Content Type: Working Paper / Topic: International Trade and Finance

1301. The Development of Europe's Linkages with East Asia: Hybrid Trans-Regionalism?

Author:: Julie Gilson
Publication Date:: 12-2002
Content Type:: Working Paper
Institution:: Institute of European Studies (IES), UC Berkeley
Abstract:: This chapter argues that the EU-Asia trans-regional relationship is still very hard to measure but that there is developing both a notion of economic Asia, a desire to collectivise responses in the face of differentiated resource allocation and a growing dominance of the form of regionalism demonstrated by the EU.
Topic:: International Political Economy and International Trade and Finance
Political Geography:: Europe and Asia

1302. The European Union and North America

Author:: Edward A. Fogarty
Publication Date:: 10-2002
Content Type:: Working Paper
Institution:: Institute of European Studies (IES), UC Berkeley
Abstract:: This paper assesses the past, present, and future of transatlantic commercial relations in terms of EU trade strategies. After surveying the medium-term trajectories of the relationships with the United States, Mexico, and Canada-both separately and as a group-it will consider several possible sources of European Union trade preferences vis-à-vis NAFTA, including interest groups' incentives to seek to capture national and European governing institutions, the balance between the European Commission and the Council of Ministers, European leaders' desire to balance against overweening American power, and possible attempts to construct either a common Western identity or, alternatively, a European identity in contradistinction what the United States seems to represent. The hope is that these different approaches provide a contrasting set of interpretations whose comparison side-by-side allows new insights into the dynamics governing EU-North American trade relations.
Topic:: International Trade and Finance
Political Geography:: United States, Europe, Canada, North America, and Mexico

1303. Mortgage Default Insurance in the U.S.: Implications for Russia

Author:: Raymond Struyk and Douglas E. Whiteley
Publication Date:: 03-2002
Content Type:: Working Paper
Institution:: Urban Institute
Abstract:: The objective of this paper is to introduce the concept of mortgage default insurance as developed in the United States into the context of Russian mortgage lending. The first part of the paper discusses the broad principles and operations of mortgage default insurance offered by private companies as it works in the United States. The pricing of this product and the preconditions for offering such insurance are highlighted. The second section outlines the operation of the U.S. government-supported default insurance offered by the Federal Housing Administration (FHA). The final part applies the foregoing information to the situation in Russia today and concludes that the conditions necessary for launching mortgage default insurance do not currently exist in the country. Nevertheless, there are a number of essential actions that can and should be taken over the next several months to put Russia on the road to establishing such insurance in a few years. The paper finishes with a possible action plan for the next two years.
Topic:: Development, Government, and International Trade and Finance
Political Geography:: Russia, United States, Europe, and Asia

1304. Regulatory Europeanization, National Autonomy and Regulatory Effectiveness: Marketing Authorization for Pharmaceuticals

Author:: Jürgen Feick
Publication Date:: 11-2002
Content Type:: Working Paper
Institution:: Max Planck Institute for the Study of Societies
Abstract:: The EC harmonized market entry regulation for pharmaceuticals from the early sixties on, but it achieved neither its goal of uniform national regulatory decisions nor that of automatic mutual recognition. Subsequent attempts to Europeanize the procedures themselves resulted in two alternatives in 1995: a Centralized Procedure for innovative pharmaceutical products implemented at the EU level, and a Decentralized Procedure which tries to assure mutual recognition. First, the paper analyzes the distinctive modes of Europeanization employed in these regulatory alternatives, examining both their impact on the effectiveness of European governing and the balance they strike between European interventionism, national participation and national autonomy. Second, it tries to assess whether Europeanization furthers the goals of pharmaceutical market entry policy as defined in European regulations – public health protection, creation of a single market and the reduction of regulatory costs to industry. There is little evidence that the public's health is less well protected when regulation is Europeanized. Only the Centralized Procedure contributes significantly to the goal of establishing a single market. Regulatory costs in terms of approval time did go down especially for pharmaceutical firms using the Centralized Procedure, mainly because of efficiency-enhancing legal provisions and institutionally induced regulatory competition between national authorities.
Topic:: Economics, International Trade and Finance, and Science and Technology
Political Geography:: Europe

1305. Business Interest Representation and European Commission Fora: A Game Theoretic Investigation

Author:: Andreas Broscheid and David Coen
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Max Planck Institute for the Study of Societies
Abstract:: The relationship between business and the EU institutions has evolved from its corporatist origins into a complex elite pluralist arrangement centered around industrial fora and policy committees. We view the growth of forum politics as the direct consequence of the unprecedented boom in economic and public interest lobbying in the early 1990s: While the increase in European interest representation provided greater legitimacy for the European integration program, it put a strain on the existing open pluralist European business-government relationship. One of the European Commission's (EC) informal solutions was to create restricted-entry policy fora and select committees, which it hoped would provide fast and reliable decision-making. Employing a formal model of industrial fora and committees, we specify the mechanisms that we believe caused the establishment of the current elite pluralist system of interest representation in the EU. We argue that in the process of establishing selective-entry fora for interest representation, the European Commission acted not only as policy entrepreneur, but also as a political entrepreneur, fostering collective action.
Topic:: Government, International Trade and Finance, and Political Economy
Political Geography:: Europe

1306. Breaking the Path of Institutional Development? Alternatives to the New Determinism

Author:: Colin Crouch and Henry Farrell
Publication Date:: 06-2002
Content Type:: Working Paper
Institution:: Max Planck Institute for the Study of Societies
Abstract:: The concept of path dependence is being used in highly deterministic ways in neo-institutionalist analysis, so that studies using this framework have difficulty in accounting for, or predicting, change. However, the original Polya urn model from which path dependence theory draws predicts that alternative paths will be possible. It can be argued that actors will be able to use these when they perceive a need to change. This article seeks to capture this possibility through accommodating a Bayesian parametric decision maker, interacting with an environment. This makes it possible to examine how change may involve such processes as: the use of past or redundant institutional repertoires; transfer of experience across action spaces; or from other agents, through networks of structured relationships; the emergence of perceived “one best” solutions. This approach points to the need to change how typologies are used in neo-institutionalist research, so that those features of cases which do not fit the pre-conceived framework of a type are not disregarded as “noise”, but properly evaluated as potential resources for change.
Topic:: Economics, Emerging Markets, and International Trade and Finance

1307. How Reliable is Pooled Analysis in Political Economy? The Globalization-Welfare State Nexus Revisited

Author:: Bernhard Kittel and Hannes Winner
Publication Date:: 05-2002
Content Type:: Working Paper
Institution:: Max Planck Institute for the Study of Societies
Abstract:: Panel data analysis has become very popular in comparative political economy. However, in order to draw meaningful inferences from such data, one has to address specification and estimation issues carefully. This paper aims to demonstrate various pitfalls that typically occur in applied empirical work. To illustrate this, we refer to the debate on the globalization-welfare state nexus. We reexamine a model by Garrett and Mitchell (2001), a leading study in this regard. Utilizing a data set of 17 OECD countries and the time period 1961 to 1993, they find evidence that globalization and partisan composition have a significant impact on the extent of public activity. However, because they apply a dynamic specification in levels, they do not adequately take into account both the dynamic and spherical nature of the data. In contrast, we propose an autoregressive model in first differences that is shown to perform well in statistical terms. Further, we explicitly pay attention to the time pattern of the globalization-welfare state nexus. Substantively, we find evidence that government spending is primarily driven by the state of the domestic economy. Neither partisan effects nor the international economic environment have affected public expenditure considerably.
Topic:: Economics, Globalization, International Trade and Finance, and Political Economy

1308. Political Parties, Institutions, and the Dynamics of Social Expenditure in Times of Austerity

Author:: Herbert Obinger and Bernhard Kittel
Publication Date:: 01-2002
Content Type:: Working Paper
Institution:: Max Planck Institute for the Study of Societies
Abstract:: The containment of social expenditure growth has been (and still is) a core issue of public policy in advanced industrial countries since the 1980s and has received much academic attention during that period. Among the most extensively discussed explanatory factors of social expenditure are partisan politics and political institutions, as well as the dependency of the real impact of the former on the latter. The paper distinguishes five competing theoretical perspectives and explores their power to explain the empirical variation in the period 1982–1997 in 21 OECD countries. The empirical analysis of short-term dynamics is performed in a time-series cross-section framework while long-term level effects are explored in a cross-sectional setting. By using an interactive model specification the authors show that there is empirical evidence for this conditional effect, albeit it is neither thoroughly convincing nor leading to lasting long-term level effects. Extensive specification tests show that the 1990s witnessed a weakening of partisan effects which were still present in the 1980s. In total, the evidence tends to give most support to the “growth-to-limits” and the “new politics” perspectives.
Topic:: Economics, Government, International Trade and Finance, and Political Economy

1309. Globalization and Catching-up in Emerging Market Economies

Author:: Grzegorz W. Kolodko
Publication Date:: 05-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: The study discusses conditions and prospects for fast and durable growth in emerging market economies. In the course of history less than 30 nations have become rich and still more than 80 per cent of the world population lives in the middle and low-income countries, some of them in extreme poverty. It is true not only for the majority of economies traditionally considered as 'developing countries', but also for the new, post-socialist emerging markets. Thus the questions arise: what is the influence of globalization process on economic growth and how real are the prospects for these emerging markets to catch up with more advanced countries? What factors may contribute to sustained and rapid growth over the long term? The paper examines strategies that can help taking the contemporary wave of globalization to the advantage of fast growth of less advanced countries and hence containing the existing development gaps.
Topic:: Economics, Emerging Markets, Globalization, and International Trade and Finance

1310. The Benefits and Costs of Group Affiliation: Evidence from East Asia

Author:: Stijn Claessens, Joseph P.H. Fan, and Larry H.P. Lang
Publication Date:: 05-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This paper investigates the benefits and associated agency costs of using internal capital markets through affiliating with groups using data of two thousand firms from nine East Asian economies between 1994-6. We find that mature and slow-growing firms with ownership structures more likely to create agency problems gain more from group affiliation, while young and high-growth firms more likely lose. Agency problems are important explanatory factors of firm value in economies outside Japan, but less so in Japan. Consistent with the literature, financially constrained firms benefit from group affiliation. Our results are robust to different time periods and estimation techniques.
Topic:: Economics and International Trade and Finance
Political Geography:: Israel and East Asia

1311. The Macroeconomic Repercussions of Agricultural Shocks and their Implications for Insurance

Author:: Paul Collier
Publication Date:: 04-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: The paper considers the macroeconomic impact of shocks to agricultural output and of negative and positive price shocks. It is shown that negative price shocks have particularly large externalities: it is estimated that the overall impact of these negative shocks on GDP may well be double their direct impact. In terms of policy, the presence of externalities justifies subsidising the provision of insurance. If insurance is not feasible, then foreign aid may be helpful. Turning to other systemic shocks, it is argued that the macroeconomic consequences of negative output shocks are far less important. Positive price shocks also have substantial macroeconomic externalities via their effect on asset demand. Appropriate central bank policy is crucial and requires a detailed understanding of asset demand changes in response to price shocks. Since this may well be unlikely, dollarization may be a better strategy.
Topic:: Economics, Government, and International Trade and Finance

1312. Debt Relief under the HIPC Initiative. Context and Outlook for Debt Sustainability and Resource Flows

Author:: Lisandro Abrego and Doris C. Ross
Publication Date:: 04-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This paper analyses debt relief efforts by creditors to alleviate the debt burden of low- income countries. The Heavily Indebted Poor Countries (HIPC) Initiative builds on traditional debt relief, and for the first time involves relief on multilateral debt. It seeks to reduce debt to sustainable levels and eliminate any debt overhang that might hinder growth and investment. It provides substantial debt relief to eligible countries by reducing their overall debt stocks by about one-half, or, together with traditional relief over time, by some 80 per cent. It lowers debt service payments of HIPCs substantially, provides room for increased social spending, and provides a solid basis for debt sustainability. The latter requires efforts by both debtors and creditors. To find poverty reduction efforts, HIPC relief is important, but much broader international support is needed as external transfers to HIPCs in the past far exceeded debt service paid. Experience has shown that external support can only be effective if it reinforces sound policies implemented by HIPCs themselves. Thus debt relief and ODA are most important not in isolation, but as help for self-help.
Topic:: Economics, International Organization, and International Trade and Finance

1313. Assessing the Impact of Fiscal Policy on Poverty

Author:: Andrew McKay
Publication Date:: 04-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: Fiscal policy measures are a key means by which governments can influence distribution and poverty, but in fact the relationships between fiscal policy and poverty are not well understood. The most commonly used technique for assessing the distributional impact, benefit incidence analysis, is straightforward, but applied by itself it suffers from a number of serious limitations. Assessment of the impact of fiscal policy needs to be developed in various directions, including allowing for behavioural responses and incorporating a broader range of information. In parallel with this careful attention needs to be paid to more effective monitoring of the poverty impsact of fiscal policy.
Topic:: Economics, Government, and International Trade and Finance

1314. International Bank Lending. Water Flowing Uphill?

Author:: John Hawkins
Publication Date:: 04-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: International bank lending is a major component of capital flows between advanced and emerging economies. However, in recent years these flows have been going the wrong way, like water flowing uphill. Even four years after the Asian crisis, there is a net flow of funds from emerging economies to banks in advanced economies. This paper looks at this phenomenon, starting by setting out the relevant data, and then looking at factors influencing these flows. These include both cyclical influences (both 'push' and 'pull') and structural changes within the banking industry. There is some evidence that international lenders are now discriminating more between the various emerging economies.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: Asia

1315. Countercyclical Fiscal Policy. A Review of the Literature, Empirical Evidence and some Policy Proposals

Author:: Carlos Budnevich L.
Publication Date:: 04-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: For many emerging market economies, over reliance on monetary policy may bring worse macro results, when compared to a more balanced framework of countercyclical fiscal and monetary policy. The use of countercyclical fiscal policy requires as a precondition solvent and sustainable fiscal accounts and the re-engineering of fiscal institutions to increase the timeliness and flexibility of fiscal policy. A higher degree of tax or pension fund and/or unemployment insurance contribution flexibility may help in economies subject to significant external shocks. Automatic indexing rules to terms of trade or country risk spreads for pension contributions and interest payments on public debt may also contribute to the stabilization effort. If fiscal revenues are highly volatile, structural budget rules and commodity stabilization funds may provide the necessary framework to achieve saving (dissaving) during expansions (contractions).
Topic:: Economics, Government, and International Trade and Finance

1316. Aid, Public Sector Fiscal Behaviour and Developing Country Debt

Author:: Mark McGillivray and Simon Feeny
Publication Date:: 04-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This paper looks at public sector debt in developing countries, being concerned specifically with the relationship between aid inflows and the public sector borrowing requirement net of aid loans. After examining the public sector budget constraint and various conditions under which aid might lead to an increase in this borrowing, the paper surveys the empirical results of literature on aid and public sector fiscal behaviour. It finds that the results of a number of studies are consistent with aid leading to increases in this borrowing. Further investigation, in the form of econometric analysis of panel data, also points to this outcome. The paper then looks at a number of theoretical scenarios in which aid leads to increases in borrowing net of aid loans.
Topic:: Economics, Government, and International Trade and Finance

1317. Producing an Improved Geographic Profile of Poverty: Methodology and Evidence from Three Developing Countries

Author:: Chris Elbers, Peter Lanjouw, Johan Mistiaen, Gabriel Demombynes, Jenny Lanjouw, and Berk Özler
Publication Date:: 03-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This paper implements a methodology for estimating poverty in Ecuador, Madagascar and South Africa, at levels of disaggregation that to date have not generally been available. The methodology is based on a statistical procedure to combine household survey data with population census data, imputing into the latter a measure of per capita consumption from the former. The countries are very unlike each other—with different geographies, stages of development, quality and types of data, and so on. Yet the paper demonstrates that in all three countries the poverty estimates produced from census data are both plausible (in that they match well stratum-level estimates calculated directly from the household surveys) and satisfactorily precise (at a level of disaggregation far below that allowed by household surveys).
Topic:: Development, Economics, Government, and International Trade and Finance
Political Geography:: South Africa

1318. Debt Issues in Africa: Thinking beyond the HIPC Initiative to Solving Structural Problems

Author:: Alemayehu Geda
Publication Date:: 03-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This paper attempts to answer the following question: If the HIPC Initiative is fully successful and managed to write-off all debt that is owed by Africa, will the debt problem be over? The answer is 'no'. This pessimist answer is arrived at by examining the historical origin of African debt and the structural problems the continent is confronted with. The literature about the origins of the African debt crisis lists a number of factors as its cause. The oil price shocks of 1973-74 and 1978-79, the expansion of the Eurodollar, a rise in public expenditure by African governments following rising commodity prices in early 1970s, the recession in industrial countries and the subsequent commodity price fall, and a rise in real world interest rate are usually mentioned as major factors. Surprisingly, almost all the literature starts its analysis either in the early 1970s or, at best, after independence in 1960s. The main argument in this paper is that one has to go beyond this period not only to adequately explain the current debt crisis but also to propose its possible solution. The conclusion that emerges from such analysis is that the African debt problem is essentially a trade problem. Thus, long-run solution to debt points to the importance of addressing trade and trade related structural problems in the continent.
Topic:: Development and International Trade and Finance
Political Geography:: Africa

1319. Liquidity Black Holes: And Why Modern Financial Regulation in Developed Countries is making Short-Term Capital Flows to Developing Countries Even More Volatile

Author:: Avinash Persaud
Publication Date:: 03-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: Modern financial regulation has been about the spread of market-sensitive riskmanagement systems for banks, the spill-over of this approach to other financial institutions and the retreat of regulatory ambition. There is evidence that these trends are leading to a more fragile financial system, more prone to concentration and 'liquidity black holes'. The most glaring effects of these trends are felt in the pro-cyclicality and volatility of capital flows to risky markets. The root of the problem is that the liquidity of financial markets requires diversity, but all these trends are serving to reduce the diversity of behaviour of market participants.
Topic:: Development, Emerging Markets, and International Trade and Finance

1320. Non-Financial Corporate Risk Management and Exchange Rate Volatility in Latin America

Author:: Graciela Moguillansky
Publication Date:: 03-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This article studies the currency risk management of multinational companies with investments in Latin American countries. The analysis is centred on episodes of currency or financial shocks, searching into the behaviour of the financial management of a firm expecting a significant devaluation. This allowed us to explore the interaction and transmission mechanisms between the microeconomic behaviour and the macroeconomic impact on the foreign exchange market. The analysis was carried out interviewing financial managers of multinational companies from different sectors with headquarters in the United Kingdom and Spain, by reviewing literature on business and currency risk management, and by analysing some surveys on financial risk management in developed countries.
Topic:: Economics and International Trade and Finance
Political Geography:: United Kingdom, South America, Latin America, and Spain

1321. Does a Switch of Budget Regimes Constrain Managerial Discretion? Evidence for Italian Public Enterprises' Investment

Author:: Elisabetta Bertero and Laura Rondi
Publication Date:: 03-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This study examines the effect of the hardening of the budget constraint on the investment behaviour of Italian state owned enterprises (SOEs). It carries out a natural experiment that exploits the 1987 shift of budget regimes due to the pressure of European Union economic policies on the Italian government.Drawing from the theory of capital market imperfections, we apply the empirical framework for the analysis of investment-cash flow sensitivity to a panel of state-owned manufacturing firms during the period 1977-93. We parallel state firms to Anglo-Saxon public corporations which, under separation of ownership and control, are afflicted by agency problems, managerial discretion, misallocation of free cash-flow and overinvestment. We argue that, under a soft budget constraint, state firms' managerial discretion and, in particular, collusion between managers and vote-seeking politicians, lead to wasteful investment.
Topic:: Economics and International Trade and Finance
Political Geography:: Europe and Italy

1322. The Growth Elasticity of Poverty

Author:: Rasmus Heltberg
Publication Date:: 02-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: How much does economic growth contribute to poverty reduction? I discuss analytical and empirical approaches to assess the growth elasticity of poverty, and emphasize that the relationship between growth and poverty change is non-constant. For a given poverty measure, it depends on initial inequality and on the location of the poverty line relative to mean income. In most cases, growth is more important for poverty reduction than changes in inequality, but this does not render inequality unimportant. Reduction in inequality may be triple effective: (1) it will reduce poverty for a given level of income, (2) it will accelerate the poverty reducing impact of economic growth, and (3) according to cross-country growth regressions, it may contribute to a larger rate of growth.
Topic:: Development, Economics, and International Trade and Finance

1323. Poverty Incidence and Sectoral Growth: Evidence from Southeast Asia

Author:: Peter G. Warr
Publication Date:: 02-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: In recent decades, absolute poverty incidence declined in most countries of Southeast Asia, even though in some of these countries inequality increased at the same time. This paper examines the relationship between these outcomes and the rate of economic growth in the agricultural, industrial and services sectors. It develops a time series of available data on the headcount measure of poverty incidence for Thailand, Indonesia, Malaysia and the Philippines over the period from the 1960s to 1999, in aggregate and in both rural and urban areas. It then uses this pooled data set to analyze the economic determinants of changes in poverty incidence.
Topic:: Development, Economics, and International Trade and Finance
Political Geography:: Indonesia, Malaysia, Philippines, Thailand, and Southeast Asia

1324. How Economic Growth Reduces Poverty: A General Equilibrium Analysis for Indonesia

Author:: Peter G. Warr and George Fane
Publication Date:: 02-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: Do changes in poverty and inequality depend directly on the rate of economic growth, or does the source of the growth also matter? This paper uses a computable general equilibrium model of the Indonesian economy to explore this question by simulating increases in GDP arising from (i) technical progress in each of seven broad sectors, and (ii) the accumulation of each of six types of physical and human capital. The more a given amount of growth raises the returns to the factors that are more important sources of income for the poor than for the non-poor, the more it reduces poverty and inequality. Different sources of growth affect poverty and inequality differently because they affect factor returns differently, and because the poor and the non-poor own factors in different proportions.
Topic:: Development, Economics, and International Trade and Finance
Political Geography:: Indonesia and Southeast Asia

1325. How Optimal are the Extremes? Latin American Exchange Rate Policies During the Asian Crisis

Author:: Ricardo Ffrench-Davis and Guillermo Larraín
Publication Date:: 01-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: During the Asian crisis, intermediate exchange rate regimes vanished. It has been argued that those regimes were no longer useful and only the extremes remained valid. The paper analyses three foreign exchange regimes: Argentina (pegged), Chile (band) and Mexico (float). The Argentinean currency board delivered low financial volatility while it was credible, but even then it displayed high real volatility. Mexican float performed well in periods of instability isolating the real sector. The Chilean band delivered a mixed outcome as compared to Argentina and Mexico. This is linked apparently to a loss in the band's credibility, associated to policy mismanagement and an over-appreciation in the biennium before the crisis. Optimal exchange rate regimes vary across time and the conjuncture. Exit strategies are part of the election of the optimal system, including a flexible policy package rather than a single rigid policy tool.
Topic:: Development and International Trade and Finance
Political Geography:: Asia, Argentina, South America, Latin America, Mexico, and Chile

1326. Hardening a Soft Budget Constraint Through 'Upward Devolution' to a Supranational Institution: The Case of Italian State-Owned Firms and the European Union

Author:: Elisabetta Bertero and Laura Rondi
Publication Date:: 01-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This paper contributes to the literature on the role of decentralization in hardening the budget constraint of public enterprises. Following Qian and Roland the study adopts a 'federalist' approach. However, it interprets federalism as the upward devolution of domestic economic policies to a supranational authority and examines its role in disciplining public enterprises operating in a soft budget regime. The methodology is a case study of the shift in budget regime in Italy in the late 1980s. The study shows that a determinant role in driving this shift was played by European economic policies. The discipline imposed by participation in the EMS, the Single Market Programme and, later, the requirements to enter the EMU pushed the Italian government toward a much tougher approach to its budget deficit.
Topic:: Economics, Government, and International Trade and Finance
Political Geography:: Europe

1327. Institutional Investors, Corporate Ownership, and Corporate Governance: Global Perspectives

Author:: Stuart L. Gillan and Laura T. Starks
Publication Date:: 01-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: We examine the role of institutional investors in financial markets and in corporate governance. In many countries, institutional investors have become the predominant players in financial markets and their influence worldwide is growing, chiefly due to the privatization and development of pension fund systems. Moreover, foreign institutional investors are becoming a significant presence, bringing their trading habits and corporate governance preferences to international markets. In fact, we argue that the primary actors prompting change in many corporate governance systems are institutional investors, often foreign institutional investors. In other countries the role of institutional investors is limited. Instead, large blockholders, often in the form of individuals, family groups, other corporations, or lending institutions are the dominant players. We present the theoretical arguments for the involvement of investors in shareholder monitoring and a brief history of institutional ownership and activism in the United States and other countries. We also discuss studies of the efficacy of such activism.
Topic:: Economics, Government, and International Trade and Finance
Political Geography:: United States

1328. Proposals for Curbing the Boom-Bust Cycle in the Supply of Capital to Emerging Markets

Author:: John Williamson
Publication Date:: 01-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: This paper examines what might be done to limit the boom-bust cycle in the flow of capital to emerging markets. Although the paper accepts that some types of capital flow (notably foreign direct investment) are much less problematic in this respect than others (notably short-term bank loans), it argues that influencing the mix would have to be done by capital controls by capital-importing countries rather than supply-side policies. Where supply-side reforms might help is in making some types of flow less unstable: for example, the Buiter/Sibert proposal for a Universal Debt Rollover Option (which needs amendment to alter the term for which rollover might apply); allowing investors with fiduciary responsibilities to hold (though not to buy) bonds of sub-investment grade; penalizing put options in bond contracts and inserting collective action clauses; requiring foreign loans to be denominated in domestic currency; and modifying the remuneration practices of portfolio managers.
Topic:: Economics, Emerging Markets, and International Trade and Finance

1329. Ratings since the Asian Crisis

Author:: Helmut Reisen
Publication Date:: 01-2002
Content Type:: Working Paper
Institution:: United Nations University
Abstract:: The increased importance of rating agencies for emerging-market finance has brought their work to the attention of a wider group of observers - and under criticism. This paper evaluates whether the importance of ratings for developing-country finance has changed since the Asian Crisis and whether rating agencies have modified the determinants for their rating decisions. It also provides an analysis on recent suggestions by the Basel Committee on Banking Supervision, as these are very important for gauging the future role of sovereign ratings for foreign debt finance in developing countries. While the explanatory power of conventional rating determinants has declined since the Asian crisis, recent rating performance for Argentina and Turkey can still be qualified as lagging the markets, as variables of financial-sector strength and the endogenous effects of capital flows on macroeconomic variables seem to remain underemphasized in rating assessments. The market impact of sovereign ratings is predicted to decline as agencies have started to modify their country ceiling policy and as market participants try to exploit bond trading opportunities arising from the lagged nature of ratings. The paper presents theory and evidence to suggest that the Basel II Accord will destabilise private capital flows to the developing countries, if the current proposal to link regulatory bank capital to sovereign ratings is maintained: Assigning fixed minimum capital to bank assets whose risk weights are in turn determined by market-lagging cyclically determined ratings will reinforce the tendency of the capital ratio to work in a pro-cyclical way.
Topic:: Development, Economics, and International Trade and Finance
Political Geography:: Turkey, Asia, and Argentina

1330. The Growth of Broadband Internet Connections in South Korea: Contributing Factors

Author:: Kyounglim Yun, Heejin Lee, and So-Hye Lim
Publication Date:: 09-2002
Content Type:: Working Paper
Institution:: Walter H. Shorenstein Asia-Pacific Research Center
Abstract:: In recent years, Korea has seen a remarkable diffusion in broadband Internet connections. This paper explores the actions and factors contributing to this diffusion from three viewpoints: public sector, private sector, and social. We suggest that the matching of demand and supply is the most important factor in the fast diffusion of broadband in Korea. In particular, fierce infrastructure competition has led to quality services at a low fixed price. We also consider two challenges that lie ahead: take-up of retail e-commerce applications, and the need to bridge the digital divide.
Topic:: Economics, International Trade and Finance, and Science and Technology
Political Geography:: Asia, South Korea, and Korea

1331. Foreign Penetration of Japan's Investment-Banking Market: Will Japan Experience the "Wimbledon Effect"?

Author:: Nicole Pole
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Walter H. Shorenstein Asia-Pacific Research Center
Abstract:: Foreign banks have long faced difficulties in attempting to enter certain Japanese financial markets. This is due partly to regulatory practices and partly to specific Japanese socioeconomic conditions, for instance the system of relationship banking. While retail banking is still a sector in which almost no foreigners have been able to succeed, some foreign financial institutions have been able to gain market share in investment and wholesale banking.
Topic:: Economics and International Trade and Finance
Political Geography:: Japan, Israel, East Asia, and Asia

1332. Chinese and Indian Engineers and their Networks in Silicon Valley

Author:: Rafiq Dossani
Publication Date:: 03-2002
Content Type:: Working Paper
Institution:: Walter H. Shorenstein Asia-Pacific Research Center
Abstract:: In recent years, Asian immigrants have played an important role in Silicon Valley's growth, as suppliers of both engineering and entrepreneurial talent. Given their relatively large numbers, the Indian and Chinese communities' contributions have been particularly noted. The Indians' presence became more marked toward the last few years of the century, bolstered by arrivals working on the Year 2000 (Y2K) problem. The Chinese, by contrast, had older roots set down amid long-standing political, economic, and educational links with Taiwan. Both communities have formed extensive ethnic professional networks, with large memberships and well-attended, regular "networking" events, such as monthly meetings and special interest group sessions. The popularity of these events suggests that members find them valuable. While some of the value is probably noneconomic, the avowedly economic mission (see below) and long-term popularity of these gatherings means that most members primarily derive economic benefits. These networks and their members are the subject of this paper. The author acknowledges the collaboration of Professor AnnaLee Saxenian of the University of California, Berkeley, in the design of and data collection for the survey which forms part of this paper. The survey was partially funded by the Public Policy Institute of California.
Topic:: International Trade and Finance and Science and Technology
Political Geography:: United States, India, Taiwan, Asia, California, and Berkeley

1333. Free Trade and Environmental Protection

Author:: Daniel C. Esty
Publication Date:: 06-2002
Content Type:: Working Paper
Institution:: Aspen Institute
Abstract:: From the protests in the streets of Seattle during the World Trade Organization's 1999 Ministerial Meeting to the chaos surrounding the 2001 G-8 Summit Meeting in Genoa, the backlash against globalization is increasingly evident. One dimension of this backlash centers on environmental concerns. While economic integration and trade liberalization offer the promise of growth and prosperity, environmental advocates fear that freer trade will lead to increased pollution and resource depletion. At the same time, free traders worry that over- reaching environmental policies will obstruct efforts to open markets and integrate economies around the world. They often see environmentalists as blindly anti-free-trade and protectionist. “Trade and environment” tensions have therefore emerged as a major issue in the debate over globalization. This paper explores the contours of these tensions and argues that trade policy and environmental programs can be better integrated and made more mutually supportive.
Topic:: Development, Environment, International Trade and Finance, and Science and Technology

1334. Building a Transatlantic Securities Market

Author:: Benn Steil
Publication Date:: 12-2002
Content Type:: Working Paper
Institution:: Council on Foreign Relations
Abstract:: This report aims to jump-start the integration of the US and EU securities markets through a mutual recognition agreement on transatlantic exchange access. Under this agreement, securities exchanges on each side of the Atlantic would be permitted to provide direct electronic access to brokers and institutional investors on the other side, for the purpose of trading listed equities and derivatives based on equities. We argue that this initiative will reduce trading costs, increase investment returns, lower the cost of capital, and increase economic growth on both sides of the Atlantic. The success of such an initiative will, over time, encourage its expansion to cover all forms of debt securities, primary issues, and other national markets.
Topic:: International Trade and Finance
Political Geography:: United States and Europe

1335. Terrorist Financing

Author:: Maurice R. Greenberg, Lee S. Wolosky, and William F. Wechsler
Publication Date:: 10-2002
Content Type:: Working Paper
Institution:: Council on Foreign Relations
Abstract:: Unlike other terrorist leaders, Osama bin Laden is not a military hero, a religious authority, or an obvious representative of the downtrodden and disillusioned. He is a rich financier. He built al- Qaeda's financial network from the foundation of a system originally designed to channel resources to the mujahideen fighting the Soviets.
Topic:: Security, Globalization, International Trade and Finance, and Terrorism
Political Geography:: Soviet Union

1336. How Shareholder Reforms Can Pay Foreign Policy Dividends

Author:: James J. Shinn and Peter Gourevitch
Publication Date:: 06-2002
Content Type:: Working Paper
Institution:: Council on Foreign Relations
Abstract:: Corporate governance—the rules that govern the relationship between managers and shareholders—belongs on the foreign policy agenda of American decision-makers. The vigorous debates underway about corporate governance, both at home and abroad, present an opportunity for the United States to advance its foreign policy goals of enhancing free trade and financial stability.
Topic:: Foreign Policy, Economics, Government, Industrial Policy, and International Trade and Finance
Political Geography:: United States

1337. Monetary Policy Rules and the International Monetary Transmission

Author:: Leonor Coutinho
Publication Date:: 10-2002
Content Type:: Working Paper
Institution:: Centre for European Policy Studies (CEPS)
Abstract:: This paper analyses alternative monetary policy rules for the ECB, using a two "country" model of the euro area and the US, that assumes monopolistic competition, sticky prices and optimizing agents. The alternative rules analyzed for the ECB are ranked by their ability to stabilize consumption, output, and inflation and maximize consumers' welfare. The analysis contributes toward understanding the trade-offs faced by policymakers in open economies and provides some support for the current design of the ECB's operational framework. The results suggest that stabilizing money-growth, in addition to inflation, gives an additional degree of freedom to stabilize output. Although price stability is likely to remain the primary objective of the ECB, monetary policy must "without prejudice of price stability (...) support the general economic policies in the Community..." (Article 2). Hence monitoring money, under certain assumptions about the shocks hitting the economy, may deliver a better outcome in terms of output stabilization which should allow the ECB to fulfill its secondary but nonetheless important commitment.
Topic:: Economics, Government, and International Trade and Finance
Political Geography:: United States

1338. The Economic Impact of Enlargement on the European Economy: Problems and Perspectives

Author:: Paul Brenton
Publication Date:: 10-2002
Content Type:: Working Paper
Institution:: Centre for European Policy Studies (CEPS)
Abstract:: Much of the attention on the economic aspects of the forthcoming enlargement of the EU have concentrated upon the high-profile issues which are linked to the level of relative economic development in the acceding countries; the perceived threat of large-scale migration and the budgetary costs arising from implementation of EU agricultural and regional policies. This paper briefly discusses that these are not insurmountable problems and stresses that the main difficulties from the next enlargement may arise from the effective inclusion of the acceding countries into the Single Market, the microeconomic hub of the EU. We discuss that the process of regulatory harmonisation will become more difficult in an EU of 25 or more members, which entails greater emphasis on the principle of mutual recognition as the main tool for ensuring freedom of movement of goods and services. However, mutual recognition has its limits and is likely to be less effective the more diverse the countries involved.
Topic:: Economics and International Trade and Finance
Political Geography:: Europe

1339. Outsourcing and Inequality

Author:: Paul Brenton, Bob Anderton, and Eva Oscarsson
Publication Date:: 10-2002
Content Type:: Working Paper
Institution:: Centre for European Policy Studies (CEPS)
Abstract:: This paper brings together and analyses the results of empirical analyses which, in contrast to most other studies, find that trade has been a significant cause of labour market inequality in various industrialised countries. The approach is based upon the concept of outsourcing – whereby the low-skill parts of the production chain are 'outsourced' to low-wage countries. A distinguishing feature of the empirical work is the use of highly detailed trade data, which allow imports from high- and low-wage countries to be separately identified at the industry level. Using cost minimisation framework, we show that imports from low-wage countries have made a significant contribution to the decline in the wage-bill share and/or relative employment of less-skilled workers in the UK, the USA, Sweden and Italy. We also show how the country-specific characteristics of outsourcing can lead to quite different inequality outcomes in different countries. In line with other studies, we also find that technology has played an important role in causing the increase in inequality in many countries. However, there is also some evidence that some of the rapid increase in the application of new technologies in recent decades has been trade-induced through mechanisms such as 'defensive innovation'.
Topic:: Economics, Industrial Policy, International Trade and Finance, and Science and Technology
Political Geography:: United States and United Kingdom

1340. Who Needs Foreign Banks?

Author:: Daniel Gros
Publication Date:: 09-2002
Content Type:: Working Paper
Institution:: Centre for European Policy Studies (CEPS)
Abstract:: This paper shows that countries with weak banking system and fiscal institutions, might benefit from the presence of foreign banks, which can constitute a commitment and transparency device. Foreign banks can also reduce the probability of self-fulfilling speculative attacks. A strong presence of foreign banks can make a currency peg feasible in the first place by rendering it more resistant to speculative attacks. The European experience is instructive in this respect. In all of the candidate countries from Central and Eastern Europe (CEEC) the banking system is now dominated by foreign banks. This is now taken for granted, but it is unusual if one looks at the existing EU-15 members, where foreign banks play a marginal role in even the smallest economies.
Topic:: Economics and International Trade and Finance
Political Geography:: Europe

1341. Interdependent Growth in the EU: The Role of Trade

Author:: María Garcia-Vega and José A. Herce
Publication Date:: 08-2002
Content Type:: Working Paper
Institution:: Centre for European Policy Studies (CEPS)
Abstract:: After properly modelling growth externalities and using spatial econometric techniques we investigate whether economic integration promotes interdependent growth among countries. We conclude that this has been indeed the case for advanced OECD countries and that, for those countries belonging to the EU, through successive enlargements, the effect has been even stronger. More precisely, if every (trade) partner of a given country experiences an extra growth of 1 percentage point, this economy will profit from an extra 0.5 point, and if this country belongs to the EU it will have an additional increase of its rate of growth of 0.2 points. Both figures can be interpreted as growth externalities with the latter suggesting that an integration process like the one followed by the EU has an (positive) effect on growth.
Topic:: Economics and International Trade and Finance
Political Geography:: Europe

1342. Making EU Trade Agreements Work: The Role of Rules of Origin

Author:: Paul Brenton and Miriam Manchin
Publication Date:: 03-2002
Content Type:: Working Paper
Institution:: Centre for European Policy Studies (CEPS)
Abstract:: A key element of the EU's free trade and preferential trade agreements is the extent to which they deliver improved market access and so contribute to the EUs foreign policy objectives towards developing countries and neighbouring countries in Europe, including the countries of the Balkans. Previous preferential trade schemes have been ineffective in delivering improved access to the EU market. The main reason for this is probably the very restrictive rules of origin that the EU imposes, coupled with the costs of proving consistency with these rules. If the EU wants the 'Everything but Arms' agreement and free trade agreements with countries in the Balkans to generate substantial improvements in access to the EU market for products from these countries then it will have to reconsider the current rules of origin and implement less restrictive rules backed upon by a careful safeguards policy.
Topic:: Foreign Policy, Economics, Government, Human Rights, International Trade and Finance, Migration, and Political Economy
Political Geography:: Europe and Balkans

1343. The Development of European Citizenship and its Relevance to the Integration of Refugees

Author:: Joanna Apap
Publication Date:: 01-2002
Content Type:: Working Paper
Institution:: Centre for European Policy Studies (CEPS)
Abstract:: Achieving an integrated Europe involves political and social unity as much as economic integration. Thus, the issue of European citizenship is central to the debate about European integration. Union citizenship needs to be distinguished from national citizen ship. Every citizen of the Union enjoys a first circle of nationality rights within a member state and a second circle of new rights enjoyed in any member state of the EU. The presence of immigrants in Europe also raises wider questions for government policy in the field of citizenship. There are various issues that arise in the European context with respect to the boundaries of citizenship. One of the main questions in this regard is the extent to which the division between European Union citizens and third country nationals will continue to prevail.
Topic:: Economics, Government, Human Rights, International Trade and Finance, Migration, and Political Economy
Political Geography:: Europe

1344. Assessing Globalization's Critics: "Talkers Are No Good Doers???"

Author:: Kimberly Ann Elliott, Debayani Kar, and J. David Richardson
Publication Date:: 09-2002
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper is about the critics of the “doers” of globalization. It describes who they are, where they came from, what they want, how economists, policymakers, and others might understand them better, and where globalization might head from here. Many critics are themselves strongly internationalist and want to see globalization proceed, but under different rules. Some, particularly the protesters in the streets, focus mainly on what is wrong with the world. But some of them put forward broad alternative visions and others offer detailed recommendations for alleviating the problems they see arising from status quo globalization. Most of them have roots in long-standing transnational advocacy efforts to protect human rights and the environment and reduce poverty around the world. What brings them together today is their shared concern that the process by which globalization's rules are being written and implemented is undermining democracy and failing to spread the benefits broadly. This paper sketches the key issues and concerns that motivate the critics in a way that is broadly representative and intelligible to economists. It finds more resonance for the critics' agenda in economics than they commonly recognize. And it attempts to capture the concerns of Southern as well as Northern critics and to analyze the issues that divide as well as bring them together. Finally, it evaluates those issues and alternative proposals on which even globalization enthusiasts and the critics might come together cooperatively.
Topic:: Economics, Globalization, and International Trade and Finance

1345. Toward A Sustainable FTAA: Does Latin America Meet The Necessary Financial Preconditions?

Author:: Liliana Rojas-Suarez
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper focuses on identifying preconditions that will ensure the sustainability of a Free Trade Area of the Americas (FTAA). It argues that the macro, micro, and political conditions advanced in the literature to measure a country's ability to compete internationally, while necessary, are not sufficient to ensure the success and permanence of a free trade agreement. Instead, two additional financial conditions are needed. The first is that each partner in the free trade area needs to have sustainable public debts as determined by the achievement of credible and sustainable structural fiscal balances. The second is that exchange rate regimes across trading partners should be compatible in the sense that adverse shocks in one country do not generate a policy dilemma in other partners between abandoning their exchange rate system or the free trade area.
Topic:: Economics and International Trade and Finance
Political Geography:: South America, Latin America, Central America, and Caribbean

1346. Home Bias, Transactions Costs, And Prospects For The Euro: A More Detailed Analysis

Author:: Catherine L. Mann and Ellen E. Meade
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: This paper brings together the literature on determination of home bias in equity holdings and the portfolio balance model of exchange rates to consider whether the dollar might be affected by a change in transactions costs that alters international portfolio allocations. Our empirical findings lend support to the view that transactions costs have a significant influence on US portfolio holdings, even after accounting for float market share. In addition, new survey evidence on the equity holdings of European firms indicates home bias for European investors, and points to a reduction in the magnitude of this home bias since 1997.
Topic:: Economics and International Trade and Finance
Political Geography:: United States and Europe

1347. Six Practical Views of Central Bank Transparency

Author:: Adam S. Posen
Publication Date:: 05-2002
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: In the span of fifteen years, central bank transparency has gone from being highly controversial to motherhood and apple pie (one can insert analogous certitudes by country here). It is now an accepted broad goal to which all central banks pay at least lip service. Yet, like many other broad concepts in economic policy, such as “fiscal discipline” or “price stability,” what central bank transparency actually means remains rather open to debate. With the widespread adoption of inflation targeting, seen usually as an expression of increased central bank transparency, it is worthwhile to try to apply some clarity and rigor to this central banking concept du jour.
Topic:: Economics, Government, and International Trade and Finance

1348. Passive Savers and Fiscal Policy Effectiveness in Japan

Author:: Adam S. Posen and Kenneth N. Kuttner
Publication Date:: 04-2002
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: The efficacy of fiscal policy in Japan in the last decade has been a subject of considerable dispute, and the coincidence of mounting deficits and continued stagnation has led some to conclude that fiscal policy was ineffective. This paper finds ample support for the opposite conclusion: exogenous fiscal policy shocks (as derived from a structural vector-autoregression model) had pronounced real effects in Japan. Expansionary fiscal policy was expansionary, and contractionary policy contractionary, consistent with the implications of conventional macroeconomic theory. A historical decomposition shows that Japan's burgeoning public debt stems almost entirely from the recession-caused slowdown in revenue growth, and that fiscal policy was at times procyclical rather than consistently expansionary. Direct examination of the long-run relationship between private saving, taxes, and spending confirms that any Ricardian effects of future public liabilities on saving were insufficient to offset the direct first-order effects of taxes and public expenditures. The passivity of Japanese savers therefore seems to have contributed to the efficacy of fiscal policy; otherwise, some combination of increased saving, capital outflow, and higher interest rates would have diminished its impact.
Topic:: Economics, International Trade and Finance, and Political Economy
Political Geography:: Japan, Israel, and East Asia

1349. Moral Hazard and the U.S. Stock Market: Analyzing the “Greenspan Put”?

Author:: Marcus Miller, Paul Weller, and Lei Zhang
Publication Date:: 01-2002
Content Type:: Working Paper
Institution:: Peterson Institute for International Economics
Abstract:: When the risk premium in the US stock market fell far below its historic level, Shiller (2000) attributed this to a bubble driven by psychological factors. As an alternative explanation, we point out that the observed risk premium may be reduced by one-sided intervention policy on the part of the Federal Reserve, which leads investors into the erroneous belief that they are insured against downside risk. By allowing for partial credibility and state dependent risk aversion, we show that this 'insurance'—referred to as the Greenspan put—is consistent with the observation that implied volatility rises as the market falls. Our bubble, like Shiller's, involves market psychology, but what we describe is not so much 'irrational exuberance' as exaggerated faith in the stabilizing power of Mr. Greenspan.
Topic:: Economics, Government, International Trade and Finance, and Political Economy
Political Geography:: United States

1350. Economic Action Does Not Take Place in a Vacuum: Understanding Cisco's Acquisition and Development Strategy

Author:: Martin Kenney and David Mayer
Publication Date:: 08-2002
Content Type:: Working Paper
Institution:: Berkeley Roundtable on the International Economy
Abstract:: Typically, economists and finance researchers have considered corporate acquisitions as arm's length transactions consummated in a relatively perfect market for corporate control, an appealing story no doubt, but it consigns the real world difficulties of managing the acquisition process into a black box. The key to making a successful acquisition does not begin with strategy and end with integration, rather it begins with understanding and participating in the external ecosystem and ends with managing the internal dynamics by which the newly acquired firm will be integrated. This paper finds that traditional "economistic" perspectives ignore the social and organizational dimensions within which the acquisition process is embedded. In tandem with the economist's erasure of the social; the temporal and processual dimensions were ignored. Put differently, acquisitions are treated as point-in-time events occurring in an environment that operates like the stock market in which corporate control, organizational knowledge, and employee fealty is transferred as seamlessly as stock shares. These assumptions ignore the social, temporal, and processual dimensions so critical for explaining acquisition success and failure.
Topic:: Industrial Policy, International Trade and Finance, and Science and Technology

1351. Spain in the EU: fifteen years may not be enough

Author:: Miguel Sebastian
Publication Date:: 11-2002
Content Type:: Working Paper
Institution:: Minda de Gunzburg Center for European Studies, Harvard University
Abstract:: Europe has been the driving force of economic policy in Spain over the last four decades and the key factor behind the modernization and globalisation of the Spanish Economy. The accession to the EEC in 1986 was a crucial step in the process of economic and political integration.
Topic:: Economics and International Trade and Finance
Political Geography:: Europe

1352. Reconsidering Economic Relations and Political Citizenship in the New Iberia of the New Europe: Some Lessons from the Fifteenth Anniversary of the Accession of Portugal and Spain to the European Union

Author:: Paul Christoper Manual and Sebastián Royo
Publication Date:: 11-2002
Content Type:: Working Paper
Institution:: Minda de Gunzburg Center for European Studies, Harvard University
Abstract:: The purpose of this paper is to use the fifteenth anniversary of the accession of Portugal and Spain to the European Union as an opportunity to reflect on what has happened to both countries since 1986. It examines the integration process and how it has affected political, economic and social developments in Portugal and in Spain over the last fifteen years. In our view, and on balance, Spain and Portugal have benefited from accession. Since the last century, the obsession of Spanish and Portuguese reformists has been to make up the lost ground with modernized Europe. EU membership has been a critical step in this direction. The record of the past fifteen years is that this dream is becoming an economic reality. Despite impressive achievements, however, namely, since 1986, Portugal's average per capita income has grown from 56 percent of the EU average to about 74 percent, whereas Spain's has grown to 83 percent—both Iberian countries still have a long way to go to reach the EU average wealth. In addition, the question of Iberian and/or European citizenship, and its impact on the Portuguese and Spanish, remains open.
Topic:: Government, International Trade and Finance, and Political Economy
Political Geography:: Europe and Spain

1353. 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

1354. Renewing Energy Security

Author:: John V. Mitchell
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Chatham House
Abstract:: Energy security has risen on the policy agendas of many countries as a result of: reaction to the oil price surge of 2000; commitments to restrict greenhouse gas emissions following the Marrakesh Agreement; uncertainty about stability of supplies to final consumers following the California shortages and European fuel price protests of 2000; the 'war against terrorism' following 11 September, and the growing Israeli-Palestinian conflict. This paper reviews the broad policy context within which energy security is placed, the outlook for energy supply and its key uncertainties, the security risks involved at the national and consumer level, and the scope for 'dialogues' between producers and consumers. The broad conclusions of the paper are that: international trade and investment provides the best route to national energy security for most countries; the benefits of international energy trade and investment can be compatible with policies to protect the environment and reduce greenhouse gas emissions, although such policies do not necessarily reinforce energy security; within countries the security of distribution of energy to final consumers requires policy support, whether or not the primary sources of energy are imported or domestic; the international framework for energy trade and investment will work best if the interests of countries dependent on energy exports are taken into account.
Topic:: Energy Policy, International Trade and Finance, Markets, Oil, and Terrorism

1355. 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

1356. 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

1357. 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

1358. 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

1359. 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

1360. 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

1361. 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

1362. Sticky Prices, No Menu Costs

Author:: David Bowman
Publication Date:: 12-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: A model that contains no costs to changing prices but in which prices do not respond to nominal shocks is presented. In models that do not feature superneutrality of money flexible price equilibria will allow certain types of monetary shocks to affect the real economy. Sticky price behavior may in fact be better at protecting the real economy from the effects of monetary shocks in such environments. This point is demonstrated in a standard monetary model with liquidity effects. An equilibrium in which sticky prices are supported without menu costs is then constructed. In equilibrium firms choose to keep prices fixed in response to nominal shocks because doing so provides a service to their customers, increasing profits by expanding the customer base.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: United States

1363. Inflation Persistence and Optimal Monetary Policy in the Euro Area

Author:: Pierpaolo Benigno and J. David Lopez-Salido
Publication Date:: 12-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: In this paper we first present supporting evidence of the existence of heterogeneity in inflation dynamics across euro area countries. Based on the estimation of New Phillips Curves for five major countries of the euro area, we find that there is significant inertial (backward looking) behavior in inflation in four of them, while inflation in Germany has a dominant forward looking component. In the second part of the paper we present an optimizing agent model for the euro area emphasizing the heterogeneity in inflation persistence across regions. Allowing for such a backward looking component will affect the evaluation of the degree of nominal rigidities relevant for the monetary policy design. We explore the welfare implications of this circumstance by comparing the adjustment of the economies and the area as a whole in response to terms-of-trade shocks under four monetary policy rules: fully optimal, optimal inflation targeting, HICP targeting and output gap stabilization.
Topic:: Development, Economics, and International Trade and Finance
Political Geography:: Europe

1364. International Monetary Policy Coordination and Financial Market Integration

Author:: Alan Sutherland
Publication Date:: 12-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: The welfare gains from international coordination of monetary policy are analysed in a two-country model with sticky prices. The gains from coordination are compared under two alternative structures for financial markets: financial autarky and risk sharing. The welfare gains from coordination are found to be largest when there is risk sharing and the elasticity of substitution between home and foreign goods is greater than unity. When there is no risk sharing the gains to coordination are almost zero. It is also shown that the welfare gain from risk sharing can be negative when monetary policy is uncoordinated.
Topic:: Economics, Human Welfare, and International Trade and Finance
Political Geography:: United States

1365. Monetary Policy and the Financial Accelerator in a Monetary Union

Author:: Simon Gilchrist, Jean-Olivier Hairault, and Hubert Kempf
Publication Date:: 12-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: In this paper, we consider the effect of a monetary union in a model with a significant role for financial market imperfections. We do so by introducing a financial accelerator into a stochastic general equilibrium macro model of a two country economy. We show that financial market imperfections introduce important cross-country transmission mechanisms to asymmetric shocks to supply and demand. Within this framework, we study the likely costs and benefits of monetary union. We also consider the effects of cross-country heterogeneity in financial markets. Both the presence of financial frictions and the use of a single currency have significant impacts on the international propagation of exogenous shocks. The introduction of asymmetries in the financial contract widens the difference in cyclical behavior of national economies in a monetary union, but financial integration compensates the loss of policy instruments.
Topic:: Development, Economics, and International Trade and Finance
Political Geography:: United States

1366. The Road to Adopting the Euro: Monetary Policy and Exchange Rate Regimes in EU Candidate Countries

Author:: Fabio M. Natalucci and Federico Ravenna
Publication Date:: 12-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: This paper examines the choice of exchange rate regime in EU candidate countries during the process of accession to the European Monetary Union (EMU). In the presence of real exchange rate appreciation due to the Balassa-Samuelson effect, candidate countries face a trade-off between trend appreciation of the nominal exchange rate and high inflation rates. In a general equilibrium model of an emerging market economy, we show that under a fixed or heavily managed exchange rate the Balassa-Samuelson effect might prevent compliance with the Maastricht inflation criterion, unless a contractionary policy is adopted. We then discuss how the real exchange rate appreciation shifts the output gap/inflation variance trade-off, increasing the cost of managing or fixing the exchange rate. As a consequence, the requirement of membership in the Exchange Rate Mechanism (ERM-II) and the Maastricht inflation criterion constrain the policy choice while providing no additional benefit to countries credibly committed to joining the Euro. Finally, we show that relaxing either the exchange rate requirement or the inflation criterion has sharply different business cycle implications for the accession countries.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: Europe

1367. Productivity, Investment, and Current Accounts: Reassessing the Evidence

Author:: Jaime Marquez
Publication Date:: 11-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: The most widely accepted explanation for the inverse association between private investments and current accounts [Glick and Rogoff, 1995] rests on data for manufactures through 1990. Is this consensus robust to revisions to the national accounts and the expansion of information technologies since 1990? To address this question I replicate their results and I find that post 1990 developments eliminate the support for such a conclusion. I also implement alternative formulations and find, again, a lack of empirical support for their findings. Thus I examine the role of measurement errors and focus on the treatment of the manufacturing sector as representative of the whole economy and the exclusion of the contribution of capital when measuring productivity. Correcting these two measurement errors restores to Glick and Rogoff's conclusion its original strength.
Topic:: Economics, International Trade and Finance, and Science and Technology
Political Geography:: United States

1368. Monetary Union, Price Level Convergence, and Inflation: How Close is Europe to the United States?

Author:: John H. Rogers
Publication Date:: 10-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: In light of 50 years of economic policies designed to integrate Europe -- culminating in the elimination of euro zone national currencies in early 2002 -- and a vast academic literature on international economic integration, it is of interest to assess how far European integration has come in practice. Using a unique data set, I document the pattern of price dispersion across European and U.S. cities from 1990 to 2001. I find a striking decline in dispersion for traded goods prices in Europe, most of which took place between 1991 and 1994. The level of traded goods price dispersion in the euro area is now quite close to that of the United States. A decline in dispersion of non-tradeables prices in Europe has also taken place, but to a smaller extent. For U.S. cities, there is no evidence of a decline in price dispersion, even for tradeables. I examine several possible explanations for the decline in European price dispersion, including harmonization of tax rates, convergence of incomes and labor costs, liberalization of trade and factor markets, and increased coherence of monetary policy. I also investigate how much of the variation in national inflation rates in Europe can be explained by price level convergence. Finally, after showing that prices in likely next-round entrants into the euro zone are well below prices in Western Europe, I discuss the potential inflationary consequences of accession into monetary union for Eastern Europe.
Topic:: Economics and International Trade and Finance
Political Geography:: United States and Europe

1369. Identifying the Effects of Monetary Policy Shocks on Exchange Rates Using High Frequency Data

Author:: John H. Rogers, Jonathan H. Wright, Jon Faust, and Eric Swanson
Publication Date:: 10-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: This paper proposes a new approach to identifying the effects of monetary policy shocks in an international vector autoregression. Using high-frequency data on the prices of Fed Funds futures contracts, we measure the impact of the surprise component of the FOMC-day Federal Reserve policy decision on financial variables, such as the exchange rate and the foreign interest rate. We show how this information can be used to achieve identification without having to make the usual strong assumption of a recursive ordering.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: United States

1370. Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Bank Currency Mismatches?

Author:: Carlos Ó. Arteta
Publication Date:: 09-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: The dollarization of bank deposits and credit is widespread in developing countries, resulting in varying degrees of currency mismatches in domestic financial intermediation, which in turn might accentuate bank balance sheet fragility. It is widely argued that flexible exchange rate regimes encourage banks to match dollar-denominated liabilities with a corresponding amount of dollar-denominated assets, ameliorating currency mismatches. Does the behavior of dollar deposits and credit in financially dollarized economies support that presumption? A new database on deposit and credit dollarization in developing and transition countries is assembled and used to address this question. Empirical results suggest that, if anything, floating regimes seem to exacerbate, rather than ameliorate, currency mismatches in domestic financial intermediation, as those regimes seem to encourage deposit dollarization more strongly than they encourage matching via credit dollarization.
Topic:: International Relations, Economics, and International Trade and Finance
Political Geography:: United States

1371. Are Depreciations as Contractionary as Devaluations? A Comparison of Selected Emerging and Industrial Economies

Author:: Steven B. Kamin, Shaghil Ahmed, Christopher J. Gust, and Jonathan Huntley
Publication Date:: 09-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: According to conventional models, flexible exchange rates play an equilibrating role in open economies, depreciating in response to adverse shocks, boosting net exports, and stimulating aggregate demand. However, critics argue that, at least in developing countries, devaluations are more contractionary and more inflationary than conventional theories would predict. Yet, it is not clear whether devaluations per se have led to adverse outcomes, or rather the disruptive abandonments of pegged exchange-rate regimes associated with devaluations. To explore this hypothesis, we estimate VAR models to compare the responses to devaluation of developing economies and two types of industrial economies: those that have consistently floated, and those that have sustained fixed exchange-rate regimes as well. We find that both of these types of industrial economies exhibit conventional (i.e., expansionary) responses to devaluation shocks, compared with the contractionary responses exhibited by developing countries. This finding suggests that exchange rate movements may be more destabilizing in developing countries than in industrial countries, regardless of exchange rate regime.
Topic:: Economics, Emerging Markets, Industrial Policy, and International Trade and Finance

1372. Identifying the Role of Moral Hazard in International Financial Markets

Author:: Steven B. Kamin
Publication Date:: 09-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: Considerable attention has been paid to the possibility that large-scale IMF-led financing packages may have distorted incentives in international financial markets, leading private investors to provide more credit to emerging market countries, and at lower interest rates, than might otherwise have been the case. Yet, prior attempts to identify such distortions have yielded mixed evidence, at best. This paper makes three contributions to our ability to assess the empirical importance of moral hazard in international financial markets. First, it is argued that because large international "bailouts" did not commence until the 1995 Mexican crisis, financial indicators prior to that time could not have reflected a significant degree of this type of moral hazard. Therefore, one test for the existence of moral hazard is that the access of emerging markets to international credit is significantly easier than it was prior to 1995. Second, the paper argues that because private investors expect large-scale IMF-led packages to be extended primarily to economically or geo-politically important countries, moral hazard, if it exists, should lead these countries to have easier terms of access to credit than smaller, non-systemically important countries. Finally, in addition to looking at bond spreads, the focus of earlier empirical analyses of moral hazard, the paper also examines trends in capital flows to gauge the access of emerging market countries to external finance. Looking at the evidence in light of these considerations, the paper concludes that there is little support for the view that moral hazard is significantly distorting international capital markets at the present time.
Topic:: International Relations, Economics, Emerging Markets, and International Trade and Finance

1373. On the Fragility of Gains from Trade under Continuously Differentiated Bertrand Competition

Author:: Mario Marazzi
Publication Date:: 09-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: One of the most widely accepted principles of economics is the existence of gains from trade for every nation under certain conditions including perfect competition. In the last twenty years, trade economists have revolutionized the field by firmly establishing the possibility of modeling imperfectly competitive international markets. Despite this development, most still agree there are good reasons to believe that gains from trade are still present. However, we show that in the absence of international redistributions the presence of a positive profit sector in a general equilibrium model can lead to a situation in which some nations may lose from the reduction of international trade barriers.
Topic:: International Relations, Economics, Emerging Markets, and International Trade and Finance

1374. The Inflation Persistence of Staggered Contracts

Author:: Luca Guerrieri
Publication Date:: 08-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: One of the criticisms routinely advanced against models of the business cycle with staggered contracts is their inability to generate inflation persistence. This paper finds that staggered contracts µa la Taylor are, in fact, capable of reproducing the inflation persistence implied by U.S. data. Following Fuhrer and Moore, I capture the moments that the contract specification needs to replicate by using the correlograms from a small vector autoregression (VAR) that includes inflation among the endogenous variables. A simple structural model substitutes the inflation equation from the VAR with the contract specification. I estimate the contract parameters in the structural model by maximum likelihood. The correlogram for the endogenous variables from the estimated structural model, including that for inflation, are very close to the correlograms from the VAR (and are contained within their 90% confidence intervals). By the same metric, where Taylor contracts do not fare well is in reproducing the cross-correlations between inflation and output.
Topic:: International Relations, Economics, and International Trade and Finance
Political Geography:: United States

1375. Productivity Shocks, Habits, and the Current Account

Author:: Joseph W. Gruber
Publication Date:: 08-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: Empirical work regarding Intertemporal Current Account (ICA) models has centered around two distinct testing methodologies, present value tests and a productivity shock approach as formulated by Glick and Rogoff (1995). In previous work, Gruber (2001), I have tested and ICA model that allows for habits in aggregate consumption via the present value method. This paper applies the alternative Glick and Rogoff style approach to testing the model. The benefits of doing such are an ability to separate country-specific from worldwide output changes, a distinction of considerable importance, as well as to impose restrictions on the relationship between investment and output, neither of which are possible in the present value framework. The results of the test are supportive of the existence of habits and coincide with the results of Gruber (2001). The degree of habit persistence implied by the model is estimated for the G-7 countries. The paper also proposes habit formation as a possible solution to an empirical puzzle identified in the original Glick and Rogoff paper.
Topic:: International Relations, Economics, and International Trade and Finance
Political Geography:: United States

1376. Testing the Null of Identification in GMM

Author:: Jonathan H. Wright
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: This paper proposes a new test of the null hypothesis that a generalized method of moments model is identified. The test can detect local or global underidentification, and underidentification in some or all directions. The idea of the test is to compare the volume of two confidence sets -- one that is robust to lack of identification and one that is not. Under the null hypothesis the relative volume of these two sets is Op(1), but under the alternative, the robust confidence set has high probability of being unbounded.
Topic:: Economics and International Trade and Finance
Political Geography:: United States

1377. Factor Endowments and Industrial Structurev

Author:: Trevor A. Reeve
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: What determines industrial structure? Do sector-specific characteristics such as unionization, regulation, and trade policy dominate production patterns? One is inclined to believe so based on countless industry-level studies and the many political battles that are continually fought over trade and industrial policy. In contrast, standard neoclassical trade theory suggests that industrial structure is primarily driven by relative factor supplies. This paper demonstrates that aggregate factor endowments explain much of the structure of production—independent of industry idiosyncrasies—and quantifies the extent to which shifts in industrial structure in a cross section of countries are driven by the broad forces of factor accumulation. This result has important implications for policy. In particular, investment in physical capital and education may have as great an impact on the pattern of production as sector-specific trade and industrial policies. Thus, general equilibrium effects should not be ignored in efforts either to understand industrial structure or to form policies that attempt to alter it. These conclusions are reached through an empirical application of the factor proportions model of production.
Topic:: Economics, Industrial Policy, and International Trade and Finance
Political Geography:: United States

1378. Recent U.S. Macroeconomic Stability: Good Policies, Good Practices, or Good Luck?

Author:: Beth Anne Wilson, Shaghil Ahmed, and Andrew Levin
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: The volatility of U.S. real GDP growth since 1984 has been markedly lower than that over the previous quarter-century. In this paper, we utilize frequency-domain and VAR methods to distinguish among several competing explanations for this phenomenon: improvements in monetary policy, better business practices, and a fortuitous reduction in exogenous disturbances. We find that reduced innovation variances account for much of the decline in aggregate output volatility. Our results support the “good-luck” hypothesis as the leading explanation for the decline in aggregate output volatility, although “good-practices” and “good-policy” are also contributing factors. Applying the same methods to consumer price inflation, we find that the post-1984 decline in inflation volatility can be attributed largely to improvements in monetary policy.
Topic:: Economics, Industrial Policy, and International Trade and Finance
Political Geography:: United States

1379. Optimal Monetary Policy with Durable and Non-Durable Goods

Author:: Christopher J. Erceg and Andrew T. Levin
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: The durable goods sector is much more interest sensitive than the non-durables sector, and these sectoral differences have important implications for monetary policy. In this paper, we perform VAR analysis of quarterly US data and find that a monetary policy innovation has a peak impact on durable expenditures that is roughly five times as large as its impact on non-durable expenditures. We then proceed to formulate and calibrate a two-sector dynamic general equilibrium model that roughly matches the impluse response functions of the data. While the social welfare function involves sector-specific output gaps and inflation rates, we find that performance of the optimal policy rule can be closely approximated by a very simple rule that targets a weighted average of aggregate wage and price inflation rates. In contrast, some commonly-prescribed policy rules (such as strict price inflation targeting and Taylor's rule) perform very poorly in terms of social welfare.
Topic:: Economics, Human Welfare, and International Trade and Finance
Political Geography:: United States

1380. A Theory of the Currency Denomination of International Trade

Author:: Philippe Bacchetta and Eric van Wincoop
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: Nominal rigidities due to menu costs have become a standard element in closed economy macroeconomic modeling. The "New Open Economy Macroeconomics" literature has investigated the implications of nominal rigidities in an open economy context and found that the currency in which prices are set has significant macroeconomic and policy implications. In this paper we solve for the optimal invoicing choice by integrating this microeconomic decision at the firm level into a general equilibrium open economy model. Strategic interactions between firms play a critical role in the analysis. We find that the less competition firms face in foreign markets, as reflected in market share and product differentiation, the more likely they will price in their own currency. We also show that when a set of countries forms a monetary union, the new currency is likely to be used more extensively in trade than the sum of the currencies it replaces.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: United States

1381. Regional Inflation in a Currency Union: Fiscal Policy vs. Fundamentals

Author:: Margarida Duarte and Alexandar L. Wolman
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: We develop a general equilibrium model of a two-region currency union. There are two types of goods: non-trade goods, and traded goods for which markets are segmented. Monetary policy is set by a central monetary authority and is non-neutral due to nominal price rigidities. Fiscal policy is determined at the regional level by each region's government. We find that productivity shocks alone generate significant variation in inflation across the two countries. Government spending shocks, in contrast, do not account for a significant portion of inflation variation. Varying relative country size, we find that smaller countries experience higher variability of their inflation differential in response to shocks to productivity growth. Moreover, we show that regional governments can suppress incipient inflation differentials associated with shocks to productivity growth by letting the income tax rate respond negatively to inflation differentials.
Topic:: Development, Economics, and International Trade and Finance
Political Geography:: United States

1382. Inflation Dynamics and International Linkages: A Model of the United States, the Euro Area, and Japan

Author:: Gunter Coenen and Volker Wieland
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: In this paper we estimate a small macroeconometric model of the United States, the euro area and Japan with rational expectations and nominal rigidities due to staggered contracts. Comparing three popular contracting specifications we find that euro area and Japanese inflation dynamics are best explained by Taylor-style contracts, while Buiter-Jewitt/Fuhrer- Moore contracts perform somewhat better in fitting U.S. inflation dynamics. We are unable to fit Calvo-style contracts to inflation dynamics in any of the three economies without allowing either for ad-hoc persistence in unobservables or a significant backward-looking element. The completed model matches inflation and output dynamics in the United States, the euro area and Japan quite well. We then use it to evaluate the role of the exchange rate for monetary policy. Preliminary results, which are similar across the three economies, indicate little gain from a direct policy response to the exchange rate.
Topic:: Economics and International Trade and Finance
Political Geography:: United States, Japan, and Israel

1383. Macroeconomics of International Price Discrimination

Author:: Giancarlo Corsetti and Luca Dedola
Publication Date:: 07-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: This paper builds a baseline two-country model of real and monetary transmission under optimal international price discrimination. Distributing traded goods to consumers requires nontradables; because of distributive trade, the price elasticity of export demand depends on the exchange rate. Profit-maximizing monopolistic firms drive a wedge between wholesale and retail prices across countries. This entails possibly large deviations from the law of one price and incomplete pass-through on import prices. Yet, consistent with expenditure-switching effects, a nominal depreciation generally worsens the terms of trade. Moreover, the exchange rate and the terms of trade can be more volatile than fundamentals. For plausible ranges of the distribution margin, there can be multiple steady states, whereas large differences in nominal and real exchange rates across equilibria translate into small differences in consumption, employment and the price level. Finally, we show that with competitive goods markets international policy cooperation is redundant even under financial autarky.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: United States

1384. Finding Numerical Results to Large Scale Economic Models Using Path-Following Algorithms: A Vintage Capital Example

Author:: Brett Berger
Publication Date:: 06-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: This paper describes the numerical optimization methods used in Berger (2001) to find the complete time paths of key economic variables in neoclassical vintage capital models. An interior and a non-interior point method are discussed. Both of the methods are part of the general class of “path-following” algorithms. These algorithms can be efficiently applied to convex programming problems; and due to the standard shape of production and utility functions, many economic problems can be written as convex programming problems. Vintage capital models add scale and complexity to standard growth models because one must now handle the dynamics of multiple capital stocks. This increase in complexity will often prevent the discovery (or existence) of closed form solutions, making numerical solutions of the type found in Berger (2001) necessary.
Topic:: Economics, Industrial Policy, and International Trade and Finance
Political Geography:: United States

1385. Preventing Deflation: Lessons From Japan's Experience in the 1990s

Author:: Jane Haltmaier, Alan J. Ahearne, Joseph Gagnon, and Steve Kamin
Publication Date:: 06-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: This paper examines Japan's experience in the first half of the 1990s to shed some light on several issues that arise as inflation declines toward zero. Is it possible to recognize when an economy is moving into a phase of sustained deflation? How quickly should monetary policy respond to sharp declines in inflation? Are there factors that inhibit the monetary transmission mechanism as interest rates approach zero? What is the role for fiscal policy in warding off a deflationary episode? We conclude that Japan's sustained deflationary slump was very much unanticipated by Japanese policymakers and observers alike, and that this was a key factor in the authorities' failure to provide sufficient stimulus to maintain growth and positive inflation. Once inflation turned negative and short-term interest rates approached the zero-lower-bound, it became much more difficult for monetary policy to reactivate the economy. We found little compelling evidence that in the lead up to deflation in the first half of the 1990s, the ability of either monetary or fiscal policy to help support the economy fell off significantly. Based on all these considerations, we draw the general lesson from Japan's experience that when inflation and interest rates have fallen close to zero, and the risk of deflation is high, stimulus–both monetary and fiscal–should go beyond the levels conventionally implied by baseline forecasts of future inflation and economic activity.
Topic:: Economics, Industrial Policy, and International Trade and Finance
Political Geography:: Israel

1386. International Comparisons of Productivity Growth: The Role of Information Technology and Regulatory Practices

Author:: Christopher Gust and Jaime Marquez
Publication Date:: 05-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: While information technologies (IT) are credited with the recent acceleration in productivity in the United States, many other industrial countries have not experienced a pickup in productivity growth. To explain this productivity divergence, we use panel data from 1992 to 1999 for 13 industrial countries and find that this divergence is driven in part by differences in both the production and adoption of information technologies. Based on this finding, we proceed to investigate what factors might play a role in explaining differences in IT adoption. Our results support the view that burdensome regulatory environments and in particular regulations affecting labor market practices have impeded the adoption of information technologies and slowed productivity growth in a number of industrial countries. We then develop a theoretical model with vintage capital and labor to evaluate the effect of more stringent labor market regulations on a firm's decision to adopt new technologies. We establish conditions under which a tax on firing workers delays the adoption of IT technology. These conditions occur when technological change is skill-biased and a firm must upgrade the quality of its workforce through labor turnover. The resulting delay in adopting IT technology then has negative implications for economy-wide productivity and is largely consistent with our empirical results.
Topic:: Economics, International Trade and Finance, and Science and Technology
Political Geography:: United States

1387. A Guide to Choosing Absolute Bank Capital Requirements

Author:: Mark Carey
Publication Date:: 05-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: Resampling implementation of a stress-scenario approach to estimating portfolio default loss distributions is proposed as the basis for estimates of the appropriate absolute level of economic capital allocations for portfolio credit risk. Estimates are presented for stress scenarios of varying severity. Implications of use of different analysis time horizons are analyzed. Results for a numeraire portfolio are quite sensitive to such variations. Although the analysis is framed in terms of recent proposals to revise regulatory capital requirements for banks, the arguments and results are also relevant for bankers making capital structure decisions.
Topic:: Economics and International Trade and Finance
Political Geography:: United States

1388. To What Extent Will the Banking Industry be Globalized? A Study of Bank Nationality and Reach in 20 European Nations

Author:: David C. Smith, Allen N. Berger, Qinglei Dai, and Steven Ongena
Publication Date:: 05-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: We model two dimensions of bank globalization – bank nationality (a bank from the firm's host nation, its home nation, or a third nation) and bank reach (a global, regional, or local bank) using a two-stage nested multinomial logit model. Our data set includes over 2,000 foreign affiliates of multinational corporations operating in 20 European nations. We find that these firms frequently use host nation banks for cash management services, and that bank reach may be strongly influenced by this choice of bank nationality. Our results suggest limits to the degree of future bank globalization.
Topic:: Economics, Globalization, and International Trade and Finance
Political Geography:: United States

1389. Equity Prices, Household Wealth, and Consumption Growth in Foreign Industrial Countries: Wealth Effects in the 1990s

Author:: Carol C. Bertaut
Publication Date:: 04-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: Although most recent empirical research regarding the size and significance of the impact of changes in wealth on consumption has looked for such effects in the United States, equity prices in the 1990s rose considerably in most other industrial countries as well. This paper investigates the strength of the wealth effect across countries. Using a variety of methods, I find evidence of significant wealth effects in the United Kingdom and Canada of a size comparable to that in the United States, reflecting the importance of equities in aggregate household wealth in these countries. A significant wealth effect is also evident in Japan, but because household wealth has changed little on balance in Japan in recent years, this channel has been less important in explaining Japanese consumption growth in the second half of the 1990s. Despite a rapid appreciation in equity prices and an increase in equity ownership in the major continental European countries since 1995, equities remain a less important form of household wealth in most of these countries, and the consumption response to changes in wealth remains limited. However, in some smaller European countries where equity issuance is more common, the emerging evidence suggests that wealth effects may be more important.
Topic:: International Relations, Economics, Globalization, and International Trade and Finance
Political Geography:: United States, United Kingdom, Europe, and Canada

1390. International Coordination of Macroeconomic Policies: Still Alive in the New Millennium?

Author:: Joseph E. Gagnon, Dale W. Henderson, Brian M. Doyle, and Laurence H. Meyer
Publication Date:: 04-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: In this paper we provide two building blocks for an analysis of international policy coordination: (1) a survey of models of policy coordination, and (2) an account of experience with policy coordination among the G-7 countries and within Europe since the breakdown of the Bretton Woods System. Using these building blocks, we investigate the correspondence between the models and experience and attempt to draw lessons for both the modelers and the practitioners. We find that the correspondence is close enough that the models help in analyzing several instances of actual policy coordination, but that the correspondence could be even closer. As for lessons for modelers, we suggest that they devote more attention to the analysis of information exchange, a key feature of practical policy coordination; to the coordination of different types of policies; to the ramifications of political divisions within countries; and to the implications of market irrationality and speculative bubbles. As for lessons for policy makers, we suggest that they give more consideration to the choice of their ultimate objectives, in particular to whether the current account should always be close to balance; to achieving better internal policies; and to the greater use of fiscal policy as a stabilization tool.
Topic:: International Relations, Economics, Globalization, and International Trade and Finance
Political Geography:: Europe

1391. Financial Centers and the Geography of Capital Flows

Author:: Francis E. Warnock and Chad Cleaver
Publication Date:: 04-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: We examine an assumption common in empirical work on bilateral portfolio capital flows that the countries the flows are attributed to are also the countries of the security's issuer, seller, or ultimate buyer. We do this by estimating U.S. investors' holdings of debt and equities in over 40 countries and, for the same countries, foreign investors' holdings of U.S. debt and equities. A comparison of our estimates with data from benchmark surveys provides insight into U.S. data on international debt and equity transactions. We find that, contrary to the common assumption, the data do not track the location of U.S. investment or the location of investors in U.S. assets very well. Because the U.S. portfolio flow data collection system was designed to measure cross-border transactions with foreign counterparties who are often intermediaries, the majority of the flows are attributed to financial centers. By aggregating our country-level estimates, we find that U.S. data accurately portray net inflows into U.S. equities and net outflows into foreign bonds. However, the data substantially overcount net inflows into U.S. bonds and may undercount net outflows into foreign equities. We conclude with a discussion of the implications of our findings for research on capital flows.
Topic:: International Relations, Economics, and International Trade and Finance
Political Geography:: United States

1392. Regional Influences on U.S. Monetary Policy: Some Implications for Europe

Author:: Ellen E. Meade and D. Nathan Sheets
Publication Date:: 02-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: This paper looks at the monetary policy decisions of the U.S. Federal Reserve and asks whether those decisions have been influenced solely by national concerns, or whether regional factors have played a role. All of the Federal Reserve's policymakers have some regional identity, i.e., either their positions explicitly carry some regional affiliation or their region of origin is a factor that must be considered in the selection process. This research is relevant for the Fed, and it may also be relevant for Europe's fledgling central bank in Frankfurt. Critics have asserted that ECB policymakers have an incentive to base policy on national developments and respond to national political pressures. We find that Fed policymakers do take into account developments in regional unemployment when deciding monetary policy, and that these regional developments are more important for central bankers at the hub than in the spokes. These findings are robust to a variety of different specifications of the voting equation.
Topic:: Economics and International Trade and Finance
Political Geography:: United States and Europe

1393. Identifying VARs Based on High Frequency Futures Data

Author:: Jonathan H. Wright, Jon Faust, and Eric Swanson
Publication Date:: 02-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: Using the prices of federal funds futures contracts, we measure the impact of the surprise component of Federal Reserve policy decisions on the expected future trajectory of interest rates. We show how this information can be used to identify the effects of a monetary policy shock in a standard monetary policy VAR. This constitutes an alternative approach to identification that is quite different, and, we would argue, more plausible, than the conventional short-run restrictions. We find that the usual recursive identification of the model is rejected, but we nevertheless agree with the literature's conclusion that only a small fraction of the variance of output can be attributed to monetary policy shocks.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: United States

1394. Inflation Targeting and Nominal Income Growth Targeting: When and Why Are They Suboptimal?

Author:: Dale W. Henderson and Jinill Kim
Publication Date:: 02-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: We derive optimal monetary stabilization rules and compare them to simple rules under both full and partial information. The nominal interest rate is the instrument of monetary policy. Special attention is devoted to inflation targeting and nominal-income-growth targeting. We use an optimizing-agent model of a closed economy which features monopolistic competition in both product and labor markets. A stabilization problem exists because there are one-period nominal contracts, either for wages alone or for both wages and prices, and three shocks that are unknown when contracts are signed. In order to highlight basic theoretical results, we deliberately keep our model simple enough that we can obtain exact solutions. Optimal rules maximize the expected utility of the representative agent subject to the information set of the policymaker. A key result, possibly surprising at first, is that even with monopolistic competition, the optimal full information policy makes the economy mimic the hypothetical equilibrium with flexible prices and wages. We explain why strict versions of inflation targeting, nominal income growth targeting, and other such simple rules are suboptimal under both full and partial information and derive flexible versions that are optimal under certain partial information assumptions. Nominal income growth targeting dominates inflation targeting for plausible parameter values.
Topic:: Economics, Emerging Markets, and International Trade and Finance
Political Geography:: United States

1395. On the Sequencing of Projects, Reputation Building, and Relationship Finance

Author:: David C. Smith, Steven Ongena, and Dominik Egli
Publication Date:: 02-2002
Content Type:: Working Paper
Institution:: Board of Governors of the Federal Reserve System
Abstract:: We study the decision an entrepreneur faces in financing multiple projects and show that relationship financing will arise endogenously in an environment where strategic defaults are likely, even when firms have access to arm's-length financing. Relationship financing allows an entrepreneur to build a private reputation for repayment that reduces the cost of financing. However, in an environment where the risk of strategic default is low, the benefits from reputation building are outweighed by holdup rents extractable by the incumbent lender. Entrepreneurs then choose to finance projects from single or multiple arm's-length lenders.
Topic:: International Relations, Economics, and International Trade and Finance
Political Geography:: United States

1396. China's Trade Opening: Implications for Regional Stability

Author:: Howard M. Krawitz
Publication Date:: 08-2002
Content Type:: Working Paper
Abstract:: In late 2001, China entered the World Trade Organization (WTO), a dramatic step that marks not only the end of a 15-year odyssey for Beijing but also the beginning of a new phase in the country's internal development and its relations with the outside world. It may sound odd to suggest that joining the WTO—an organization focused on rules of conduct for trade and commerce—will influence not only China's economy but also its political, military, and social development, as well as its interaction with the United States. Yet China's efforts to play by WTO rules could affect its internal development far more extensively than has been the case with many new member nations.
Topic:: Security and International Trade and Finance
Political Geography:: United States, China, and Asia

1397. The Argentine Implosion

Author:: Luigi Manzetti
Publication Date:: 11-2002
Content Type:: Working Paper
Institution:: The North-South Center, University of Miami
Abstract:: In December 2001, Argentina recorded the world's largest default ever, as it failed to honor payments on its US$132 billion foreign debt. Since then, five presidents have been in power, the Argentine peso has been devalued by 120 percent, and the banking system has virtually collapsed, dragging the economy into a depression. The gross domestic product (GDP) contracted 16.3 percent in the first quarter of 2002. Argentina's per capita income has become one of the worst in Latin America, and, as a result, more than one-third of its people live under the poverty line. 1 Argentines' confidence in their elected officials has disappeared. By most accounts, the country has literally imploded to a degree that has no precedent in Latin America's contemporary history. This is particularly bewildering, considering that only 10 years ago Argentina was hailed around the world as a model of successful economic reforms, with standards of living that were not only the highest in the region but comparable to those of some southern European countries. How could Argentina go from role model to international outcast so quickly? Some place the blame on external shocks created by the financial crises in Mexico (1995), Indonesia (1997), Thailand (1998), and Russia (1998). Others say the cause of the problem was misguided policy advice from the International Monetary Fund (Stiglitz 2002). Yet, most analyses ascribe much of the trouble to the Convertibility Law's fixed exchange rate policy adopted in 1991.
Topic:: Economics, Government, and International Trade and Finance
Political Geography:: Russia, Indonesia, Argentina, South America, Latin America, Mexico, and Thailand

1398. Protecting the Environment While Opening Markets in the Americas

Author:: William Krist
Publication Date:: 01-2002
Content Type:: Working Paper
Institution:: The North-South Center, University of Miami
Abstract:: Market Access Negotiations are a major element of the efforts to create a Free Trade Area of the Americas (FTAA) by 2020. If successful, these negotiations will remove all tariff and nontariff barriers to trade among the 34 participating countries on all nonagricultural products, including forest and mining products, fish, and manufactured goods.
Topic:: Development, Environment, and International Trade and Finance
Political Geography:: United States, South America, Latin America, Central America, Caribbean, and North America

1399. The Aftershock of 9/11: Implications for Globalization and World Politics

Author:: Richard Bernal
Publication Date:: 09-2002
Content Type:: Working Paper
Institution:: The North-South Center, University of Miami
Abstract:: Globalization is a multi-dimensional process that is transforming national and global activities and interactions at a rapid rate and in a profound way. The changes encompassed by globalization have far-reaching implications for all aspects of life. The pace, extent, and character of globalization differ among economic, political, and social dimensions. While there is no single agreed-upon definition of globalization, it is generally understood to be a process in which barriers to the international flow of goods, services, capital, money, and information are being increasingly eroded or eliminated.
Topic:: International Relations, Globalization, and International Trade and Finance

1400. Free Trade, Smart Borders, and Homeland Security: U.S.-Caribbean Cooperation in a New Era of Vulnerability

Author:: Stephen Flynn and Anthony Bryan
Publication Date:: 09-2002
Content Type:: Working Paper
Institution:: The North-South Center, University of Miami
Abstract:: In the hours following the collapse of the World Trade Center twin towers on September 11, 2001, the United States applied a tourniquet to the transportation arteries that feed its national economy. The first campaign in the war to protect the U.S. homeland turned out to be an embargo on its own economy. Given the uncertainty surrounding the attacks, freezing its transport networks first and asking questions later was probably appropriate. But then came the hard part—how to resume global trade and travel after U.S. citizens' confidence in the security of their nation had been rocked to core? In the immediate aftermath of the terrorist attacks on the United States, front-line agencies like the U.S. Customs Service, Coast Guard, Immigration and Naturalization Service (INS), Department of Agriculture, and Border Patrol were being called upon to open U.S. borders and seaports once again to legitimate trade and travel. At the same time, they were tasked with exercising increased vigilance in detecting and intercepting would-be terrorists or the means of terrorism, including weapons of mass destruction that might be smuggled in a vehicle, train, truck, or maritime container. Just how the United States arrives at the appropriate balance—between openness to facilitate legitimate commerce and exercising sufficient controls to stem transnational threats to public safety and security—is one of the most critical public policy challenges confronting U.S.-Caribbean relations.
Topic:: International Relations, Security, and International Trade and Finance
Political Geography:: United States and Caribbean

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COLUMBIA UNIVERSITY PRESS