Paul Brenton

Economic Integration and FDI: An Empirical Analysis of Foreign Investment in the EU and in Central and Eastern Europe

Recent evidence suggests that regional economic integration provides an important stimulus not only to trade, but also to FDI. In contrast, the available theory on FDI does not yet provide empirically testable propositions on the effects of concurrent trade and investment liberalisation. Moreover, given the limits of simulation models, which rely heavily upon parameter choice, in assessing the impact of such liberalisation, there is a need for empirical analysis to identify the principal features of FDI. This paper uses a gravity model approach to assess the impact of the deepening integration between the EU and the CEECs on FDI flows in terms of three key issues. First, we provide systematic estimates of the expected long-term level of FDI in the CEECs. Second, we investigate whether FDI in the CEECs, on the one hand, and source country exports and imports, on the other hand, are complements or substitutes. Finally, we enquire whether an increase in the attractiveness of the CEECs to foreign investors has affected the magnitude of FDI going to other European countries.

What's trade got to do with it? Relative Demand for Skills within Swedish Manufacturing

What’s Trade Got to Do with It? Relative Demand for Skills within Swedish Manufacturing. — This paper seeks to identify the contribution of trade and technological change to the increase in inequality between skilled and unskilled workers in Sweden since the 1970s. An empirical approach is adopted which allows for the outsourcing of the low-skill parts of the production chain to low-wage locations and is applied to detailed industry and bilateral trade data, the latter distinguishing between low-wage sources of imports and OECD countries. The paper finds that, in contrast to previous studies, trade with low-wage countries may have contributed to the rise in inequality in Swedish manufacturing. The empirical results also suggest that the increased use of technology also played a role in creating greater inequality between skilled and unskilled workers in Sweden, with the magnitude of this impact increasing in the 1990s.

Did Outsourcing to Low-wage Countries Hurt Less-skilled Workers in the UK?

Over much of the past two decades the relative wages and employment of the low skilled have fallen dramatically in the UK. Between 1980 and 1992, for example, the real earnings of the top tenth of male earners in the UK rose by 51 per cent, whereas the earnings of the bottom tenth only increased by 11 per cent.1 Nickell (1996) shows that the unemployment rate of less-skilled males in the UK rose from 6.4 per cent in the mid-1970s to 18.2 per cent in the mid-1980s, whereas over the same period the unemployment rate of skilled males rose only from 2.0 per cent to 4.7 per cent. The rise in UK wage inequality has also been in many directions. Although the most significant widening of relative wages has occurred between manual and non-manual workers, there has also been a large increase in the dispersion of wages within the categories of both manual and non-manual workers (see Gregg and Machin, 1994).

The dollar, trade, technology and inequality in the USA

The US experienced a considerable increase in inequality between skilled and less-skilled workers during the early 1980s-a period which corresponds with a large temporary appreciation of the dollar. This article investigates the reasons behind this rise in inequality by evaluating the impact of trade with low-wage countries (LWCs) and technological change on the wage bill share of skilled workers (which is designed to capture movements in inequal ity arising from changes in both the relative wage and employment opportunities of the less-skilled). We find that an increase in US imports from LWCs-encouraged by the large appreciation of the dollar in the early 1980s- seems to explain some of the rise in US inequality in low-skill-intensive sectors, but that technological change (proxied by R&D expenditure) explains the rise in inequality in high-skill-intensive sectors. However, given that the timing of the sudden rise in US R&D expenditure corresponds with the appreciation of the dollar, it may be the case that the deterioration in US trade competitiveness during this period contributed to the rapid increase in the rate of technological change via mechanisms such as defensive innovation. Hence one might also argue that the technology-based explanation for the rise in US inequality could actually be a trade-based explanation.

The allocation approach to trade modelling: Some tests of separability between imports and domestic production and between different imported commodity groups

ZusammenfassungDer Allokationsansatz in Modellen des internationalen Handels. Einige Tests der Trennbarkeit von Importen und heimischer Produktion und von verschiedenen Gruppen importierter Produkte. - Der Allokationsansatz beim Modellieren der Importnachfrage geht davon aus, da die Konsumenten zwischen Produkten aufgrund ihres Herstellungsortes differenzieren, und dafür müssen sich Importe und heimische Produktion trennen lassen. Auerdem ist es üblich, die Analyse mit disaggregierten Warengruppen durchzuführen, so da es auch nötig ist, die Importe nach Warengruppen zu unterscheiden. Derartige Annahmen sind selten empirisch erforscht worden. In diesem Aufsatz werden diese notwendigen Unterscheidungen getestet und dazu ein allgemeines Nachfragemodell sowie detallierte Daten der britischen Importe aus sechs EWG-LÄndern benutzt. Die Ergebnisse besagen, da diese Hypothesen nicht universell gültig sind.RésuméL’approche d’allocation au modélisation du commerce extérieur: quelques tests de la séparabilité entre des importations et la production locale et entre des groupes différents de produits importés. - L’approche d’allocation au modélisation de la demande importatrice qui est fondée sur la supposition que les consommateurs différencient les produits selon la place de leur production, implique la séparabilité entre les importations et la production locale. De plus, il est commun de faire des analyses avec des données désagrégées, et cela aussi implique une séparabilité, mais cette fois entre des groupes différents de produits importés. Telles suppositions n’ont gagné que peu d’attention empirique. Dans cet article ces contraintes de séparabilité sont testées en appliquant un modèle général de demande et en utilisant des données détaillées pour les importations du R.U. provenant des six pays CEE. Les résultats impliquent que ces hypothèses ne sont pas universellement applicables.ResumenEl enfoque microeconómico en modelos de comercio: algunos tests de separabilidad entre importaciones y producción nacional y entre distintos grupos de bienes importados. - El enfoque microeconómico (asignatorio) en modelos de demanda de importaciones, basado sobre la suposición de que los consumidores diferencian los bienes segÚn su lugar de producción, invoca la separabilidad entre importaciones y producción nacional. Además, es comÚn realizar un análisis a un nivel bajo de agregación de bienes, con el fin de imponer la separabilidad entre distintos grupos de bienes importados. Tales suposiciones han sido estudiadas empíricamente, mas sólo raramente. En este trabajo se someten las restricciones de separabilidad a un test, utilizando un modelo general de demanda y datos detallados de las importaciones del Reino Unido de seis países de la CEE. Los resultados implican que estas hipótesis carecen de aplicabili-dad universal.

Trade with the NICs and Wage Inequality: Evidence from the UK and Germany

Most research to date into the causes of the substantial increase in wage inequality in the UK concludes that increased competition from low-wage Newly-Industrialising Countries (NICs) has had very little impact on either the employment or relative wages of unskilled workers.1 But everyday experience suggests the reverse.2