In this research project we study the extent to which globalization reinforces structural inequalities between nation states in the Eurozone, and which kind of policies can help to bring about convergence among the member states.
Our starting point is the observation that in recent times of increasing economic openness, inequalities within and between many countries in the Eurozone have increased. We rationalize these developments by recurring to the literature on economic complexity according to which economic prosperity requires the collective ability to perform particular economic activities, as evidenced by the production of complex products. In the Eurozone, we observe that poorer countries tend to import such complex products, which are mainly produced and exported by richer countries. We conjecture that these patterns of unequal exchange could be a major driver of polarization because poorer countries get ‘trapped’ in unattractive economic activities (such as the production of simple products).
While the first part of the project uses tools from network science and econometrics to identify and summarize such stylized facts concerning the production structure of richer and poorer countries in the Eurozone, the second (and main) part builds upon these results and develops model that is able to reproduce these stylized facts, and that can be used for policy experiments. This model, which will be both agent-based and stock-flow consistent, will be characterized by at least three distinctive features: first, it will be the first model that explicitly represents the process of accumulation of productive capabilities in countries on the micro level, and how they translate into macro dynamics of economic development; second, the model is stock-flow consistent and thereby integrates both financial and real trade-related factors to explain polarization in the Eurozone; and third, the model will allow us to simulate policies and regulatory frameworks aiming to rationalize these phenomena and to counter-act intra-Eurozone polarization.