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Business and Economics > Industries: Manufacturing

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Cover IMF Staff Country Reports
Ireland: Selected Issues
International Monetary Fund. European Dept.
Selected Issues
Keywords:
housing affordability; D. policy option; savings fund; modernizing judicial review; impulse response; Housing; Housing prices; Pension spending; Global
Cover IMF Working Papers
How Far Has Globalization Gone? A Tale of Two Regions
Rodolfo Campos, Samuel Pienknagura, and Jacopo Timini
We study the evolution of trade globalization in a set of countries in Latin America (mostly the largest ones) and Asia over the past 25 years. Relying on structural gravity models, we first estimate a proxy of trade globalization that captures the ease of trading internationally with respect to trading domestically. Results indicate that the evolution of trade globalization since the mid-1990s has been similar between the two regions, but very heterogeneous within them. Trade globalization has been particularly strong in agriculture, mining and manufacturing, but has lagged in services. The paper also documents that trade globalization has been particularly strong in agriculture, mining and manufacturing, but it lagged in services. Within region heterogeneity is associated to a set of trade policy instruments, including tariffs, non-tariff measures, WTO membership. and trade agreements. Next, we quantify the economic implications of the estimated globalization trends. Simulations of a multi-sector trade model point to heterogeneous long-term impacts of globalization on GDP—some countries exhibiting substantial gains and others experiencing large losses—, with no single sector playing a preponderant role.
Keywords:
Trade; Globalization; Structural gravity; Latin America; Asia; trade globalization; globalization trend; IMF working paper 23/255; model point; globalization process; Trade policy; Manufacturing; Agricultural sector; Tariffs; Caribbean; Asia and Pacific; Global
Cover IMF Working Papers
Geoeconomic Fragmentation: What’s at Stake for the EU
Chikako Baba, Ting Lan, Ms. Aiko Mineshima, Florian Misch, Magali Pinat, Asghar Shahmoradi, Jiaxiong Yao, and Ms. Rachel van Elkan
Geoeconomic fragmentation (GEF) is becoming entrenched worldwide, and the European Union (EU) is not immune to its effects. This paper takes stock of GEF policies impinging on—and adopted by—the EU and considers how exposed the EU is through trade, financial and technological channels. Motivated by current policies adopted by other countries, the paper then simulates how various measures—raising costs of trade and technology transfer and fossil fuel prices, and imposition of sectoral subsidies—would affect the EU economy. Due to its high-degree of openness, the EU is found to be exposed to GEF through multiple channels, with simulated losses that differ significantly across scenarios. From a welfare perspective, this suggests the need for a cautious approach to GEF policies. The EU’s best defence against GEF is to strengthen the Single Market while advocating for a multilateral rules-based trading system.
Keywords:
Geoeconomic fragmentation; cross-border restrictions; trade; innovation; multinational production; energy; European Union; Single Market; EU economy; EU integration; EU foreign direct investment linkage; EU State aid; Manufacturing; Foreign direct investment; Fuel prices; Comparative advantage; Exports; Global
Cover Morocco’s Quest for Stronger and Inclusive Growth
Morocco’s Quest for Stronger and Inclusive Growth

Abstract

Throughout the past two decades, Morocco has faced several external and domestic shocks, including large swings in international oil prices, regional geopolitical tensions, severe droughts, and most recently the impact of the pandemic and the economic fallout from Russia’s invasion of Ukraine. Despite rough waters, the government stayed the course and remained focused not only on immediate stability, but also on the long-term needs of the Moroccan economy. This involved the adoption of a series of difficult measures, like the elimination of energy subsidies, and a strategy aimed at improving the country’s infrastructure, diversifying the production and export bases by attracting foreign investment, and modernizing the governance structure of the public administration. The road to higher and more inclusive growth, however, remains steep. Despite gains in poverty reduction, literacy and lifespans, Morocco economy continues to face a high share of inactive youth, large gaps in economic opportunities for women, a fragmented social protection system, and remaining barriers to private sector development. An ambitious reform agenda is needed to better meet the aspirations of Moroccans, by making economic growth stronger, more resilient and more inclusive, particularly to provide greater opportunities for young, women, and entrepreneurs. Morocco appears well positioned to address these challenges, and indeed, the country has recently sought to define and pursue a new “model of development”, through national debates and a more inclusive approach to reform. Significant reforms have been announced recently that revamp both the social protection system and the SOEs business model. This book draws lessons from the reforms Morocco has implemented in the past few decades and charts a course for Morocco by addressing key areas for reform.

Keywords:
Morocco; economic development; structural reforms; fiscal rule; NEET rate; development model; core inflation; NEET condition; World Bank enterprise Survey; Fiscal rules; Manufacturing; Women; Gender inequality; Global; North Africa; Middle East; Middle East and Central Asia; Maghreb
Cover IMF Working Papers
Default Risk and Transition Dynamics with Carbon Shocks
Sujan Lamichhane
Climate mitigation policies are being introduced around the world to limit global warming, generating new risks to the economy. This paper develops a continuous time heterogeneous agents model to study the impact of carbon pricing policy shocks on corporate default risk and the consequent transition dynamics. We derive a closed-form solution to corporate default probability based on firms' intertemporal optimization decisions and explicitly characterize the transition speed. This allows for studying policy implications in an analytically tractable way. The model is calibrated to different US corporate sectors to quantify the heterogeneous effects of carbon price shocks. While carbon-intensive sectors face increased default risks, there are notable asymmetric effects within sectors. Higher carbon prices increase default risk but also induce faster transition towards the new post-shock steady state with a highly non-linear impact. Our results suggest that once a range of possible price shocks are accounted for, the increase in the cost of capital/risk premiums might be sharply different across sectors.
Keywords:
Default risk; climate risk; carbon price; transition dynamics; cost of capital; risk premium.; climate mitigation policy; carbon price shock; policy shock; price shock; default rate; Debt default; Greenhouse gas emissions; Manufacturing; Global
Cover IMF Working Papers
Economic Consequences of Large Extraction Declines: Lessons for the Green Transition
Mr. Rudolfs Bems, Lukas Boehnert, Mr. Andrea Pescatori, and Martin Stuermer
Limiting climate change requires a 80 percent reduction in fossil fuel extraction until 2050. What are the macroeconomic consequences for fossil fuel producing countries? We identify 35 episodes of persistent, exogenous declines in extraction based on a new data-set for 13 minerals (oil, gas, coal, metals) and 122 countries since 1950. We use local projections to estimate effects on real output as well as the external and the domestic sectors. Declines in extractive activity lead to persistent negative effects on real GDP and the trade balance. The real exchange rate depreciates but not enough to offset the decline in net exports. Effects on low-income countries are significantly larger than on high-income countries. Results suggest that legacy effects of bad institutions could prevent countries from benefiting from lower resource extraction.
Keywords:
Resource-rich countries; energy transition; fossil fuels; macroeconomics; development; climate policies; legacy effect; limiting climate change; commodity price data; aggregate output; interaction term; low income; real GDP response; open economy; Mining sector; Non-renewable resources; Consumption; Manufacturing; Global
Cover IMF Working Papers
Assessing the Impact of Supply Disruptions on the Global Pandemic Recovery
Harri Kemp, Mr. Rafael A Portillo, and Marika Santoro
We estimate the role of (pre-Ukraine war) supply disruptions in constraining the Covid-19 pandemic recovery, for several advanced economies and emerging markets, and globally. We rely on two approaches. In the first approach, we use sign-restricted Vector Auto Regressions (SVAR) to identify supply and demand shocks in manufacturing, based on the co-movement of surveys on new orders and suppliers’ delivery times. The effects of these shocks on industrial production and GDP are recovered through a combination of local projection methods and the input-output framework in Acemoglu et al. (2016). In the second approach, we use the IMF’s G20 model to gauge the importance of supply shocks in jointly driving activity and inflation surprises. We find that supply disruptions subtracted between 0.5 and 1.2 percent from global value added during the global recovery in 2021, while also adding about 1 percent to global core inflation that same year.
Keywords:
Supply constraints; manufacturing; output; inflation; supply and demand demand shock; Ukraine war; supply disruption; supply-demand decomposition; inflation deviation; Supply shocks; Economic recovery; Industrial production; Global
Cover IMF Working Papers
Production Technology, Market Power, and the Decline of the Labor Share
Agustin Velasquez
The labor share has been declining in the United States, and especially so in manufacturing. This paper investigates the role of capital accumulation and market power in explaining this decline. I first estimate the production function of 21 manufacturing sectors along time series and including time-varying markups. The elasticities of substitution for most sectors are estimated below one, implying that capital deepening cannot explain the labor share decline. I then track the long-run evolution of the labor share using the estimated production technology parameters. I decompose aggregate labor share changes into sector re-weights, capital-labor substitution, and market power effects. I find that the increase in market power, as reported in recent studies, can account for, at least, 76 percent of the labor share decline in manufacturing. Absent the rise in market power, the labor share would have remained constant in the second half of the 20th century.
Keywords:
Labor share; elasticity of substitution; capital accumulation; market power; labor share decline; market power effects; capital-labor substitution; market power narrative; markup series; capital share; Manufacturing; Income
Cover IMF Working Papers
Keeping it Simple–Efficiency Costs of Fixed Margin Regimes in Transfer Pricing
Sebastian Beer, Sebastien Leduc, and Jan Loeprick
Simplifying tax policy comes with costs and benefits. This paper explores simplification options for the taxation of MNEs, an area where administrative and compliance costs of the current rules are large. Simplified approaches seek to reduce these costs by relying on an approximation of the true tax base, potentially distorting resource allocation. We examine the efficiency cost of transfer pricing simplification theoretically and empirically. Using a sample of 300,000 firms located in 22 countries, we estimate that common transfer pricing practices reduce efficiency between 0.25 and 2.2 percent of total factor productivity across sectors. Focusing on the manufacturing sector, we then observe that simplification more than doubles sectoral inefficiency on average. However, large differences exist, with moderate efficiency costs in several sectors.
Keywords:
Taxation of Multinational Enterprises; Transfer Pricing Simplification; Efficiency Costs; modelling transfer pricing Benchmarking; efficiency cost; annex I. descriptive statistics; simplification option; transfer pricing practice; efficiency loss; Transfer pricing; Total factor productivity; Productivity; Tax wedge; Manufacturing; Global
Cover IMF Working Papers
Promoting Innovation: The Differential Impact of R&D Subsidies
Reda Cherif, Fuad Hasanov, Christoph Grimpe, and Wolfgang Sofka
We investigate the effect of R&D subsidies on firms’ innovation by ownership, industry, and firm size using German firm-level data. The impact of R&D subsidies is heterogeneous across industries for multinational corporations (MNCs) and domestic firms while it does not differ substantially by firm size. Domestic firms have a larger response in R&D spending in low-tech manufacturing, knowledge-intensive services, and technological services while the response of domestic and foreign MNCs is broadly similar and is greater in medium-tech and high-tech manufacturing. Foreign MNC subsidiaries’ response in terms of patents is greater than that of domestic MNCs in most industries.
Keywords:
Innovation; patents; research and development; R&D; subsidies; multinationals; investment; technology policy; R&D subsidy; high-tech manufacturing; subsidiaries' response; low-tech manufacturing; R&D spending; Transnational corporations; Manufacturing; Services sector; Government subsidies; Investment policy; Global