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Begin New Search Topic International Trade and Finance Content Type Working Paper

1201. How do Canadian Hours Worked Respond to a Technology Shock?

Author:
Robert J. Vigfusson, Lawrence J. Christiano, and Martin Eichenbaum
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper investigates the response of hours worked to a permanent technology shock. Based on annual data from Canada, we argue that hours worked rise after a positive technology shock. We obtain a similar result using annual data from the United States. These results contradict a large literature that claims that a positive technology shock causes hours worked to fall. We find that the different results are due to the literature making a specification error in the statistical model of per capital hours worked. Finally, we present results that Canadian monetary policy has accommodated technology shocks.
Topic:
Economics, International Trade and Finance, and Science and Technology
Political Geography:
Canada and North America

1202. Precautionary Savings and the Wealth Distribution with Illiquid Durables

Author:
Joseph W. Gruber and Robert F. Martin
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We study the role an illiquid durable consumption good plays in determining the level of precautionary savings and the distribution of wealth in a standard Aiyagari model (i.e. a model with heterogeneous agents, idiosyncratic uncertainty, and borrowing constraints). Transactions costs induce an inaction region over which the durable stock and the associated user cost are not adjusted in response to changes in income, increasing, on average, the volatility of non-durable consumption. The volatility of total consumption is then a function of the share of the durable good in the utility function and the width of the inaction region. We are particularly interested in parameterizations which increase the precautionary motive for saving through an increase in "committed expenditure risk." We find, for an empirically relevant share of durable consumption and for all transaction costs below an upper threshold, that the level of precautionary savings is increasing in the transaction costs. Transaction costs have only a modest impact on the degree of wealth dispersion, as measured by the Gini index, as the associated increase in savings is close to linear in wealth. While we are unable to match the dispersion of wealth in the data, we increase the dispersion over a single asset model (Gini index of .71 for financial assets and .37 for total wealth) and we are able to match the relative dispersion of financial to durable assets, i.e. we find financial assets much more unequal than durable assets. We also match the ratio of housing wealth to total wealth for the median agent. We calibrate the model to data from the PSID, the CES, and the SCF.
Topic:
Economics, Emerging Markets, International Trade and Finance, and Science and Technology

1203. The Effect of Exchange Rates on Prices, Wages, and Profits: A Case Study of the United Kingdom in the 1990s

Author:
Joseph E. Gagon
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
During the 1990s the United Kingdom experienced large and sudden exchange rate movements that had no apparent impact on overall consumer prices. This paper shows that the stability of U.K. consumer prices was made possible in part by offsetting movements in the price-cost margins of foreign exporters and in part by offsetting price-cost margins in the U.K. distribution sector. At the same time, U.K. manufacturers experienced margin swings in the opposite direction, largely due to their role as exporters. Thus, sterling depreciation boosted the profits of U.K. manufacturers and squeezed the profits of U.K. distributors, while sterling appreciation had the opposite effects.
Topic:
Economics, International Trade and Finance, and Science and Technology
Political Geography:
United Nations

1204. News or Noise? An Analysis of Brazilian GDP Announcements

Author:
Rebeca de la Rocque Palis, Roberto Luis Olinto Ramos, and Patrice Robitaille
Publication Date:
08-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Revisions to GDP announcements in many countries are often large, and Faust, Rogers, and Wright (2003) have found that G-7 GDP revisions are predictable to varying degrees. In this paper, we extend FRW to study revisions to Brazilian GDP announcements. We document that revisions to Brazilian GDP are large relative to those of G-7 countries. Brazilian GDP revisions are also predictable, which is consistent with the view that GDP revisions correct errors in preliminary GDP rather than reflect news. However, GDP revisions are far from being entirely predictable. Although GDP revisions are largest only one year following the initial GDP release, those revisions are nearly unpredictable.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
Brazil and South America

1205. The Effect of Exchange Rate Fluctuations on Multinationals' Returns

Author:
Jane Ihrig and David Prior
Publication Date:
08-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
<p>This paper examines if the type of exchange rate used or size of the movement in the exchange rate matters in estimating exchange-rate exposure of U.S. nonfinancial multinationals. We find that switching from a broad trade-weighted exchange rate to a 2-digit SIC industry exchange rate increases the number of significantly exposed firms in a simple Jorion (1990) regression by 60 percent. Then separating crisis from non-crisis months we find additional evidence of exposure. Although the value of exposure does not change with the size of the exchange rate movement, we find some firms have significant exposure only in crisis periods while others have significant exposure only during normal fluctuations in exchange rates. All told, we find about 1 in 4 firms' returns is significantly affected by movement in the exchange rate between 1995 and 1999. </p><blockquote><p> </p> </blockquote><p> </p><p> </p>
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

1206. Loans to Japanese Borrowers

Author:
David C. Smith
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper examines the characteristics of loans to Japanese borrowers using a relatively unexplored, contract-specific data set. I find that Japanese banks charge less on loans to Japanese borrowers than do foreign banks, holding constant many of the risk characteristics of the borrower. Moreover, Japanese banks vary pricing less across these risks than do foreign banks, suggesting that Japanese banks tend not to distinguish good risks from bad. Taken together, the results suggest that problems at Japanese banks stem from the behavior of the banks themselves, not simply from poor economic conditions. I also document a significant shortening in the maturity structure of Japanese loans in the late 1990s.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
Japan and Israel

1207. U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis

Author:
Francis E. Warnock and Hali J. Edison
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We analyze a unique data set and uncover a remarkable result that casts a new light on the home bias phenomenon. The data are comprehensive, security-level holdings of emerging market equities by U.S. investors. We document, as expected, that at a point in time U.S. portfolios are tilted towards firms that are large, have fewer restrictions on foreign ownership, or are cross-listed on a U.S. exchange. The size of the cross-listing effect is striking. In contrast to the well-documented underweighting of foreign stocks, emerging market equities that are cross-listed on a U.S. exchange are incorporated into U.S. portfolios at full international CAPM weights. Our results suggest that information asymmetries play an important role in equity home bias and that the benefits of international risk sharing are limited to select firms.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
United States

1208. Cross-Border Listings, Capital Controls, and Equity Flows to Emerging Markets

Author:
Francis E. Warnock and Hali J. Edison
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We analyze capital flows to emerging markets in a framework that incorporates two quantitative measures of financial integration, the intensity of capital controls and the extent of cross-border listings, while controlling for traditional global (push) and country-specific (pull) factors. Two important results emerge. First, the cross-listing of an emerging market firm on a U.S. exchange is an important but short-lived capital flows event, suggesting that the cross-listed stock is in effect a new security that U.S. investors quickly bring into their portfolios. Second, the effect of financial liberalization on capital flows is more nuanced than is suggested by event studies: A reduction in capital controls results in increased inflows only when the controls were binding. Among the standard push and pull factors, global factors are important—slack U.S. economic activity is associated with increased flows to emerging markets—and U.S. investors appear to chase expected, but not past, returns.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
United States

1209. IT Investment and Hicks' Composite-Good Theorem: The U.S. Experience

Author:
Jaime Marquez and Shing-Yi B. Wang
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We study whether aggregation residuals in U.S. private investment in information technology (IT) exhibit a predictable pattern that is consistent with Hicks' composite-good theorem and that may be used for forecasting. To determine whether one can extract such a pattern, we apply the general-to-specific strategy developed by Krolzig and Hendry (2001). This strategy combines ordinary least squares with a computer-automated algorithm that selects a specification based on coefficients' statistical significance, residual properties, and parameter constancy. Then, we derive the testable implications from Hicks' theorem and evaluate them with econometric formulations; we find qualified support for these implications. Having obtained these formulations, we evaluate their ex-post predictive accuracy and compare it to that of an autoregressive model. The key finding is that ignoring movement in relative prices results in a loss of information for predicting aggregation residuals.
Topic:
Economics, International Trade and Finance, and Science and Technology
Political Geography:
United States

1210. Distance, Time, and Specialization

Author:
Carolyn Evans and James Harrigan
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Time is money, and distance matters. We model the interaction of these truisms, and show the implications for global specialization and trade: products where timely delivery is important will be produced near the source of final demand, where wages will be higher as a result. In the model, timely delivery is important because it allows retailers to respond to fluctuating final demand without holding costly inventories, and timely delivery is only possible from nearby locations. Using a unique dataset that allows us to measure the retail demand for timely delivery, we show that the sources of US apparel imports have shifted in the way predicted by the model, with products where timeliness matters increasingly imported from nearby countries.
Topic:
Economics, International Trade and Finance, and Science and Technology
Political Geography:
United States

1211. Net Foreign Assets and Imperfect Pass-through: The Consumption Real Exchange Rate Anomaly

Author:
Jorge D. Selaive and Vicente Tuesta
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
An unresolved issue in international macroeconomics is the apparent lack of risk-sharing across countries, which contradicts the prediction of models based on the assumption of complete markets. We assess the importance of financial frictions in this issue by constructing an incomplete market model with stationary net foreign assets (NFA) and imperfect pass-through (IPT). In this paper, there is a cost of bond holdings that allows us to incorporate the dynamics of NFA into the risk-sharing condition. On theoretical grounds, our results suggest that the dynamics of NFA may account for the lack of risk-sharing across countries. In addition, the IPT mechanism, by closing the current account channel, does not help to explain this feature of the data. On empirical grounds, we test the risk-sharing condition derived in the paper, and we find that growth factors of consumption and real exchange rates behave in a manner that may be consistent with a significant role for the net foreign asset position.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
United States

1212. An Empirical Analysis of Inflation in OECD Countries

Author:
Jaime Marquez and Jane Ihrig
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
One of the most remarkable macroeconomic developments of the past decade has been the widespread decline in inflation despite declines in unemployment rates. For the United States, these seemingly contradictory developments have been reconciled in terms of three factors: (1) an acceleration in productivity, (2) structural changes in labor markets that lowered the natural unemployment rate (NAIRU), and (3) improved credibility of monetary policy. Here we ask whether comparable factors were at work in foreign industrial countries. To address this question, we empirically characterize the relationship between inflation, the unemployment rate, and structural factors using an extended Phillips curve model with quarterly data through 1994. By undertaking counterfactual simulations from 1995 to 2001, we quantify the separate contributions of unemployment-rate movements, labor-market reforms (that affected the NAIRU), and productivity developments on inflation. In line with previous work on the United States, we find that productivity advancements were the main structural factor reducing inflation in the United States. For foreign countries, persistent labor-market slack was the main factor exerting downward pressure on inflation. This persistence stemmed, in part, from structural reforms that lowered the NAIRU while the unemployment rate was declining.
Topic:
International Relations, Development, Economics, and International Trade and Finance
Political Geography:
United States

1213. Putting 'M' Back in Monetary Policy

Author:
Eric M. Leeper and Jennifer E. Roush
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Money demand and the stock of money have all but disappeared from monetary policy analyses. Remarkably, it is more common for empirical work on monetary policy to include commodity prices than to include money. This paper establishes and explores the empirical fact that whether money enters a model and how it enters matters for inferences about policy impacts. The way money is modeled significantly changes the size of output and inflation effects and the degree of inertia that inflation exhibits following a policy shock. We offer a simple and conventional economic interpretation of these empirical facts.
Topic:
Conflict Resolution, International Relations, Economics, and International Trade and Finance

1214. Are Financially Dollarized Countries More Prone to Costly Crises?

Author:
Carlos Ó. Arteta
Publication Date:
03-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In view of the role of liability dollarization in recent financial crises, whether or not the widespread presence of foreign-currency-denominated deposits and credits in developing-country banking systems leads to greater financial fragility is an open and pressing question. Using a comprehensive dataset on deposit and credit dollarization for a large number of developing and transition economies, I find little evidence that high dollarization heightens the probability of banking crises or currency crashes. Furthermore, while empirical results suggest that banking crises and currency crashes are contractionary, there is no robust evidence that they are more costly in highly dollarized countries than in countries where dollarization is low. This extensive empirical search highlights that macroeconomic and exchange rate policies are far more important than bank dollarization in determining crisis risks and costs.
Topic:
Conflict Resolution, International Relations, Economics, and International Trade and Finance

1215. New Keynesian, Open-Economy Models and Their Implications for Monetary Policy

Author:
Brian M. Doyle and David Bowman
Publication Date:
03-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The considerable amount of research in recent years on New Keynesian, open-economy models -- models with nominal price rigidities and intertemporally maximizing agents -- has yielded fresh insights for what Alan Blinder has called the “dark art” of making monetary policy. The literature has made its greatest contributions in understanding the transmission of shocks across countries, exchange rate pass-through and the effects of different pricing rules, and how these impact optimal monetary policy rules and international policy coordination. While the literature has by no means solved the great mysteries of open-economy macroeconomics, it has laid out a framework where we can ask normative questions of monetary policy, such as how much a central bank should react to movements in the exchange rate. However, monetary policy remains an empirical endeavour, and would be helped by further work which empirically estimates or calibrates these new models.
Topic:
International Relations, Development, Economics, International Trade and Finance, and Monetary Policy

1216. Foreign Portfolio Investment, Foreign Bank Lending, and Economic Growth

Author:
J. Benson Durham
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In contrast to the empirical literature's focus on foreign direct investment (FDI), this study examines the effects of foreign portfolio investment (FPI) and “other” foreign investment (OFI) on economic growth using data on 88 countries from 1977 through 2000. Most measures suggest that FPI has no effect, and some results indicate that OFI has a negative impact on growth that is somewhat mitigated by initial financial and/or legal development. However, these results are questionable due to possible simultaneity bias. The empirical analyses also examine whether non-FDI foreign investment affects growth indirectly. FPI does not correlate positively with macroeconomic volatility, but the results indicate that the negative indirect effect of OFI through macroeconomic volatility comprises a substantial portion of the gross negative effect of OFI on growth.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

1217. Was There Front Running During the LTCM Crisis?

Author:
Fang Cai
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper uses a unique dataset of audit trail transactions to examine the trading behavior of market makers in the Treasury bond futures market when Long-Term Capital Management (LTCM) faced binding margin constraints in 1998. Although identities are concealed in the dataset, I find strong evidence that during the crisis market makers in the aggregate engaged in front running against customer orders from a particular clearing firm (coded “PI7”) that closely match various features of LTCM's trades through Bear Stearns. That is, market makers traded on their own accounts in the same direction as PI7 customers did, but one or two minutes beforehand. Furthermore, a significant percentage of market makers made abnormal profits on most of the trading days during the crisis. Their aggregate abnormal profits, however, were more than offset by abnormal losses realized after the private sector recapitalization of LTCM. Moreover, I show that before the rescue, a market maker's cumulative abnormal profit was positively correlated both to her tie as contra party with PI7 and to the intensity of her front running, but these relationships turned negative after the rescue. The overall evidence suggests that the recapitalization plan effectively relaxed LTCM's binding constraints and therefore reversed the profitability of front running.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
United States

1218. Transmission of Information Across International Equity Markets

Author:
Jon Wongswan
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper provides evidence of transmission of information from the U.S. and Japan to Korean and Thai equity markets during the period from 1995 through 2000. Information is defined as important macroeconomic announcements in the U.S., Japan, Korea, and Thailand. Using high-frequency intraday data, I focus the study on return volatility and trading volume because the implications of new information are much clearer than for returns. I find a large and significant association between emerging-economy equity volatility and trading volume and developed-economy macroeconomic announcements at short-time horizons. This is the first strong evidence of this sort of international information transmission. Previous studies' findings of at most weak evidence may be due to their use of lower frequency data and their focus on developed-economy financial market innovations as the measure of information.
Topic:
Economics and International Trade and Finance
Political Geography:
United States, Japan, Asia, Korea, and Thailand

1219. The Present-Value Model of the Current Account Has Been Rejected: Round Up the Usual Suspects

Author:
John H. Rogers and James M. Nason
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Tests of the present-value model of the current account are frequently rejected by the data. Standard explanations rely on the “usual suspects” of non-separable preferences, shocks to fiscal policy and the world real interest rate, and imperfect international capital mobility. We con firm these rejections on post-war Canadian data, then investigate their source by calibrating and simulating alternative versions of a small open economy, real business cycle model. Monte Carlo experiments reveal that, although each of the suspects matters in some way, a “canonical” RBC model moves closest to the data when it features exogenous world real interest rate shocks.
Topic:
Conflict Resolution, International Relations, Economics, and International Trade and Finance

1220. Consumption, Durable Goods, and Transaction Costs

Author:
Robert F. Martin
Publication Date:
01-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We study consumption of durable and nondurable goods when the durable good is subject to transaction costs. In the model, agents derive utility from a service flow of a durable good and a consumption flow of a nondurable good. The key feature of the model is the existence of a fixed transaction cost in the durable good market. The fixed cost induces an inaction region in the purchase of the durable good. More importantly, the inability to adjust the durable stock induces variation in consumption of the nondurable good over the inaction region. The variation is a function of the degree of complementarity between durable and nondurable goods in the period utility function, the rate of intertemporal substitution, and a precautionary motive induced by incomplete markets. We test the model using the PSID. Housing serves as the durable good. The data indicate an increase in consumption before moving to a smaller house and a decrease in consumption before moving to a larger house. This result is consistent with the model when there exists complementarity between the durable and nondurable good or when there is a strong precautionary effect.
Topic:
Economics, Industrial Policy, and International Trade and Finance
Political Geography:
United States

1221. Diversification, Original Sin, and International Bond Portfolios

Author:
Francis E. Warnock and John D. Burger
Publication Date:
01-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
While there is a severe home bias in U.S. investors' foreign bond portfolios, we find that portfolio weights are greater for countries with more open capital accounts and whose bond returns are less correlated with U.S. returns. Positions in local-currency-denominated bonds are particularly sensitive to past and prospective returns volatility. An analysis of changes in portfolio weights over time indicates that U.S. investors have recently moved out of smaller markets and those with low and declining credit ratings. Our data also allow for an analysis of the size and currency composition of international bond markets. We find that countries with stronger institutions and better inflation performance have larger local currency bond markets. An implication for developing countries is that creditor friendly policies, such as vigilance on the inflation front and the development of strong institutions, can enable local bond market development and may in turn attract global investors.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

1222. Uncovered Interest Parity: It Works, But Not For Long

Author:
Jonathan H. Wright and Alain P. Chaboud
Publication Date:
01-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The failure of uncovered interest parity can be ascribed to the existence of a risk premium. The size of this risk premium may shrink to zero over sufficiently small intervals of time. In contrast, because no interest is paid on intradaily positions and interest is instead paid discretely at the point when a position is rolled over from one day to the next, the size of the interest differential remains fixed over any interval that covers the time of the discrete interest payment. This is true no matter how short that interval is. Using a large dataset of high frequency exchange rate data, we run uncovered interest parity regression over different time intervals. We replicate the rejection of the uncovered interest parity hypothesis with daily data, but find results that are consistently much more supportive of the uncovered interest parity hypothesis over short windows of intradaily data that span the time of the discrete interest payment.
Topic:
Conflict Prevention, International Relations, Economics, and International Trade and Finance

1223. Long-Run Supply Effects and the Elasticities Approach to Trade

Author:
Joseph E. Gagnon
Publication Date:
01-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Krugman (1989) argued that differences across countries in estimated income elasticities of import demand are due to omission of an exporter supply effect. He showed that such an effect can be derived in a theoretical model with economies of scale in production and a taste for variety in consumption. In his model, countries grow by producing new varieties of goods, and they are able to export these goods without suffering any deterioration in their terms of trade. This paper analyzes U.S. import demand from different source countries and finds strong evidence of a supply effect of roughly half the magnitude (0.75) of the income elasticity (1.5). Price elasticities for the most part are estimated close to -1, which is typical for the literature. Exclusion of the supply effect leads to overestimation of the income elasticity. Results based on U.S. exports to different destinations are less robust, but largely corroborate these findings.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
United States

1224. Firm-Level Access To International Capital Markets: Evidence From Chilean Equities

Author:
Francis E. Warnock and Sara B. Holland
Publication Date:
01-2003
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
High growth, liquid Chilean firms have greater relative weights in U.S. equity portfolios, but the most important determinant of a firm's portfolio weight is whether it is listed on a U.S. exchange. Cross-listing does not, however, appear to have permanent benefits: Weights in U.S. portfolios of firms that cross-listed in the mid-1990s increased at the expense of firms that cross-listed earlier. Put another way, firms appear to be able to access international capital at the time of the cross-listing, but this access may well be short-lived.
Topic:
International Relations, Economics, and International Trade and Finance
Political Geography:
South America

1225. NAFTA and Small Business Competitiveness in Mexico: The Impacts of Free Trade, Macroeconomic Policy, and Firm Management

Author:
Jerry Haar, Catherine Leroy-Beltrán, and Oscar Beltrán
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
The North-South Center, University of Miami
Abstract:
Despite compelling evidence that, for the most part , benefits from the North American Free Trade Agreement (NAFTA) have exceeded its costs in the United States, Canada, and Mexico, the policy debate continues in all three countries as to whether the accord has produced more “winners” or “losers.” In the case of Mexico, the focus country of this research project, both the Institutional Revolutionary Party (Partido Revolucionario Institucional — PRI) and the National Action Party (Partido Acción Nacional — PAN) have been supportive of NAFTA.
Topic:
Economics, Industrial Policy, and International Trade and Finance
Political Geography:
United States, Canada, North America, and Mexico

1226. A Resurgent MERCOSUR: Confronting Economic Crises and Negotiating Trade Agreements

Author:
Thomas Andrew O'Keefe
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
The North-South Center, University of Miami
Abstract:
Almost from the day it was launched on March 26, 1991, skeptics have predicted the imminent collapse of the Common Market of the South (Mercado Común del Sur — MERCOSUR), while some economists have fretted about the project's supposed protectionist designs to create a trade fortress. The most memorable example of the latter was a 1996 report written by a World Bank economist that relied on out-of-date trade statistics and attributed to MERCOSUR policies that were actually pre-existing national automotive regimes. More recent tirades have tried to blame Argentina's economic meltdown on its MERCOSUR membership. A well-known economist from a New York City investment bank has even gone as far as to proclaim MERCOSUR dead. Given all the invective directed against efforts to integrate South America's Southern Cone economically over the past decade, it is not surprising that MERCOSUR is misunderstood by many in North America.
Topic:
Economics, International Trade and Finance, and Treaties and Agreements
Political Geography:
South America, Latin America, and North America

1227. A Global Race for Free Trade Agreements

Author:
Arne Melchior
Publication Date:
11-2003
Content Type:
Working Paper
Institution:
Norwegian Institute of International Affairs
Abstract:
The article examines the currently expanding worldwide network of bilateral free trade agreements. Following regional integration in Europe and later the Americas, the process if East Asia has accelerated from 2002. A Distinctive feature of the current stage in the expansion of FTAs beyond geographical regions and into global space, hence challenging WTOs supremacy on inter-continental trade rules. Setbacks in the WTO Doha Round may stimulate a further move towards «global bilateralism». The more such agreements in place, the greater is the incentive for new ones. Even if political obstacles hinder some agreements, the process is currently accelerating. While it is rational for countries to pursue such agreements, they should in parallel work for multilateral trade liberalisation in order to reduce the discriminatory impact of FTAs. This is needed if we are to avoid that «Most Favoured Nation» treatment under the WTO actually becomes «Least Favoured Nation» treatment: Rules that only apply to countries that are left outside the «free trade race».
Topic:
Economics, Globalization, International Trade and Finance, and Politics
Political Geography:
America, Europe, and East Asia

1228. Study of selected Fredskorpset exchange projects

Author:
Axel Borchgrevink
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
Norwegian Institute of International Affairs
Abstract:
The present study examines nine Fredskorpset exchange projects, in order to assess the degree to which the goals specified have been reached. The basis for the exchanges is the partnerships established between institutions in Norway and counterpart entities in the South. The projects studied encompass a wide variety of such partnerships, illustrating the flexible and innovative attitude that Fredskorpset has shown during its first two years of operation. By basing its work on such partnerships, Fredskorpset has avoided some of the weaknesses of traditional volunteer programs. In terms of achievements, there are variations among the projects. While individual learning of participants was strong in all cases, the degree to which institutional benefits were achieved varied. Well-matched partners with sufficiently strong institutional structures; thorough planning of exchanges; and participants selected in accordance with well-defined needs for professional skills were seen to be important factors for successful projects.
Topic:
Economics, Industrial Policy, and International Trade and Finance
Political Geography:
Europe and Norway

1229. Evaluation of Fadcanic's teacher training program in Nicaragua's Southern autonomous region of the Atlantic Coast

Author:
Axel Borchgrevink and Anníbal Ramírez Rodrígues
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
Norwegian Institute of International Affairs
Abstract:
Since 1997, FADCANIC has been implementing a training program for unqualified teachers working in primary schools of Nicaragua's Southern autonomous region of the Atlantic Coast. SAIH, the Norwegian NGO that has been funding this program, has commissioned the present evaluation. It concludes that the program has had a significant impact in terms of improving education in the region through addressing one of the most urgent needs of the educational sector, namely teacher qualifications. However, the evaluation also points out a number of other limitations for the sector, including lack of resources for materials, physical infrastructure and reasonable teacher salaries, as well as general social problems of the region. It recommends that the program is continued, and that even greater emphasis is put upon creating a teacher education appropriate to the multilingual and -cultural reality.
Topic:
Development, Education, and International Trade and Finance
Political Geography:
Norway, Central America, and Nicaragua

1230. Industrial heterogeneity of the ICT industry—An exploratory survey on Norwegian firms

Author:
Arne Melchior
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
Norwegian Institute of International Affairs
Abstract:
The paper presents evidence from a limited survey undertaken among Norwegian ICT firms in 2001, supplemented with other statistical evidence. Corresponding to the limited production of ICT hardware in Norway, the hardware firms covered by the survey were dominated by sales outlets of foreign firms. While these firms are on average small and with a modest skill requirement, some of them are larger and more skill-intensive due to the provision of related software and services. Within-firm learning, higher education as well as sector- and industry-wide knowledge externalities generally matter to IT firms. Education is ranked third, and is more important for software and services than for hardware. Knowledge externalities are less important for foreign-owned firms. 2/3 of the firms surveyed produce various combinations of hardware, software and services, with software+services as the most frequent combination, composed by firms that are on average clearly larger than the sample average. Such firms rely more on learning within the firms and less on sectorwide knowledge externalities than other IT firms. Adaptation of products to individual customers is important for many IT goods, and implies that e.g. imported software frequently generates substantial domestic employment in related services. The survey tentatively suggests that such complementarities in production may be an important aspect of IT production. Norwegian IT exports are generally small, but pure software producers in the sample had larger exports.
Topic:
Economics, Education, Industrial Policy, and International Trade and Finance
Political Geography:
Norway

1231. Remarks on Private-to-private corruption

Author:
Jens Chr.1 Andvig
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
Norwegian Institute of International Affairs
Abstract:
The OECD's Anti-Bribery Convention may be regarded as the strongest international expression of the recent recognition of corruption as a major global issue. The convention aims to contain trans-border corruption by making it illegal for citizens and enterprises located in the countries that have signed the convention to get involved in corrupt transactions with officials abroad. Working out the convention the legal regulation of transborder corruption has become harmonised across countries. Given the initial success, the question has been raised whether the convention should be extended or modified in some way. New policy instruments have been proposed; greater precision in how to deal with middlemen has been urged.
Topic:
Economics, Government, Industrial Policy, and International Trade and Finance

1232. Sunk costs in the exporting activity: Implications for international trade and specialisation

Author:
Arne Melchior
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
Norwegian Institute of International Affairs
Abstract:
International trade costs may be sunk and not proportional to sales. The paper explores this theoretically, by allowing firms to invest in sales channels or marketing in order to increase demand in each market. The returns to such investments will, ceteris paribus, be higher in markets with lower variable trade costs (e.g. transport costs). Firms will therefore invest and sell more at home than in foreign markets, and more in foreign markets with low variable trade costs. Sunk export costs will therefore amplify the trade-reducing impact of other trade barriers, and dampen the «home market effect» whereby large countries tend to be net exporters of differentiated goods.
Topic:
Economics, Emerging Markets, Industrial Policy, and International Trade and Finance

1233. Regional or National Poverty Lines? The Case of Uganda in the 1990s

Author:
Simon Appleton
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Absolute poverty lines are often derived from the cost of obtaining sufficient calories. Where staples vary across regions, such poverty lines may differ depending on whether they are set using national or regional food baskets. Regional poverty lines are open to the objection that they may be contaminated by income effects. This paper explores this issue by focussing on Uganda, a country where widening spatial inequalities in the 1990s have caused concern. Conflicting results from earlier studies have suggested that the spatial pattern of poverty in Uganda is very sensitive to whether national or regional food baskets are used in setting poverty lines. We confirm this suggestion by comparing the spatial profile of poverty in 1993 using national and regional poverty lines. However, since the regions consuming the more expensive staple sources of calories are also those with higher incomes, using simple regional poverty lines is problematic. Instead, a method of setting regional poverty lines is considered that adjusts for income differentials between regions. Even with this adjustment, the use of regional food baskets implies a markedly different.
Topic:
Development, International Trade and Finance, and Poverty
Political Geography:
Uganda and Africa

1234. Remittances by Emigrants: Issues and Evidence

Author:
Andrés Solimano
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Remittances, after foreign direct investment, are currently the most important source of external finance to developing countries. Remittances surpass foreign aid, and tend to be more stable than such volatile capital flows as portfolio investment and international bank credit. Remittances are also an international redistribution from low-income migrants to their families in the home country.
Topic:
Development, Economics, International Trade and Finance, and Migration

1235. Innovative Sources for Development Finance: Over-Arching Issues

Author:
Anthony B. Atkinson
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In analysing proposals for new sources of development funding, there are several issues that arise across the board. What is the role of new sources in relation to existing overseas development assistance? Should we be seeking new sources that generate a double dividend? Can the key elements of a proposal be achieved by another route? What should be the fiscal architecture? Is there a modern transfer problem? It is with these general concerns that the present paper deals. Its aim is to bring to bear on global public finance the accumulated knowledge in the field of national public finance, and more generally public economics.
Topic:
Development, Economics, and International Trade and Finance

1236. National Taxation, Fiscal Federalism and Global Taxation

Author:
Robin Boadway
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper considers lessons from the practice of fiscal federalism for guidance on new approaches to development finance. Despite the fact that inter-regional redistribution in a federation relies on a central government with strong fiscal powers, the form of that redistribution can be used as a benchmark for international development assistance financing. In a federation, finance for less-developed regions takes the form of equalizing transfers to sub-national governments. The objective of these transfers is to enable sub-national governments to provide comparable levels of public services at comparable tax rates, called fiscal equity, leaving them discretion to implement interpersonal redistribution schemes within their jurisdictions. This same principle of assuming that national governments rather than donor nations are responsible for vertical equity within their borders leads to the view that the ideal form of development assistance is a system of equalizing inter-nation transfers intended to enhance fiscal equity.
Topic:
Development, Economics, Government, and International Trade and Finance

1237. Environmental Taxation and Revenue for Development

Author:
Agnar Sandmo
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper considers the role of global environmental taxes both as instruments for improving the global environment and as a source of revenue for funding economic development. It reviews the general case for environmental taxes and the particular issues that arise for the adoption of such taxes in an international setting without a single jurisdiction. It also discusses the possibilities for political acceptance of such taxes when tax revenue is linked to the goal of economic development. The revenue potential of global environmental taxes is evaluated with special reference to a global carbon tax. It is found that this tax alone has the potential to raise sufficient revenue to finance the United Nations' Millennium Development Goals.
Topic:
Development, Economics, Environment, and International Trade and Finance

1238. Which Types of Aid Have the Most Impact?

Author:
George Mavrotas
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper uses an aid disaggregation approach to examine the impact of different types of aid on the fiscal sector of the aid-recipient country. It uses time-series data on different types of aid (project aid, programme aid, technical assistance and food aid) for Uganda, an important aid recipient in recent years, to estimate a model of fiscal response in the presence of aid which combines aid disaggregation and endogenous aid. The empirical findings clearly suggest the importance of the above approach for delving deeper into aid effectiveness issues since different aid categories have different effects on key fiscal variables—an impact that could not be revealed if a single figure for aid was employed. More precisely, project aid and food aid appear to cause a reduction in public investment whereas programme aid and technical assistance are positively related to public investment. The same applies for government consumption. A negligible impact on government tax and non-tax revenues, and a strong displacement of government borrowing are also found.
Topic:
Economics, International Trade and Finance, and Poverty
Political Geography:
Uganda and Africa

1239. Loan Processing Costs and Information Asymmetries - Implications for Financial Sector Development and Economic Growth

Author:
George Mavrotas and Salvatore Capasso
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper presents a model in which credit-constrained firms might delay the adoption of new and more productive technologies because of the very high external financing costs they face. Our point of departure is that the efficiency of the banking system can have a profound impact on real resource and investment allocation not only directly, by reducing the amount of resources channelled to the credit market, but also indirectly by affecting entrepreneurs' investment decisions. Along these lines of reasoning we develop a model of information asymmetries in the credit market in which high costs of processing bank loan applications might obstruct investments in high-tech projects and favour, instead, low-return, self-financed investments in mature sectors. The result is that these kinds of costs have a negative impact on the average capital productivity and on the rate of economic growth. In specific circumstances, the combination of these costs and the dynamics of capital accumulation can be such that the economy incurs in a 'technology trap', in which new technologies, even if readily available, will never be adopted because of high frictions and inefficiencies in the credit market, a situation that seems to be relevant to many developing countries.
Topic:
Development, Economics, and International Trade and Finance

1240. The Revenue and Double Dividend Potential of Taxes on International Private Capital Flows and Securities Transactions

Author:
Ilene Grabel
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper explores two proposals to tax financial flows in developing economies—the package of policies implemented to various degrees by Chile and Colombia during the 1990s, widely referred to today as the Chilean model—and securities transactions taxes (STTs). I find that each provides a viable mechanism to raise revenue in some developing countries. Both can be introduced unilaterally (with the prospect of multilateral coordination in the future); both are progressive in their incidence, and in the case of the STT, represents an administratively manageable form of revenue collection. I also find that each entails double dividends that manifest in greater domestic and international macroeconomic stability.
Topic:
Development, Economics, and International Trade and Finance

1241. Private Donations for International Development

Author:
John Micklewright and Anna Wright
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Charitable donations by private individuals and firms can help fund the Millennium Development Goals. What are the prospects for increasing donations for international development, whether from small-scale donors, the super-rich (as in the recent gifts by Bill Gates and Ted Turner), or the corporate sector? The paper starts by reviewing how large are the sums currently given in OECD countries (including gifts of time) and the problems development has in competing with domestic causes. It then looks at possibilities for the future, including tax deductions, the new 'global funds', corporate social responsibility and 'cause-related marketing', the use of the Internet, and long-term donor education.
Topic:
Development, International Cooperation, International Trade and Finance, and Third World

1242. Revenue Potential of the Currency Transaction Tax for Development Finance: A Critical Appraisal

Author:
Machiko Nissanke
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper assesses the potential of currency transaction taxes (CTT, widely known as the Tobin tax), to raise revenue for global development. Though Tobin proposed and others assessed CTTs in terms of reducing exchange rate volatility and improving macroeconomic policy environments, this paper considers the CTT first and foremost from the standpoint of revenue. With a view of establishing a 'permissible' range of tax rates to obtain realistic estimates of revenue potential, it first reviews the debate over the effects of CTT on market liquidity and the efficiency of foreign exchange markets, and assesses the Spahn proposal for a two-tier currency tax. It then moves to a discussion of the technical and political feasibility of CTT, followed by an evaluation of several new proposals, such as those advanced by Schmidt and Mendez. The paper presents revenue estimates from CTT in light of recent changes in the composition and structure of foreign exchange markets.
Topic:
Development, Economics, Globalization, and International Trade and Finance

1243. A Global Lottery and a Global Premium Bond

Author:
Tony Addison and Abdur R. Chowdhury
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The world lottery market now amounts to at least US$126 billion in sales. World market sales for all gaming products (public, charitable and commercial) total some US$1 trillion, of which Internet gambling accounts for US$32 billion. This paper assesses the prospects for harnessing this large and growing market for the purposes of development finance by means of a global lottery and a global premium bond (with the successful UK scheme providing a model for the latter). Each has different strengths: the global lottery can add to the supply of grant finance for development, while the global premium bond could be an attractive savings instrument for ethical investors. The paper concludes that global versions of both a lottery and a premium bond are viable and complementary in mobilizing more development finance.
Topic:
Development, Economics, International Cooperation, and International Trade and Finance
Political Geography:
United Kingdom

1244. The International Finance Facility: The UK HM Treasury-DFID Proposal to Increase External Finance to Developing Countries

Author:
George Mavrotas
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper discusses the International Finance Facility (IFF), a joint HM Treasury-DFID proposal to increase development aid substantially for the Millennium Development Goals to be achieved by 2015. The main conclusion of the paper is that the proposed IFF is a promising, forward-looking and creative proposal for it implies a substantial increase in fresh, predictable and stable aid as well as a robust financial structure. However, there are a number of concerns about potential shortcomings of the proposal, namely its underlying assumptions about continuous commitment on behalf of the donor community towards the implementation of the IFF during the life of the Facility and most importantly its heavy reliance on political coordination among donor countries participating in the proposed scheme. Potential absorptive capacity constraints in IFF aid-recipient countries may be also relevant. Achieving its huge political task as well as alleviating the crucial constraints regarding its successful implementation seem to be the main challenges this innovative proposal needs to deal with in the near future.
Topic:
Development, International Cooperation, and International Trade and Finance
Political Geography:
United Kingdom and Europe

1245. Some Welfare Implications of 'Who Goes First?' in WTO Negotiations

Author:
Basudeb Guha-Khasnobis
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
We envisage a logical framework to explain why some trade negotiations are delayed because parties differ on who should 'go first'. In our model, there are substantive welfare implications depending on which party sets tariff rates (or subsidies) first in a strategic optimization exercise. When knowledge about cost levels are incomplete or missing, and hence must be guessed with a probability, the chances of conflict regarding who goes first are extremely high in the situation modeled in this paper. As an institution with some power to set the rules of negotiations, the WTO should be able to anticipate such conflicts in upcoming negotiations. It can then set the rule (in this case, dictate who should go first) depending on whose interest it wants to protect. There is a wide range of choices for the WTO in this regard: OECD consumer's surplus, OECD producers' loss, net exports of developing countries, firm profits, or even, world welfare as the sum of all these components.
Topic:
Development, International Organization, International Political Economy, and International Trade and Finance

1246. Who Gains from Tariff Escalation?

Author:
Basudeb Guha-Khasnobis
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
With the help of a simple model of production and trade, we examine the differential impact of tariff escalation on skilled and unskilled wages in an economy. Our findings provide a lobbying-based explanation of the prevalence of tariff escalation in developed countries. It also predicts the possible response of a developing country and shows how similar lobbying activity in that country can slow the pace of liberalization of service sector trade.
Topic:
Development, Economics, and International Trade and Finance

1247. International Trade, Location and Wage Inequality in China

Author:
Songhua Lin
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Models of economic geography predict that transportation costs directly affect demand for goods and the supply of intermediate inputs. One of the reasons that international trade is concentrated in the coastal provinces of China is that they have lower transportation costs in transporting goods to other countries than do provinces in the interior. This paper examines the relationship between the provincial wage rate and each province's access to international markets, and to suppliers of intermediate inputs. A gravity equation is first estimated to construct these 'market access' and 'supplier access' variables. In the second stage, the effect of market access and supplier access on the wage rate is estimated. It is found that about one quarter of the provincial wage differences in the coastal provinces and 15 per cent of the wage differences in the interior provinces can be explained by these economic geography variables.
Topic:
Industrial Policy and International Trade and Finance
Political Geography:
China, Israel, and East Asia

1248. Economic Polarization Through Trade: Trade Liberalization and Regional Growth in Mexico

Author:
Andrés Rodríguez-Pose and Javier Sánchez-Reaza
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper analyses the impact trade liberalization and economic integration have had on regional growth and regional disparities in Mexico over the last two decades. It is highlighted that the passage from an import substitution system to membership of the General Agreement on Tariffs and Trade (GATT) first, and to economic integration in the North American Free Trade Agreement (NAFTA) later, has been associated with greater concentration of economic activity and territorial polarization. The analysis also shows that these changes herald a period of transition between two growth models. Regional growth in the final stages of the import substitution period was mainly characterized by convergence and linked to the presence of oil and raw materials and proximity to Mexico City. Economic liberalization and regional integration in NAFTA has been related to regional divergence, a reduction of the importance of Mexico City as the main market and to the emergence of an economic system in which the endowment of skilled labour starts to play a more important role.
Topic:
Economics and International Trade and Finance
Political Geography:
North America and Mexico

1249. Regional Output Differences in International Perspective

Author:
Alan Heston and Bettina Aten
Publication Date:
08-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Accurate regional estimates of output are desired as an indicator of level of development and as a variable used to explain internal migration, demand patterns, fertility and other aspects of behaviour. This chapter explores one often neglected aspect of regional income differences, namely that due to price differences or regional purchasing power parities. When nominal regional income measures are adjusted for these price level differences they are termed real regional incomes. The preferred method of estimating regional purchasing power parities by detailed price comparisons is discussed for Brazil, the United States and the European Union. The empirical thrust of the chapter is an investigation of different methods for estimating regional real incomes based on PPP data for 167 countries and nominal regional incomes and other data for about 870 administrative areas at the subnational level. Even in their present form we believe the real income estimates provided for the geographical units present opportunities for understanding the world economic structure.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
United States, Europe, and Brazil

1250. Impact of Trade Liberalization on Returns from Land: A Regional Study of Indian Agriculture

Author:
Ghosh Nilabja
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Trade liberalization, by aligning domestic prices with world prices, is envisaged to bring welfare gains to a country. In the case of Indian agriculture, owing to the vastness and diversity of the sector, the impact is likely to be profoundly unequal across regions especially when liberalization is double-edged, acting on both output and input sides. This paper views returns from land resource as a primary determinant of farmers' economic well-being and production incentive and considers paddy both as the dominant support for the rural population and as a product with comparative advantage, as most studies have demonstrated. Working with state and sub-state level data and taking account of the differences in technologies, productivities and transport costs, the paper finds that the gains vary regionally and may not be positive in all cases when both output and input prices are globally aligned.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
South Asia and India

1251. The EU's Everything But Arms Initiative and the Least-developed Countries

Author:
Lucian Cernat, Sam Laird, Luca Monge-Roffarello, and Alessandro Turrini
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Using a computable general equilibrium simulation model and partial equilibrium simulations, based on the SMART model, the paper attempts to assess the aggregate worldwide distribution of gains and losses of the EU's Everything But Arms (EBA) initiative for both LDCs and third developing countries under different scenarios.
Topic:
Development and International Trade and Finance
Political Geography:
Europe

1252. Developed Country Trade Barriers and the Least Developed Countries: The Economic Results of Freeing Trade

Author:
Jon D. Haveman and Howard J. Shatz
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The Doha Ministerial Declaration emphasized that priority should be given to improving market access for products originating in the Least Developed Countries (LDCs). In this paper, we analyze the importance of this proposition with respect to market access in the Triad economies. We first present a brief history of non-reciprocal preferences granted by the Triad. This covers Generalized System of Preference (GSP) programmes in each, and further preferences granted to African, Caribbean and Pacific countries by the EU and preferences granted to Caribbean Basin, Andean, and African countries by the US. This history is followed by an assessment of trade generated by these preferences in the year 2000, and of the extent to which LDC exports might be expected to increase should the preferences be made comprehensive. Preferences in 2000 are shown to have led to an increase of US$3.5 billion in LDC exports, while a complete duty-free treatment could expand LDC exports by as much as US$7.6 billion, 90 per cent of which will be absorbed by the US. As this represents a doubling of LDC exports to these countries, we interpret these results as an endorsement of this priority in the Doha Round of negotiations.
Topic:
Development, Economics, and International Trade and Finance
Political Geography:
Africa, United States, and Caribbean

1253. The New Global Determinants of FDI Flows to Developing Countries: The Importance of ICT and Democratization

Author:
Tony Addison and Almas Heshmati
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Foreign direct investment (FDI) has increased dramatically in recent years. However, the distribution of FDI is highly unequal and very poor countries face major difficulties in attracting foreign investors. This paper investigates the determinants of FDI inflows to developing countries, with a particular emphasis on the impact of the 'third wave of democratization' that started in the early 1980s and the spread of information and communication technology (ICT) that began in the late 1980s. These two global developments must now be taken into account in any explanation of what determines FDI flows. Using a large sample of countries, together with panel data techniques, the paper explores the determinants of FDI. The causal relationship between FDI, GDP growth, trade openness and ICT is investigated. The main findings are that democratization and ICT increase FDI inflows to developing countries. The paper concludes that more assistance should be given to poorer countries to help them to adopt ICT and to break out of their present 'low ICT equilibrium' trap.
Topic:
Democratization, Development, Economics, and International Trade and Finance

1254. Inflation, Output and Perfectly Enforceable Price Controls in Orthodox and Heterodox Stabilization Programmes

Author:
George Mavrotas and Mario Reyna-Cerecero
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper deals with the success of price controls in stabilizing high inflation rates and their effects on the real economy under an imperfect competition setting derived by optimal maximization. Our model builds on Helpman's work of price controls and imperfect competition, and incorporates inflation inertia through adaptive expectations. The model predicts that under these circumstances price controls can be an effective method of curving inflation when they accompany an orthodox monetary restriction programme; incomes policies alone cannot curve inflation substantially. Efforts where monetary growth is decreased gradually and price controls are implemented to achieve zero inflation result in the boom-recession cycle observed in many real life programmes. When monetary growth is curved immediately and price controls are implemented to achieve zero inflation, there follows a recession and not a boom. Orthodox money-based stabilization programmes implemented on their own need more time to control inflation and always produce a recession.
Topic:
Development, Economics, and International Trade and Finance

1255. The 'Pull' and 'Push' Factors in North-South Private Capital: Conceptual Issues and Empirical Estimates

Author:
Matthew Odedokun
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper is an attempt to rectify some of the problems that characterize most earlier studies that seek to explain private capital flows to developing countries or, at least, to examine the subject from a different and complementary perspective. To accomplish this, we propose a model framework that approaches the issue from the perspective of a capital-exporting developed country and which also takes cognizance of developments in other industrialized countries that could be competing with developing countries for private capital flows. The model is operationalized and estimated with annual panel data over 1970-2000 for 19 capital-exporting developed countries. Specifically, we estimate equations for total private flows, FDI, total portfolio capital flows (PCF) and various categories of PCF. We also test for the effects of a number of factors, each of which has its own 'push' and 'pull' components. The specific explanatory factors are the level of per capita income, interest rate, economic growth, the prevailing phase of economic cycle, the degree of openness of the economy in the balance-of-payment capital account, macroeconomic imbalances, and external debt burden. The empirical findings confirm the posited effects of the 'push' and/or 'pull' component of each of the above factors.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance

1256. Export Dynamism and Market Access

Author:
Jörg Mayer
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
Market access liberalization has influenced product-specific growth of world exports and contributed to the shift in the structure of world exports of manufactures towards electrical and electronic goods (including parts and components), goods that require high R expenditures, and labour-intensive products such as clothing. Multilateral trade liberalization has strongly improved market access conditions for manufactures and partly explains why manufactures have experienced particularly strong growth in exports. The increased importance of vertical international production sharing and the associated preferential trading arrangements between geographically close countries with significantly different wage rates have been a key determinant of differences in export-value growth across individual manufactured products, as well as of the distribution of market shares for some of these products among developing countries. Projections based on a standard trade model suggest that moving to full trade liberalization would lead to an increase in the share of agricultural products in total world trade by almost two percentage points and give greater weight to the textile, clothing and automotive sectors within manufactured exports.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance

1257. If People were Money: Estimating the Potential Gains from Increased International Migration

Author:
Jonathon Moses and Bjørn Letnes
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
In this paper we elaborate on the findings produced by an applied equilibrium model that is used to calculate the annual efficiency gains from free international migration. These findings suggest that we can expect significant gains from liberalizing international labour flows. In particular, we expand on two implicit aspects of the estimates: the actual number of migrants being generated by the various counter-factual scenarios, and the per-migrant cost/benefits associated with each. These estimates are then compared with contemporary migration flows and the findings of studies that analyse their economic impact. In light of these comparisons, we conclude that our original findings are not unreasonable.
Topic:
Development, Economics, International Trade and Finance, and Migration

1258. E-business Model Innovation and Capability Building

Author:
Stéphane Gagnon
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
A firm's business model describes the way in which it creates, delivers, and appropriates value. In the debate about the ongoing demise of several e-commerce ventures, only a few analysts have looked at the relative sanity of innovative e-business Models, relying mostly on static environmental variables and the inherent economic logic of each industry. Our study sheds new light on this debate by concentrating on a set of more complex factors, namely the relative difficulty to build new capabilities, whether by creating or acquiring them. We interviewed 60 e-commerce ventures between 2 and 3 years old, both independent and corporate ones, in order to measure their performance, the innovativeness of their e-business model, their obstacles to capability building, and their exploitable resource base. By performing cluster, discriminant, and regression analyses, we demonstrate that a number of typical obstacles to capability building can significantly affect the relative success or failure of innovative e-business models, but that a richer resource base may alleviate this relationship. We end with a discussion of the implications for the e-business model literature, and point out to some new directions to explain how various e-commerce firms, whether 'pure-play' or 'click-and-mortar', can successfully innovate despite rampant capability building difficulties.
Topic:
Economics, Emerging Markets, and International Trade and Finance

1259. 'Looking at the Other Side of the Coin': The Relationship between Classical Growth and Early Development Theories

Author:
Maiju Perälä
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper extends the history of thought narrative on Allyn Young to recognize the close relationship that the classical growth theory has with the early development theory, as Young's externalities-fuelled, cumulative growth process influenced the theoretical thought of the early development theory pioneers, Paul Rosenstein-Rodan and Ragnar Nurkse. The conditions that prevent the development of underdeveloped regions, indivisibilities and inelasticities of supplies and demands, represent the breakdown of the conditions that Young highlights as necessary for self-sustaining growth to occur. Hence, Young's cumulative growth process underlies the view of these early development theorists, though their focus is on the malfunctioning and restarting of this process.
Topic:
Development, Economics, Emerging Markets, International Trade and Finance, and Poverty

1260. Aid, Debt Burden and Government Fiscal Behaviour: A New Model Applied to Côte d'Ivoire

Author:
Mark McGillivray and Bazoumana Ouattara
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper examines the impact of foreign aid on public sector fiscal behaviour in Côte d'Ivoire. A special interest is the relationship between aid, debt servicing and debt, given that Côte d'Ivoire is a highly indebted country. The theoretical model employed differs from those of previous studies by highlighting the interaction between debt servicing and the other fiscal variables. This model is estimated using 1975–99 time series data. Key findings are that the bulk of aid is allocated to debt servicing and that aid is associated with increases in the level of public debt.
Topic:
Debt, Development, Economics, and International Trade and Finance
Political Geography:
Africa

1261. OECD Domestic Support and Developing Countries

Author:
Betina Dimaranan, Thomas Hertel, and Roman Keeney
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
An AGE model with detailed farm supply and substitution relationships is used to analyze impacts of OECD domestic support reform on developing economy welfare. Stylized simulations indicate reforms best suited for reducing trade distortions with least impact on farm incomes. Comprehensive reforms result in welfare losses for LDCs and large declines in OECD farm incomes. Shifting from market price support to land-based payments designed to maintain farm incomes results in increased welfare for most developing countries. LDCs should focus on improved market access to OECD economies while permitting said economies to continue domestic support payments not linked to output/variable inputs.
Topic:
Agriculture, Development, Economics, and International Trade and Finance

1262. Analysis of Deviations and Delays in Aid Disbursements

Author:
Matthew Odedokun
Publication Date:
03-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The study seeks to identify donor-specific factors that cause donors to delay aid disbursement, and to apply a double standard in dealing with the non-compliance of a recipient with regard to aid conditionalities, a practice that promotes uncertainty in the receipt of aid. Annual panel data over 1970-2000 for the 22 members of OECD's DAC donor group are employed in the empirical study. Our findings suggest that the proportion of pledged aid being disbursed, which shows an increasing trend, is positively affected by the extent to which aid is procurement-tied and by the size of the donor government's expenditure in relation to GDP. On the other hand, the proportion of aid commitments being disbursed, which appears lower for the G7 countries, is negatively influenced by factors such as abundant donor generosity, the predominance of grants in total aid, the specific targeting of aid to lower-income recipients, high growth in donor economy, as well as high level of checks and balances, and polarization between the executive and legislative branches of government in the donor country.
Topic:
Development, Economics, Emerging Markets, International Trade and Finance, and Non-Governmental Organization

1263. Trade Liberalization, Agriculture, and Poverty in Low-income Countries

Author:
Kym Anderson
Publication Date:
03-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper offers an economic assessment of the opportunities and challenges provided by the WTO's Doha Development Agenda, particularly through agricultural trade liberalization, for low-income countries seeking to trade their way out of poverty. After discussing links between poverty, economic growth and trade, it reports modelling results showing that farm product markets remain the most costly of all goods market distortions in world trade. It focuses on what such reform might mean for countries of South Asia and sub-Saharan Africa in particular, both without and with their involvement in the MTN reform process. What becomes clear is that if those countries want to maximize their benefits from the Doha round, they need also to free up their own domestic product and factor markets so their farmers are better able to take advantage of new market-opening opportunities abroad. Other concerns of low-income countries about farm trade reform also are addressed: whether there would be losses associated with tariff preference erosion, whether food-importing countries would suffer from higher food prices in international markets, whether China's WTO accession will provide an example of trade reform aggravating poverty via cuts to prices received by Chinese farmers, and the impact on food security and poverty alleviation. The paper concludes with lessons of relevance for low-income countries for their own domestic and trade policies.
Topic:
Agriculture, Economics, Emerging Markets, International Trade and Finance, and Poverty
Political Geography:
Africa and China

1264. The Theoretical, Conceptual and Empirical Impact of the Service Economy: A Critical Review

Author:
Birgitte Andersen and Marva Corley
Publication Date:
03-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper offers a critical review of the conventional economic classification, measurement and valuation of output, and related performance indicators, for the service sector. The paper also explores and contrasts long-standing views on the service knowledge base and service innovations, as well as the global aspects of many services. A problem arises when historical industrial classification schemes treat services as being 'immaterial' (i.e. everything that is not manufacturing and agriculture), while ignoring that the activities of services in the economy, as well as the corporate structures of firms, transcend such classification schemes at any level of aggregation. Other problems arise when associated traditional analytical methods measure services input and output and related performance indicators using the same conceptual framework and indicators as those that are applied for problem solving for agriculture and manufacturing. Such entanglements have other and wider consequences for understanding the impact of the new economy and for designing appropriate policy.
Topic:
Development, Economics, International Trade and Finance, and Political Economy

1265. Financial Sector Development — Futile or Fruitful? An Examination of the Determinants of Savings in Sri Lanka

Author:
George Mavrotas and Roger Kelly
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
This paper documents the financial and institutional developments of China during the past two decades, when China was successfully transformed from a rigid centralplanning economy to a dynamic market economy following its unique path. We empirically examine the relationship between financial development and economic growth in China by employing a panel sample covering 31 Chinese provinces during the important transition period 1986-2002. Our evidence suggests that the development of financial markets, institutions, and instruments have been robustly associated with economic growth in China.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance
Political Geography:
South Asia

1266. Financial Sector Reforms and Savings Mobilization in Zambia

Author:
George Mavrotas and Samuel Manzele Maimbo
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The paper explores the relationship between financial sector reforms and savings mobilization in Zambia. Although there exists an extensive literature on financial sector development and savings levels in developing countries, there does not seem to exist satisfactory work on the above nexus for sub-Saharan African countries, particularly Zambia. Along these lines, the paper examines the linkages between the financial reforms of the early 1990s and savings mobilization. It considers the characteristics of banks and non-bank financial institutions, especially micro finance institutions, and savings levels and identifies problems associated with the relatively poor performance of savings in recent years and concludes with a set of policy guidelines for strengthening savings mobilization, highlighting the expected effect on povertyreducing growth.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance
Political Geography:
Africa and Nordic Nations

1267. A Holistic Perception of Foreign Financing of Developing Countries' Private Sectors: Analysis and Description of Structure and Trends

Author:
Matthew Odedokun
Publication Date:
03-2003
Content Type:
Working Paper
Institution:
United Nations University
Abstract:
The study seeks to identify donor-specific factors that cause donors to delay aid disbursement, and to apply a double standard in dealing with the non-compliance of a recipient with regard to aid conditionalities, a practice that promotes uncertainty in the receipt of aid. Annual panel data over 1970-2000 for the 22 members of OECD's DAC donor group are employed in the empirical study. Our findings suggest that the proportion of pledged aid being disbursed, which shows an increasing trend, is positively affected by the extent to which aid is procurement-tied and by the size of the donor government's expenditure in relation to GDP. On the other hand, the proportion of aid commitments being disbursed, which appears lower for the G7 countries, is negatively influenced by factors such as abundant donor generosity, the predominance of grants in total aid, the specific targeting of aid to lower-income recipients, high growth in donor economy, as well as high level of checks and balances, and polarization between the executive and legislative branches of government in the donor country.
Topic:
Development, Economics, Emerging Markets, International Trade and Finance, and Non-Governmental Organization

1268. Integrating European Business

Publication Date:
03-2003
Content Type:
Working Paper
Institution:
Chatham House
Abstract:
The first speaker considered the questions, 'What was expected from the internal market/ “1992” Programme?' and 'What is the single market?' The single market is the cornerstone of the EU, enshrined in Article 3 of the Treaty on European Union. It had not yet been completed but the Commission had argued, nevertheless, that EU GDP is 1.8% higher than it would have been without the single European market (SEM).
Topic:
International Trade and Finance and Political Economy
Political Geography:
Europe

1269. Sino-Japanese Relations Entering A New Stage- With the Trend of the Times, Broader Perspective as A Fresh Starting Point

Author:
Yang Bojiang
Publication Date:
01-2003
Content Type:
Working Paper
Abstract:
Relations between China and Japan have weathered 30 turbulent years since the normalization of diplomatic ties in 1972. This period of 30 years can be divided roughly in half into the first and second parts. From 1972 to the late 1980s, when the world had the bipolar polygenetic political and military structures, the two countries took down the barriers of the Cold War to restore normal exchanges between the states and their cooperative relationship achieved rapid development in areas of trade, finance and technologies. In the period between the end of the Cold War and the present day, the bilateral relationship has entered the new stage where friction and collaboration coexist as do competition and cooperation amid the progress in political multipolarization and economic globalization of the world.
Topic:
International Trade and Finance and Regional Cooperation
Political Geography:
China and Asia

1270. Politics and Property in Transitional Economies: A Theory of Elite Opportunity

Author:
Andrew G. Walder
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
Walter H. Shorenstein Asia-Pacific Research Center
Abstract:
Command economies gave communist-era elites administrative control and material privilege but severely restricted money income and private wealth. Markets and privatization inject new value into public assets and create unprecedented opportunities for elite insiders to extract incomes or assume ownership. These opportunities vary with the extensiveness of regime change and the barriers to asset appropriation. Within these limits, they further vary with the concentration and form of economic assets and structural changes induced by reform. Elite advantages are smallest where regime change is extensive and barriers to asset appropriation are high, and in small-scale economies that grow rapidly. In China, there has been no regime change and privatization has been delayed and slow. In the rural economy, elites keep their posts as a source of economic advantage, while low entry barriers to household enterprise and rapid growth have created new entrepreneurial elites. After two decades, rural officials nonetheless enjoy large net income advantages that grow along with the expansion of labor markets and private entrepreneurship. These are not generic outcomes of market reform, but the product of market reform in distinctive political and structural conditions.
Topic:
Communism, Economics, Government, and International Trade and Finance
Political Geography:
China and Asia

1271. Fundusz Mikro An Experiment In Partnership–Based Microfinance 1998 – 2002.

Author:
Witold Szwajkowski
Publication Date:
10-2003
Content Type:
Working Paper
Institution:
Aspen Institute
Abstract:
Fundusz Mikro's evolution has to be understood in the context of Poland's emergence from communism during the 1990s. For businesses, the challenge of that time was not merely to learn new skills, but to unlearn old habits and attitudes while at the same time taking on new ones appropriate to a market economy. Because of this shift, Fundusz Mikro (FM) found that it had to do more than lend money; it had to learn to play a more pro-active role in changing the culture in which business took place. The financial crisis of1998 and the harder economic times since then were an added incentive for FM to adapt its approach, products, and finally its mission.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
Europe and Poland

1272. The Chinese Economy: WTO, Trade, and U.S.-China Relations

Author:
Barry Naughton
Publication Date:
01-2003
Content Type:
Working Paper
Institution:
Aspen Institute
Abstract:
The Chinese economy is showing extraordinary dynamism, which partly reflects the early impact of the commitments in China's WTO accession agreement to liberalize the economy. Incoming foreign investment has increased, and trade has grown rapidly. At the same time, China is grappling with serious economic problems that may worsen in the near future. The most difficult problem in crafting China policy is deciding how to respond flexibly to this extraordinary mixture of dynamism and fragility. Rapid growth gives the Chinese economy remarkable resilience; but deep-seated institutional weakness and stubborn problems of poverty and unemployment create dangers of social and economic disruption. An effective U.S. China policy must navigate between the extremes of over-estimating China's current economic strength and under-estimating her potential.
Topic:
Economics, International Political Economy, and International Trade and Finance
Political Geography:
United States, China, and Asia

1273. Does venture capital investment spur employment growth?

Author:
Ansgar Belke, Rainer Fehn, and Neil Foster
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Anglo-Saxon countries have been successful in the 1990s concerning labour market performance compared to the former role models of Germany and Japan. This reversal in relative economic performance might be related to idiosyncracies in financial markets, with bank-based financial markets as in Germany and Japan being possibly inferior to stock-market based financial markets in turbulent times and when approaching the economic frontier. A cleavage is related to venture capital markets which are flourishing in Anglo-Saxon but not in German-type financial markets. Venture capital is crucial for financing structural change, new firms and innovations and therefore possibly also nowadays for employment growth.
Topic:
Economics and International Trade and Finance
Political Geography:
Japan, Europe, and Germany

1274. Trade Policy Issues for the Euro-Med Partnership

Author:
Paul Brenton and Miriam Manchin
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The economic prospects of the Mediterranean countries are currently constrained by the lack of ambition in their relationships with each other and with their major export market, the EU. These economic relationships are limited by a lack of coverage (agriculture and services are effectively excluded), by a lack of depth (substantial technical barriers to trade remain due to differences in regulatory requirements and the need to duplicate testing and conformity assessment when selling in overseas markets), and they are limited by rules (restrictive rules of origin and lack of cumulation limit effective market access). In addition, the rest of Europe, including Turkey, is integrating at a faster pace to create a Wider European Economic Space. If nothing is done to invigorate the integration process in the Mediterranean, then the region will fall (further) behind relative to other regions on the periphery of the EU, such as the Balkans and Russia and the Ukraine.
Topic:
International Trade and Finance and Regional Cooperation
Political Geography:
Russia, Europe, Turkey, Ukraine, Middle East, and Balkans

1275. The Euro-Mediterranean Partnership: Unique Features, First Results and Future Challenges

Author:
Eric Philippart
Publication Date:
04-2003
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
Many things have changed since the launch of the Euro-Mediterranean Partnership (EMP). Despite the virtual collapse of the Middle East Peace Process (MEPP), the Partnership has survived, has slowly moved forward on many fronts and seems to be gathering pace on the economic side. This working paper aims at presenting the new contours of the Partnership, as well as evaluating its scope of action, logic of intervention, organisational setting and policy output from 1995-2003. A brief mid-term outlook is offered by way of conclusion.
Topic:
International Trade and Finance and Regional Cooperation
Political Geography:
Europe and Middle East

1276. Mapping Israel's Policy Options regarding its Future Institutionalised Relations with the European Union

Author:
Alfred Tovias
Publication Date:
01-2003
Content Type:
Working Paper
Institution:
Centre for European Policy Studies (CEPS)
Abstract:
The nature of the Euro-Mediterranean Partnership will change with the Enlargement of the EU to include 13 additional members since all Mediterranean non-Arab countries will be in the EU but Israel. Israel will be obliged to revise its relations with the EU. The paper explores some possible policy options open to Israel. After discarding a continuation of Israel's present status in the Euro-Mediterranean Partnership, a second policy option gauges advantages and disadvantages for Israel of obtaining membership in the European Economic Area, i.e. full economic integration without political integration in the EU. Taking into consideration quantum political changes which have taken place in and around the EU, as well as in the Middle East, a third Israeli policy option postulates EU membership, so as not to be left behind and which would bring a "new vision" for Israel, once peace with its neighbours is in the offing, allowing for a complete change of the present terms of reference.
Topic:
International Trade and Finance and Regional Cooperation
Political Geography:
Europe, Middle East, and Israel

1277. Central Asia: A Last Chance for Change

Publication Date:
04-2003
Content Type:
Working Paper
Institution:
International Crisis Group
Abstract:
The Annual Meeting of the European Bank for Reconstruction and Development (EBRD) commencing on 3 May 2003 is an opportunity to assess frankly and honestly the records of the governments of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. If the chance is grasped to push for reform in a more coordinated and concerted way, the controversial decision to hold this meeting in Tashkent will prove well justified. If it is not, and any impression is left that the location of the meeting is a mark of approval for Uzbekistan's current policies, there is a major risk of further deterioration in both the economic and security climate in Central Asia.
Topic:
Democratization, Development, and International Trade and Finance
Political Geography:
Central Asia, Tajikistan, Uzbekistan, and Turkmenistan

1278. The Difficulties of Discerning What's Too Tight: Taylor Rules and Japanese Monetary Policy

Author:
Adam S. Posen and Kenneth N. Kuttner
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Observers have relied increasingly on simple reaction functions, such as the Taylor rule, to assess the conduct of monetary policy. Applying this approach to deflationary or near-zero inflation environments is problematic, however, and this paper examines two shortcomings of particular relevance to the Japanese case of the last decade. One is the unusually high degree of uncertainty associated with potential output in an environment of prolonged stagnation and deflation. Consequently, reaction function-based assessments of Japanese monetary policy are so sensitive to the chosen gauge of potential output as to be unreliable. The second shortcoming is the neglect of policy expectations, which become critically important as nominal interest rates approach zero. Using long-term bond yields, we identify five episodes since 1996 characterized by abrupt declines in Japanese inflation expectations. Policies undertaken by the Bank of Japan during this period did little to stabilize expectations, and the August 2000 interest rate increase appears to have intensified deflationary concerns.
Topic:
Climate Change, Economics, and International Trade and Finance
Political Geography:
Japan, Israel, East Asia, and Asia

1279. US-Brazil Trade Relations in a New Era

Author:
Jeffrey J. Schott
Publication Date:
08-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The United States and Brazil are the largest economies in North and South America, respectively. A generation ago, both were relatively closed economies in terms of the proportion of their trade to gross domestic product (GDP), but for sharply different reasons. The US market was highly competitive except for some light manufactures (e.g., textiles, clothing, and footwear) and a few agricultural sectors with high border barriers. By contrast, Brazilian industry was largely uncompetitive and highly subsidized; important commodities like coffee provided the bulk of exports while a large share of the value of most industrial exports was attributable to export subsidies.
Topic:
International Trade and Finance
Political Geography:
United States, Brazil, South America, Latin America, and Caribbean

1280. Empirical Investigations of Inflation Targeting

Author:
Yifan Hu
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
A growing number of countries have anchored their monetary policy to an explicit numerical rate or range of inflation since such an inflation targeting framework was first adopted by New Zealand in 1989. This paper empirically investigates issues associated with inflation targeting using a dataset of 66 countries for the 1980–2000 period.
Topic:
Development, Economics, Emerging Markets, and International Trade and Finance
Political Geography:
New Zealand

1281. Revitalizing the Economies of Japan and the United States

Author:
C. Fred Bergsten
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The United States and Japan are the two largest national economies in the world. Since the early 1990s, they have been moving in opposite directions. The United States enjoyed an expansion of record duration from the end of the Gulf War in 1991 until early 2001, growing much faster than any other G-7 country and much faster than it had at any time since the Second World War. Japan's economy, by contrast, has been virtually stagnant since its financial bubble burst in the early 1990s and has clearly experienced its worst performance since its recovery from the ravages of the Pacific War.
Topic:
Economics and International Trade and Finance
Political Geography:
United States, Japan, Israel, and East Asia

1282. NAFTA Dispute Settlement Systems

Author:
Gary Hufbauer and Jeffrey J. Schott
Publication Date:
06-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Drawing on the 1989 Canada-US Free Trade Agreement (CUSFTA), the North American Free Trade Agreement (NAFTA) extended dispute settlement provisions to cover more ground. In fact, within NAFTA there are six dispute settlement systems. NAFTA Chapter 11 is designed to resolve investor-state disputes over property rights; Chapter 14 creates special provisions for handling disputes in the financial sector via the Chapter 20 dispute settlement process (DSP); Chapter 19 establishes a review mechanism to determine whether final antidumping (AD) and countervailing duty (CVD) decisions made in domestic tribunals are consistent with national laws; and Chapter 20 provides government-to-government consultation, at the ministerial level, to resolve high-level disputes. In addition, the NAFTA partners created interstate dispute mechanisms regarding domestic environmental and labor laws under the North American Agreement on Environmental Cooperation (NAAEC) and the North American Agreement on Labor Cooperation (NAAL C), respectively. This chapter examines the first four dispute settlement systems; the NAAEC and NAALC systems are evaluated elsewhere in this book.
Topic:
Economics and International Trade and Finance
Political Geography:
United States, Latin America, and North America

1283. Survival of the Best Fit: Exposure to Low-Wage Countries and the (Uneven) Growth of US Manufacturing Plants

Author:
J. Bradford Jensen, Andrew B. Bernard, and Peter K. Schott
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines the role of international trade in the reallocation of U.S. manufacturing activity within and across industries from 1977 to 1997. It introduces a new measure of industry exposure to international trade, motivated by the Heckscher-Ohlin model, which focuses on where imports originate rather than their overall level. Results demonstrate that plant survival as well as output and employment growth are negatively associated with the share of industry imports sourced from the world's lowest-wage countries. Within industries, activity is reallocated towards capital-intensive plants. Plants are also more likely to alter their product mix (i.e. switch industries) in response to trade with low-wage countries. Plants altering their product mix switch to industries that are more capital-and skill-intensive.
Topic:
Economics, Government, and International Trade and Finance
Political Geography:
United States

1284. Falling Trade Costs, Heterogeneous Firms, and Industry Dynamics

Author:
J. Bradford Jensen, Andrew B. Bernard, and Peter K. Schott
Publication Date:
05-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines the response of industries and firms to changes in trade costs. Several new firm-level models of international trade with heterogeneous firms predict that industry productivity will rise as trade costs fall due to the reallocation of activity across plants within an industry. Using disaggregated U.S. import data, we create a new measure of trade costs over time and industries. As the models predict, productivity growth is faster in industries with falling trade costs. We also find evidence supporting the major hypotheses of the heterogenous- firm models. Plants in industries with falling trade costs are more likely to die or become exporters. Existing exporters increase their shipments abroad. The results do not apply equally across all sectors but are strongest for industries most likely to be producing horizontally-differentiated tradeable goods.
Topic:
Economics, Government, and International Trade and Finance
Political Geography:
United States

1285. Improving The Sovereign Debt Restructuring Process

Author:
Brad Setser and Nouriel Roubini
Publication Date:
03-2003
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The recent debate on reforming the international financial system has focused on the need to improve the sovereign debt restructuring process, and in particular on steps that could limit the risk that litigation could disrupt or delay a sovereign debt restructuring. This debate increasingly has focused on the debt restructuring process in those cases where debt reduction is needed to produce a sustainable debt profile. Less attention has been given to those cases where a sovereign lacks the reserves needed to cover its near-term obligations and, absent international support, has a clear need for debt rescheduling to push out near-term maturities.
Topic:
Economics, Government, and International Trade and Finance

1286. Free Movement of People, Goods, Services and Capital in View of the Context of Stability Pact

Author:
Mladen Stanicic
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
Austrian National Defence Academy
Abstract:
The Stability Pact is a strategic concept whose aim is to warrant long- term peace and stability in South-Eastern Europe. It is becoming an indispensable element of the global security structure which is currently being constructed in relations between the big powers, the USA, Russia and China, with the active participation of the United Nations, the European Union, international financial institutions and individual countries. As one of the sponsors of the pact, the European Union is keenly interested in stability and peace among its next-door neighbours, some of whom are covered by the pending eastern enlargement. This enlargement is intended to transcend centuries of civilisational and religious divisions in Europe, the causes of many political and armed conflicts in the past. The vision of Europe in the 21st century, reaching all the way to the borders of the former Soviet Union, is that of a multicultural community encompassing states with diverse civilisational, religious, ethnic and cultural characteristics.
Topic:
Security, Globalization, International Cooperation, and International Trade and Finance
Political Geography:
Russia, United States, China, Europe, and Eastern Europe

1287. Innovation and Social Capital in Silicon Valley

Author:
Martin Kenney and Donald Patton
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
Berkeley Roundtable on the International Economy
Abstract:
The high cost regions of Europe, North America, and Japan recognize that the key to their economic vitality is innovation. Increasingly, many also accept that the primary units of competition based on high quality, innovative products are not nations, but firms within regions, some of which occasionally bridge national boundaries. This has resulted in a significant increase in interest in the nature and functioning of such regional economies, variously known as clusters or industrial districts.
Topic:
Economics and International Trade and Finance
Political Geography:
United States, Europe, Israel, East Asia, and North America

1288. The Spatial Distribution of Entrepeneurial Support Networks: Evidence from Semiconductor Initial Public Offerings from 1996-2000

Author:
Martin Kenney and Donald Patton
Publication Date:
03-2003
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
Theory and recent research demonstrates that entrepreneurship is a spatially and socially embedded activity. In certain regions, dense support networks of institutions dedicated to assisting entrepreneurial start-ups have been established and a wide variety of authors have given credit to these networks for supporting regional entrepreneurship (Kenney and von Burg 1999; Saxenian 1994; Bahrami and Evans 2000). As Marshall (1890) recognized many, but not all, industries exhibit a strong clustering effect (see also, e.g., Storper and Walker 1988; Porter 1990; 1998). Research on these networks has been hampered by a lack of empirical data that contains spatial variables and identifies the relationship between various actors (i.e., venture capitalists, law firms and investment bankers) and the start-up firm. Thus research has been qualitative and anecdotal or when quantitative limited to certain industries usually biotechnology.
Topic:
Economics, International Trade and Finance, and Non-Governmental Organization
Political Geography:
United States

1289. Enron's Missed Opportunity: Enron's Refusal to Build a Collaborative Market Turned Bandwidth Trading Into a Disaster

Author:
Andrew Schwartz
Publication Date:
02-2003
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
Why did Enron fail? The easy answer is that Enron was a fraud, a Ponzi scheme designed to enrich scoundrels. But beneath the off-balance sheet transactions and partnerships that have drawn such intense scrutiny, Enron's efforts to reduce complex products into tradable commodities represented one of the most promising ideas of the past twenty-five years. Enron's failure was due in part to a business strategy that regarded competitors as ruthless and uncompromising. That mentality led the company to reject the very real possibility that rivals could, working together, create the new markets that in turn would open up profit opportunities for all. Enron's brilliant vision of the New Economy didn't go far enough; it required a New Economy business model that emphasized cooperation among competitors.
Topic:
Economics, Emerging Markets, and International Trade and Finance
Political Geography:
United States

1290. Why Delegate the Allocation of Foreign Aid to Multilateral Organizations? Principal-Agent Problems and Multilateralism

Author:
Helen Milner
Publication Date:
09-2003
Content Type:
Working Paper
Institution:
Center for International Studies, University of Southern California
Abstract:
Why do countries delegate the distribution of foreign aid to international institutions? Specifically, why have the advanced industrial countries chosen to distribute part of their foreign aid through multilateral organizations, such as the European Union (EU), World Bank, IMF, UN, and regional development banks (RDBs)? The delegation of aid provision to an international institution is puzzling. Why would governments relinquish control over their aid if they are a useful instrument of statecraft? Governments delegate aid delivery to international institutions when their publics lack information about the consequences of aid and fear that their governments will deviate from their wishes concerning its use. By using the international organization to send aid, the government issues a credible signal to voters about the use of foreign aid. This signal leaves all actors better off by helping to solve a principal-agent problem in domestic politics. When publics are skeptical about the benefits of aid, governments are more likely to turn aid over to multilateral organizations in order to reassure taxpayers that their money is being well spent. Using data on about 20 donor countries of the OECD from 1960-2000, I investigate the sources of multilateral giving, showing that public opinion has the expected negative relationship to multilateral aid-giving.
Topic:
International Relations, Foreign Policy, Economics, and International Trade and Finance
Political Geography:
Europe and United Nations

1291. The Bombardier-Embraer Dispute and its Implications for Western Hemisphere Integration

Author:
Jonathan P. Doh
Publication Date:
12-2003
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies
Abstract:
Government subsidies are a pervasive problem for international trade and economic development. Subsidies distort investment decisions, generally squander scarce public resources, skew public expenditures toward unproductive uses, unfairly discriminate against efficient industries and firms, and prompt wasteful overconsumption of some products over others. Despite efforts to limit subsidies through trade and investment policy disciplines, subsidization remains a constant on the global trade policy and international business landscape.
Topic:
Economics, International Trade and Finance, and Treaties and Agreements
Political Geography:
South America, Latin America, Central America, Caribbean, and North America

1292. North American Economic Integration Policy Options

Author:
Earl H. Fry
Publication Date:
07-2003
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies
Abstract:
At the end of 2003, the North American Free Trade Agreement (NAFTA) will have been in effect for a decade, and although the accord will not be fully implemented for another five years, almost all of its important provisions are already in place. The model for NAFTA was the Canada-U.S. Free Trade Agreement (CUSFTA), which was put in motion in 1989 and was to be fully implemented within 10 years but was superseded by NAFTA after only five years in operation. NAFTA itself has created the world's largest free-trade area, encompassing the United States, Mexico, and Canada; 21.3 million square miles of territory; 422 million people; almost $12 trillion in yearly production; and $615 billion in annual three-way merchandise trade. North American trade, investment, government-to-government, and people-to-people exchanges have increased dramatically over the past decade and decisionmakers in Washington, D.C., Mexico City, and Ottawa will soon have to consider whether continental economic integration should move to the next level in the form of a customs and monetary union or even a common market possessing many of the attributes of the European Union (EU).
Topic:
Economics and International Trade and Finance
Political Geography:
United States, Europe, Canada, Latin America, Central America, North America, Mexico, and Ottawa

1293. Cultural Diversity and Economic Convergence: The Dialectics of Canadian Cultural Policy

Author:
Sabine Milz
Publication Date:
07-2002
Content Type:
Working Paper
Institution:
Institute on Globalization and the Human Condition, McMaster University
Abstract:
Through an examination of the Canadian book and magazine sectors and the major international trade agreements to which Canada is a signatory, the paper interrogates the shortcomings of Canadian cultural policy's attempt at reconciling the realities of global capitalism with the Romantic ideal of non-commodified, non-economic national culture. The discussion highlights the contradictions involved in current policy attempts to protect a uniquely “Canadian culture” in an era of globalisation in which national cultures seem to increasingly disintegrate and give way to mass cultural expression. Moreover, it probes the policy terms for an economised reformulation of Canadian culture, which means a discursive and material, localised and globalised way of conceptualising the dynamics of Canadian cultural expression.
Topic:
Civil War, Globalization, International Trade and Finance, Nationalism, and Arts
Political Geography:
Canada

1294. Economic Analysis in Environmental Reviews of Trade Agreements: Assessing the North American Experience

Author:
Frank Ackerman, Kevin Gallagher, and Luke Ney
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Global Development and Environment Institute at Tufts University
Abstract:
Beginning in the late 1990s, Canada and the United States began requiring "Environmental Reviews (ERs)" of all trade agreements to be negotiated by each government. This paper, commissioned by the North American Commission for Environmental Cooperation, outlines how ERs have evolved in North America, and evaluates the different methodological approaches that have been employed in ERs thus far. We show that the ERs conducted to date have an encouraging number of strengths that can be built upon. However, we also establish that the art of conducting ERs is still in its infancy. We identify four limitations with the methodological approaches that have been employed in the most recent ERs. Based on an analysis of these limitations, we propose four ways to improve how ERs are conducted in the future.
Topic:
Economics, International Trade and Finance, and Treaties and Agreements
Political Geography:
North America

1295. Voter Inequality, Turnout And Information Effects in a Cross-National Perspective

Author:
Gábor Tóka
Publication Date:
05-2002
Content Type:
Working Paper
Institution:
Kellogg Institute for International Studies
Abstract:
The paper empirically tests the proposition that because of the unequal social distribution of politically relevant resources, some groups of citizens may be less successful in expressing their specifically political preferences in the vote than others. Hence, the electoral arena may give different people different degrees of political influence even when the formal equality of all citizens before the law is rigorously upheld in the electoral process. Survey data on voting behavior in 18 democratic party systems from the Comparative Study of Electoral Systems and Larry Bartels's (1996) simulation procedure—now extended to the analysis of multiparty-systems, turnout effects and non-linear information effects on the vote—are utilized to explore the question. The results show that social differences in both turnout and political knowledge may lead to the hypothesized political inequalities but their size is remarkably modest.
Topic:
Economics, Government, and International Trade and Finance

1296. Government Expenditures and Equilibrium Real Exchange Rates

Author:
Ronald J. Balvers and Jeffrey H. Bergstrand
Publication Date:
04-2002
Content Type:
Working Paper
Institution:
Kellogg Institute for International Studies
Abstract:
Economists have long investigated theoretically and empirically the relationship between government spending and equilibrium real exchange rates. As Frenkel and Razin (1996) summarize for a small open economy, government expenditures (financed by lump-sum taxes) influence real exchange rates via a resource-withdrawal channel and a consumption-tilting channel. Recent theoretical and empirical studies, such as Froot and Rogoff (1991), Rogoff (1992), De Gregorio, Giovannini, and Krueger (1994), De Gregorio, Giovannini, and Wolf (1994), De Gregorio and Wolf (1994), and Chinn and Johnston (1996), have focused only upon the effects of government spending through the resource-withdrawal channel. Extending Frenkel and Razin (1996), this paper generates closed-form theoretical solutions for the relationships among the real exchange rate, relative per capita private consumption, relative per capita government consumption, and relative per capita tradables and nontradables production in a two-country general equilibrium model. Using relative price level, private and government per capita consumption, and relative productivity data from the Summers and Heston (1991) Penn World Tables and OECD (1996) data for a sample of OECD countries relative to the United States, we estimate the model's structural equations. The results suggest that government expenditures influence equilibrium real exchange rates approximately equally via the resource-withdrawal and consumption-tilting channels. Moreover, the results imply that government spending and private consumption are complements in utility.
Topic:
Economics, Government, and International Trade and Finance
Political Geography:
United States

1297. On the Economic Determinants of Free Trade Agreements

Author:
Scott L. Baier and Jeffrey Bergstrand
Publication Date:
01-2002
Content Type:
Working Paper
Institution:
Kellogg Institute for International Studies
Abstract:
The purpose of this study is to provide the first systematic empirical analysis of the economic determinants of the formation of free trade agreements (FTAs) and of the likelihood of FTAs between pairs of countries using a qualitative choice model. We develop this econometric model based upon a general equilibrium theoretical model of world trade with two factors of production, two monopolistically competitive product markets, and explicit intercontinental and intracontinental transportation costs among multiple countries on multiple continents. The empirical model correctly predicts, based solely upon economic characteristics, 83 percent of the 289 FTAs existing in 1996 among 1,431 pairs of countries and 97 percent of the remaining 1,142 pairs with no FTAs.
Topic:
Economics, International Trade and Finance, and Treaties and Agreements

1298. The Institutional Dimension of WTO Accession Observations and Practical Guidelines for Improving National Trade-related Governance Capacities

Author:
Uwe Schmidt
Publication Date:
11-2002
Content Type:
Working Paper
Institution:
Institute for Development and Peace
Abstract:
For developing countries and economies in transition, accession to and membership in the global trade body is a delicate and cumbersome experience. The need to bring national legislation into conformity with WTO rules, negotiating and implementing concessions on market access for trade in goods and services, transparency requirements, emerging new trade issues (e. g. environmental standards), and the necessity to establish and maintain professional trade-related research competence places heavy burdens on applicants and developing members that not infrequently exceed their institutional capacity for formulating policy options or negotiation strategies.
Topic:
Development, Economics, Globalization, and International Trade and Finance
Political Geography:
United States

1299. Globalization of the World Economy: Potential Benefits and Costs and a Net Assessment

Author:
Michael D. Intriligator
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
Globalization is a powerful real aspect of the new world system, and it represents one of the most influential forces in determining the future course of the planet. It has many dimensions: economic, political, social, cultural, environmental, security, and others. The focus here will be on the concept of “globalization” as applied to the world economy. This concept is one that has different interpretations to different people. Partly as a result of these different interpretations, there are very different reactions to “globalization,” with some seeing it as a serious danger to the world economic system while others see it as advancing the world economy.
Topic:
Globalization, International Cooperation, International Organization, and International Trade and Finance

1300. Ten Points on the Euro-Mediterranean Partnership

Author:
Álvaro de Vasconcelos
Publication Date:
03-2002
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
The Barcelona Process is by far the most relevant of the various existing Euro-Mediterranean initiatives, not only because it has a multilateral character but also because it is intended to be a multilayered process, comprising political and security as well as economic and social or human dimensions.
Topic:
Security, Human Rights, and International Trade and Finance
Political Geography:
Europe, Middle East, and Barcelona