Michele Bagella

Money Laundering in a Two Sector Model: Using Theory for Measurement

This paper implements a methodology that exploits firms and households’ optimality conditions to measure money laundering for the Italian economy. This approach, first implemented by Ingram et al. (J Monet Econ 40:435–436, 1997) to the household production sector, and by Busato et al. (Using theory for measurement: an analysis of the behaviour of underground economy working paper, Aarhus University, 2006) for measuring the underground economy, allows to generate high frequency time-series for money laundering using a theoretical two-sector dynamic general equilibrium model calibrated over the sample 1981:01–2001:04. The analysis of the generated series suggests two main results. First, money laundering accounts for approximately 12 percent of aggregate GDP; second, money laundering is more volatile than aggregate GDP and it is negatively correlated with it.

Money Laundering in a Microfounded Dynamic Model: Simulations for the U.S. and the EU-15 Economies

This paper explores the ability of a class of two-sector dynamic general equilibrium models to generate equilibrium time series for Money Laundering (ML), through numerical simulations in accordance with the works of Ingram, Kocherlakota and Savin (1997), Busato, Chiarini and Di Maro (2006), and Argentiero, Bagella and Busato (2008). The paper adopts this approach for the US and the EU-15 economies. The simulations show that ML accounts for 19 percent of GDP in the EU-15 economy, while it accounts for 13 percent in the US economy over the sample 2000:01-2007:04. Moreover, the ML simulated for the EU-15 is less volatile (relative standard deviation to GDP is 0.288 compared to a figure of almost 0.4 for the US economy), and negatively correlated with respect to GDP. The latter statistic is positive for the US economy.

The Positive Link Between Geographical Agglomeration and Export Intensity: The Engine of Italian Endogenous Growth?

The theoretical part of the paper presents a stylised model where geographical proximity is assumed to increase private firm benefits from generating export services. On these premises the model shows that export intensity is higher for firms agglomerated in “industrial districts” than for isolated firms. It also shows how this positive relationship between export intensity and geographical agglomeration may be univocally established only when competition on foreign markets among firms cooperating in export services is not too high. The validity of this conclusion is analysed under different frameworks such as infinitely repeated noncooperative and cooperative games. The empirical part of the paper provides partial support to this theoretical hypothesis showing that benefits from geographical agglomeration in terms of higher export intensity and higher export participation are decreasing in firm size and generally higher in sectors characterised by forms of competition based on horizontal product differentiation.

Geographical Agglomeration in R&D Games: Theoretical Analysis and Empirical Evidence

The chapter presents a theoretical model in which geographical proximity positively affects imitative capacity by increasing technological knowledge spillovers from firms with positive R&D expenditures to neighbouring firms. The model shows that aggregate R&D effort is likely to be lower for firms agglomerated in “industrial districts” than for isolated firms. This is because, without geographical proximity, the only feasible Weak Renegotiation Proof (WRP) equilibrium is one where both firms always invest in R&D, while, with geographical proximity, this equilibrium is not in the set of strictly individually rational payoffs. The validity of this conclusion is analysed under different frameworks such as infinitely repeated noncooperative and cooperative games with perfect and imperfect information and games with payoff relevant strategies. The empirical part of the paper provides partial support to this theoretical hypothesis showing that geographical agglomeration, — even though not always significantly for all macroareas, macrosectors and size classes — reduces private firm R&D expenditures and firm decision to invest in R&D (R&D participation).

From SMEs to Industrial Districts in the Process of Internationalisation: Theory and Evidence

Following the approach that emphasises the existence of a continuum of forms in firms’ international expansion, ranging from exports of goods and services to foreign direct investment, many studies showed that Italian small and medium-size enterprises (SMEs) have recently been prone to international involvement, but only in the simplest form of exporting. The absence of a more complex internationalisation strategy has been explained with the existence of numerous obstacles of technological, informative and financial nature. The aim of this paper is to analyse the hypothesis that inter-firm relationships in the form of a group of firms or of an “industrial district (ID)” may enhance the internationalisation of SMEs, especially in developing countries. A simple theoretical model of an ID is presented. Then, the hypothesis of the internationalisation of the ID driven by a “leader firm” is studied. In our model, co-operation with the developing country’s firms may ease the productive undertaking in the developing country. To the aim of preliminary testing this hypothesis in the social and economic context of Latin America, we analysed the experience of groups of SMEs and of “quasi-IDs” in some countries (Argentina, Brazil, Mexico), with the perspective of future co-operation with the Italian IDs, and further international expansion.

The District Advantage in Small-Medium Firm Internationalisation

Studies on the internationalisation of Small and Medium Enterprises (SME) emphasise difficulties that these firms have in making direct investment abroad due to high transaction and information costs and to an equally high investment risk [Bagella, Pietrobelli 1995]. The recent Italian economic history has been characterised by the development of “industrial districts” [Becattini 1979]. The fact that SMEs in Italy are often members of a “district”, prompts us to ask if this membership is an advantage to operate successfully not only on internal markets, but also on foreign markets. More specifically, we argue that the “district” may generate in some activities economies of scale, which reduce barriers to internationalisation. A district SME, especially if the district has strong product specialisation, may have greater access to a wide range of information on foreign markets, alternative products, technologies and sources of finance. Conversely, when it comes to making productive investments abroad, whatever the form and nature, such an advantage decreases substantially. The SME needs to invest in acquiring quantitative and qualitative information and “relational goods” [Brunetta R., Tronti 1995; Scandizzo 1995] in countries in which it wants to operate. The investment considerably increases not only internationalisation costs but also the variance of expected returns from the project. The realisation of the project within a district may help SME to dampen the above mentioned negative effects through risk sharing. Another potential advantage for small medium firms in a district is the opportunity of sharing the project with an enterprise that belongs to a district and is considered a market leader. This firm may have more experience, well established relationships and trading activities with the foreign market to which the foreign investment is directed. The aim of this paper is to investigate this second hypothesis by using a financial investment portfolio approach. The first section analyses the investment choice on the basis of a standard risk-return approach; the second section specifies conditions under which the SME will find the investment profitable. The third section outlines some policy implications of the paper.

Market Dynamics as a Consequence of Local Complementarity and Global Substitutability in Agent's Strategies

Empirical analysis of financial markets has shown number of stylized facts such as heavy tails or volatility bursts which are difficult to explain in terms of evolution of fundamental economic variables. Indeed the non-Gaussian, non-stable character of empirical distributions, such as excess demand or stock returns, demonstrate the weakness of any independent agent approach to model the real market. Starting from the existing literature on the characterization of the behavior of random economies with many interacting agents, we identify a set of microeconomic interaction rules which could help to explain the macroeconomic observed market behavior. Following the work of Bornholdt and extending the Brock and Durlauf work, we will consider interacting agents whose payoff exhibit both a strategic complementarity with their nearest neighbors actions and an eventual global substitutability with the global market state. In this set-up we reconstruct a price process related to the imbalance between buyers and sellers. Finally we investigate how the frustration resulting from the tendency of local imitation, with an additional coupling with the average state of the system reproduces main observed stylized facts of real financial markets. We show how in this framework even the largest crash may emerge as a natural intrinsic metastable dynamics of the system induced by a collective phenomena such as crowd effects or herd behavior.

The Anticipated and Concurring Effects of the EMU

Reduced exchange rate volatility and higher and less heterogeneous quality of institutional rules and macroeconomic policies are two of the main (anticipated and concurring) effects expected from a currency union. In this paper we measure the magnitude of these two effects for the Eurozone countries looking at real effective exchange rates (REER) and at different indicators of quality of institutional rules and macroeconomic policies (QIRMP). We find that the first effect is much stronger than the second when we compare relative changes for Eurozone countries and the rest of the world in the relevant period. We further evaluate the impact of both effects on economic growth on a larger sample of countries. Our findings show that both have significant impact on levels (more robust) and on rates of growth (weaker) of per capita GDP.