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Globalization, Investment, and Services Trade

Final Report Summary - GIST (Globalization, Investment, and Services Trade)



BACKGROUND

Globalisation, Investment and Services Trade’ (GIST) was a four-year project running from the 1st September 2008 to the 31st August 2012, involving research teams from seven European universities: J. Kepler University Linz (JKU), University College Dublin (UCD), Stockholm University (SU), Centro di Studi Luca d’Agliano (LdA), Centre National de la Recherche Scientifique (CNRS), WIIW, Vienna (wiiw), University of Ljubljana (UL).

During the course of the project, GIST achieved its goal of developing a cohort of researchers in Europe focused on international trade and Foreign Direct Investment (FDI) in the service sectors, and to integrate this network with the policy community (World Bank, WTO, Government ministries). The focus of research in the network was the development of sound analytical methods and empirical findings in this area.

The three broad sets of research questions that define the networking and training aspects of this project are:

1 - THEORETICAL ANALYSIS OF FDI AND CROSS BORDER TRADE IN SERVICES
2 - THEORETICAL AND EMPIRICAL ANALYSIS OF INTERACTIONS BETWEEN TRADE FLOWS, REGULATORY REGIMES, AND POLITICAL ECONOMY FACTORS
3 - ECONOMETRIC ANALYSIS OF TRADE AND FDI LINKAGES IN SERVICES

The approach, in both training and research, involves economic analysis (theory and empirics) as well as institutional analysis, incorporating legal and institutional elements as appropriate.

PROGRESS OF THE NETWORK

During the four years of the project, the network has made great progress in terms of the research questions which define the networking and training aspects of the project, i.e.: the theory of cross-border trade and FDI in services; trade, regulatory interaction, and the political economy of integration and empirics of trade and FDI interactions.

Each partner has worked towards the achievements of the goals set by the network at the beginning of the project:

Partner 1 – JKU: The research output of JKU provides valuable insight into the determinants of market access in services, including both natural factors like market size and distance, and policy factors impacting on firm costs for entry and operation. This falls under both theory (work package 1) and the mapping from theory to policy (work package 2). Furthermore, the work on value added flows provide important insight the linkages between service sectors and overall competitiveness. Collaboration with the team at wiiw also led to the development of datasets that will underpin research long after the project itself has ended.

Partner 2 – UCD: The research output of UCD is best understood as falling under the three work package topics. The first overarching theme deals with the theory of international trade and services. In its research for this topic, UCD consider how economic integration impacts consumers through the loss of rare, non-traded varieties and how the choice of firms to join the black market affects welfare in the face of declining tariffs.

The second major theme deals with the determination of trade policy, its impacts on FDI and the interactions in policy across countries. The research by UCD for this topic demonstrates how negotiations on some agreements may well be critical to achieve improvements on others.

In the final theme, UCD has produced a set of papers estimating the determinants of FDI and trade and their impact on local economies.

Partner 3 – Stockholm University: One implication of Stockholm’s research is that globalisation may give very different incentives regarding competition policy for small and large developing countries. Small countries are likely to favour adoption of competition policy once they are sufficiently integrated in the world trading system. For large countries, such as China and India, the situation may be different. Their incentives to implement competition policy may be stronger at an early stage of integration. If this is correct it is high time to pressure these countries to adhere to WIPO (world intellectual property organisation) rules.

Partner 4 – LdA: The LdA team has focused on three main topics: trade in services and offshoring, skill composition and trade in services, the political economy issues related to trade. Early-stage and experienced researchers recruited at Centro Studi Luca d’Agliano produced a number of papers on these topics. Further research on related issues has been carried on by other LdA GIST team members. The theoretical results obtained are novel and can lead to new empirical research, while the empirical research and data analysis sheds light on the importance of services trade as (i) a determinant of the skill composition of the labour force and (ii) as an element fostering the penetration of foreign markets. These works have been disseminated through working paper publications; they have been presented at international seminars, workshops and conferences, and have been sent for publication to refereed journals.

Partner 5 – CNRS: A substantial amount of the work carried out by CNRS has been devoted to the development and extension of two datasets. Those data were essential in the partner’s empirical work. In particular, the “Micro-Database Foreign Direct Investment” (MiDi) of the Bundesbank has been merged with the transaction-level “Trade in Services Statistic” from the Balance of Payments Statistics. These data contain information on all foreign affiliates of German multinational firms, all German affiliate of foreign multinational firms, and all service trade transactions from and to Germany that exceed certain reporting limits. The second dataset is for France. The French data comes from the Banque de France and has been merge with data from the INSEE on the balance sheet and income statements of all firms that have more than 20 employees. A key result from the analyses is that service trade is often closely interlinked with goods supply and therefore hard to analyze in isolation.

Partner 6 – wiiw: researchers at wiiw focused on the economic impact of creation of the Customs Union between Belarus, Kazakhstan, and Russia, and potentially Ukraine employing a multi-region computable general equilibrium. They found that this Customs Union would not be beneficial to Kazakhstan and Ukraine, and that Belarus and Russia benefit from the Customs Union in terms of GDP and labour income, although these benefits are relatively small. Ukraine, on the other hand, is likely to have a significant increase in GDP and real labour income after signing an FTA with the EU. . Another area of research is the study of the idea that services can help manufacturing firms to counteract competition by means of increasing their monopolistic power. Indeed, services can allow manufacturing firms to vertically differentiate their products. Furthermore, the services' content and quality of the supporting services is argued to foster consumer’s loyalty, making consumers' demand less elastic. (WP2).

Partner 7 – FELU: The main focus of research of the researchers affiliated to FELU was directed to the empirics of services trade. The first set research objectives analysed common stylized facts of services firms engaged in trade in a comparative study across four EU member countries. They found that, though relatively less engaged in trade than manufacturing firms, services firms have similar traits. Services firms are more likely to import than to export. Their prevalent type of trade is trade in goods. The complexity of trade activities is increasing in firm size and productivity. Two-way traders outperform one-way traders. Services are more likely to be traded by firms already engaged in trade of goods. Changes in trading status by either adding another dimension of trade (imports, exports) or another type of product (goods, services) are infrequent and are associated with significant pre-switching premia. The second set of research objectives studied potential gains from investment liberalization in services sector and impact of foreign direct investment in services sector on productivity improvement of firms in manufacturing sector. A comparable study on 7 EU new member states shows that there are some significant effects of liberalization of financial services sector and of professional services on productivity improvement of firms in manufacturing sector. The third set of research objectives studied how different kinds of firms, which operate in the international market share their profits with workers in the form of higher wages (rent sharing). These companies may be engaged in international trade or outsourcing and offshoring. They found that rent sharing is higher if a firm is either a foreign affiliate or a parent within an international group. They conclude that this superior performance of is trading and multinational firms can translate into substantial wage premia to workers through profitability. This could have an impact in the willingness of a country to stimulate its companies to internationalize.

RESEARCH ACTIVITIES

The network has been highly productive in terms of research collaboration and research output. So far there have been over 100 publications and over 50 working papers (23 of which are under review at peer reviewed journals). The network is making great strides in the development of a comprehensive database on trade in services as well.

DISSEMINATION

One of the most effective ways of disseminating the project activities and results is through network conferences, workshops and summer schools. While the network events are primarily intended for the benefit of the network participants, a number of external participants were invited to attend the conferences and summer schools in order to improve the quality of the events, and at the same time expose the ESRs and ERs to a large number of important researchers in their field.

A total of further four yearly conferences and four summer schools were organised during the four years of GIST:

• GIST Kick-off meeting, 25-26 September 2008, Vienna, wiiw;
• First GIST Summer School, ‘CGE modeling of trade and FDI in services with GAMS’, May 25-29 2009, Dublin;
• GIST First Conference, June 25-27, 2009, London, University of Milan;
• Media and Communication Skills for Researchers - Complementary Skills
• Training for AMID and GIST Early Stage and Experienced Researchers, May 27-28, 2010, CEPR, London;
• Second GIST Summer School “Heterogeneous firms and offshoring in services”, May 17-20 2010, CNRS, Paris;
• GIST Second Conference, June 24-25, 2010, Ljubljana University, Ljubljana
• GIST Mid Term Review Meeting, 15 September 2010, wiiw, Vienna
• Third Conference of GIST, Stockholm University, 21-23 June 2011
• Third GIST summer school, “The Political Economy of Trade in Services”, Palazzo Feltrinelli, Italy, 18-21 September 2011
• Fourth GIST summer school. University College Dublin, “Mechanism Design and its Application to International Trade and Investment”, May 28 – June 1 2012 (including 2nd Complementary Skills Training on Refereeing)
• Fourth and Final Conference of GIST, “Globalisation and Regulation in Services”, Alghero, Italy, 20-23 June 2012

RECRUITMENT

A total of twenty researchers were recruited in the network. Of these three were ERs.

The recruitment strategy of the network has been effective and successful both for Experienced and Early Stage Researchers. Although, some nodes struggled at the beginning to attract high calibre applications, others have successfully recruited both Early Stage Researchers and Experienced Researchers. The positions have been widely advertised on the Euraxess, GIST and the nodes’ websites.


TRAINING AND NETWORKING

The recruited researchers spent most of their time in their host institutions, as the majority of their training and transfer of knowledge activities occurred there. However, to fully leverage the benefits of this Pan-European network, the partners had to ensure that transfer of knowledge took place on a network-wide scale. The objectives of this TOK were mainly to overcome the fragmentation of research across institutions, to carry out cross country comparisons, and build a personally connected cohort of young researchers to further future research.

Indeed, during the first and second half of the project, the young researchers were given the opportunity to collaborate with other recruited researchers and senior member of the network on various research activities.

They also attended and presented their work at major network meetings, as well as at international conferences and workshops related to the network research activity. Indeed, a number of the GIST young researchers presented at the 2010, 2011 and 2012 ETSG events.

The GIST events were extremely well represented, with most of the young researchers attending and presenting their papers.

Furthermore, the fellows were encouraged to liaise with external researchers and institutions as well as other network nodes in order to establish useful collaborations. Example of this are: 1)the collaboration between Markus Kelle and Deutsche Bank in Frankfurt on Micro-Data. Kelle had the opportunity to use the bank’s data for his analysis of the the services trade and FDI activities of German firms; 2) the collaboration between Loriane Py and Karolina Ekholm, Deputy Governor of the Swedish Central Bank.

At institutional level, the researchers were encouraged by their supervisors to attend in-house workshops, and transversal skills courses such as language classes.

Other institutional level activities included:

• Mentoring - Each researcher hired by the network had a mentor who was responsible for integrating them into the institution
• Seminars – Both ESRs and ERs had the opportunity to attend seminars in their host institutions in order to learn to articulate their work, and learn about the process of critical review. ERs had the opportunity to receive high quality feedback from senior researchers.
• Complementary skills training – The researchers had the opportunity to attend a media skills training workshop in the second year of the project and a workshop on refereeing in the last year of the project. In addition to these, they attended language courses, and presentation skills courses at their host institutions.
• Non-network meetings and projects - These offered the researchers the opportunity to widen their breadth of knowledge and skills.

DISSEMINATION

The dissemination of project results to public takes place through a combination of channels, including the GIST website http://gist.cepr.org , publications and presentation of papers at the conferences and workshops organised for the project and at other meetings organised by CEPR and network partners.