Policy Research Working Papers -- Recent Issues
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Arm's-length Trade: A Source of Post-Crisis Trade Weakness (July 2017)
Trade growth has slowed sharply since the global financial crisis. U.S. trade data highlights that arm's-length trade—trade between unaffiliated firms—accounts disproportionately for the overall post-crisis trade slowdown. This is partly because arm's-length trade depends more heavily than intra-firm trade on emerging market and developing economies (EMDEs), where output growth has slowed sharply from elevated pre-crisis rates, and on sectors with rapid pre-crisis growth that boosted arm's-length trade pre-crisis but that have languished post-crisis. Compounding such compositional effects, arm's-length trade is also more sensitive to changes in demand and real exchange rates. For example, the income elasticity of arm's-length exports is about one-fifth higher than that of intra-firm exports. Hence, post-crisis global growth weakness has weighed more on arm's-length trade than on intra-firm trade. Unaffiliated firms may also have been hindered more than multinational firms by constrained access to finance during the crisis, heightened policy uncertainty, and their typical firm-level characteristics.
Global Inequality in a More Educated World (June 2017)
In developing countries, younger and better-educated cohorts are entering the workforce. This developing world-led education wave is altering the skill composition of the global labor supply, and impacting income distribution, at the national and global levels. This paper analyzes how this education wave reshapes global inequality over the long run using a general-equilibrium macro-micro simulation framework that covers harmonized household surveys representing almost 90 percent of the world population. The findings under alternative assumptions suggest that global income inequality will likely decrease by 2030. This increasing educated labor force will contribute to the closing of the gap in average incomes between developing and high income countries. The forthcoming education wave would also minimize, mainly for developing countries, potential further increases of within-country inequality.
Assessing the Global Economic and Poverty Effects of Antimicrobial Resistance (June 2017)
This paper assesses the potential impact of antimicrobial resistance on global economic growth and poverty. The analysis uses a global computable general equilibrium model and a microsimulation framework that together capture impact channels related to health, mortality, labor productivity, health care financing, and production in the livestock and other sectors. The effects spread across countries via trade flows that may be affected by new trade restrictions. Relative to a world without antimicrobial resistance, the losses during 2015–50 may sum to $85 trillion in gross domestic product and $23 trillion in global trade (in present value). By 2050, the cost in global gross domestic product could range from 1.1 percent (low case) to 3.8 percent (high case). Antimicrobial resistance is expected to make it more difficult to eliminate extreme poverty. Under the high antimicrobial resistance scenario, by 2030, an additional 24.1 million people would be extremely poor, of whom 18.7 million live in low-income countries. In general, developing countries will be hurt the most, especially those with the lowest incomes.
How Important are Spillovers from Major Emerging Markets? (June 2017)
The seven largest emerging market economies -- China, India, Brazil, Russia, Mexico, Indonesia, and Turkey -- constituted more than one-quarter of global output and more than half of global output growth during 2010-15. These emerging markets, called EM7, are also closely integrated with other countries, especially with other emerging and frontier markets. Given their size and integration, growth in EM7 could have significant cross-border spillovers. The authors provide empirical estimates of these spillovers using a Bayesian vector autoregression model. They report three main results. First, spillovers from EM7 are sizeable: a 1 percentage point increase in EM7 growth is associated with a 0.9 percentage point increase in growth in other emerging and frontier markets and a 0.6 percentage point increase in world growth at the end of three years. Second, sizeable as they are, spillovers from EM7 are still smaller than those from G7 countries (Group of Seven of advanced economies). Specifically, growth in other emerging and frontier markets, and the global economy would increase by one-half to three times more due to a similarly sized increase in G7 growth. Third, among the EM7, spillovers from China are the largest and permeate globally.