Charles van Marrewijk

The availability and composition of labor is fundamental for the structure of international trade. Key in this respect is the so‐called demographic dividend, which is the potential economic growth stemming from low dependency ratios. We use the gravity model to link long‐run changes of the demographic dividend to geographical changes in world trade for the 21st century. All our scenarios point towards the same conclusion: compared to the current situation, North America and Europe will no longer be the center of global trade in 2100 due to their aging populations. In contrast, South Asia and Sub‐Saharan Africa will experience a substantial increase in their share of world trade, while the impact of the demographic drag facing China will be most pronounced after 2050; its share in world trade will decline significantly. Overall, our results point towards the under‐studied, yet important role of past and future demographic developments in generating demographic dividends that shape world trade.

The world faces massive demographic changes in the 21st century. We analyse the impact of changes in the share of the working-age population for the global income distribution. First, the historical impact of demography on economic growth indicates that a 1% higher share of the working-age population in the total population results in a 0.173 percentage points higher income growth rate. Second, we use United Nations population projections to predict income changes for the remainder of this century. Third, we show how the share of income shifts away from Europe, North America and China towards South Asia and Africa, such that the current global economic powers will see their influence on world affairs decline.

Davis and Dingel explain the distributions of skills, occupations, and sectors across cities. Their model predicts that larger cities will be relatively skill‐abundant and specialize in skill‐intensive activities. This relates the model to factor‐driven comparative advantages. They also develop an elasticity test and pairwise comparison test for the spatial distributional implications of the model. What is not analyzed, however, is the associated structure of trade flows. This next step—the analysis of the structure of trade—is the main contribution of our article. We combine micro‐economic data to analyze how the sorting process of factors of production across cities determines the revealed comparative advantage (RCA) distributions of Dutch cities. We find that (i) the sorting of factors of production across cities is consistent with Davis and Dingel, (ii) RCA patterns differ significantly across locations, (iii) RCA differences can be explained by the interaction of local skill‐abundance and sector skill‐intensity (in line with the factor abundance model), and (iv) the RCA analysis relative to the Netherlands mostly, but not always, coincides with that relative to the world.

Traditional trade theory assumes that countries are dimensionless points. Recent research, however, shows that the internal geography of countries is important for the trade structure of a country. One aspect of internal geography is the uneven spatial distribution of factors of production, which especially concentrate in urban locations. The so-called lens-condition (based on the Heckscher-Ohlin model) tests whether the (urban) distribution of factors of production is uneven enough to affect the national structure of trade and welfare. Our analysis, using firm export data and applying the condition to 22 cities and 4 regions within The Netherlands for 2007–2017, shows that the condition is fulfilled. We explain why.

This chapter highlights the interrelations between countries through trade and finance, and illustrates some of the policy consequences. It presents a short history of exchange rate regimes, illustrates international vehicle currencies, and discusses capital and investment flows. Since the exchange rate is a price, a rise in the exchange rate indicates that the item being traded has become more expensive, just like any other price rise indicates. There are two types of interest rate parity conditions: covered and uncovered. The chapter explains how the choices have changed over time by focusing on the most recent main international monetary regimes. It overviews these regimes, their duration, and the main characteristics: gold standard, world wars and recession, Bretton Woods, floating rates. Almost all countries at some time or another engage in some type of foreign exchange market intervention, through their legal framework, direct intervention, or interest rate policy. The International Monetary Fund identifies ten exchange rate regimes.

Do firms engaging in international trade have higher or lower profit margins? It is well established that more productive firms engage in trading activities and as a result have higher profit levels. We use two theoretical models (the Melitz model and the Egger–Kreickemeier model) to clarify the relationship between productivity, trade activity, and profit margins and derive three hypotheses: (I) profit margins rise as productivity rises for domestic firms; (II) profit margins rise as productivity rises for trading firms; and (III) profit margins are not higher for trading firms than for domestic firms. We test these hypotheses using detailed micro‐data for Finland (2005–10) and the Netherlands (2002–10). We find strong support for Hypothesis I (in favour of the Melitz model), Hypothesis II (in favour of both models) and Hypothesis III (in favour of the Egger–Kreickemeier model). A propensity score matching analysis provides further support for Hypothesis III.