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2. The OECD's "Action Plan" to Raise Taxes on Multinational Corporations
- Author:
- Gary Clyde Hufbauer, Eujiin Jung, Tyler Moran, and Martin Vieiro
- Publication Date:
- 09-2015
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Hufbauer and colleagues critically evaluate the Organization for Economic Cooperation and Development’s ambitious multipart project titled Base Erosion and Profit Shifting (BEPS), which contains 15 "Actions" to prevent multinational corporations (MNCs) from escaping their "fair share" of the tax burden. Spurred by G-20 finance ministers, the OECD recommends changes in national legislation, revision of existing bilateral tax treaties, and a new multilateral agreement for participating countries. The proposition that MNCs need to pay more tax enjoys considerable political resonance as government budgets are strained, the world economy is struggling, income inequality is rising, and the news media have publicized instances of corporations legally lowering their global tax burdens by reporting income in low-tax jurisdictions and expenses in high-tax jurisdictions. Given that the US system taxes MNCs more heavily than other advanced countries and provides fewer tax incentives for research and development (R&D), implementation of the BEPS Actions would drive many MNCs to relocate their headquarters to tax-friendly countries and others to offshore significant amounts of R&D activity.
- Topic:
- Development, Economics, International Political Economy, and International Trade and Finance
- Political Geography:
- Global Focus
3. Assessing Potential Inflation Consequences of QE after Financial Crises
- Author:
- Samuel Reynard
- Publication Date:
- 11-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Financial crises have been followed by different inflation paths which are related to monetary policy and money creation by the banking sector during those crises. Accounting for equilibrium changes and non-linearity issues, the empirical relationship between money and subsequent inflation developments has remained stable and similar in crisis and normal times. This analysis can explain why the financial crisis in Argentina in the early 2000s was followed by increasing inflation, whereas Japan experienced deflation in the 1990s and 2000s despite quantitative easing. Current quantitative easing policies should lead to increasing and persistent inflation over the next years.
- Topic:
- Development, Economics, Emerging Markets, Monetary Policy, and Financial Crisis
- Political Geography:
- Latin America
4. Performance of the Services Sector in Korea: An Empirical Investigation
- Author:
- Donghyun Park and Kwanho Shin
- Publication Date:
- 10-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- There is a widespread perception that Korea's services sector lags behind its dynamic world-class manufacturing sector. This paper empirically analyzes the past performance of Korea's services sector in order to assess its prospects as an engine of growth. The analysis resoundingly confirms the conventional wisdom of an underperforming service sector. In light of Korea's high income and development level, the poor performance of modern services is of particular concern. The authors identify a number of factors underlying the poor performance and set forth policy recommendations for addressing them. Overall, Korea faces a challenging but navigable road ahead in developing a high value-added services sector.
- Topic:
- Development, Economics, Emerging Markets, Industrial Policy, and International Trade and Finance
- Political Geography:
- Israel and Korea
5. The Renminbi Bloc Is Here: Asia Down, Rest of the World to Go?
- Author:
- Arvind Subramanian and Martin Kessler
- Publication Date:
- 10-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- A country's rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or explicitly. For a sample comprising emerging market economies, we show that in the last two years, the renminbi has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement (CMC) with other currencies. In East Asia, there is already a renminbi bloc, because the renminbi has become the dominant reference currency, eclipsing the dollar, which is a historic development. In this region, 7 currencies out of 10 co-move more closely with the renminbi than with the dollar, with the average value of the CMC relative to the renminbi being 40 percent greater than that for the dollar. We find that co-movements with a reference currency, especially for the renminbi, are associated with trade integration. We draw some lessons for the prospects for the renminbi bloc to move beyond Asia based on a comparison of the renminbi's situation today and that of the Japanese yen in the early 1990s. If trade were the sole driver, a more global renminbi bloc could emerge by the mid-2030s but complementary reforms of the financial and external sector could considerably expedite the process.
- Topic:
- Development, Economics, Emerging Markets, Foreign Exchange, and Monetary Policy
- Political Geography:
- China and Asia
6. Developing the Services Sector as Engine of Growth for Asia: An Overview
- Author:
- Marcus Noland and Donghyun Park
- Publication Date:
- 10-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The maturing of the manufacturing sector in many Asian countries, combined with the relative backwardness of its services sector, has made services sector development a top priority for developing Asia. The authors' central objective is to broadly survey and analyze the current landscape of the region's services sector so as to assess its potential to serve as an engine for inclusive economic growth. Their analysis indicates that services are already an important source of output, growth, and jobs in the region. However, its productivity greatly lags that of the advanced economies, which implies ample room for further growth. The impact of the services sector on poverty reduction is less clear but the authors do find some limited evidence of a poverty reduction effect. One key challenge for all Asian countries is to improve the quality of services sector data. Overall, while services sector development is a long and challenging process, creating more competitive services markets by removing a wide range of internal and external policy distortions is vital for improving services sector productivity. As important as such policy reforms are, complementary investments in physical infrastructure and human capital will also be necessary to achieve a strong services sector.
- Topic:
- Development, Emerging Markets, and Industrial Policy
- Political Geography:
- Israel and Asia
7. Prospects for Services Trade Negotiations
- Author:
- Jeffrey J. Schott, Julia Muir, and Minsoo Lee
- Publication Date:
- 10-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Trade and investment in services are difficult to measure, and the regulatory barriers that inhibit the free flow of services are hard to quantify. As a result, very little attention has been paid to dismantling barriers to services trade and investment. Rather, free trade negotiations tend to focus on liberalizing merchandise trade. This paper examines what has been achieved in both regional and multilateral compacts by surveying international precedents involving Asian countries in which services reforms have been included in bilateral and regional trade pacts. The authors then assess the prospects for services trade negotiations and explore how services trade negotiations could be pursued over the next decade through two distinct channels: the Trans-Pacific Partnership (TPP) and a plurilateral approach among groups of WTO countries. The authors find that in the case of developing Asia, free trade agreements have largely excluded services or have only committed to "lock in" current practices in a narrow subset of service sectors. This is also the case in agreements negotiated between developing countries, which have produced less substantial commitments to liberalize services than those negotiated between developing and developed countries. Multilateral negotiations on services have also underperformed, as substantive negotiations on services in the Doha Round never really got underway. To that end, the authors advocate a stronger effort by developing Asian countries to prioritize services negotiations in their regional arrangements and to expand coverage of services in those pacts to a broad range of infrastructure services that are included in other FTAs in force or under construction in the Asia-Pacific region.
- Topic:
- International Relations, Development, Economics, Globalization, International Trade and Finance, Markets, and World Trade Organization
- Political Geography:
- Asia
8. Choice and Coercion in East Asian Exchange Rate Regimes
- Author:
- C. Randall Henning
- Publication Date:
- 09-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This paper examines the exchange rate regimes of East Asian countries since the initial shift by China to a controlled appreciation in July 2005, testing econometrically the weights of key currencies in the implicit baskets that appear to be targeted by East Asian monetary authorities. It finds, first, that Malaysia, Thailand, Singapore and the Philippines have formed a loose but effective “renminbi bloc” with China, and that South Korea has participated tentatively since the global financial crisis. Second, the emergence of the renminbi bloc in terms of the exchange rate has been facilitated by the continued dominance of the US dollar as a trade, investment, and reserve currency. Third, exchange rate stabilization is explained by the economic strategies of these countries, which rely heavily on export development and financial repression, and the economic rise of China. Fourth, analysts should specify the exchange rate preferences of these emerging market countries carefully before drawing inferences about Chinese influence within the region.
- Topic:
- Development, Emerging Markets, Foreign Exchange, and International Trade and Finance
- Political Geography:
- China, Malaysia, Asia, South Korea, Philippines, Singapore, and Thailand
9. Capital Account Policies and the Real Exchange Rate
- Author:
- Olivier Jeanne
- Publication Date:
- 09-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This paper presents a simple model of how a small open economy can undervalue its real exchange rate using its capital account policies. The paper presents several properties of such policies, and proposes a rule of thumb to assess their welfare cost. The model is applied to an analysis of Chinese capital account policies.
- Topic:
- Development, Economics, Emerging Markets, and Monetary Policy
- Political Geography:
- China
10. Transportation and Communication Infrastructure in Latin America: Lessons from Asia
- Author:
- Barbara Kotschwar
- Publication Date:
- 04-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- In Latin America, inadequate transportation infrastructure has been identified as an increasingly important impediment to the region's further integration in global trade and a significant factor preventing countries from properly taking advantage of the multitude of regional, plurilateral, and bilateral trade agreements signed in the past decade and a half. This paper examines transport and communications infrastructure initiatives in Latin American and Asian regional trade arrangements and finds several lessons Asia can teach Latin America.
- Topic:
- Development, Economics, International Trade and Finance, Communications, and Infrastructure
- Political Geography:
- Asia and Latin America
11. Global Imbalances and Foreign Asset Expansion by Developing Economy Central Banks
- Author:
- Joseph E. Gagnon
- Publication Date:
- 03-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Over the past 10 years, central banks and governments throughout the developing world have accumulated foreign exchange reserves and other official assets at an unprecedented rate. This paper shows that this official asset accumulation has driven a substantial portion of the recent large global current account imbalances. These net official capital flows have become large relative to the size of the industrial economies, and they are a significant factor contributing to the weakness of the economic recovery in the major industrial economies.
- Topic:
- Development, Economics, Emerging Markets, Globalization, Markets, Monetary Policy, and Financial Crisis
12. Spillover Effects of Exchange Rates: A Study of the Renminbi
- Author:
- Arvind Subramanian, Aaditya Mattoo, and Prachi Mishra
- Publication Date:
- 03-2012
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This paper estimates the impact of China's exchange rate changes on exports of competitor countries in third markets, known as the "spillover effect." Recent theory is used to develop an identification strategy in which competition between China and its developing country competitors in specific products and destinations plays a key role. The variation is used—afforded by disaggregated trade data—across exporters, importers, product, and time to estimate this spillover effect. The results show robust evidence of a statistically and quantitatively significant spillover effect. Estimates suggest that, on average, a 10 percent appreciation of China's real exchange rate boosts a developing country's exports of a typical 4-digit Harmonized System (HS) product category to third markets by about 1.5 to 2 percent. The magnitude of the spillover effect varies systematically with product characteristics as implied by theory.
- Topic:
- Development, Economics, and Markets
- Political Geography:
- China
13. Capital Controls: Myth and Reality-A Portfolio Balance Approach
- Author:
- Carmen M. Reinhart, Nicolas E. Magud, and Kenneth S. Rogoff
- Publication Date:
- 03-2011
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a "success" and (iv) the empirical studies lack a common methodology-furthermore these are significantly "overweighted" by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by: being very explicit about what measures are construed as capital controls. Also, given that success is measured so differently across studies, we sought to "standardize" the results of over 30 empirical studies we summarize in this paper. The standardization was done by constructing two indices of capital controls: Capital Controls Effectiveness Index (CCE Index), and Weighted Capital Control Effectiveness Index (WCCE Index). The difference between them lies in that the WCCE controls for the differentiated degree of methodological rigor applied to draw conclusions in each of the considered papers. Inasmuch as possible, we bring to bear the experiences of less well known episodes than those of Chile and Malaysia. Then, using a portfolio balance approach we model the effects of imposing capital controls on short-term flows. We find that there should exist country-specific characteristics for capital controls to be effective. From this simple perspective, this rationalizes why some capital controls were effective and some were not. We also show that the equivalence in effects of price- vs. quantity-capital control are conditional on the level of short-term capital flows.
- Topic:
- Development, Economics, International Trade and Finance, and Markets
- Political Geography:
- Latin America and Southeast Asia
14. Capital Account Liberalization and the Role of the Renminbi
- Author:
- Nicholas R. Lardy and Patrick Douglass
- Publication Date:
- 02-2011
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Despite an erosion of consensus on its benefits, capital account convertibility remains a long-term goal of China. This paper identifies three major preconditions for convertibility in China: a strong domestic banking system, relatively developed domestic financial markets, and an equilibrium exchange rate. The authors examine each of these in turn and find that, in significant respects, China does not yet meet any of the conditions necessary for convertibility. They then evaluate China's progress to date on capital account liberalization, including recent efforts to promote renminbi internationalization and greater use of the renminbi in trade settlement. The paper concludes with an overview of remaining obstacles to convertibility and policy recommendations.
- Topic:
- Development, Economics, and Monetary Policy
- Political Geography:
- China
15. Delivering on US Climate Finance Commitments
- Author:
- Trevor Houser and Jason Selfe
- Publication Date:
- 11-2011
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- At the United Nations climate change conference in Copenhagen in 2009 and Cancun in 2010, the United States joined other developed countries in pledging to mobilize $100 billion in public and private sector funding to help developing countries reduce greenhouse gas emissions and adapt to a warmer world. With a challenging US fiscal outlook and the failure of cap-and-trade legislation in the US Congress, America's ability to meet this pledge is increasingly in doubt. This paper identifies, quantifies, and assesses the politics of a range of potential US sources of climate finance. It finds that raising new public funds for climate finance will be extremely challenging in the current fiscal environment and that many of the politically attractive alternatives are not realistically available absent a domestic cap-and-trade program or other regime for pricing carbon. Washington's best hope is to use limited public funds to leverage private sector investment through bilateral credit agencies and multilateral development banks.
- Topic:
- Climate Change, Development, Economics, Energy Policy, Politics, and Foreign Direct Investment
- Political Geography:
- United States, America, Washington, and United Nations
16. India's Growth in the 2000s: Four Facts
- Author:
- Arvind Subramanian and Utsav Kumar
- Publication Date:
- 11-2011
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- This paper marks the first attempt at examining the growth performance across Indian states for the 2000s, a period also marked by the global financial crisis. Four key findings are reported. First, consistent with the fact that the 2000s was the best ever decade for Indian macroeconomic performance, growth increased across almost all major states in 2001–09 compared to 1993–2001. Second, nevertheless, there is a continued phenomenon of divergence or rising inequality across states: On average the richer states in 2001 grew faster in 2001–09. Third, during the crisis years of 2008 and 2009, states with the highest growth in 2001–07 suffered the largest deceleration. Since states with the highest growth were also the most open, it seems that openness creates dynamism and vulnerability. Finally, although the demographic dividend—a young population boosting economic dynamism—was evident before 2000, there is little evidence that there was any dividend in the 2000s. Demography alone cannot be counted on for future economic growth.
- Topic:
- Demographics, Development, Economics, Industrial Policy, International Trade and Finance, and Social Stratification
- Political Geography:
- South Asia and India
17. Asia and Global Financial Governance
- Author:
- C. Randall Henning and Mohsin S. Khan
- Publication Date:
- 10-2011
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Currently, Asia's influence in global financial governance is not consistent with its weight in the world economy. This paper examines the role of Asia in the International Monetary Fund (IMF) and the Group of Twenty (G-20). It looks in particular at how the relationship between East Asian countries and the IMF has evolved since the Asian financial crisis of 1997–98 and outlines how Asian regional arrangements for crisis financing and economic surveillance could constructively interact with the IMF in the future. It also considers ways to enhance the effectiveness of Asian countries in the G-20 process.
- Topic:
- Development, Economics, Emerging Markets, Globalization, International Trade and Finance, and Monetary Policy
- Political Geography:
- Israel and Asia
18. Do Developed and Developing Countries Compete Head to Head in High Tech?
- Author:
- Robert Z. Lawrence and Lawrence Edwards
- Publication Date:
- 06-2010
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- Concerns that growth in developing countries could worsen the US terms of trade and that increased US trade with developing countries will increase US wage inequality both implicitly reflect the assumption that goods produced in the United States and developing countries are close substitutes and that specialization is incomplete. In this paper we show on the contrary that there are distinctive patterns of international specialization and that developed and developing countries export fundamentally different products, especially those classified as high tech. Judged by export shares, the United States and developing countries specialize in quite different product categories that, for the most part, do not overlap. Moreover, even when exports are classified in the same category, there are large and systematic differences in unit values that suggest the products made by developed and developing countries are not very close substitutes—developed country products are far more sophisticated.
- Topic:
- Development, Emerging Markets, International Trade and Finance, Markets, Science and Technology, and Labor Issues
- Political Geography:
- United States
19. Reform from Below: Behavioral and Institutional Change in North Korea
- Author:
- Stephan Haggard and Marcus Noland
- Publication Date:
- 09-2009
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- The state is often conceptualized as playing an enabling role in a country's economic development—providing public goods, such as the legal protection of property rights, while the political economy of reform is conceived in terms of bargaining over policy among elites or special interest groups. We document a case that turns this perspective on its head: efficiency-enhancing institutional and behavioral changes arising not out of a conscious, top-down program of reform, but rather as unintended (and in some respects, unwanted) by-products of state failure. Responses from a survey of North Korean refugees demonstrate that the North Korean economy marketized in response to state failure with the onset of famine in the 1990s, and subsequent reforms and retrenchments appear to have had remarkably little impact on some significant share of the population. There is strong evidence of powerful social changes, including increasing inequality, corruption, and changed attitudes about the most effective pathways to higher social status and income. These assessments appear to be remarkably uniform across demographic groups. While the survey sample marginally overweights demographic groups with less favorable assessments of the regime, even counterfactually recalibrating the sample to match the underlying resident population suggests widespread dissatisfaction with the North Korean regime.
- Topic:
- Development, Economics, and Fragile/Failed State
- Political Geography:
- North Korea
20. On What Terms Is the IMF Worth Funding?
- Author:
- Edwin M. Truman
- Publication Date:
- 12-2008
- Content Type:
- Working Paper
- Institution:
- Peterson Institute for International Economics
- Abstract:
- In the first decade of the 21st century the International Monetary Fund (IMF) faced crises of legitimacy, relevance, and budgetary finance. It now confronts what likely will be the worst global recession since World War II, potentially huge demands for its financial assistance with limited resources, and calls for it to play a more central role in the international financial and regulatory systems. At the same time, the incoming Barack Obama administration must decide what to do about the modest package of IMF reforms that was completed in the spring of 2008. The package requires US congressional approval to go into effect. This paper reviews the recent, slow progress on IMF reform and makes recommendations to the Obama administration against the background of that record, the emerging global recession, and continuing financial turmoil. I recommend that the IMF package be reopened to include a doubling of IMF quotas and an amendment that will permit the Fund to swap special drawing rights (SDR) with major central banks to finance its short-term lending facility. I also recommend a special allocation of 50 billion SDR. If these proposals are turned down by the G-20 at its meeting in April 2009, I reluctantly recommend that the Obama administration seek congressional approval of the IMF package as it now stands because a failure to do so would seriously undermine the Fund as a central multilateral institution.
- Topic:
- Development, International Organization, International Political Economy, International Trade and Finance, and Global Recession
- Political Geography:
- United States
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