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This paper analyzes the impact of fiscal spending shocks in a multi-country model with international production networks. In contrast to standard results suggesting that production network linkages are unimportant for the aggregate response to macro shocks in a closed economy, we show that network structures may place a central role in the international propagation of fiscal shocks, particularly when wages are slow to adjust. The paper first develops a simple general equilibrium multi-country model and derives some analytical results on the response to fiscal spending shocks. We then apply the model to an analysis of fiscal spillovers in the Eurozone, using the calibrated sectoral network structure from the World Input Output Database (WIOD). In a version of the model with sticky wages, we find that fiscal spillovers from Germany and some other large Eurozone countries may be large, and within the range of empirical estimates. More importantly, we find that the Eurozone production network is very important for the international spillovers. In the absence of international production network linkages, spillovers would be only a third as large as predicted by the baseline model. Finally, we explore the diffusion of identified German government spending at the sectoral level, both within and across countries. We find that government expenditures have both significant upstream and downstream effects when these links are measured by the direction of sectoral production linkages.

This paper analyzes the impact of fiscal spending shocks in a multi-country model with international production networks. In contrast to standard results suggesting that production network linkages are unimportant for the aggregate response to macro shocks in a closed economy, we show that network structures may place a central role in the international propagation of fiscal shocks, particularly when wages are slow to adjust. The paper first develops a simple general equilibrium multi-country model and derives some analytical results on the response to fiscal spending shocks. We then apply the model to an analysis of fiscal spillovers in the Eurozone, using the calibrated sectoral network structure from the World Input Output Database (WIOD). In a version of the model with sticky wages, we find that fiscal spillovers from Germany and some other large Eurozone countries may be large, and within the range of empirical estimates. More importantly, we find that the Eurozone production network is very important for the international spillovers. In the absence of international production network linkages, spillovers would be only a third as large as predicted by the baseline model. Finally, we explore the diffusion of identified German government spending at the sectoral level, both within and across countries. We find that government expenditures have both significant upstream and downstream effects when these links are measured by the direction of sectoral production linkages.

This paper studies economic and financial spillovers from the euro area to Poland in a two-country semi-structural model. The model incorporates various channels of macrofinancial linkages and cross-border spillovers. We parameterize the model through an extensive calibration process, and provide a wide range of model properties and evaluation exercises. Simulation results suggest a prominent role of foreign demand shocks (euro area and global) in driving Poland's output, inflation and interest rate dynamics, particularly in recent years. Our model also has the capability for medium-term condi

This paper examines the effect of the presence of multinational companies on plant survival in the host country. We postulate that multinational companies can impact positively on plant survival through technology spillovers. We study the nature of the effect of multinationals using a Cox proportional hazard model which we estimate using plant level data for Irish manufacturing industries. Our results show that the presence of multinationals has a life enhancing effect only on indigenous plants in high tech industries, suggesting the presence of technology spillovers. In contrast, multinationals compete with each other in low tech sectors in the host country.

In relation to the rapid economic growth and various investment policy reforms; the number and types of FDI inflows to Ethiopia has been increasing. These steady inflows of FDI deliver important contributions to employment, foreign exchange and revenue generation of the country. FDI also affects the domestic economy indirectly through various channels one of which is productivity improvement of domestic firms resulting from technology and knowledge spillovers. The dynamic gains through spillovers from multinationals to local firms are the most valuable contribution of FDI to long-run growth and development of the country. However, the spillovers effect of FDI does not accrue automatically with the presence of foreign firms. There are various mediating factors affecting the knowledge and technology transfer from foreign to domestic firms one of which is host country factors and institutional framework. The net impact of FDI on domestic firms largely depends on the host country factors and institutional framework where the other mediating factors are situated. As far as our knowledge is concerned, none of the previous studies assess the role of host country factors and institutions as a mediating factor in analyzing the effect of FDI spillovers in Ethiopia in general and with in the manufacturing sector in particular. This study is, therefore, aimed at assessing the role of host country factors and institutions in mediating the intra-industry productivity spillovers in the manufacturing industry. Specifically, the paper addresses the productivity effect of interaction of FDI spillovers variables with labor freedom index, investment freedom index as well as trade openness and financial efficiency index of the country. Moreover, the study analyses the productivity spillovers effect through labor mobility channels and other channels of horizontal transfer separately. In this study, we use firm-level survey data on large and medium scale manufacturing industries collected by the Central Statistics Authority (CSA) of Ethiopia covering the period 2003 to 2010. The number of firms per year varies from a low of 730 in 2004 to high of 1863 in 2009.After deleting observations with zero employment, output, and sales value; the data is organized as unbalanced panel consisting of 11131 observations with in 52 manufacturing industry categories based on ISIC Revision 4.1 classification. Regarding ownership, we consider firms with total share of foreign ownership of 10 percent and above as FDI based on UNCTAD and OECD classification. The firm-level data is combined with country-level data to control for effect host country factors and institutional framework. The country level data is obtained from ADI, WDI and Heritage foundation databases. Moreover, the data obtained from Ethiopia Investment Agency is also used for descriptive analysis. We use both descriptive and econometrics as a method of analysis to address the above objectives. The descriptive analysis shows that employment and gross capital formation contribution of FDI has been increasing in the country. Sector wise, manufacturing sector takes largest share during the period under consideration. The largest share of manufacturing sector is attributed to special tax and non tax related incentive schemes to investors engaged in the sector. Some of the incentives include 100 percent exemption from custom duties, domestic loan up to 70 percent of the investment capital, and low land lease rate among others. Industry wise, labor intensive manufacturing industries contribute more than 90 percent of employment and value added in the sector. However, the sectors' contribution to value added and export is lower relative to agriculture and service sectors of the country as well as the Sub-Saharan Africa average. For the econometric analysis, panel data econometrics with fixed effects estimation technique is used as a method of analysis. After addressing all the estimation issues, we estimate the baseline model containing only the interaction terms as an explanatory variable and the extended model incorporating observable and unobservable control variables. The observable control variables, industry fixed effects and firm fixed effects are included in the model after checking their respective significance. We incorporate these variables in our estimation to be more confident in isolating the spillovers effect of FDI on productivity of domestic firms. The estimation result revealed that the intra-industry spillovers effect of FDI on productivity of domestic firms is positive except through the labor mobility channel which will not be reversed even in one year. The highly flexible labor market and wage difference facilitates the employee's turnover from domestic to foreign firms. In contrast, the estimation result suggests that the degree of openness, human capital stock and financial sector efficiency positively and significantly mediates the productivity effect from FDI. Concerning the control variables included in the model, capital intensity and age positively and significantly affects domestic firms' productivity. The effect of sector level concentration on firm's productivity is also positive but not significant. Our result clearly shows that the country's human capital development as well as trade openness and financial development plays a positive role in mediating knowledge and technology transfer between multinationals and domestic firms. However, the country's highly flexible labor market regulation facilitates the labor mobility from domestic to foreign firms which adversely affects productivity of domestic firms. Overall these findings suggest that apart from targeting to increase the volume of FDI; integrating spillovers as a wider industrial development policy is crucial so as to benefit more from dynamic gains from FDI. Specifically, formulating minimum wage legislation policy and supporting research and training programmes of domestic firms enables to maintain and attract skilled workers and benefit form spillovers. Moreover, further liberalization of financial sector reduce the cost of borrowing and the risk of investment to imitate technology. Similarly, further liberalization of trade increases the domestic firm's participation in global value chains and their respective productivity gains from spillovers. Furthermore, government should promote FDI-local industry linkages through creating regional industrial parks, implementing minimum local content requirments as well as facilitating joint research and training programmes.Finally, creating reliable regulatory starndards, encouraging entry of new firms, and providing adequate infrastructure can play a constructive role in facilitating spillovers from foreign to domestic firms.

The paper investigates the empirical relevance of the negative financial spillovers hypothesis according to which fiscal imbalances in one EMU member country bid up the interest rate faced by all other participants in the currency union. This idea questions the ability of financial markets to correctly price various types of risk now that the elimination of exchange rate fluctuations and the rapid integration of national government bond markets have made securities issued by different European governments closer substitutes. The paper takes an eclectic approach and tackles the issue from different angles, reviewing historical episodes, testing the Ricardian equivalence hypothesis in Europe as a whole and finally analyzing the impact of domestic and foreign fiscal variables on European bond yields. Despite the strong comovements displayed by European interest rates, empirical evidence does not support the idea that fiscal variables are a key determinant of these interrelations.

The paper investigates the empirical relevance of the negative financial spillovers hypothesis according to which fiscal imbalances in one EMU member country bid up the interest rate faced by all other participants in the currency union. This idea questions the ability of financial markets to correctly price various types of risk now that the elimination of exchange rate fluctuations and the rapid integration of national government bond markets have made securities issued by different European governments closer substitutes. The paper takes an eclectic approach and tackles the issue from different angles, reviewing historical episodes, testing the Ricardian equivalence hypothesis in Europe as a whole and finally analyzing the impact of domestic and foreign fiscal variables on European bond yields. Despite the strong comovements displayed by European interest rates, empirical evidence does not support the idea that fiscal variables are a key determinant of these interrelations.

Abstract
This paper analyses the impact of fiscal spending shocks in a dynamic, multi-country model with international production networks. The response of real gross domestic product to a fiscal spending shock can be decomposed into a direct effect, income effect and price effect. The direct effect depends only on input-output linkages, while the price effect is zero in the aggregate. We apply this decomposition to the Eurozone, and find that fiscal spillovers from Germany and the core Eurozone countries can be large, and within the range of empirical estimates. Without international production networks, spillovers would be significantly smaller. In an empirical application, using the decomposition, we find results strongly consistent with the model.

Understanding the global financial network for sovereign debt, particularly with a focus on interaction and spillover effects of sovereign risk, has become important for policy makers as they look to protect the stability of their economies. Using high dimensional Vector Autoregression techniques and network simulation on Sovereign Credit Default Swaps (CDS)' data of 57 countries, we identify that the global sovereign CDS network is fully integrated as there is virtually no country without any connection to at least one specific node in the system. However, each country has a unique attribute in the network, as a risk exporter or importer and/or risk transmitter. Among developed countries, the US (unsurprisingly) holds the dominant position as a risk exporter while Germany is identified as a connecting country that transmits shocks. The most connected countries in the sovereign CDS network belong to the new European Union members. We examine possible drivers of the network relationships observed, in order to better understand the risk transmission process, and find that connections in the sovereign risk network are stronger within regional groups and countries with the same level of economic development. Central and Eastern Europe and Middle East and Africa have more interactive networks than Northern Western Europe, Asia Pacific and Latin America. We also identify that financial volatility and economic policy uncertainty increase the interactions in market-based default risk assessment.

Reforms often occur in waves, seemingly cascading from country to country. We argue that such reform waves may be driven by informational spillovers: uncertainty about the outcome of reform is reduced by learning from the experience of similar countries. We motivate this hypothesis with a simple theoretical model and then test it empirically. Our results confirm the presence of informational spillovers with respect to political liberalization but offer little support for informational spillovers with respect to economic reforms.

A neoclassical growth model is used to empirically test for the influences of a civil war on steady-state income per capita both at home and in neighboring countries. This model provides the basis for measuring long-run and short-run effects of civil wars on income per capita growth in the host country and its neighbors. Evidence of significant collateral damage on economic growth in neighboring nations is uncovered. In addition, this damage is attributed to country-specific influences rather than to migration, human capital, or investment factors. As the intensity of the measure used to proxy the conflict increases, there are enhanced neighbor spillovers. Moreover, collateral damage from civil wars to growth is more pronounced in the short run.