Publications in English

This paper proposes an empirical test to identify possible endogenous cycles within heterogeneous agent models (HAMs). We consider a two-type HAM into a standard small-scale dynamic asset pricing framework. Fundamentalists base their expectations on the fundamental value, while chartists consider the level of past prices. Because these strategies, by their nature, cannot be directly observed but can cause the response of the observed data, we construct a state-space model where agents’ beliefs are considered the unobserved state components and from which the heterogeneity of fundamentalist-chartist trader cycles can be mathematically derived and empirically tested. The model is estimated using the S&P500 index for the period 1990–2020 at different time scales, specifically, quarterly, monthly, and daily. We find empirical evidence of endogenous damped fluctuations with a higher probability of chartist behavior in the short-term horizon. In addition, the model exhibits better long-run out-of-sample forecasting accuracy compared to the benchmark random walk model.

The Great Recession, Brexit, the trade war between China and the USA, the pandemic crisis, and the regional wars (Russia-Ukraine and the Middle East) have opened the way to a reorganization of the global value chains and international trade. The EU in particular is facing crucial challenges regarding the internal equilibria between member countries as well as the external relations and the balance between superpowers in an uncertain geopolitical landscape. In this opening article of the Special Issue on “The Future of Global Value Chains and International Trade: An EU perspective”, we review the evolution of international trade and discuss the recent changes in the EU’s trade patterns looking at intermediate, consumption, and capital goods. We provide an overview of the contents of the Special Issue, which we organized by theme. Our analysis raises some issues and sets the stage for the following analyses and future research.

Globalization has considerably increased the movement of people and goods around the world, which constitutes a key channel of viral infection. Increasingly close economic links between countries speeds up the transfer of goods and information, and the knock-on effect of economic crises, but also the transmission of diseases. Foreign direct investment (FDI) and trade establish clear ties between countries of origin and destination, and it is along these chains that contagious phenomena can unfold. In this paper, we investigate whether countries’ centrality in both global production and trade network corresponds to higher COVID-19 infection and mortality rates. Merging data on EU-27 greenfield FDI and international trade with data on COVID-19 infections and deaths, we find that countries mostly exposed to the COVID-19 outbreak are those characterized by a higher eigenvector centrality. This result is robust to the use of an alternative measure of network centrality and to the inclusion of other possible confounding factors.

We study the internationalization of State-owned Enterprises (SOEs) in the 21st century and its underlying firm-level and country-level drivers. Using a global database of more than 110,000 M&A (10% having a state-owned acquirer), we empirically investigate differences between private enterprises, traditional SOEs and contemporary reformed SOEs. We show that the intensity of government control is associated with diverging targeting strategies and internationalization patterns. Compared to traditional SOEs, reformed SOEs are more outward-oriented, tend to purchase better performing targets, concentrate their investments towards less risky countries that are geographically and culturally closer, with better institutional quality and a more central position in the trade network. Our findings are consistent with the view that reformed SOEs are increasingly adopting market-oriented strategies thus diverging from traditional SOEs (and converging towards the private model) in their objective functions.

The articles of this special issue fall in the domain of Agent-Based Computational Economics (ACE). The SI is named after the international workshop “Heterogeneity, Evolution and Networks in Economics”, organized at the University of Florence on September 16-17, 2021. All articles in the SI have followed a rigorous procedure of blinded revision as original research contributions. Historically, we can refer to three lines of research that lead to this approach. Two of these are linked to the theory of general equilibrium, which has been at the center of the debate in economics for over a century. The first line of research dates back to the time when Lucas launched the micro-foundation of macroeconomics.

We analyze the market dynamics in a model in which one dominant firm and a large number of small, not fully rational firms coexist. The dominant firm announces a reference price, but the market price can diverge from such reference price: this is due to the dominant firm taking advantage of the bounded rationality of the fringe firms. In the baseline model, we find that the dominant firm has an incentive to announce a very low price and in the steady state the market price is usually higher than the reference price. In a more complex model, where a fraction of small firms employ an evolutionary mechanism to adjust their expectations, we find that the lower the reference price the higher the period-by-period fluctuations of the market prices. We show that both mean profits and their volatility are decreasing in the reference price and that the optimal choice is positively correlated with the degree of risk aversion of the dominant firm. In general, socially preferable outcomes can be achieved when the dominant firm behaves as strongly risk averse. We draw some policy implications from this conclusion.

Fragmentation of production undoubtedly constitutes a possible channel of economic contagion and could play a key role in the study of systemic risk. Investments abroad implicitly create long-range economic dependencies between investors and the economies of destination, possibly triggering contagion phenomena. Complex network theory is a primary tool for highlighting economic mutual relationships and paths of contagion, shedding light on intrinsic systemic risks. In this paper, we reconstruct the EU28 foreign direct investments network and study its evolution from 2003 to 2015. Our analysis aims at detecting the changes of topological properties during the crisis, in order to assess how they affected the architecture of economic relationships. Through a detailed study of correlations at different time lags between network measurements and macroeconomic variables, we assess systemic risks. The main findings are: (i) 2009 marks a clear break in network evolution: prior to 2009 the structure was characterized by only one or few hubs/ countries, while in later years a set of connected key nodes emerged; (ii) an increasing heterogeneity is observed in link weights during the entire period analysed (2003–2015); (iii) after 2009, a rewiring of investments is observed towards the EU28 countries that are considered more safe; (iv) time-lagged centrality measures and macroeconomic variables show a clear correlation.

This paper investigates the heterogeneity within the group of foreign direct investors by analyzing the relation between parents’ productivity, the degree of domestic competition and the characteristics of their affiliates. Our results show that there is no unique recipe. Foreign direct investors may benefit differently depending on the economic environment in which they operate. Building an original 10-year panel dataset of Italian investors, we find that larger manufacturing parents tend to have more, larger and more productive affiliates in a higher number of destinations as well as being more productive in terms of total factor productivity. Having affiliates in high income countries or in both high and low income countries is associated with a productivity premium vis-à-vis investors in low income countries. Parent sector characteristics such as technology and degree of competition are also associated with productivity in a non-monotonic way. Low income country investors are found to be relatively more productive when operating in more competitive low technology sectors, while the opposite holds true for high income country investors, which become more productive when operating in less competitive high technology sectors.

Globalization is one of the most relevant economic phenomena of the last decades. Due to this reason, the economies of different countries are strongly interconnected. This may lead to higher robustness or higher vulnerability of the whole economic system,depending on the economic scenario.Traditional models are unable to represent the complex relationship among firms. This may lead to a misunderstanding of the complex interconnections between countries, underestimating vulnerability of the world economicsystem. In this framework, a complex network approach, based on graph theory, is a valuable tool to outline the interdependencies of different countries and their impact on the stability of the whole economic system. Nowadays economic Big Data are available on globalization, helping to have a rigorous approach when shading light on these interdependencies. In this paper,the complex network analysis is applied on a particular shade of globalization, namely fragmentation of production.

While there is a broad acknowledgment of the role of global value chains (GVCs) in the world economy, we are still at the beginning of their empirical investigation. At the macro level, input-output tables offer a powerful tool to assess all the inter-country and inter-industry transactions that culminate in the sale of final goods and services. At the micro level, case studies have implemented the GVC approach to understand the governance of specific value chains. In Networks of International Trade and Investment, Sara Gorgoni, Alessia Amighini and Matthew Smith have put together a series of novel approaches that deepen our understanding of GVCs and bridge the gap between the micro and macro analysis. Using state-of-the-art network analysis, the book provides new insights on the interdependencies that characterise trade, investment and global production. As compared to other empirical methods, network analysis allows to better identify the contribution of a country, industry or firm by not focusing on its own characteristics but by looking at how it is connected to others. As a consequence, new patterns and new structures emerge. The book includes many examples of how this approach can bring a fresh look to challenging research questions. While technical, the book remains accessible and can be read by a broad audience that includes policymakers. In the future, we could learn more by linking such analysis to economic performance. In particular, one would like to understand better how the position in the network is related to productivity or can bring specific economic gains.

In this paper, we analyze a heterogeneous agent model in which the fundamental exchange rate is endogenously determined by the real markets. The exchange rate market and the real markets are linked through the balance of payments. We have analytically found that there exists at least a steady state in which the exchange rate is equal to its fundamental value and incomes of both countries are equal to the autonomous components times the multiplier (as in the Income-Expenditure model). This steady state can be unique and unstable when all agents act as contrarians, while when agents act as fundamentalists it is unique but its stability depends on the reactivity of actors of the market. Finally, we show that the (in)stability of the economic system depends on both the reactivity of the markets and that of different types of agents involved. Employing well-know functional forms, we show that the model can replicate some of the statistical features of the true time series of the exchange rate.

Despite its recent economic development, Egypt’s employment inequalities among gender and different age cohorts are still an unresolved issue. In this work we apply a Multilevel Generalized Linear Mixed Model to the Egyptian Labor Market Panel Survey 2006 (ELMPS 2006) and 2012 (ELMPS 2012). By exploiting the hierarchical structure of the survey data, we investigate how the interplay between individual characteristics and regional context affects Egyptians’ individual probability of being unemployed. Moreover, we attempt to identify if and how these same characteristics have changed between 2006 and 2012 as a consequence of the major changes that re‐shaped Egyptian demographics, labor market structure, and young cohorts’ educational achievements.

Firms’ survival and internationalization modes are key elements to assess a country’s competitiveness. We draw on this to study how firms’ characteristics affect business demographic dynamics. We focus on affiliates survival probability, modeling it conditional on both parent company’ and affiliates’ set of characteristics. We generalize the base model used in business demography, disentangling and stressing the effects of both size and technological relationships between affiliates and investors. We show that, larger affiliates of large investors compete better and survive longer. Being part of a network of affiliates in the same country and/or sector improves firm survival probability. When investors have a higher (lower) technological level than their affiliates, the affiliates’ failure probability increases (decreases). An investor more technologically advanced than its affiliates, it is likely to consider them a cost-saving investment. While affiliates with a higher level of technology than their parent may be considered strategic.

In this paper, we develop a heterogeneous agents model of asset price and inventory with a market maker who considers the excess demand of two groups of agents that employ the same trading rule (i.e. fundamentalists) with different beliefs on the fundamental value. The dynamics of our model is driven by a bi-dimensional discrete non-linear map. We show that the market maker has a destabilizing role when she actively manages the inventory. Moreover, inventory share and the distance between agents’ beliefs strongly influence the results: market instability and periodic, or even, chaotic price fluctuations can be generated. Finally, we show through simulations that endogenous fluctuations of the fractions of agents may trigger instability for a larger set of parameters.

In contrast with the canonical models of financial markets with heterogeneous agents,, Naimzada and Ricchiuti, (2008, 2009) show that the interaction of groups of agents who have the same trading rule but present different beliefs about the fundamental value could be a source of instability. In this paper, differently from, Naimzada and Ricchiuti, (2008, 2009), we assume that the market maker employs a so‐called multiplicative price mechanism (Tuinstra, 2002; Zhu et al., 2009). We show that the occurrence of heterogeneity has an ambiguous role: it may either stabilize or destabilize the market.

The recent empirical literature on firm performance has highlighted the multidimensional concept of managerial strategies. The paper analyzes the nexus between these strategies and performance based on specific entrepreneurs’ characteristics, corporate strategies, organizational capabilities and firms’ approaches to internationalization. Using a dataset obtained by matching and merging Capitalia, ICE-Reprint and AIDA surveys we investigate the possible non-linear impact of managerial strategies on firm performance in Italy. While the specific entrepreneurs’ characteristics do not seem to have a significant impact on firm performance, the mode of internationalization plays an important role. Important non-linearities arise when we singled out the role of skilled workers and managers in determining a firm’s success in highly competitive markets.

This paper analyzes how the interaction between green consumers and responsible firms affects the market equilibrium. The main result is that a higher degree of responsibility of consumers and/or firms may both increase and decrease the total abatement and the social welfare. In general an increment in the degree of CSR of a firm entails an increase of its total clean-up and a reduction of the aggregate abatement of its rival. When the rival firm has a high degree of CSR this second effect is stronger than the first and total abatement falls down. At the same time, when the degree of consciousness of consumers and/or firms is very high, responsible firms overprovide environmental quality: in such case a further increment in the level of social responsibility of a market actor may trigger an increase of firms’ total clean-up but a reduction in social welfare.

Competition is increasingly global. However, location still matters: often firms cluster in the same geographic areas in order to exploit locational externalities and improve their competitiveness. This article analyses how Italian firms’ performance, proxied by their propensity to export, depends both on geographical and institutional context and on individual characteristics. Using a multilevel approach, we estimate and distinguish the effect of individual (firm level) and context (province level) variables on the performance of internationalized Italian firms. We show that both firms and province heterogeneity shape the results.

In this paper we reconstruct and discuss the network of Italian firms investing abroad, exploiting information from complex network analysis. This method, detecting the key nodes of the system (both in terms of firms and countries of destination), allows us to single out the linkages among firms without ex-ante priors. Moreover, through the examination of affiliates’ economic activity, it allows us to highlight different internationalization strategies of “leaders” in different manufacturing sectors.

In this note, developing a model with agents that act as fundamentalists, we show that adding simple stochastic components, a greater set of parameters can lead to complex dynamics. Moreover, we identify periods of financial distress between bubbles and crashes detected by Kindleberger [C.P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crisis, fourth ed., John Wiley, New York, 2000] from a series of famous speculative bubbles and crashes in world history.

In this note, we report a result not recognized in the model analyzed in Naimzada and Ricchiuti (2009) [1]: heterogeneity may have an ambiguous role in the complex dynamics. Indeed, given high reactivity of either market maker or agents, an increasing heterogeneity initially stabilizes the price (through a subcritical period two cycle) and then it destabilizes the price (initially through a pitchfork bifurcation). Moreover, we define better the structure of beliefs, highlighting their position in comparison with a unique (not observed) fundamental value and assuming that agents are pure biased traders.

Firms’ survival is often seen as crucial for economic growth and competitiveness. This article focuses on business demography of Italian firms, using an original database, obtained by matching and merging to gain the intersection of three firm level datasets. This database allows us to simultaneously consider the effect of size, technology, trade, FDIs and innovation on firms’ survival probability. We show that size and technological level positively affect the likelihood of survival. Internationalized firms show higher failure risk: on average competition is stronger in international markets, forcing firms to be more efficient. However, large internationalized firms are more likely to ‘survive’. An Italian internationalized firm to be successful and to survive, should be high-tech, large and innovative.

In this note, we propose a model where a quantity setting monopolist has incomplete knowledge of the demand function. In each period, the firm sets the quantity produced observing only the selling price and the slope of the demand curve at that quantity. Given this information and through a learning process the firm estimates a linear subjective demand curve. We show that the steady states of the dynamic equation are critical points of the objective profit function. Moreover, results depend on convexity/concavity of the demand. When the demand function is convex and the objective profit function has a unique critical point: the steady state is a globally stable maximum; conversely when then steady state is not unique, local maximums are locally stable, while local minimums are locally unstable. On the other hand when the demand function is concave, the unique critical point is a maximum: there can be stability or instability of the critical point and period two cycles around it via a flip bifurcation. Moreover, through simulations we can observe that, with a mixed inverse demand function, there are different dynamic behaviors, from stability to chaos and that we have transition to complex dynamics via a sequence of period-doubling bifurcations. Finally, we show that the same results can be obtained if the monopolist is a price setter.

Despite canonical behavioural financial market models [Day R, Huang W. Bulls, bears and market sheep. J Econ Behav Org 1990;14:299–329], that use different types of agents (i.e., fundamentalist vs. chartists), we develop a model in which the source of instability is the interaction of groups that are homogeneous in the strategy they use, but have heterogeneous beliefs about the fundamental value of the asset. Specifically, heterogeneity arises among two groups of fundamentalists that follow gurus. We show that an increasing distance between beliefs (the degree of heterogeneity), leads first (i) to a pitchfork bifurcation to arise secondly (ii) it generates, together with a larger reaction to misalignment of both market maker and agents, the appearance of a periodic, or even, chaotic, price fluctuation; (iii) finally a homoclinic bifurcation [Dieci R, Bischi GI, Gardini L. From bi-stability to chaotic oscillations in a macroeconomic model. Chaos, Solitons & Fractals 2001;12:805–22] transforms a two piece chaotic set into a one piece chaotic set that generates bull and bear markets.

In this paper, we analyze the equilibrium effects of a monopolist with bounded rationality. Assuming that the entire (monotonic) demand function is unknown, she employs a rule of thumb to produce a quantity that guarantees the largest profits. The steady state of the map is equal to the level of price that maximizes profits, as can be seen in the classical microeconomic theories. However, complex dynamics can arise, especially when the reaction coefficient to variation in profits is high.

Developing a model with a switching mechanism, we show how complex dynamics can be generated even though heterogeneity arises among agents with the same trading rules (fundamentalists). We assume that there are two experts which are imitated by other operators. We show that (i) market instability and periodic, or even, chaotic price fluctuations can be generated; (ii) conditions exist under which an expert can drive another expert out of the market; (iii) two experts can survive when the dynamic system either generates a period doubling bifurcation around an attractor or when an homoclinic bifurcation leads to the merging of the two attractors [R. Dieci, G.I. Bischi, L. Gardini, From bi-stability to chaotic oscillations in a macroeconomic model, Chaos, Solitons and Fractals 12 (2001) 805–822]; (iv) a central role is played by the reaction to misalignment of both market maker and agents.