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

Julio Cesar Lopes

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.

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)

Fabio Mazzola

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.

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

Jorge Díaz Lanchas

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.