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About this book

This book analyzes new forms of capitalism that are manifesting under the pressures of global transformation. By studying economic and environmental indicators in various parts of the world, it seeks to reconcile economic growth with environmental and social sustainability, which is an important issue in both developed and emerging economies. These indicators include the explosive development of digital technologies and new global value chains, which are reshaping economies and societies all over the world. The contributing authors also address the challenge of immigration, the sustainable development transformation, the ties between productivity and social rights, automation and global value chains, the energy transition, and innovation and sustainable growth.

Table of Contents

Frontmatter

Slower World Growth or Global Recession with the Trade War?

Abstract
After the slow recovery from the 2008–2009 global financial crisis, the world economy now faces even slower growth and the prospects of global recession triggered by the USA–China trade war. This paper starts by examining whether the slow growth of the world economy was due to wrong or inadequate economic policies to overcome the crisis (great recession) and return to growth, or for other reasons. Then, it examines the reasons the United States is growing faster than other advanced countries, the slowing growth of emerging market economies (and even economic crisis in some of them), and whether the world is now sliding toward a new global financial crisis and recession triggered by the current trade war.
Dominick Salvatore

European Solidarity as a Way to Face Globalization and as an Antidote Against Populism

Abstract
Two opposite positions are facing each other in the euro area. The first one, originating in southern Europe, is based on the observation that the adoption of the euro favored northern economies, allowing them to have persistently high trade surpluses at the expenses of the southern ones. The second position, originating in northern Europe, focuses instead on the risks that the citizens of those countries would incur to cover the high debt of southern countries. Such opposed positions, however, ignore the deep reasons that led European countries to start the process of economic integration, of which monetary integration is a relevant part. In view of what precedes, a market-financed euro area-wide investment plan to be agreed, monitored and even administered by representatives of northern governments, should be acceptable to them and would support the southern ones in their endeavor of risk reduction.
Pompeo Della Posta

Global Integration and Economic Growth in Emerging Countries: The Case of BRICS and NEXT-11

Abstract
This paper investigates the impact of global integration on economic growth in a large group—BRICS and NEXT-11—of emerging countries and it tries to verify a possible different relation for the second group. The period of analysis is 1980–2015. Our hypothesis is that the impact of global integration (measured as foreign direct investment and share of trade as percentage of GDP) on economic growth is not only direct but also indirect through various other determinants of economic growth. Thus, by using panel data econometric estimation techniques, multiplicative models are estimated. Results show that global integration—both trade openness and FDI inflow—benefits economic growth. The coefficients are however higher in the BRICS group rather than in the complete sample.
Misbah T. Choudhry, Enrico Marelli, Marcello Signorelli

1948–2018: From the Free-Trade Vision to Protectionist Attitudes

Abstract
The institutions born at the end of WW II were inspired to a well-tempered liberism, but this principle has been disregarded in the following decades, especially since 1980, leaving instead room to an embittered liberism, which found its highest expression in the Washington Consensus. Then, the initial principle has largely been disregarded in practice. Even so, all in all, the Bretton Woods institutions, as they have evolved, have led to positive results. However, more recently populism and protectionism have spread, whose diffusion is the product, certainly excessive, of that exacerbate liberism, together with the blatant violations of the international rule performed by China. Political commentators and historians attribute the election of Donald Trump and its economic policy to the economic crisis begun in 2007–8, which was born rightly from such exacerbate liberism. The populistic waves that afflict Europe, herald of similar closures, can have similar foundations. If the world will stop in the path leading to commercial wars and closures of frontiers and will be able to reconstruct the season that led to the tempered liberism, is something desirable, but at present difficult to forecast.
Nicola Acocella

GDP-Linked Bonds: A Proposal Worth Looking Into

Abstract
GDP-linked bonds (GLBs) have been the subject of recurrent debates among economists and financial market participants but no major debt office has so far decided to launch them. Issuers remain skeptical about the practical feasibility or desirability of these securities, citing potentially high risk premia and various technical issues, including GDP data integrity and revisions, moral hazard and adverse selection. Against this backdrop, we discuss the key features of these securities and we argue that technical difficulties can be resolved, especially if standardized terms are agreed at the international level and statistical offices agree to publish dedicated GDP series. From the standpoint of investors, GLBs would provide direct exposure to GDP growth of a country or basket of countries without running into the more complex valuation issues that characterize equities. Long-dated GLBs also have the interesting feature that their duration may offset the impact of changes in GDP growth expectations. For issuers, regular issuance of long-dated GLBs would gradually raise the share of liabilities indexed to GDP. In the event of a major economic downturn, the debt-to-GDP ratio would rise more moderately than if all debt consisted of conventional bonds. In the limit case of GLBs accounting for the whole stock of public debt and without a price floor, the debt-to-GDP ratio would not change at all apart from the cyclical change in the budget balance.
Riccardo Barbieri Hermitte

Strengthening Disaster Resilience: A Microdata Perspective

Abstract
Each year, 206 million people on average are affected by disasters. Between 2000 and 2018, 84% of those 206 million people lived in Asia, home to 55% of 60,000 disaster fatalities worldwide. Unfortunately, most of the studies on disaster resilience available today are small-scale and ad-hoc, preventing generalization to the national level or broader contexts. Furthermore, the value of these types of analyses is often constrained by various data limitations. Within this paper, we briefly explore four areas of survey methods that offer the potential to improve the utility of microdata on disaster resilience: survey content, level of data collection, longitudinal data, and geospatial data integration. While not an exhaustive list of current data gaps, improving data availability and quality in these respects could have far-reaching impacts on the knowledge base to increase global disaster resilience for the world’s most marginalized and vulnerable populations.
Gero Carletto, Raka Banerjee

The European Globalisation Adjustment Fund: Easing the Pain from Trade?

Abstract
The European Union created the European Globalisation Adjustment Fund (EGF) in 2007 to assist workers negatively affected by globalisation in their search of a new job. The EGF was an acknowledgment that the EU, which has exclusive competence over trade policy, needed to assume some responsibility for the economic displacement due to globalisation. This article attempts to evaluate the EGF programme after 10 years of activity. Our evaluation addresses both its political visibility and its economic effectiveness. We find that the programme was visible in the sense that EGF beneficiaries tended to work in large firms and that their dismissals were reported in the media. The economic effectiveness of the programme is more difficult to evaluate because the available data is insufficient. Estimates, however, suggest that only a small proportion of EU workers who lost their job due to globalisation received EGF financing. Unfortunately, it is also impossible to assess whether workers who received EGF assistance did better in their job search than those who did not receive assistance. We make three recommendations to improve the programme: (1) collect more and better data to allow a proper evaluation of the programme; (2) revise the eligibility criteria to qualify for EGF assistance and the co-funding rate for the contribution by low-income regions; and (3) enlarge the scope of the programme beyond globalisation to also assist workers displaced by intra-EU trade and offshoring that result from the working of the single market, which is also an exclusive competence of the EU.
Grégory Claeys, André Sapir

The Effect of Brexit on the UK Economy (So Far)

Abstract
The political turmoil in the UK following the referendum on future membership of the European Union in 2016 provides a natural experiment for studying the effects of political uncertainty on the economy. We find that the subsequent confusion and infighting in British politics has not affected the real economy much—employment is at a historical high and output growth is positive—but there are some signs of slowing investment and house price increases. The stock market has also not been much affected although it did fall after the referendum of 2016. The main effect of the Brexit vote and the subsequent political developments is found in the currency market where news that make a hard Brexit more likely cause the currency to depreciate. We conclude that leaving the European Union without an agreement is likely to make the currency depreciate and the stock market fall while output declines. In contrast, leaving with an agreement that gives continued access to the Single Market would likely make the currency appreciate, the stock market rise and employment and output increase further.
Sindri Engilbertsson, Gylfi Zoega

Climate Change: A New European Union Approach Is Needed

Abstract
The Emission Trading Scheme (ETS), on which the European Union (EU) targets to mitigate climate change are largely based, has proved to be inefficient, especially at counteracting the effects of global trade growth. In fact, although the replacement of European products with emerging Countries’ imports has led to an apparent decrease in EU’s emissions, it has, at the same time, brought about a substantial increase in global emissions, because of the lower efficiency and higher environmental impacts of most imported products. The risk is that the ETS, which was developed on a territorial basis, while unable to provide substantial benefits to the environment, proves to be an additional factor for CO2 increases, and the loss of competitiveness of EU’s industry, that is exposed to international environmental dumping. The strategy for Europe to set their irrefutable environmental targets, while protecting their manufacturing industry, must be mainly based on a system of emission tracking and specific labelling that acknowledges the higher environmental quality of the European products, thus enabling consumers to choose the most eco-friendly ones. Furthermore, a privileged taxation could replace the ETS system. It must be a non-discriminatory, non-protectionist taxation, that simply offsets the economic advantage of environmentally impacting products over eco-friendly ones.
Tullio Fanelli, Alessandro Ortis

Relatedness, Economic Complexity and Convergence Across European Regions

Abstract
The aim of this paper is to analyze how the heterogeneous structure of the European regions has affected their patterns of convergence or divergence. We analyse data collected by Eurostat, from a balanced panel of 191 regions and 55 economic branches over the period 2003–2015. In this way, we are able to describe and capture technological proximity across the regions and analyse how it has evolved over space and time. Limiting the analysis to the manufacturing activities, we are also able to measure the degree of economic complexity of the regional production systems and assess how this affects their patterns of growth.
Our findings suggest that spatial effects tend to push towards convergence, with the Eastern regions that started from relatively low levels of GDP per capita and experienced higher growth rates. Nevertheless, the different level of economic complexity tends to widen the gaps between territories: for example, the German regions, whose economic structures are more complex, have kept on widening the gap between themselves and the other European regions. The two different forces are also interconnected as the Eastern regions combine a relatively low level of GDP per capita with a significant level of economic complexity. During the period considered, the improvement in living standards has corresponded to the upgrade of their manufacturing production structures.
Tullio Buccellato, Giancarlo Corò

Individual Behavior and Collective Action: The Path to Iceland’s Financial Collapse

Abstract
Unsustainable accumulation of debt precedes financial crises. The recent Western financial crisis was no exception in this regard. The external debt of Greece, Iceland, Ireland, and Spain increased exponentially, in Iceland at a rate higher than the rate of interest on foreign debt. The Ponzi scheme that played out in Iceland begs the question why a country would set out on a path that could lead to a financial crisis. We address this question and describe the private incentives faced by bankers, financiers, politicians and others. In particular, we show how private incentives and a culture that valued financial gains above all else collided with socially desirable outcomes. The root of the problem in Iceland as well as in other crisis countries was a failure at the state level to align private incentives with what was socially prudent, a failure due, at least in Iceland, to a combination of mistakes, incompetence and what can only be called corruption. Furthermore, misplaced belief in a market economy where morals and ethics play no role paved the way to serious lapses in accounting and in the operation of the banks.
Thorvaldur Gylfason, Gylfi Zoega

Towards a New Taxonomy of Manufacturing Countries

Abstract
The scope of this paper is to propose a novel approach to the categorization of manufacturing development, aimed at accounting for the major global transformations that have occurred in the organisation of industrial activity in the last decades. It first addresses the way manufacturing development can be defined in order to provide a measure of the degree of industrialization of different countries, and then suggests a new taxonomy accordingly. Attention is paid to the fact that in the course of time countries can—and usually do—move from one group of manufacturers to another. Moreover, it is shown that cross-country differences in the degree of industrialisation are also mirrored by differences in their institutional features. Results offer some important lessons for industrial policy.
Livio Romano, Fabrizio Traù

Spatial-Sectoral Skill Polarization: Is South of Italy Not Lost?

Abstract
A new paradigm seems to emerge in the international division of labor in Europe and in the most advanced production systems all over the world: on the one hand, labor patterns in knowledge-intensive sectors show different trajectories compared with the observed performance of employment in other sectors.
In this framework, employment in Italy shows a similar behavior, but at a slower pace of convergence to this new paradigm, at least with respect to its main competitors (Germany, France, Great Britain and, in perspective, Spain).
Differences emerge among its regional macro-areas: Southern Italy is diverging from the rest of the overall Italian economy. This area, despite the dimension of the current gap with the rest of Italy, can traditionally count on a higher dynamism in the “creative destruction” process necessary to respond to external threats than of the Center and the North of Italy. This may give room for a cautious optimism about the possibilities of the South to resume an important role in the long-term growth of the country.
In this paper, using constrained logistic functions, we try modeling diverse forms of labor substitution, comparing the dynamics of the structural gaps between Southern Italy and the rest of the country and providing an answer to the question: “Is the South of Italy definitively lost?”
Martino Lo Cascio, Massimo Bagarani

Artificial Intelligence, Its Corporate Use and How It Will Affect the Future of Work

Abstract
In the current debate over the Future of Work, there is little discussion about how firms anticipate the evolution of their demand for labor and the related mix of skills as they adopt Artificial Intelligence (AI) tools. This article contributes to this debate by leveraging a global survey of 3000 firms in 10 countries, covering the main sectors of the economy. Descriptive statistics from the survey are complemented by econometric analyses of corporate labor demand decisions. The findings are four-fold. First, those are still early days in the absorption of AI technologies, with less than 10% of companies investing in a majority of AI technologies and for multiple purposes. Second, if an aggregate portion of firms anticipates reducing employment as a result of adopting AI technologies, as many other companies anticipate labor growth or reorganizing employment. Third, this reallocation picture holds true when we examine further demand by labor functions and skills, with talent shifting toward more analytic, creative, and interaction skills, and away from administrative and routine-based functions, in line with past trends of skill- and routine-biased technological change. Fourth, a novel to the literature on Future of Work, econometric results on employment change highlight that employment dynamics are driven by related spillover effects to product markets. Higher competition, larger expectations of market (share) deployment may counterbalance negative automation effect on employment dynamics.
Jacques Bughin

Is Globalization Sustainable?

Abstract
Globalization creates both positive externalities and negative effects that undermine economic growth and decrease total factor productivity and economic agents’ motivation. Despite the rapid advance of digital technologies, aggregate productivity growth has slowed over the past decade or so, raising the question of how digital technologies can boost productivity. Costs and benefits are not evaluable making the real effect unclear. Nowadays, globalization seems to be necessary for the economic system, but unsustainable because of the increasing social discontent. In this context, no magic bullet is likely to exist. A crucial need is the recovery of an institutional framework where governments at all levels, are nevertheless again endowed with the function and the power to pursue wellbeing, innovation and growth through proactive economic policies.
Luigi Paganetto, Pasquale Lucio Scandizzo
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