With average temperature ranging from −20°C at the North Pole to 30°C at the Equator and with global warming expected to reach 1.4°C to 4.5°C by the year 2100, it is clear that climate change will have vastly different effects across the globe. Given the abundance of land in northern latitudes, if population and economic activity could freely move across space, the economic cost of global warming would be greatly reduced. However, spatial frictions are real: migrants face barriers, trade and transportation are costly, physical infrastructure is not footloose, and knowledge embedded in clusters of economic activity diffuses only imperfectly. Thus, the economic cost of climate change is intimately connected to these spatial frictions. Building on earlier integrated assessment models (IAMs) that largely ignored space, in the past decade there has been significant progress in developing dynamic spatial integrated assessment models (S-IAMs) aimed at providing a more realistic evaluation of the economic cost of climate change, both locally and globally. This review discusses this progress and provides a guide for future work in this area.

This paper studies the relationship between market access and institutional quality in a global economy. First, we empirically show that a larger effective market size facing the firms in a country leads to higher quality of contracting institutions. Second, we propose a theory of real market access and institutions by embedding an incomplete contract model into a general-equilibrium trade environment where national planners optimize their countries' welfare by choosing institutional qualities. Under different types of equilibria, our theory matches the empirical fact that larger real market access leads to higher institutional quality. It also discusses the direction of the scale effect of population, discovers a trade diversion effect on institutional quality when only a subset of countries trade-liberalize, and generates a flying-geese pattern of institutional improvement.

Trade preferences for blocs of geopolitical allies, a strategy now widely known as friend-shoring, implies increased trade discrimination that can lead to unintended consequences. Recent examples of a country raising tariff barriers while joining a trade bloc are rare, due to tariff commitments under the World Trade Organization. The Eurasian Economic Union provides a unique recent case study because Kazakhstan increased external tariffs to Russia’s levels in forming a customs union in 2010, five years before ascending to the WTO. We find that firm exposure to import tariff increases impeded Kazakhstan’s export diversification, even within the customs union. Our conclusions are based on several industry-level measures of import tariff exposure constructed from Kazakhstan’s firm-level trade transactions. A differences-in-differences estimation reveals that higher import tariff exposure for Kazakhstan industries caused substantially lower export growth to Russia. A second differences-in-difference analysis finds that firms with higher import tariff exposure were less resilient to the shock of Kazakhstan’s unexpected devaluation in early February 2014. Our analysis sheds light on Kazakhstan’s underwhelming performance in achieving economic diversification goals, and we provide the first evidence on negative export consequences for a country raising external tariffs when joining a trade bloc.

The recent decades have witnessed a remarkable surge in machinery imports from China to African economies. Our study aims to examine the causes and local implications of these imports. Notably, we find that China's efforts to address domestic overcapacity have played a significant role. City industries that face urgent capacity elimination requirements are more inclined to export machinery equipment to emerging markets, particularly African countries with weaker environmental regulations and abundant resources. By using instrumental variables based on China's annual lists of eliminated capacity, we discover mixed effects of machinery imports on African economies. While they contribute to increased output and value-added in recipient industries that use these machines for production, the impact on employment and sectoral linkages is limited. Treated regions experience a shift in employment from agriculture to other sectors, primarily services. Meanwhile, these regions also experience a rise in pollution levels. This serves as a cautionary tale for the role of massive machinery transfer in African industrialization, underscoring the need to pay attention to job creation and sustainable development

We adapt the Eaton and Kortum (2002) model to a multi-sector general equilibrium Ricardian model with input-output linkages, and then carry out counterfactual exercises to quantify the impacts of the changes in technology stocks, trade costs and net exports on the degree of globalization of nations. We treat the gains from trade as an indicator of the degree of globalization of a country. We find that global changes in trade costs and technology stocks explain 97% of the variance of change in the degree of globalization across countries. Thus, the evolution of globalization during 1995-2017 was mainly driven by increases in technology stocks and reduction of trade costs of countries around the world. Changes in developing countries had significantly larger impacts on this evolution than those in developed countries. We found that foreign changes contributed to an average of 65 percent of the increase in the degree of globalization of countries, while domestic changes accounted for only 35 percent. We also estimate bilateral contributions across all country pairs in our sample. We are able to identify "friends" and "foes" in trade relationship among countries, in the spirit of Kleinman, Liu and Redding (2023). China's contribution to foreign countries, which amounted to 31% of the world's total contribution from domestic country to foreign countries, was by far the largest among all countries.

What determines the resilience of cities to aggregate shocks? Why do we observe divergent growth paths in cities with similar sizes and levels of human capital? After a shock, the chances a worker finds a job in a different sector depend on how portable her skills are. We propose a model of city growth highlighting the role of the portability of skills across sectors and draw out testable implications. The skill portability measure predicts industry-to-industry job transitions by exploiting historical job advertisements from 1940 to 1970, and it is a sufficient statistic for the growth and decline of cities in the past three decades. Structural estimation of a model that embeds the micro-foundation of skill portability into a dynamic spatial general equilibrium model provides the quantitative importance of skill portability for the resilience to aggregate shocks of European cities, which contrasts with the traditional explanation of city growth.

This study examines the impact of place-based industrial policies on industrial geography and regional economic growth in China, emphasizing the role of input-output linkages through production networks. Utilizing comprehensive geo-coded data on new firm registrations and development zone policies (DZ) from 1979 to 2019 in China, we find that although most development zones focused on supporting a particular set of industries, they induced fast growth of the downstream and upstream industries of the DZ-target industries by increasing new entry and sales of incumbent firms. The effects are greater for industries closer to the DZ-target industries in the input-output linkages. The spillover effect on IO-linked industries is due to the cost and demand effects arising from industrial clustering. Moreover, the effect is mainly driven by private firms. Overall, development zones had a significant, positive impact on regional economic development, and the spillovers to upstream and downstream industries (and their interactions with the DZ-target industries) played an important role.

This paper identifies a firm-level Productivity J-curve induced by intangible investments. Using novel microdata on business-to-business transactions for Belgian firms (2002-2019), we develop a comprehensive measure of intangible investment that captures expenditures across software, R&D, design, training, and organizational capital. We find that the return on intangibles far exceeds the return on other production factors. These differences suggest that investments in computerized information are the most productive. Exploiting the lumpiness of these investments in a difference-in-differences event-study framework, we find that intangible investment leads to a 3% underestimation of total factor productivity over a seven-year horizon. Given that measured TFP grows by 1% annually on average, this reflects a non-negligible mismeasurement to TFP trajectories. The mismeasurement is concentrated among small, young, and low-capital intensive firms, reflecting their slower intangible absorption process. Additionally, we provide evidence that the Solow Paradox at the firm level is driven by the complementarity between ICT and intangible capital. Our results offer new empirical insights into how intangible investments and emerging technologies, such as AI, contribute to persistent productivity mismeasurement.

This paper documents the evolution of firm-level markups in Kazakhstan from 2009 to 2023. We develop a nuanced understanding of how firm-level markups interact with structural factors in emerging economies, bridging gaps in empirical research on market dynamics outside advanced economies. Using confidential firm-level data, we track markup trends across industries, firm sizes, and ownership structures. Estimates based on the De Loecker et al. (2020) approach show that markups remained stable over time, with within-firm dynamics driving overall trends. However, substantial heterogeneity emerges. Across industries, the mining sector exhibits the highest markups. Larger, dominant firms have seen their markups rise, while the median firm’s markups have remained stable. State-owned enterprises also systematically charge higher markups than private firms. To provide a more comprehensive assessment, we extend the analysis using the Abraham et al. (2024) method, which accounts for fixed costs. This approach confirms the stable markup trajectory and shows that price-cost margins are largely driven by fixed costs, with excess margins playing a minor role. These findings highlight persistent market power dynamics in Kazakhstan and underscore the role of industry structure and firm characteristics in shaping markup evolution.

The evolving and interconnected set of challenges that countries in Central Asia and South Caucasus are facing are transboundary in nature, requiring coordinated, innovative, and multi-dimensional approaches to address them. Regional Cooperation and Integration (RCI) programs—such as the Central Asia Regional Economic Cooperation (or CAREC) Program led by the Asian Development Bank—acting as financier, honest broker, and knowledge provider/capacity builder, can help align regional efforts, pool resources, and share knowledge and capacity to tackle these challenges and respond better to emerging trends.

Economies reliant on fossil-fuel exports feel increasing pressure to diversify their economic structure given the urgency of the transition to net zero. This presentation examines the opportunities and challenges for such economies to diversify their economic structure through global value chains, focusing on the case of Kazakhstan. To identify opportunities, sectors are considered into which economies with similar specializations have been able to diversify, paying attention to the growth, size, and complexity of GVC linkages. We also propose polices to address key constraints to economic diversification associated with both domestic capabilities and factors limiting trade and foreign investment that are the crucial channels of GVC activity.

We present a new source of gains from infrastructure: technology adoption, emphasizing the crucial role of intermediaries. Using historical data from early 20th-century China, we explore how infrastructure development increases the endogenous adoption of a new agricultural technology—a high-quality variety of American cotton. Our empirical analysis reveals that counties with access to railway and telegraph networks were significantly more likely to cultivate American cotton. This adoption was facilitated by cotton brokers who connected producers with output markets, thus mitigating information and trade frictions. Consequently, the enhanced availability of high-quality American cotton significantly boosted productivity in textile factories.

We find that an unanticipated tightening of US monetary policy tends to raise US import prices. This empirical ``spill-back" pattern differs from the predictions of typical open-economy macro models. We also document a new empirical ``spillover" effect: import prices of other countries also rise following an unexpected US monetary tightening. To understand the mechanism, we examine Chinese exporters and identify a borrowing cost channel --- their liquidity conditions generally deteriorate after a US monetary tightening. Indeed, the output price response is greater for those firms facing higher borrowing costs or tighter liquidity conditions. Keywords: Monetary policy, Spillover, Export prices, Liquidity, Borrowing costs.