequality: A Hidden Cost of Market Power

Posted: 29 Mar 2017 Last revised: 31 Mar 2017

Sean F. Ennis  Pedro Gonzaga  Chris Pike

Organization for Economic Co-Operation and Development (OECD) – Competition Division

Date Written: March 6, 2017

https://papers.ssrn.com/Sol3/papers.cfm?abstract_id=2942791

 

 

Wealth and Income Inequality in the Twenty-First Century

Joseph E. Stiglitz
International Economic Association World Congress
Mexico City
June 2017

https://www8.gsb.columbia.edu/faculty/jstiglitz/sites/jstiglitz/files/Wealth%20and%20Income%20Inequality%2021st%20Century.pdf

 

 

The Globalization of Production and Income Inequality in Rich Democracies

Matthew C Mahutga
Anthony Roberts
Ronald Kwon

Social Forces, Volume 96, Issue 1, 1 September 2017, Pages 181–214,

 

INCOME AND WEALTH INEQUALITY: EVIDENCE AND POLICY IMPLICATIONS

EMMANUEL SAEZ

Contemporary Economic Policy

Vol. 35, No. 1, January 2017, 7–25
Online Early publication October 14, 2016

 

https://eml.berkeley.edu/~saez/SaezCEP2017.pdf

 

 

Consequences of Rising Income Inequality

BY KEVIN J. LANSING AND AGNIESZKA MARKIEWICZ

October 17, 2016

Economic Research Department of the Federal Reserve Bank of San Francisco.

 

http://www.frbsf.org/economic-research/files/el2016-31.pdf

 

 

 

Top Incomes, Rising Inequality, and Welfare

Kevin J. Lansing
Federal Reserve Bank of San Francisco

Agnieszka Markiewicz

June 2016

http://www.frbsf.org/economic-research/files/wp12-23bk.pdf

 

 

Causes and Consequences of Income Inequality: A Global Perspective

Era Dabla-Norris, Kalpana Kochhar, Frantisek Ricka, Nujin Suphaphiphat, and Evridiki Tsounta
(with contributions from Preya Sharma and Veronique Salins)

IMF

June 2015

https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf

 

 

Piketty, Thomas. 2014.

Capital in the Twenty-First Century.

Cambridge, MA: Harvard University Press.

 

 

Recent Trends in Household Wealth in the United States: Rising Debt and the Middle-Class Squeeze—an Update to 2007

Edward N. Wolff

Levy Economics Institute of Bard College

March 2010

http://www.levyinstitute.org/pubs/wp_589.pdf

 

 

 

CONSUMPTION AND INCOME INEQUALITY IN THE U.S. SINCE THE 1960S

Bruce D. Meyer James X. Sullivan

NATIONAL BUREAU OF ECONOMIC RESEARCH

August 2017

http://www.nber.org/papers/w23655.pdf

 

 

Top Income Inequality in the 21st Century: Some Cautionary Notes

Fatih Guvenen Greg Kaplan

April 2, 2017

https://gregkaplan.uchicago.edu/sites/gregkaplan.uchicago.edu/files/uploads/top_income_inequality_web_April2_2017.pdf

 

FIFTY YEARS OF GROWTH IN AMERICAN CONSUMPTION, INCOME, AND WAGES

Bruce Sacerdote

May 16, 2017

http://www.dartmouth.edu/~bsacerdo/Sacerdote%2050%20Years%20of%20Growth%20in%20American%20Wages%20Income%20and%20Consumption%20May%202017.pdf

http://www.nber.org/papers/w23292.pdf

 

 

The Inequality Puzzle

BY LAWRENCE H. SUMMERS

 

http://democracyjournal.org/magazine/33/the-inequality-puzzle/

 

 

 

 GLOBAL INEQUALITY DYNAMICS: NEW FINDINGS FROM WID.WORLD

Facundo Alvaredo Lucas Chancel Thomas Piketty Emmanuel Saez Gabriel Zucman

NATIONAL BUREAU OF ECONOMIC RESEARCH
February 2017, Revised April 2017

 

http://www.nber.org/papers/w23119.pdf

 

 

 

Power and inequality in the global political economy

NICOLA PHILLIPS

March 2017

https://academic.oup.com/ia/article-lookup/doi/10.1093/ia/iix019

 

 

 Outsourcing governance: states and the politics of a ‘global value chain world’

Frederick W. Mayer & Nicola Phillips

04 Jan 2017

 

http://www.tandfonline.com/doi/full/10.1080/13563467.2016.1273341

 

 

What’s caused the rise in income inequality in the US?

https://www.weforum.org/agenda/2015/05/whats-caused-the-rise-in-income-inequality-in-the-us/

Why are American Workers getting Poorer? China, Trade and Offshoring

Avraham Ebenstein, Ann Harrison, Margaret McMillan

NBER Working Paper No. 21027
Issued in March 2015

http://www.nber.org/papers/w21027

 

 

 

The Geography of Trade and Technology Shocks in the United States

David H. Autor, David Dorn, and Gordon H. Hanson

American Economic Review

May 2013

https://www.aeaweb.org/articles?id=10.1257/aer.103.3.220

 

Economic Consequences of Income Inequality

Jason Furman
Joseph E. Stiglitz

https://pdfs.semanticscholar.org/cee6/1573cd50b9c8eae3379cf1f1c92301f40927.pdf

 

Labor’s Declining Share of Income and Rising Inequality

https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/2012-economic-commentaries/ec-201213-labors-declining-share-of-income-and-rising-inequality.aspx

 

 

World changes in inequality: an overview of facts, causes, consequences and policies

by François Bourguignon
Monetary and Economic Department
August 2017

BIS working paper

http://www.bis.org/publ/work654.pdf

“Trends in Income Inequality and its Impact on Economic Growth”

OECD Social, Employment and Migration Working Papers, No. 163

http://www.oecd.org/social/inequality.htm

http://www.oecd.org/els/soc/trends-in-income-inequality-and-its-impact-on-economic-growth-SEM-WP163.pdf

 

Causes of income inequality in the United States

https://en.wikipedia.org/wiki/Causes_of_income_inequality_in_the_United_States

 

Economic inequality

https://en.wikipedia.org/wiki/Economic_inequality

 

 

Income inequality in the United States

https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States

 

 

Redistribution, Inequality, and Growth

Prepared by Jonathan D. Ostry, Andrew Berg, Charalambos G. Tsangarides

 

April 2014

IMF

 

https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf

 

 

 

Understanding the Economic Impact of the H-1B Program on the U.S.

John Bound† Gaurav Khanna‡ Nicolas Morales§

April 20, 2017

 

http://www.nber.org/chapters/c13842.pdf