Economics of global interactions: Introduction to the special issue

The catalyst for the collection of papers included in this special issue was the 2013 International Conference on “Economics of Global Interactions” held in Bari (Italy), a yearly event that is currently on its 6th edition. This scientific event is build around the idea of bringing together economists which employ different, though strictly connected, prisms of analysis to the study of global interactions. This special issue represents a combination of novel empirical and theoretical approaches surrounding the borders of international trade, factor mobility and international development. The paper by Kawabata and Takarada analyses the welfare effects of free trade agreements (FTAs) in a three-country model characterized by oligopolistic competition. The novelty of the analysis is related to an explicit investigation on the role of product differentiation. The authors highlight a potential welfare improvements of FTAs for both member and non-member countries when product differentiation is accounted for. The authors also contribute to the debate on the nexus between FTAs and multilateral trade liberalization. In particular they find that when the products offered by competing oligopolistic firms are near substitute, FTA might represent a stumbling block to multilateral trade liberalization when firms compete à la Bertrand while the opposite happens when firms compete à la Cournot. Kondoh and Coniglio focus on international policy interactions related to another important global phenomenon, i.e. international migration. In a three-country setting, where two rich countries attract immigrants from a large poor country, the authors highlight policy externalities stemming from the adoption of heterogeneous and asymmetric immigration policies and emphasize possible welfare distortions arising from deeper labor market integration between the two rich countries. The issues raised in this work are particularly interesting in the context of the European Union where deep market integration coexists with highly heterogeneous immigration policies by its member states. Garcia Pires analyses the strategic use of R&D subsidies in international oligopolistic markets. Contrarily to the bulk of existing papers on strategic trade/R&D policy, Pires develops a model with endogenous production costs and first-mover advantage of the foreign competitors (leader). He shows that a subsidy to the R&D follower can make it to leap-frog in terms of competitiveness the R&D leader. Consequently, the country that hosts the R&D follower does not face a prisoner?s dilemma in international subsidy wars, since even when the foreign country retaliates it is always better off when it intervenes. The paper by Kurata investigates the welfare effects of the reduction of service costs in a “service-with-location” industry. The author introduces the realistic assumption of different region-specific marginal costs in industries with and without entry regulation. The main result is that while in industries where entry is regulated the reduction of service costs has a positive welfare effect for both producers and consumers, the effect might be detrimental to consumers in entry-unregulated industries. The special issue includes two papers focussing on the determinants of firms? internationalizations strategies. The paper by Ferri, De Bonis and Rotondi investigates the link between the strength of the firm–bank relationship and firm?s internationalization. The evidence obtained is that a longer relationship with the main bank foster firms? foreign direct investment but does not affect the export status of firms not engaging in FDI. Besides, the probability of a firm undertaking FDI further increases if its main bank is also internationalized by holding foreign subsidiaries. Presbitero, Richiardi and Amighini, using Italian data, test the hypothesis that increased labor flexibility might acts as a substitute to firms? delocalization strategies. The authors do not find the existence of a trade-off between labor market flexibility and the degree of offshoring of firms. Once reverse causality and spurious correlation are controlled for with IV, a higher share of temporary workers does not appear to reduce the likelihood of future offshoring. Do MNEs generate linkages in developing countries? Perez-Villar and Seric address this issue in the context of Sub-Saharan Africa using a rich database developed by UNIDO (Africa Investor Survey 2010). In particular the authors analyze the firm-level and macro-level determinants of linkages between foreign MNEs and domestic African firms. Interestingly, the authors find that institutional distances between origin and destination countries of the investment matters in shaping and reinforcing local linkages; a higher distance deters the extent of domestic linkage in host countries if institutions are worse than in the origin country (typically what happens in the case of North–South investments). Naiditch, Tomini and Ben Lakhdar analyze the interactions between two important global phenomena, remittances and international migration flows, using a rather novel theoretical approach – an epidemic model. Remittances are considered as an income transfer to households in the origin countries. The authors identify the steady state equilibria and study their stability under different assumptions concerning the effect of remittances on the incentive to migrate (“contagion function”). Their analysis shows that low remittances, decreasing recipients? credit constraints, foster migration while high remittances, increasing sufficiently recipients? incomes, deter migration. International migrants often move (or try their best to do so) irregularly. This form of mobility is generally highly costly and dangerous – as the growing flow of migrants across the Southern and Northern Mediterranean shores demonstrate. What motivates irregular migration? Surely future expectations are a fundamental element of the choice. The work by Hoxhaj starts from the anecdotic observation that these expectations are often unrealistic and imprecise. The author then investigates – using a unique survey on illegal immigrants apprehended in Italy and interviewed within a very short time from their arrival – migrants expected wages at the intended destination. He shows that a large part of immigrants overestimate the expected wage. Interestingly higher expected wages are associated with migration within an established network and with previous migration experience. This study surely expands our knowledge on the, rather neglected, role of expectations in shaping the migration decision. The last paper in this special issue, authored by Vézina, focusses on the phenomena of illegal trade in natural resources. The author documents a very high illegal trade in particular when export restrictions are high and in highly corrupted countries. The results highlight a potential drawback of export restrictions policies that are often employed by developing countries in order to control domestic prices and favor downstream industries.