Jorge Díaz Lanchas (p), Javier Barbero , Gonzalo Gómez Bengoechea, Davide Rognini

Ugo Fratesi

Language is considered one of the main determinants of trade integration. It operates as a facilitator
or impediment to trade for regions. In this paper, we contend that language has heterogeneous effects
on trade performance of the European regions. We hypothesize that left-behind regions are negatively
affected by their lower competence in speaking foreign languages. We create a novel language similarity
indicator for the EU based on individuals’ linguistic capabilities across EU regions and resort to a structural gravity model to estimate its impact on trade flows. Results show that language similarity reduces
border effects and upgrades trade integration. These results get stronger in neighboring regions at a
national border. Furthermore, we simulate the impacts on trade and GDP of an EU-wide policy shock
based on the promotion of English as the most spoken learnt language in the EU. Results point out to
positive aggregate increases on European trade flows and GDP of around 3.4% and 0.54%. These effects
are concentrated in the poorest and left-behind European regions whereas native English speaking regions suffer from trade diversion effects. In a context characterized by hot dilemmas around territorial
disparities, our paper contributes to this debate by highlighting the advantages of a language promotion
strategy across low-income and left-behind European regions.

Paolo Di Caro, Ugo Fratesi (p), Elisa Fusco

Juan Alvarez Vilanova

The European regions are increasingly interconnected and directly benefit from cohesion policy funds. To jointly study the two phenomena, we combine panel data on regional bilateral trade flows and information on the EU funds and apply a spatial panel origin-destination gravity model. Our empirical analysis points out that EU cohesion policy plays a relevant role for explaining bilateral regional trade flows in Europe. We also find that spatial interactions, both at the origin and destination, are important to understand regional trade flows. Our results are robust to alternative specifications and different sensitivity checks. In policy terms, the analysis points to the need to consider inter-regional and trade effects
in the welfare assessment of cohesion policy, as well as to coordinate regional development and market integration policies.

Juan Alvarez Vilanova (p)

Julio Cesar Lopes

Economic uncertainty is known to deter Foreign Direct Investment (FDI), and the Brexit negotiation period was no exception. Yet, regional institutions, particularly Investment Promotion Agencies (IPAs), are increasingly leveraging ecosystem-building strategies to embed multinational enterprises (MNEs) in priority sectors, potentially insulating FDI from adverse shocks. This paper investigates whether such strategies provided resilience during Brexit uncertainty, exploring a less-examined channel through which IPAs can grow FDI: not just by attracting new investment, but by strengthening embeddedness of established investors. Using a unique dataset on UK IPAs’ sector-specific FDI strategies, I assess the impact of pre-2015 sector-targeting efforts on FDI outcomes during the 2016–2019 Brexit negotiation period. My findings reveal that pre-Brexit IPA sector-targeting was associated with a 13.9% increase in repeat investment value and a 19.3% rise in job creation within Knowledge-Intensive Services (KIS) sectors. However, no such effects were observed for manufacturing, likely due to the acute trade-related uncertainty in those industries. Moreover, and contrary to previous research into IPA impacts on FDI, no effects were observed for new FDI – that is, investments by MNEs that are new to the region – either in KIS sectors or manufacturing. This likely reflects how, in times of uncertainty, the ecosystem-embedding activities of IPAs – which by definition focus more on established MNE investors – may prove more significant than their role in supporting new MNE investors to enter a regional market. In the current global context of continued economic uncertainty and turbulence, these findings are particularly informative for policy-makers seeking to protect vital regional FDI.

Julio Cesar Lopes (p)

Kiyoshi Matsubara

Over recent decades, the commercial relationship between Brazil and Asia has strengthened considerably, with China emerging as Brazil's principal trading partner. In 2023, China accounted for approximately 30% of Brazil's total exports, with a significant share in commodities such as soybeans, iron ore, and oil. Specifically, soybeans constituted 56% of Brazil's total soybean exports, with over 60% of this quantity destined for China. Similarly, iron ore exports to China represented about 60% of Brazil's total iron ore exports. The strong demand from China for food and natural resources has therefore been a key driver of Brazil's economic growth, particularly in regions specialising in agricultural and mineral production.

China plays a central role in Brazil’s commercial dynamics. In addition to being the largest importer of Brazilian products, China has also made substantial investments in Brazilian infrastructure, particularly in ports and railways, which further facilitate the country's export activities. The increasing significance of China underscores a broader shift in global geopolitical and economic alignments, with Brazil becoming progressively integrated into the Asian market, diminishing the weight of its traditional relationships with the United States and Europe.

However, Brazil’s growing reliance on China introduces notable vulnerabilities, particularly in relation to fluctuations in demand for commodities and the volatility of international prices. Should the Chinese economy experience a slowdown or an internal crisis, the consequences for Brazil could be severe, particularly for states that are heavily dependent on these exports.

On a regional level, the Brazilian states most dependent on trade with China include Mato Grosso, Minas Gerais and Pará. Mato Grosso, for instance, is one of Brazil's largest exporters of soybeans, with China as its main market, rendering the state highly vulnerable to fluctuations in soybean prices. Likewise, Minas Gerais and Pará are significant exporters of iron ore, making China a key strategic partner for these regions. For these states, the commercial relationship with China represents both a substantial growth opportunity and an economic risk, especially in light of potential shifts in Chinese trade policies or changes within the domestic Chinese market.

Indeed, the old chinese growth model now appears to be reaching its limits, with new drivers of economic expansion emerging within China. This evolving economic landscape may have pronounced implications for Brazilian regions that are particularly reliant on trade with China.

Kiyoshi Matsubara (p)

Jorge Díaz Lanchas

In this study, firm-level data of Japanese companies operating in foreign countries in years 2010, 15, 19 to 22 are examined. This study focuses on behaviors of Japanese firms that had performed FDI into Poland, which has been the gateway of FDI in Central and Eastern European countries. The dataset used in this study consists of following characteristics of affiliates of Japanese firms in Poland and other countries: establishment year, capital, ownership ratios (Japanese and local), number of employees, and revenue. The dataset also has information of Japanese parent companies as well. The tentative results are as follows. (1) Machinery industries (general, electrical, and transportation) and wholesale industries of those products have many affiliates in Poland. Besides these industries, some related industries such as rubber products, fabricated metal, and warehouse/logistics also have many affiliates. (2) On average, establishment years of affiliates in manufacturing and wholesale industries are older than those in service industries. Especially, many of wholesale affiliates were established in either the 1990s or the 2000s, a bit earlier than manufacturing affiliates. (3) On average, values of capital of affiliates in manufacturing industries are larger than those in wholesale and service industries. Also, within-sector variations are large for all three sectors. (4) On average, the ownership ratios of Japanese parent companies are highest in manufacturing industries. On the other hand, for most industries, the ownership ratios of local parent companies are zero, which implies that joint ventures of Japanese and local companies are not common in Poland. (5) There are large within-sector variations in both number of employees and revenue, although the numbers are not available in many industries in the dataset. The next step of this study is to examine the data of (Japanese) parent companies and to investigate how the characteristics of the parent companies affect those of their affiliates in Poland (in what other countries they have affiliates, for instance). Also, comparing the characteristics of affiliates in Poland with those in Asian countries where many Japanese firms have performed FDI may give a useful insight to this study, especially from the point of view of U.S.-China trade war intensifying since 2018.