This article examines factors associated with sectoral participation in global value chains (GVCs), distinguishing among overall, simple and complex participation and between short- and long-run relationships. Using a panel of 56 sectors in 43 economies from 2001 to 2014, the study estimates dynamic fixed effects and cross-sectionally augmented autoregressive distributed lag (CS-ARDL) models. The results indicate moderate short-run persistence and relatively rapid adjustment, with approximately 69%–85% of deviations from the estimated long-run relationship corrected within one period in the CS-ARDL specifications. Economic size is positively and consistently associated with all forms of GVC participation in the short run, although its long-run association is less stable. Imported capital is positively associated with complex participation in every full-sample short-run specification, but this pattern is not preserved in the lower-middle income countries subsample. Its long-run association is also sensitive to model specification and sample composition. Domestic capital intensity and the R&D-related variables exhibit limited and context-dependent associations, while R&D-sector capital intensity shows no statistical association in the specifications in which it is included. These findings highlight the importance of considering the type of GVC participation, the time horizon and the income group. JEL Codes: C33, F14, O50
We develop a dual-economy growth model for agricultural and manufacturing sectors. The manufacturing sector is responsible for environmental pollution. Unemployment exists in the model, as explained by the efficiency wage hypothesis. The efficiency of a worker varies positively with the wage, unemployment rate and environmental quality–labour ratio. In the short-run equilibrium, an improvement in the environmental quality–labour ratio never affects the wage rate, the rental rate on capital or the efficiency of labour, and always raises the national income. However, it lowers (raises) the unemployment rate as well as the level of manufacturing output. It raises (lowers) the level of agricultural production when the manufacturing sector is more capital- (labour-) intensive. Second, an increase in capital stock never affects the wage rate, the rental rate on capital, the efficiency of labour or the unemployment rate but always raises national income. However, it lowers (raises) the level of output of the agricultural (manufacturing) sector when the manufacturing sector is more capital- (labour-) intensive. Capital–labour ratio stock and environmental quality–labour ratio accumulate over time. A proportional tax is imposed on the rental income on capital to finance the abatement expenditure, and household savings are invested. An increase in the tax rate raises the capital stock, national income and environmental quality but lowers the unemployment rate in the long run. Taxing capital income and using the same for environmental quality improvement is always a better policy, as it improves both environmental quality and capital accumulation. JEL Codes: F64, O44, H20, Q56
We develop a three-sector small, open tourism economy: agricultural, informal and tourism service sectors. Land and labour are two primary inputs in the agricultural sector. The informal sector uses intermediate goods produced in the agricultural sector as an input. The tourism sector requires labour and specific ‘touristic’ capital as factors of production. Tourism services pollute the environment. The government introduces a pollution tax to control this pollution. We get the following interesting results. Tourism development, through an increase in foreign tourist arrivals, raises the price of the tourism service sector, tourism production and environmental pollution in the economy. Tourism development raises national income but raises welfare if the pollution tax rate exceeds the Pigouvian level tax rate. Touristic capital’s inflow (outflow) raises (lowers) both tourism services and environmental degradation under some conditions. Finally, if the direct effect of an increase (decrease) in pollution tax outweighs the indirect effect through a change in the price of tourism services, then an increase (decrease) in the pollution tax lowers (raises) both emissions and the production of tourism services. JEL Codes: F18, L18, O18, Q56
Since the commencement of Mr Trump’s second presidential term, the US government’s plan of levying tariffs on imports from the overseas affiliates of US multinationals into the US market has come to the fore. In this article, we examine how such a proposed tariff influences a US multinational’s decision to reshore production from its cost-effective, offshore facilities back to the United States. By modelling a Cournot competition between a US firm and its Chinese rival, both serving the US and Chinese markets, we establish that tariffs on the share of the US firm’s output, produced abroad and sold in the United States, can never induce complete reshoring of production. Moreover, the tariff-induced partial relocation of production causes a decline in the welfare of the private US economy. On the other hand, beyond a critical threshold rate of tariff, it leads to national welfare losses for the United States. In this light, our findings do not validate the Trump administration’s ‘America First’ trade rhetoric, which claims that reshoring US firms’ production of output, intended for sale in the United States, would yield clear benefits for the US economy. JEL Codes: F12, F23
This article incorporates international transfer of financial capital, a process that is essential to the offshoring of labour services across time zones but has been ignored. Considering two identical countries, we check the effect of utilisation of time-zone difference, which involves virtual transfer of financial capital along with labour services. Time-zone difference reduces the production time, enabling producers to repay the borrowed financial capital earlier and incur a lower interest rate compared to autarky. Consequently, both countries experience an increase in productivity. Further, because of the inclusion of financial capital transfer, both countries experience different changes in their factor prices. This implies that it becomes necessary for policy makers to decide whether to promote their country as a source or a host. JEL Codes: F12, F16, F21
