Foreign trade, home linkages and the spatial transmission of economic fluctuations in Italy
AbstractDuring 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 InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 827.
Date of creation: Oct 2011
Date of revision:
panel VAR model; trade linkages; spatial econometrics;
Find related papers by JEL classification:
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-23 (All new papers)
- NEP-GEO-2012-04-23 (Economic Geography)
- NEP-INT-2012-04-23 (International Trade)
- NEP-URE-2012-04-23 (Urban & Real Estate Economics)
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