World Economics

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Measuring the Success of Industrial Policy in Australia
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Andrew Marks, World Economics, December 2016
Industry policy in the context of trade liberalization has played a critical reinforcing role in re-orienting production in the Australian manufacturing sector from the domestic to international market. In the textile, clothing, footwear and motor vehicle industries this has promoted sustainable output and employment growth. This policy has also been instrumental in improving the structure of manufacturing exports from simple to elaborately transformed manufacturing products. The niche capital and knowledge intensive nature of elaborately transformed manufacturing products is of particular importance because they exhibit a comparative advantage in international markets. This has helped to offset the competitive advantage provided by industry policy in stimulating manufacturing exports in the countries of the South East Asian region which constitute Australia’s major export markets. Pressure is also being applied on other countries to implement industrial policy in order to remain competitive on the international market and in particular in this rapidly growing region of the world.
Offshoring and the Labour Share in Germany and US
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Deborah Winkler & William Milberg, World Economics, December 2015
Despite broad public concern with the effect of offshoring on inequality, there is scant research. The authors shift the focus to the effect of offshoring on the labour share in value added. Regression analysis for a sample of 14 OECD countries in 21 manufacturing sectors covering the period 1995 to 2008 reveals that the effects of offshoring on the labour share are negative. They also show that different policy regimes with regard to labour markets, education and innovation, and trade liberalisation mediate these effects whilst contrasting the experiences of Germany and the U.S. where the manufacturing labour share decline was particularly strong.
Bias in the ‘Proportionality Assumption’ Used in the Measurement of Offshoring
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Deborah Winkler & William Milberg, World Economics, December 2012
Most studies of offshoring rely on a ‘proportionality assumption’ where every sector is assumed to import each material and service input in the same proportion as its economy-wide use. We assess the bias resulting from this assumption. Since Germany collects imported inputs directly, we are able to compare the direct and proxy measures, where the proxy is constructed with the proportionality assumption. The proxy fails to accurately capture the variation in services offshoring intensity because – as a result of the proportionality assumption – it is strongly influenced by the variation in demand for domestic inputs. Estimation of the effect of offshoring on labour demand for 35 manufacturing sectors in Germany over 1995–2006 shows that the direct and proxy-based measures of services offshoring give very different results. The implication goes beyond the case of Germany: researchers must be cautious about drawing policy conclusions from estimates using the proxy of offshoring.
Global Value Chains, International Trade Statistics and Policymaking in a Flattening World
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Alejandro Jara & Hubert Escaith, World Economics, December 2012
The raise of global production networks since the 1980s changed the way we understand international trade and has profound repercussions on development policies and the conduct of global governance. New comparative advantages allow large developing countries to leap-frog through their industrialization process while smaller economies without large internal market or mining resources are now able to build an industrial base. Offshoring also gave the possibility to firms from industrialised countries to remain competitive in front of fast-expanding firms from emerging countries. But in the process, the relative demand for low and medium skilled workers in industrialised countries contracted, and this employment and income effect became a political issue and fuelled demand for protectionism. Unfortunately, the debate lacks accurate data as traditional statistics give only a blurred picture of what is known as ‘trade in tasks’. Before revising the trade and governance implications, the article calls for a new measurement of international trade based on its value-added content in order to have a better understanding of the actual issues.

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