Improving Methods for Policy Analysis of Foreign Trade and Investment

Start of Project: 01.12.2019 — End of Project: 30.11.2023

The aim of this research project is to investigate and better understand the effects of globalisation on German companies. A detailed understanding of the exact mechanisms by which German companies are affected is a prerequisite for effective and targeted economic policy measures. This is of great relevance, not least in light of various distortions of the trade policy framework in the recent past (e.g. the trade conflict between the United States and the People's Republic of China, Brexit). Adequately mapping such mechanisms requires both theoretical models that allow for firm heterogeneity and micro-based data for empirical analysis.

Microdata that allow such analyses are available for some EU countries. Unfortunately, the data situation for Germany in this respect is not optimal so far. Therefore, one aim of this project is to process available microdata from the statistical offices of the Federal Government and the Länder and to link the microdata on foreign trade with business statistics. Furthermore, these data are to be linked with other data sets of the Deutsche Bundesbank, especially on foreign direct investment and trade in services. The final datasets will be made accessible for research.

On the theoretical side, existing micro-founded quantitative foreign trade models will be further developed so that they better reflect reality (especially with regard to firm heterogeneity and adjustment dynamics). Based on the newly developed models and existing micro data, empirical analyses of current trade policy measures (e.g. Brexit) and other shocks (e.g. Corona) will be conducted.

Furthermore, the micro data should be used to empirically estimate the effects of foreign direct investment in Germany. In particular, differences with regard to the investors' countries of origin will be analysed.

Within the framework of this project, the Kiel Institute for the World Economy cooperates with the Deutsche Bundesbank, the Federal Statistical Office (Destatis) and the Institute for Applied Economic Research (IAW) at the University of Tübingen.