Globalisation

By Patrick Branthomme and Laurent Paul

Launched in September 2013 by the Chinese authorities, the “new silk road” project aims to better connect Asia and Europe. The latter must defend its economic interests and the multilateral framework to the best of its ability. To this end, it will be able to draw on the recent progress of the G20, which has established principles for the transparency of financing, the quality of infrastructure and compliance with environmental and corporate social responsibility standards.

Image: land and sea trade corridors of the “new silk road”
Image: land and sea trade corridors of the “new silk road” Source: Hong Kong Trade Development Council (HKTDC) Research

By Sanvi Avouyi-Dovi, Pierre Bui-Quang et Pierre Sicsic

The primary income surplus has been growing for several years. Since 2010, the increase of around EUR 10 billion in the income of French residents working abroad has been higher than that of direct investment (DI) income. The improvement in the income balance is now driven by employee compensation.

Chart 1: A significant improvement in the balance of compensation of cross-border commuters since 2010
Chart 1: A significant improvement in the balance of compensation of cross-border commuters since 2010 Source: Banque de France’s Annual Report on the Balance of Payments. Note: primary income surplus expressed in billions of euro (EUR bn). PI: Portfolio investment; OI: Other investment

By Liang Bai (University of Edinburgh) and Sebastian Stumpner (Banque de France)

In recent years, the share of US expenditure on imports from China has increased rapidly. Using detailed consumption data from US households for the period 2004-15, we estimate that, due to Chinese penetration, prices of consumer tradable goods have grown by roughly 0.2 percentage point less per year. Other things being equal, this translates into a reduction in the cost of living of roughly USD 200 per household in 2015.

China has become the largest exporter of goods to the United States.
Chart 1: China has become the largest exporter of goods to the United States. Source: Authors’ calculations based on data from CEPII and the Bureau of Economic Analysis (BEA).

By Guillaume Gaulier (Banque de France), Aude Sztulman (Paris-Dauphine University) and Deniz Ünal (CEPII)

The weakening of global value chain dynamics is considered as one of the causes of the slowdown in world trade since the 2008 crisis. However, measured as the share of trade in parts and components in the volume of world trade, and given the evolution of the business cycle, the development of international value chains continued after the crisis.

Chart 1: Share of Parts & Components (P&C) in manufacturing world trade in volume
Chart 1: Share of Parts & Components (P&C) in manufacturing world trade in volume Source: Authors' calculations based on CEPII WTFC data (about 5,000 products for the bilateral trade of over 200 countries) and IMF data (world output gap).

By Sophie Guilloux-Nefussi, Sophie Haincourt, Edouard Jousselin (Banque de France), and Anne Perrot (Council of Economic Analysis - CAE)

The growing role of global digital players with innovative business models is shaking up traditional markets. Does the digital economy constitute a fundamental break with the industries of the past? In theory, the economic principles underlying competition policy still stand. But given the acceleration of network effects and the use of vast quantities of personal data, competition authorities must adapt their control tools and improve their digital skills.

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By Ludivine Berret, Bruno Cabrillac and Céline Rochon

G7 countries activated several economic policy levers to respond to the 2008 crisis, in particular monetary and fiscal policy. As a result, their ability to stimulate the economy or deal with future crises has been reduced. Consequently, the temptation to conduct beggar-thy-neighbour policies, despite their harmful effects, could be exacerbated. Even though its weight in global GDP has declined significantly since the late 1980s, the G7—whose presidency is held by France in 2019—remains the appropriate forum for curbing this temptation.

Chart 1: Reduction of the weight of the G20 and the G7 in global GDP
Chart 1: Reduction of the weight of the G7 in global nominal GDP Source: Datastream and IMF-World Economic Outlook (WEO).

By Laurent Ferrara and Charles-Emmanuel Teuf

What role does the international environment play in shaping US monetary policy decisions? To measure its influence, we construct an international indicator extracted from minutes of Fed monetary policy committee meetings. In a Taylor rule model, we show that the indicator has a significant and negative impact on the fed funds rate. Discussions centred more on the international environment may thus be associated with greater monetary policy easing.

Chart: International environment indicator and major events affecting the global economy
Chart: International environment indicator and major events affecting the global economy Note: The grey areas correspond to major international economic events. Indicator constructed from a textual analysis of FOMC minutes (1993-2017), authors’ calculations

By Hadrien Camatte and Guillaume Gaulier 

The contribution of foreign trade to French growth was strongly negative between 2014 and 2016. Although, on average, the contribution from sectoral specialisation is more positive in France than for its European partners, it also implies a dependence on a limited number of sectors. The difficulties experienced by France's stronghold export sectors explain a large part of the downturn in the French trade balance between 2014 and 2016.

Chart 1 – Cumulative contributions to growth in the foreign trade coverage ratio for non-energy goods (in %)
Chart 1 – Cumulative contributions to growth in the foreign trade coverage ratio for non-energy goods (in %) Sources: Customs authorities and authors’ calculations.

No one wins a trade war. Based on a multi-region dynamic general equilibrium model (GIMF), we show that a global and generalised 10 percentage point increase in import tariffs could reduce global GDP by 1% after two years. This effect could be amplified by a fall in productivity, a rise in the financing cost of capital and a decline in investment demand. Taking all these factors into account could result in lowering global real GDP by up to 3% after two years.

Chart 1: Impact of a generalised 10 percentage point increase in tariffs on global real GDP
Chart 1: Impact of a generalised 10 percentage point increase in tariffs on global real GDP Source: author’s calculations.

Reducing current account imbalances is often equated with curbing excessive exports or imports. However, legacies of the past can develop their own dynamics due to accruing income flows. Indeed, in some countries that have accumulated large foreign liabilities, current account adjustment has been impeded by large negative income flows despite substantial improvements in the trade balance.

Figure 1 Current account dynamics Source: IMF BoPS

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