The Long Term Effects of Export Competition Shocks
Abstract: This paper studies how persistent changes in international competitiveness can generate long-term economic scarring through endogenous growth dynamics in a two-country model. I extend a New Keynesian endogenous growth framework to a two-country setting in which an improvement in foreign technology weaken the competitive position of domestic firms and reduce their export market shares. The resulting decline in expected profits lowers the return to innovation in the traded sectors, slowing domestic technological progress and thereby reinforcing the initial loss in competitiveness.Through this feedback between trade performance and innovation, foreign technological catch-up can generate persistent declines in productivity growth and output beyond the direct effects of the initial shock and, in sufficiently adverse cases, can ultimately lead to a stagnation in productivity-growth. I show that policy makers have a temporal window of opportunity in which timely intervention can prevent the deterioration in competitiveness from becoming self-reinforcing.Once innovation has fallen sufficiently, mitigating the long-run effects of the shock requires increasingly strong policy intervention, which may be difficult for a fiscally constrained government.At the same time, two opposing forces party cushion the adverse competitiveness channel: foreign technological progress expands the size of the foreign market and lowers the cost of imported intermediate goods. Motivated by the rise of Chinese export competition and the German economy’s reliance on innovative manufacturing sectors, the framework links international trade, structural change, and endogenous technological growth, while providing a setting to study the role of fiscal and industrial policy in mitigating long-run stagnation effects.
Globalized consumption undermines efficiency-driven sustainability gains across planetary boundaries
with Claudia Kemfert, Alexander Kriwoluzky, Georg Maxton and Laura Schmitz (DIW Discussion Papers No. 2172)
Abstract: Despite decades of ambitious environmental policy, German consumption has continuously exceeded planetary-boundary thresholds in six of seven environmental dimensions since 1995, with little improvement over time. Combining environmentally extended multi-regional input–output tables with life-cycle impact assessment, we develop a consumption-based sustainability indicator across seven impact categories, benchmarked against national planetary-boundary thresholds. Decomposing impacts into scale and impact intensity per euro of production, we find that imports embody more impact per euro than domestic production in every category. A rising import share thus slows aggregate efficiency gains even as intensities fall in both origins, and the growing scale of imports offsets them altogether. We show that had the import share remained at its 1995 level, cumulative impact growth from 1995 to 2022 would have been 12.9 to 96.8 percentage points lower across categories.
Regional Effects of Carbon-Price Shocks
with Zeno Enders
Abstract: We investigate the heterogeneity in the pass-through of carbon policies. Investigating the effects of the EU ETS cap-and-trade program, we show that regions that are directly exposed to the policy are not affected more by the higher carbon price than regions with a low exposure. Digging deeper we find that electricity prices in high-exposure regions increases less than in regions with a lower exposure after such a shock. Hinting to the fact that indirect effects, such as pass-through via higher energy prices can explain the heterogeneous responses.