Regional economic structure and heterogeneous effects of monetary policy: evidence from Indonesian provinces

We analyze how regional economic structures affect the impact of monetary policy on rates of inflation across 34 Indonesian provinces. The paper first applies structural factor augmented vector autoregressive model (SFAVAR) to all the 34 provinces based on monthly provincial data in order to measure the length and magnitude of responses of regional inflation to monetary policy shock, derived from the consequential impulse response functions of 34 provinces. In the second step, we analyze the impact of economic structures on the length and magnitude of regional inflationary responses of 34 provinces. We find that the impacts of monetary policy across regions are significantly influenced by economic structural variables such as manufacturing sector share to GDP, mining sector share to GDP, bank lending share to GDP and export share to GDP. In addition, we found the spatial lag, rate of inflation of neighboring provinces, is also statistically significant. In a similar fashion, economic structural variables such as manufacturing sector share to GDP, construction sector share to GDP and investment share to GDP are found statistically significant in explaining regional differences of monetary policy efficiency. Our findings imply economic structures of provinces have to be incorporated to designing monetary policy in Indonesia.

Global and regional shock transmission: an Asian perspective

This paper constructs and uses the global input–output (GIO) table with 35 industries, 29 endogenous countries and 59 exogenous countries, and develops new indices to measure the degree of shock transmission in terms of intermediate goods and value-added embodied in production induced by negative global demand shock to finished goods. After the Global Financial Crisis (GFC) in 2008, China did not experience a large decline in economic growth, even though China’s gross exports fell most severely among Asian countries. In contrast, a sharp decrease in Japanese GDP in 2009 is a consequence of a substantial decline in finished goods exports, especially in the transport equipment industry. In Japan, the shock effect tends to be absorbed in its domestic sector and is not transmitted to other foreign countries. An asymmetric pattern of shock transmission between Japan and other Asian countries can explain why Japan was more affected by GFC than other Asian countries.

Pathways to recovery from COVID-19: characterizing input–output linkages of a targeted sector

At present, the world is facing an unprecedented employment challenge due to the COVID-19 pandemic. International Labor Organization of the United Nations expects the largest amount of youth unemployment at the global level to take place in manufacturing, real estate, wholesale, and accommodation sectors. This paper has two objectives. The first is to introduce a graph-theoretic method for identifying upstream and downstream pathways of a targeted sector and characterize them in ways that help respond to and recovery from the adverse effects of the COVID-19 pandemic. The second is to apply this method in the context of China, Japan, India, Russia, Germany, Turkey, UK and USA, which together account for about 60 percent of the world GDP. Based on the analysis of most recent input–output data from 2015, manufacturing sector is found to be top priority sector to be targeted in all the eight countries, followed by real estate and wholesale sectors, and these sectors should be coupled with isolated communities of sectors to capture external employment and growth effects. Characterizing the critical pre-COVID-19 linkages of a targeted sector should inform policy makers regarding the design of employment and growth strategies to recover from the pandemic.

Impact of Economic Structure on the Environmental Kuznets Curve (EKC) hypothesis in India

This study aims to evaluate the impact of economic structure on the Environmental Kuznets Curve (EKC) in India. The present study deviates from the bulk of study in the literature with the incorporation of both aggregated and disaggregated measures of economic development on the environmental degradation function. For the empirical analysis, the study employed the Auto-Regressive Distributed Lag (ARDL) bounds testing approach of cointegration to analyse the long-run and short-run relationship during 1971–2014. Further, the direction of the causality is investigated through the Wald test approach. The results revealed that the conventional EKC hypothesis does not hold in India in both aggregated and disaggregated models since economic growth and its component have a U-shaped impact on the environmental quality in India. However, the effect of population on environmental quality is positive but not significant in the aggregated model. Whereas, in the disaggregated model, it is significantly affecting environmental quality. Hence, it is possible to infer that the population of the country increases, the demand for energy consumption increase tremendously, particularly consumption of fossil fuel like coal, oil, and natural gas, and is also evident from the energy structure coefficient from both models. This increase is due to the scarcity of renewable energy for meeting the needs of people. On the contrary, urbanization reduces environmental degradation, which may be due to improved living conditions in terms of efficient infrastructure and energy efficiency in the urban area leading to a negative relation between urbanization and environmental degradation.

The usefulness of extended input–output tables incorporating firm heterogeneity

This study examines the usefulness of an extended input–output table (EIOT) incorporating the heterogeneity of Japanese firms based on differences in ratios of imported intermediate goods to total output. Using an EIOT, the vertical specialization indicator of Japan was calculated, which corresponds to the foreign value added included in exports. In this process, differences in intermediate input ratios were measured examining different types of firms using firm-level microdata from the Basic Survey of Japanese Business Structure and Activities. The results indicate that distinguishing between exporting and non-exporting firms is relevant for assembly industries such as electronics and automobiles, as widely discussed in the literature. In contrast, for primary materials industries, such as paper, chemical, and metal industries, other distinctions appear to be more relevant. For example, for the chemical industry, wherein firms tend to have large, integrated manufacturing plants, the differences in intermediate import ratios are largest when distinguishing large firms from small and medium firms. For paper and metal industries, which rely on foreign raw materials, the difference is largest when distinguishing between firms with and without foreign affiliates. By incorporating such heterogeneity, the vertical specification indicator increases by 70%; thus, the EIOT captures the foreign value added more comprehensively.

The role of institutional quality in the international trade of a Latin American country: evidence from Colombian export performance

This paper analyses the relevance of Colombian institutional quality in recent years in terms of the performance of its exports within a framework of trade openness. Based on the trade gravity model, we examine the effect of governance on the evolution of Colombian exports through an econometric approach that identifies, on the one hand, the influence of institutional quality, and on the other hand, the influence of the institutional distance between Colombia and its trading partners. We use a panel data set for 2005–2018, through which the export flows from Colombia to 136 of its trading partners are considered. The findings indicate that Colombian institutional quality and the institutional distance between the country and its partners are statistically significant and affect its foreign sales. Similarly, there is a prominent influence of regulatory quality and the rule of law variables in the performance of Colombian exports in relation to other variables included in the model. We conclude that the Colombian government must improve its institutional quality considerably as a fundamental step towards boosting its overseas sales, not least because the country’s institutional distance from the world average is notable, which also affects its exports.

Compilation and analysis of international from-whom-to-whom financial stock table for Japan, Korea, the United States, and China

This paper discusses the development of international flow of funds accounts; it compiles and analyzes such accounts with a focus on the global financial crisis. For this purpose, we compile from-whom-to-whom financial stock tables for Japan, Korea, the United States, and China and combine these tables to generate a four-country international from-whom-to-whom financial stock table. Input–output analyses reveal that nonfinancial corporations in the four countries have the largest liability power-of-dispersion and that the Japanese government’s liability power-of-dispersion is large. In contrast, the financial institution sector in Japan has the largest asset power-of-dispersion. In the future, the table could be expanded to include other major Asia–Pacific countries and linked to Euro-area from-whom-to-whom financial stock tables to provide a global from-whom-to-whom financial stock table.

Innovation, firm productivity, and export survival: firm-level evidence from ASEAN developing countries

This firm-level study investigates the importance of innovation as a determinant of firm productivity and how firm productivity could impact firm export survival. This is the first integration of the innovation approach, productivity approach, and firm survival approach to explore their linkages at the regional level in ASEAN developing countries. Using the panel database from the World Bank Enterprise Survey, which covers six developing countries in ASEAN—the Philippines, Indonesia, Vietnam, Laos, Cambodia, and Myanmar—and also covers six selected industries, we construct four equations: innovation inputs, innovation output, firm productivity, and export survival. The four equations’ findings suggest that the technology level of the sector, firm size, and exports are significant factors for R&D expenditure (innovation input). R&D expenditure is a significant driver of a firm’s product and process innovation (innovation output). Increasing firm productivity in the six ASEAN developing countries we considered is driven by process innovation rather than product innovation, and productive firms are more likely to survive in the export market.

Legal environment and corporate finance: evidence from the Italian manufacturing industry

Considering the Italian manufacturing industry between 2014 and 2016 (more than 250,000 observations), this technical note analyzes the relation between the courts’ ability to enforce credit rights and the opportunity to finance business activities with trade credits instead of financial debts, delaying payments and decreasing the financial costs. According to our results, and considering mortgage foreclosure, if the time necessary to settle an insolvency case increases by 1000 days, we can expect an increase in operating debt between 3 and 11%, and a decrease of financial expenses between 3000 and 7000 Euro.