Michele Di Maio

The Evolution of the World Trade and the Italian 'Anomaly': A New Look

This work provides an empirical assessment of the ’sophistication’ of the Italian international specialization pattern and of its evolution during the period 1980−2000. In particular we discuss the Italian ’anomaly’, i.e. the evidence that Italy displays a specialization pattern more similar to the one of emerging economies than to the one of countries of comparable level of per-capita income. We show that combining the information coming from a new index measuring the income/productivity content of traded goods, i.e. the PRODY index recently proposed in Hausmann et al. (2005), with the index of Revealed Comparative Advantages (RCA) can shed light on the Italian anomaly. We begin providing a detailed picture of the theoretical and empirical characteristics of the PRODY index. In particular we calculate the index for 1980, 1990 and 2000 mapping its dynamics through that period. Then we describe the characteristic and evolution of the Italian RCA using both parametric and non parametric techniques finding that the Italian pattern of specialization is particularly persistent. Finally, we describe the co-evolution of the PRODY and of the RCA indexes. Our analysis shows that in the last two decades, the world trade has been rapidly changing with Italy becoming increasingly more competitive and specialized in products that are characterized by decreasing income/productivity levels. Thus, while the Italian ’anomaly’ was not a problem in the past, it may have become an obstacle to future growth.

Survey of the Literature on Successful Strategies and Practices for ExportPromotion by Developing Countries

Export promotion policies refer to the set of foreign trade policies targeted to exports enhancement. The aim of the present paper is reviewing the wide experience collected by the various countries in the past. Our purpose is two-fold. On the one side, our contribution aims at identifying the best practices so far and provide policy guidelines for the future. On the other, it highlights the policy, institutional and economic complementarities that make successful stories context-specific and warn against “one size fits all policy.”

Uncertainty, Trade Integration and the Optimal Level of Protection in a Ricardian Model With a Continuum of Goods

This paper analyzes how increasing trade integration affects individual utility when the international specialization pattern is stochastic, i.e. when the number of varieties each country produces depends on the realization of a random variable. I employ a Ricardian continuum of goods model to show that in this case a trade off emerges. As in the standard model, higher trade integration reduces prices and increases expected real income. However, higher trade integration, reducing the number of active sectors in the economy, also increases the displacement cost the worker would suffer in a bad state (i.e. when the sector she is employed into has to close down because, ex-post, the foreign countrys competing sector results to be more efficient). The main result of the model is that there exists an optimal level of protection that it is higher the smaller the price reduction induced by trade integration and the more technologically similar are countries.

Uncertainty, Optimal Specialization and Growth

We present a novel argument demonstrating that when trade is characterized by uncertainty the comparative advantages doctrine is misleading and a positive level of diversification is growth enhancing. Applying a result developed in the mathematical biological literature, we show that, in Ricardian trade model in which capital available for investment depends on previous periods returns, incomplete specialization is optimal. We also demonstrate that, in this case, the decentralized solution is characterized by an inefficiently high level of specialization with respect to the social optimal one. Finally, we present a taxation scheme that, reconciling individual incentives and social optimum, is able to induce individual agents to adopt the optimal specialization strategy, i.e. the one that maximizes the country growth rate.

Has the Chilean Neo-Liberal Experiment Run Out of Fuel? A View On Specialisation, Technological Gaps and Catching-Up

Due to an extraordinary growth performance during the last two decades the Chilean neo-liberal model of development, based on the exploitation of the country’s static comparative advantages, has turned into a benchmark for most developing countries. The aim of this paper is to discuss the long term sustainability of the Chilean neo-liberal model of development. We present new empirical results obtained by using CAN2000 as well as input-output analysis that describe the Chilean model of development during the period 1986-1998. On the basis of these stylised facts, a simple ricardian-evolutionary model is developed in order to offer an interpretative framework to discuss the conditions under which Chile could maintain the current catching-up process in the long run. The main conclusion is that, with the recent ceasing of the push effects of the neo-liberal policies, it is unlikely that an increase of the export volume, given its structural characteristics, will be sufficient to this end. Indeed, an increase of the country’s sectoral industrial interdependence and an improvement of its international specialisation pattern towards goods with higher technological content and higher income elasticity of world demand are necessary conditions for maintaining the current catching-up process in the long run.

Making Do With What You Have: Conflict, Input Misallocation and Firm Performance

This article investigates whether conflict induces distortions in the functioning and accessibility of markets for production inputs and in their allocation among firms. We study firm operations and outcomes in the context of Palestine during the Second Intifada. We analyse input usage over time across districts experiencing differential changes in conflict intensity. Conflict induces firms to substitute domestically produced materials for imported ones. Counterfactual analyses show that this mechanism can account for more than 70% of the fall in the output value of firms in high conflict districts.

Schools of Thought and Economists' Opinions on Economic Policy

In this paper we bring to data the hypothesis that differences in economists’ opinions on economic policy are related to differences in the school of thought (SofT) they belong to. Our analysis is based on a unique data set of survey responses from a representative sample of Italian economists. Two are the main results: First, differences in the SofT predict differences in economists’ opinions on economic issues, even controlling for individual, group, and community characteristics, spatial and knowledge heterogeneity, and political orientation. Second, dichotomous categorizations such as Mainstream vs Non-Mainstream or Orthodox vs Heterodox have poor explicative power as for economists’ disagreement on economic issues.

Uncertainty, Specialization and Government Intervention

We use a one-factor two-sector model of comparative advantage with uncertainty to compare the effects of different specialization levels on growth under various scenarios. We derive the static and dynamic optimal level of specialization under the centralized and the decentralized economy. We identify the conditions under which the socially optimal specialization level entails positive investment in the comparatively disadvantaged sector. We show that in this case the socially optimal solution cannot be reached by the decentralized economy which is in fact characterized by over-specialization. We conclude presenting a simple tax-based redistributive mechanism able to achieve the optimal level of specialization in a decentralized economic system.

L'anomalia del modello di specializzazione italiano e l'evoluzione del commercio internazionale

The Italian Anomaly in the Evolution of International Trade - This study offers a quantitative assessment of the international specialization of Italy in view of the evolving patterns of international trade over the period 1980- 2000. The analysis is based upon the co-evolution of the PRODY index, recently proposed in Hausmann et al. (2005), together with the classical Balassa index of revealed comparative advantage. Our findings suggest that Italian specialization is persistent and increasing in sectors characterized by decreasing capacity to sustain economic growth.

Informality, tariffs and wealth

This article analyzes the interaction between changes in tariff protection, informality, inequality and aggregate income. First, we describe some new empirical evidence on informality, the formal/informal wage gap and trade openness in Latin American countries. Then we present a simple model characterized by three (empirically based) assumptions: (1) agents consume both formal and informal goods; (2) the government uses tariff revenues to purchase formal goods; (3) informality is a voluntary phenomenon. The model predicts that tariff reduction increases informality and wage inequality and that the maximization of income requires a positive level of tariff protection. The models results are shown to be consistent with the empirical evidence concerning Latin American countries.