In November 2010, France took over the presidency of the G20 for one year, with six official priorities. Three of them are a continuation of previous agendas (strengthening financial regulation, promoting development, rebalancing of the global economy), and three are new actions: reforming the international monetary system, combating commodity price volatility, improving global governance.

   The rebalancing agenda is especially sensitive. At the Seoul summit in November 2010, each member of the G20 committed itself to implement policy measures to reduce balance-of-payment imbalances and boost global growth. But no agreement was reached on a common code of conduct (such as a limit on current-account imbalances, as suggested by the US Treasury Secretary). A working group was set up to work with the technical support of the International Monetary Fund on such guidelines.

   The task is complex since development stages and demographic trends may justify large current account imbalances in some countries. However, it should be noticed that current-account standards are less controversial than exchange-rate norms. Actually, exchange rates stem from current-accounts added with a number of assumptions, including on domestic-demand policies).

   One further advantage of focusing on current accounts rather than on exchange rates is to broaden the discussion potentially to any area of economic policy, safeguarding national economic-policy sovereignties, since many types of policies can ultimately affect the current account of a country. In fact, the risk of "currency wars" is related to the lack of policy instruments at the global level, compared to the large number of policy objectives. This is obvious for exchange-rate policies (with N currencies in the world, there are only N-1 independent exchange rates). It also applies more generally to economic policies: policy trade-offs made at the country level will unlikely be consistent at the global level.

   Hence, one task of the G20 could be to incentivize its members to raise the number of domestic policy instruments, for instance through active prudential policies and counter-cyclical macroeconomic policies.

   At first sight, reforming the international monetary system could be viewed just as a way to achieve the rebalancing agenda: should the renminbi be allowed to appreciate against the US dollar, this would hopefully contribute to reducing the Chinese surplus and propensity to accumulated foreign-exchange reserves, while helping the People’s Bank of China to fight domestic inflation. However, reforming the IMS would bring only part of the solution to global imbalances, since the evolution of real exchange rates will fundamentally depend on macroeconomic and structural policies rather than on the regime of the nominal exchange rate.

   Another reason for attempting to reform the IMS is its malfunctioning in terms of exchange-rate misalignments, volatility of capital flows, excessive accumulation of foreign-exchange reserves, insufficient financial safety nets, lack of control on global liquidity, insufficient discipline and coordination of macroeconomic policies. However, it must be admitted here that the IMS has performed remarkably well during the crisis: the US dollar did not crash, and liquidity provision was efficiently extended to countries in need, not least thanks to the action by the Federal Reserve and other major central banks.

   In fact, the needs for reform may be less acute than the necessity to accompany forthcoming changes. Although the renminbi is not yet fully convertible and the euro is experiencing a deep crisis, the IMS is likely to evolve towards multipolarity, just like the global economy itself (Figure 1). Country size is far from being the only determinant for the international status of a currency and the transition may take time. But there is little doubt that the renminbi will eventually become an international currency. The future of the euro will very much depend on further European integration and more specifically on the possible launch of a unified government bond market in euro. Hence, the IMS may evolve towards a bipolar or tripolar system.



References:

Bénassy-Quéré, A., Carton, B. & Gauvin, L., Rebalancing Growth in China: an International Perspective, CEPII Working Paper, forthcoming.
Bénassy-Quéré, A. & Pisani-Ferry, J., What International Monetary System for a Fast-Changing World Economy?, prepared for AEEF Conference, Paris, 10-11 January 2011.
Bénassy-Quéré, A., He, F., Kawai, M., Park, Y.C., & Pisani-Ferry, J., The G20 in the Aftermath of the Crisis: a Euro-Asian View, La Lettre du CEPII, N° 299, 25 June 2010.
Bénassy-Quéré, A. & Pisani-Ferry, J., Is G20 Already Passé?, Business Standard, 18 September 2010.
Bénassy-Quéré, A., Kumar, R., & Pisani-Ferry, J., The G20 is not Just a G7 with Extra Chairs, La Lettre du CEPII, N° 292, 21 September 2010.
Bénassy-Quéré, A., Exchange Rates and Global Rebalancing, International Policy Advisory Group: Global Economic Recovery Under the Shadow of a Currency War, N° 9, November 2010.
Fouré, J., Bénassy-Quéré, A., & Fontagné, L., The World Economy in 2050: a Tentative Picture, CEPII Working Paper, N° 2010-27, December 2010.

   Long-run economic outlooks are very useful for policymakers and entrepreneurs, especially when it comes to dealing with sustainable development and energy constraints. In order to be able to address such issues, the CEPII released in December 2010 a growth scenario to 2050¹ leading to the publication of the BASELINE database.² The goal of this database, produced by the CEPII, is to provide a fully-documented long-run growth scenario, ready to use as an input for other works, for instance as a reference scenario in general equilibrium models like MIRAGE, developed at the CEPII. The database gives past and projected values for GDP, production factors and productivity, according to the methodology described in Fouré, Bénassy-Quéré and Fontagné (2010).

   This long term scenario focuses on the macroeconomic determinants of growth – namely labor force, capital accumulation and energy consumption – and their dynamics, based on their historical values from 1980 to 2008. These production factors determine GDP levels through a constant elasticity of substitution production function and are associated with two different productivity factors:
   • Energy productivity, representing how efficiently the energy is used in each country. Over the past, the values of this energy productivity result from the firms maximizing their profits subject to the prices of the different production factors.
   • Total Factor Productivity (TFP) related to capital and labor force, computed as the Solow residual of the production function.

   Contents of the BASELINE database are presented below, focusing on productivity and production factors, since GDP projections have already been discussed in a previous newsletter.³

   In projection, both Energy productivity and TFP follow an estimated technology diffusion process, in which countries tend to catch-up with the technological frontier, that is the level of the world leaders – the USA for TFP; Japan, Germany, United-Kingdom and France for energy productivity. This means that the farer a country is from the productivity frontier, the faster its productivity grows. However, TFP growth rates are conditional to human capital (average years of education) while energy productivity growth is lowered by improvements in GDP per capita, in order to show that energy is more efficiently used both in agriculture (major economic activity in less developed countries) and services (high development) than in the industry (middle development). Figure 1 depicts past and projected values of energy productivity (1a) and TFP (1b) for the BRICs (Brazil, Russian Federation, India and China) and a selection of OECD countries.

1a. Energy productivity	1b. TFP

   Unlike labor force, which is based on the United Nations’ population projections and International Labor Organization activity rates, capital stocks are projected using estimated behaviors. Savings rates (ratio to GDP) are driven by the structure of the population and GDP per capita growth, and then investment rates are deduced, according to a non unitary estimated relation. These dynamics lead to a global increase in capital intensity (ratio of capital to active population). Despite the acceleration of capital accumulation in China (stocks exceeding the US ones around 2030), the Chinese capital intensity still represents half of the United States level in 2050, due to the difference in their active population (see Figure 2).


   Energy consumption is a significant variable regarding environmental concerns, for it both impacts natural resources reserves and CO2 emissions. Energy intensity (amount of energy used per dollar of GDP) is quite heterogeneous around the world in 2007 (figure 3a). For most countries, it remains between 0 and 4 barrels of oil equivalent per 1000$ of GDP (boe/$’000); the less energy-intensive countries being in European Union and Central Africa, and the most energy-intensive being oil-producing and industrially developing countries. According to the improvement in energy productivity and the rise of energy price, energy intensity tends to decrease over time for developed and emerging countries and to increase for less developed countries. In 2050 (figure 3b), there is almost no country with more than 3 boe/$’000 and OECD countries consume less than 1 boe/$’000.

Notes:

(1) Fouré, J., Bénassy-Quéré, A. & Fontagné, L., The World Economy in 2050: a Tentative Picture, CEPII Working Paper, N° 2010-27, December 2010.
(2) Available at http://www.cepii.fr/anglaisgraph/bdd/baseline.htm (version 1.0).
(3) The World Economy in 2050: a Tentative Picture, The CEPII Newsletter, N°45, 4Q 2010 (Focus).

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China's Foreign Trade in the Perspective of a More Balanced Economic Growth
N° 2011-03, March 2011

   The global crisis is forcing China’s economy to become less dependent on foreign markets. Manufacturing industry has to adjust to changes in international demand. Foreign affiliates’ processed exports are vulnerable to the slow-down of Western demand, while Chinese exporting firms are better placed to switch to dynamic emerging markets. China’s ordinary imports have risen fast. Asia has enlarged its share in the domestic market, Europe has kept a strong position while North-America has lost ground. China has become the engine of the regional economic growth. Foreign-capital firms have played an increasing part in China’s imports and industrial production. China’s policy towards FDI is at least as important as its exchange rate policy to determine foreign partners’ access to its domestic market.

Guillaume Gaulier, Françoise Lemoine & Deniz Ünal

The Interactions between the Credit Default Swap and the Bond Markets in Financial Turmoil
N° 2011-02, February 2011

   We analyse the links between credit default swap (CDS) and bond spreads and try to determine which one is the leading market in the price discovery process. To do that, we construct a sample of CDS premia and bonds spreads on a generic 5-year bond, for 17 financials and 18 sovereigns. First, we run VECM estimations, showing that the CDS market has a lead over the bond market over the whole sample. A decomposition of the sample shows that this result holds for financials as well as for the high-yield emerging sovereigns. However, the bond market still drives the CDS market for the sovereigns in the core of the euro area. Second, we check for non-linearities in the adjustment process during the current crisis. Results show that the CDS market's lead has been amplified by the crisis for financial institutions.

Virginie Coudert & Mathieu Gex

Comparative Advantage and Within-Industry Firms Performance
N° 2011-01, January 2011

   Guided by empirical evidence we consider firms heterogeneity in terms of factor intensity. We show that Heckscher-Ohlin comparative advantage and firm-level relative factor-intensity interact to jointly explain the observed differences in relative sales. Firms whose relative factor-intensity matches up with the comparative advantage of the country have lower relative marginal costs and larger relative sales than firms who do not. Our empirical analysis, conducted using data for a large panel of European firms, supports these predictions. Our findings also provide an original firm-level verification of the Heckscher-Ohlin model based on the effect of comparative advantage on firms relative sales.

Matthieu Crozet & Federico Triofetti

Export Performance and Credit Constraints in China
N° 2010-33, December 2010

   We investigate how the export performance of firms in China is influenced by credit constraints. Using panel data from Chinese customs for 1997-2007, we show that credit constraints restrict international trade flows and affect the sectoral composition of firms’ activity. We confirm that credit constraints provide an advantage to Foreign-owned firms and joint ventures over private domestic firms as their export performance is systematically greater in sectors with higher levels of financial vulnerability measured in a variety of ways. We however find that financial sector liberalization has partially reduced these distortions in exports over the period.

Joachim Jarreau & Sandra Poncet

Export Performance of China's Domestic Firms: the Role of Foreign Export Spillovers
N° 2010-32, December 2010

   We investigate how the creation of new export linkages (extensive margin of trade) by domestic firms in China is influenced by their proximity to multinational exporters. Using panel data from Chinese customs for 1997-2007, we show that there is evidence that domestic firms’ capacity to start exporting new varieties to new markets positively relates to the export performance of neighboring foreign firms for that same product-country pair. We find that foreign export spillovers are limited to ordinary trade activities. No foreign export spillovers are found for processing trade. More, export spillovers are stronger for sophisticated products indicating that proximity to foreign exporters may help domestic exporters to upgrade their exports. However we observe that foreign export spillovers are weaker when the technology gap between foreign and domestic firms is large, suggesting that upgrading may not occur in locations and sectors where foreign firms have already a strong edge.

Florian Mayneris & Sandra Poncet

Wholesalers in International Trade
N° 2010-31, December 2010

   Recent empirical research in international trade has revealed overwhelming evidence that, in all countries, a remarkably small proportion of firms report exports in Customs statistics. A large share of these are wholesalers. This suggests that the number of firms active in foreign markets might be much greater than that suggested by a simple count of the firms directly reporting their exports. This paper thus sheds light on the role of wholesalers in international trade. Our model, which allows for quality differentiation, uses very general assumptions to show that intermediated exporters may contribute significantly to the extension of countries’ export opportunities. The model predicts a twofold role in international trade. First, wholesalers help less-efficient firms to supply foreign markets, thus increasing the number of exported varieties at the aggregate level. Second, they alleviate the difficulty of reaching less-accessible markets. We use French firm-level export data to provide empirical support for these two predictions.

Matthieu Crozet, Guy Lalanne & Sandra Poncet

TVA et taux de marge : une analyse empirique sur données d'entreprises
N° 2010-30, Décembre 2010

   Nous étudions la manière dont les exportateurs d’un pays réagissent à un choc de TVA dans un pays de destination. Les chocs de TVA étant par nature quasi permanents, exogènes et sans impact sur le coût marginal, l’étude de leurs répercussions sur les prix permet d’identifier dans quelle mesure les taux de marge permettent d’amortir l’impact du choc sur les prix à la consommation. Nous montrons que même une hausse uniforme du taux de TVA peut induire une modification non-uniforme des taux de marge des exportateurs, et par conséquent des effets redistributifs importants entre les secteurs et entre les entreprises d’un même secteur. Le comportement de marge est affecté par les variations de l’élasticité de la demande adressée aux exportateurs, et dépend de la part de marché des entreprises.

Philippe Andrade, Martine Carré & Agnès Bénassy-Quéré

Economic and Cultural Assimilation and Integration of Immigrants in Europe
N° 2010-29, December 2010

   This paper documents assimilation of immigrants in 16 European countries along cultural, civic, and economic dimensions, distinguishing by immigrants’ generation, duration of stay, and origin. It suggests that assimilation may have multiple facets, and take place at different speed depending on the outcome in question. While assimilation along some economic outcomes may be correlated with assimilation along some cultural outcomes, such correlations are not systematic, and imply that progress on some dimensions may compensate the lack of progress on other dimensions; and also that a big discrepancy in one dimension is not necessarily a handicap, or an impediment, for assimilation on other grounds. Correlation of immigrants’ outcomes and specific policies aimed at immigrants’ integration are rather disparate, raising further questions regarding both their effectiveness and differentiated effect on various aspects of life.

Mariya Aleksynska & Yann Algan

Les firmes françaises dans le commerce de service
N° 2010-28, December 2010

   Ce papier est le premier à utiliser la base de données de la Banque de France sur les exportations et importations de services renseignées au niveau de l’entreprise. Nous montrons tout d’abord que les entreprises échangeant des services sont plus grandes, plus productives, rémunèrent mieux leurs employés que les entreprises purement domestiques. Ensuite, les exportations de services sont le fait d’un nombre très restreint d’exportateurs. Enfin, les entreprises qui exportent et/out importent des services sont deux à cinq fois plus petites quand elles appartiennent au secteur des services.. Nous terminons par une estimation à la Bernard et Jensen (2004) de la décision d’exportation où nous montrons que l’exportation jointe de biens et services par le passé augmente fortement la probabilité d’exporter des services aujourd’hui, en particulier pour les entreprises appartenant au secteur industriel.

Guillaume Gaulier, Emmanuel Milet & Daniel Mirza

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RECENT PUBLICATIONS





ECONOMIE INTERNATIONALE, QUARTERLY

On-Going Issues on the Global Financial Crisis
Issue 123, 3rd Quarter 2010

   Introduction. On-Going Issues on the Global Financial Crisis
   Virginie Coudert, Hélène Raymond & Laurence Scialom

   Financial Regulation in the Crisis Regulation, Market Discipline, Internal Control: the Big Three in Turmoil
   Jézabel Couppey-Soubeyran

   A Systemic Approach to Financial Regulation: a European Perspective
   Michel Aglietta & Laurence Scialom

   Are Derivatives Dangerous? A Literature Survey
   Gunther Capelle-Blancard

   The Credit Default Swap Market and the Settlement of Large Defaults
   Virginie Coudert & Mathieu Gex

   Sovereign Wealth Funds as Domestic Investors of Last Resort During Crises
   Hélène Raymond

   Emergence of a New Regulation: Informational Disclosure Modalities in the Hedge Fund Opacity World
   Sandra Rigot & Yamina Tadjeddine

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Economie internationale/International Economics publishes papers dealing with a wide range of issues in applied international economics. Papers cover topics like macroeconomics, money and finance, trade, transition, European integration and regional studies. Economie internationale/International Economics especially encourages the submission of articles which are empirical in nature and emphasises the rigor of empirical analyses and data processing. With articles being submitted from economists in various universities, central banks and private financial institutions worldwide, the journal achieves an extraordinary diversity and provides many viewpoints on international economic and financial questions. Articles should be readable by non-specialists. Economie internationale/International Economics is indexed in Econlit.

A manuscript is submitted to Economie internationale/International Economics with the understanding that the substance of its content has not been published and is not under consideration for publication by another journal or book. Each article is submitted to two referees, and the anonymity of both parties is fully respected.    Articles should be not more than 25 pages (50,000 characters), including tables, figures, bibliography, and appendix. The first page of the manuscript should contain the following information: (i) title, (ii) name(s) and institutional affiliation(s) of the author(s), (iii) an abstract of not more than 100 words, (iv) the name, address, e-mail address, telephone and fax numbers of the corresponding author. Moreover, at least one classification code according to the Classification System for Journal Articles as used by the Journal of Economic Literature and up to three keywords should be supplied.    Papers should be submitted electronically to Véronique Le Rolland: veronique.lerolland@international-economics.eu Economie internationale/International Economics makes every effort to provide authors with timely reports from referees. Authors will be informed within four months.

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The Long March Towards a Multipolar Monetary Regime
N° 308, 16 February 2011

   International monetary reform is back on the agenda after two decades during which it has been hardly discussed. Controversies about the macroeconomic and monetary factors at the root of the financial crisis, China’s exchange rate regime, the reasons why emerging countries accumulated about five trillion dollars of international reserves over the last ten years, and more recently the risk of currency wars all explain this renewed attention. Yet the key question is what monetary regime will best suit the world economy in the XXIst century. An evolution towards a multipolar system, with the dollar, the renminbi and the euro as its key likely pillars may mitigate some flaws of the present regime, such as the rigidity of key exchange rates, the asymmetry of balance-of-payments adjustments or what remains of the Triffin dilemma. However it may exacerbate other problems, such as short-run exchange rate volatility or the scope for ‘currency wars’, while leaving key questions unresolved, such as the response to global liquidity provision. Hence, in itself, a multipolar regime can be both the best and the worst of all regimes, depending on the degree of cooperation within a multilateral framework. In the short term, policymakers should concentrate on feasible reforms, while opening the way for more fundamental changes.

Agnès Bénassy-Quéré & Jean Pisani-Ferry

Assimilation of Immigrants in Europe: a Multidimensional Process
N° 305, 27 December 2010

   The first decade of the century was marked by increased migration inflows into numerous European countries. The ability of immigrants to integrate, as well as the ability of receiving countries to promote the equality of chances, has been at heart of vivid debates. However, in general, we lack statistical indicators that would allow understanding the degree of assimilation of immigrants. In this Letter, we compute the indices of similarity between immigrants and native-born for a number of European destination countries, distinguishing between origin countries and several generations of immigrants. Obtained measures suggest a multi-dimensional character of the assimilation processes, which vary along economic, cultural, and civic characteristics of individuals.

Mariya Aleksynska

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FORTHCOMING

Coping with Agricultural Price Volatility Organized by the CEPII, the INRA & the AgroParisTech. In partnership with Le Club du CEPII Paris, April 8, 2011



Les nouveaux « Business Models» Inde - Chine
Organized by Le Club du CEPII & EIEBG.
Paris, March 24, 2011