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Foreign trade, home linkages and the spatial transmission of economic fluctuations in Italy

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  • Valter Di Giacinto

    ()
    (Bank of Italy)

Abstract

During the recent global recession both the export-oriented northern Italian regions and those in the far less open South experienced a sharp decline in economic activity. One of the possible explanations is the existence of strong domestic linkages propagating foreign demand shocks from North to South. To assess the scope of the spatial transmission of global and local disturbances across Italian regions, in this paper we specify and estimate a bivariate structural spatial VAR model featuring GDP and foreign exports as endogenous variables. A standard gravity equation approach is implemented to model unobserved domestic regional trade flows, while regional sales on foreign markets are related to global trade fluctuations and local shocks to competitiveness, broken down into a national and an idiosyncratic component. In line with expectations, strong domestic linkages are uncovered on the basis of model estimation results. The latter show that even less export-oriented Italian regions, although broadly unaffected on impact, may eventually experience a sharp output decline following a fall in global trade of the size observed in the recent recession.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 827.

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Date of creation: Oct 2011
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Handle: RePEc:bdi:wptemi:td_827_11

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Keywords: panel VAR model; trade linkages; spatial econometrics;

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References

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  1. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  2. Korhonen, Iikka & Ledyaeva, Svetlana, 2008. "Trade linkages and macroeconomic effects of the price of oil," BOFIT Discussion Papers 16/2008, Bank of Finland, Institute for Economies in Transition.
  3. Tilak Abeysinghe & Kristin J. Forbes, 2001. "Trade Linkages and Output-Multiplier Effects: A Structural VAR Approach with a Focus on Asia," NBER Working Papers 8600, National Bureau of Economic Research, Inc.
  4. Valter Di Giacinto, 2010. "On vector autoregressive modeling in space and time," Temi di discussione (Economic working papers) 746, Bank of Italy, Economic Research and International Relations Area.
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Cited by:
  1. Nikolay Kaledin, 2013. "Societal geography and regionalization of society," ERSA conference papers ersa13p1334, European Regional Science Association.

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