The department’s main research areas are:
The globalisation of the goods markets and the international mobility of companies contain both opportunities and dangers for employment and the wage structure in Germany and Europe. In recent years, some 600 million employees have entered into the production of tradable goods in low wage countries like China and India, and the potential there is not yet exhausted. At the same time, massive immigration pressure has built up in the southern Mediterranean states. Estimates report that there are between 6 and 10 million illegal immigrants in Europe. Surveys confirm again and again that people in Germany and Europe are worried about the labour market effects of globalisation and see a danger for Europe’s social cohesion.
This research area deals with the labour market effects of international goods market and immigration in the presence of unemployment and non-Walrasian wage formation, as is typical for Germany. The research examines especially the role of government social-support systems and how they can be optimally designed so that the globalisation process can produce welfare benefits for the domestic population. The department also investigates the domestic effects of labour market reforms abroad and the policy implications for Europe that result from such cross-border effects.
For the analysis, the department employs models of the new international trade theory with which re-allocation effects of labour can be examined within closely defined sectors. This is supplemented by a realistic modelling of search unemployment in which various wage formation paradigms can be analysed. As in all research areas of the department, the theoretical analysis is accompanied by a quantitative evaluation by means of calibration and simulation of the models and econometric control testing.
In this research area the department co-operates in particular with Ifo research professor Giovanni Peri, Mario Larch (Bayreuth), Devashish Mitra (Syracuse, USA) and researchers from the IAB in Nuremberg.
Since the end of the Second World War, formal trade barriers such as customs or quantitative restrictions have fallen to a historical low. This has made distortions all the more evident that result from domestic regulations or from friction (imperfect financial markets, asymmetric information or legal insecurity) and that can force the volume of trade under, as well as above, the optimal level.
In this research area, the department examines market as well as non-market institutions as well as economic policies that influence the above-mentioned distortions. For example, the department evaluates the effect of governmental instruments of export promotion such as export credit-risk insurance, promotion of trade fairs, or international trade missions on volumes of trade and macroeconomic variables such as employment, welfare and growth.
In addition the department examines international trade policy and the World Trade Organization (WTO). It makes proposals such as the dismantling of still existing formal trade barriers particularly vis-à-vis the developing countries.
Policy-makers often defend formal and informal trade-policy measures by pointing to price fluctuations on international markets. For this reason, the department is developing empirical and model-based procedures for dealing with such uncertainty. In this analysis the department employs and refines the so-called gravity model.
In this area, the department co-operates closely with experts at the WTO and UNCTAD as well as with Ifo research professor Wilhelm Kohler and with colleagues from the Leverhulme Centre for Research on Globalization and Economic Policy (GEP), with which Ifo has a cooperation agreement.
The human-induced warming of the climate is a great challenge for the international community. The economic damage and the consequences for world peace could be enormous. A special problem in climate policies is that only a small portion of countries are prepared to submit themselves to binding emissions limitations. This impairs the effectiveness of climate-policy measures in Germany or Europe and increases the costs of achieving specific temperature goals.
In this research area, the department examines the importance of international goods trade for the effectiveness of unilateral climate policies. If, as a result of climate policies, domestic production is replaced by imports, the outcome is carbon leakage. This phenomenon will be quantified empirically. In addition, the department analyses policies that address the competition effects of unilateral climate policies and examines the role of external economic instruments in international climate negotiations.
Professor Scott Taylor from the University of Calgary, Canada, is the department’s main cooperation partner in this field.
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