Luca Bettarelli, Vieri Calogero, Fabio Mazzola (p), Pietro Pizzuto, Laura Resmini

Agelos Delis

Economic uncertainty is a crucial factor affecting economic performance, investment decisions, labor market dynamics, industrial restructuring, and business cycles (Bloom, 2009; Baker, Bloom & Davis, 2016; Scott & Bloom, 2013). In an increasingly interconnected world, uncertainty is not confined to national borders but spreads through multiple channels, including trade and global value chains (GVCs) (Baldwin, 2016; Antràs, 2020). The existing literature has extensively studied the direct effects of uncertainty and, more recently, its spillovers between markets (Gonzalez-Perez, 2019) and between national economies (Han et al., 2016; Biljanovskay et al., 2017; Caggiano et al., 2020; Antonakakis et al., 2018; Moramarco, 2023).
However, despite such rich come-back of studies investigating the economic effects of uncertainty in the last decades, none of them has focused on the heterogeneous impact of global uncertainty spillovers at the regional level and the related transmission channels that remain quite underexplored. This aspect is particularly relevant given the deepening of global integration, which intertwines direct and indirect channels through which global uncertainty propagates.
To the best of our knowledge, our study is the first that aims to fill this gap by analyzing country-to-region uncertainty spillovers through an empirical approach that allows us to unpack the direct and indirect channels. We pose the following research questions: (i) How does participation in global value chains transmit global uncertainty to regions? (ii) What regional, sectoral, and network-related factors influence the intensity of uncertainty spillovers at the regional level?
Using the uncertainty index by Ahir et al. (2022), ORBIS firm-level data aggregated at the national level for the parent companies of global multinationals and at the NUTS2 regional level for their European affiliates, and ARDECO data for a panel of 242 NUTS-2 regions in EU-27 countries over the period 1980-2022, we find that country-to-region uncertainty spillovers cause a significant contraction in regional GDP, with an effect that tends to dissipate in the medium term. The impact is sizable if regions are highly exposed to external shocks through inter-firm linkages and if the shock is large, with a peak effect of almost -0,5%, two years after the uncertainty shock. Regarding sources of heterogeneity, we find that regional characteristics, in terms of innovation capacity and complexity, allow for a faster shock absorption. Finally, an unfavorable position in the business cycle and a high concentration of regional firms controlled by companies located in a country affected by an uncertainty shock significantly prolong recovery times.

Agelos Delis (p), Lin Zhang

Shin-Kun Peng

Firms that make similar decisions should possess common characteristics and consequently experience similar outcomes. We adopt a similar line of thinking in our attempt to understand whether the co-occurrence of imports by UK regions provides valuable information for explaining regional economic performance. Specifically, such an analysis could map regions’ coordinated import activities and their correlation with regional export patterns. This offers insights into addressing regional disparities in the UK and enabling firms in different regions to enhance their resilience in the face of recent crises, such as the pandemic and energy crisis. This issue has garnered renewed attention in the past decade, and our work will contribute to the ongoing debate on policy responses, such as levelling up initiatives (McCann and Ortega-Argilés, 2021; Fransham et al., 2023).

Drawing inspiration from computer science (Aaron et al., 2018) and finance (Lu et al., 2023; Hirschey, 2021), we construct spatial measures of firm import co-occurrences for the UK.
Using such measures allow us to capture both comparative advantage (relative international competitiveness) and agglomeration. It is well-established that both of these factors have a positive effect on productivity. Alcala and Ciccone (2004) provide evidence for the former, while Martin and Ottaviano (2001) discuss the latter. In other words, firms within regions that share similar patterns in terms of the types of inputs they import internationally are likely to experience similar trajectories in their ability to compete globally and, consequently, in their levels of productivity.

We use regional export and import data from HMRC’s Regional Trade in Goods Statistics (RTS) for the period 2013 to 2024. The data are available at the International Territorial Level 1 (ITL1) basis. This means that there are regional trade data for the nine English regions and the three other nations of the UK. The frequency of the data is quarterly and annually, and the most disaggregated version is at a 2-digit SITC classification.

Our estimation approach uses a LASSO (Least Absolute Shrinkage and Selection Operator) estimator. LASSO allows for dimensionality, a large number of independent variables and the identification of the ones that are truly relevant. We find interesting patterns on the goods and country of origin dimensions that explain the variation of regional exports in the UK over time.

Ching-Mu Chen, Shih-Yang Lin, Shin-Kun Peng (p), Wen-Jen Tsay

Fabio Mazzola

This paper introduces a novel estimator for the Poisson model with dual binary endogenous explanatory variables, addressing the need to quantify the effects of preferential economic integration agreements. We develop a two-stage pseudo-maximum likelihood estimator and derive exact analytical gradient matrices as well as Hessian matrices to improve computational speed and eliminate approximation errors substantially. Applying our approach to trade data, we find that preferential trade agreements positively impact bilateral trade flows, while bilateral investment treaties have a negative effect. Additionally, the positive interaction term between these two treaties suggests that preferential trade agreements promote horizontal foreign direct investment.