Improving Methods for Policy Analysis of Foreign Trade and Investment

Since the turn of the century the German economy has experienced a remarkable increase of its integration in the global economy through both trade and foreign investment. German firms are also highly integrated in global value chains. All of this has contributed to economic growth and a high level of employment, but it has also caused painful adjustment in various parts of the economy. It is of crucial importance that economic policies related to trade and investment are based on a solid understanding of the mechanisms through which enhanced internationalization of German firms affect the domestic economy. It is well known that these mechanisms mean vastly different things for different firms. It is therefore important to develop economic models geared towards policy analysis that duly account for heterogeneity among firms and are empirically implemented using high-quality micro-data. In addition, these models should distinguish between short-run and long-run effects and be able to trace out dynamic adjustment paths.

Against this backdrop, this project  pursues four goals. First, it aims at taking stock of the relevant micro-data that are provided and maintained by the statistical offices on both the federal and the state level (DESTATIS) and by the central bank (Deutsche Bundesbank) and examining whether these data may – after suitable adjustment (merging, linking) – be used for model-based quantitative policy analysis in the areas of trade and foreign investment. Secondly, taking the new quantitative trade theory as a point of departure, it aims at developing and empirically implementing simulation models for trade and investment that allow for firm heterogeneity and dynamic adjustment. Thirdly, such models will be used to address, by means of numerical simulations, various policy scenarios regarding international trade and investment. These simulations will focus on heterogeneous effects among German firms. And finally, the project involves econometric estimation, using novel micro-panel-data, aimed at shedding light on topical issues related to trade and investment.

In cooperation with:

Commissioned by:

Project team:

Contact Person:
Prof. Dr. Wilhelm Kohler ( +49 7071 9896 11 // E-Mail )

Status:

2019 - ongoing