The objective of the project is the foundation of a network which is intended to facilitate the cooperation of the Ifo Institute with the Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) in Nottingham. A first priority is given to research projects with a focus on international economic relations and globalisation.
In concrete terms, the supported research will be in the following areas:
1. Analytical and numeric modelling of general equilibrium models with heterogeneous enterprises for the purpose of analysing the consequences of economic-policy measures on enterprises and employees.
The research in the area of the modelling of the general equilibrium of heterogeneous enterprises began with Melitz (2003). In this study Melitz distinguishes firms with regard to their productivity, for example their marginal costs. This form of the modelling allows us to gain new insights on the effects of economic-policy measures and macroeconomic shocks on the size and productivity distribution of the enterprises. This kind of modelling is also applicable for the analysis of the relative importance of economic-policy measures concerning different types of firms (for example, multinational versus exporting enterprises). In particular, in this project theoretical models will be calibrated and a balance between theoretical and empirical distribution will be carried out with the help of econometric measures.
2. Analysis of market integration with imperfect labour markets.
In models of international economic theory, usually perfect factor markets are assumed. However, in Europe and in the current discussion imperfections in the labour market are playing a major role. For this reason a further goal of this project, together with researchers from Nottingham, is to expand the existing models with the factor of incomplete labour markets. In doing this new light is to be shed on the questions of international trade, production site shifts abroad as well as the vertical disintegration of the value added chain beyond country borders with respect to their impact on unemployment and wages.
3. Analysis of the determinants of trade, migration and foreign direct investment and their interaction.
A further phenomenon of the increasing integration of countries is the cross-border migration of employees, in particular the highly skilled (see International Labor Organization (2007), Skilled Labour Migration (the “Brain drain”) from Developing Countries: Analysis of Impact and Policy Issues, Geneva http://www.ilo.org/public/english/protection/migrant/archives/skillmig.htm). This part of the project aims at the support of inter-institutional research cooperation between Ifo and the GEP with respect to researching the interaction of migration flows with goods trade as well as with the activities of multinational enterprises. Here a question to be examined is whether goods trade or foreign direct investment reacts to migration in a substitutive or complementary way, or also in which way political instruments (for example, bilateral commercial and investment liberalisation) influence migration flows.
The results of the project will be published in two doctoral theses and in other outlets.
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