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  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: Economist Intelligence Unit
  • Abstract: The growth rates witnessed in markets across Latin America in the decade to 2010 pulled millions out of poverty, led to rapid growth of the middle class and helped to demonstrate the promise of emerging markets. Since then, however, growth has slowed dramatically across the region. 2015 will mark the fifth successive year of deceleration in Latin America, which has slowed more than any other emerging market region. With concerns over the ability of emerging markets to withstand a slowdown in China and monetary policy normalisation in the US growing, risks to the growth and financing outlook for Latin America persist. However, as economic recovery starts to gather pace in the region, opportunities for investment and growth will also re-emerge. This report provides a snapshot of the current political and economic landscape in the region, and in some of Latin America’s largest economies: Brazil, Mexico and Argentina. Each article analyses key concerns and presents our view of the outlook going forward, helping you to influence decision-making and economic outcomes for your business.
  • Topic: Development, Economics, Emerging Markets, Globalization, International Trade and Finance
  • Political Geography: Latin America
  • Author: Anthony H. Cordesman, Steven Colley
  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: Center for Strategic and International Studies
  • Abstract: China’s emergence as a global economic superpower and as a major regional military power in Asia and the Pacific, has had a major impact on its relations with the United States and its neighbors. China was the driving factor in the new strategy the United States announced in 2012 that called for the U.S. to “rebalance” its forces to Asia-Pacific region. At the same time, China’s actions on its borders, in the East China Sea, and in the South China Sea have shown that China is steadily expanding its geopolitical role in the Pacific, and having a steadily increasing impact on the strategy and military developments in other Asian powers. As a result, the People’s Republic of China (PRC), the United States, and China’s neighbors face a critical need to improve their understanding of how each state in the region is developing its military power, and find ways to avoid the kind of military competition that could lead to rising tension or conflict.
  • Topic: Arms Control and Proliferation, Industrial Policy, International Trade and Finance, Power Politics
  • Political Geography: China, East Asia
  • Author: Robert D. Blackwill, Henry A. Kissinger, Ashley J. Tellis
  • Publication Date: 04-2015
  • Content Type: Working Paper
  • Institution: Council on Foreign Relations
  • Abstract: "China represents and will remain the most significant competitor to the United States for decades to come. As such, the need for a more coherent U.S. response to increasing Chinese power is long overdue," write CFR Senior Fellow Robert D. Blackwill and Carnegie Endowment for International Peace Senior Associate Ashley J. Tellis in a new Council Special Report, Revising U.S. Grand Strategy Toward China. "Because the American effort to 'integrate' China into the liberal international order has now generated new threats to U.S. primacy in Asia—and could result in a consequential challenge to American power globally—Washington needs a new grand strategy toward China that centers on balancing the rise of Chinese power rather than continuing to assist its ascendancy." The authors argue that such a strategy is designed to limit the dangers that China's geoeconomic and military power pose to U.S. national interests in Asia and globally, even as the United States and its allies maintain diplomatic and economic interactions with China.
  • Topic: Foreign Policy, Defense Policy, Diplomacy, International Trade and Finance
  • Political Geography: China
  • Publication Date: 10-2015
  • Content Type: Working Paper
  • Institution: Economist Intelligence Unit
  • Abstract: After the plunge in commodity prices in 2015, the outlook for raw materials remains highly uncertain amid slowing economic growth in China and looming interest rate rises in the US. In China—which gobbles up nearly one-half of the world’s consumption of aluminium, copper and coal—demand for base materials risks moderating further as the economy moves away from an investment-driven growth model. This will continue to have knock-on effects on the performance of commodity-exporting economies, weighing down on global consumption of raw materials. However, supply responses are beginning to emerge from commodity producers worldwide. Coupled with less favourable weather prospects, this will lead to some market tightening next year, allowing for some price stabilisation after four years of decline. This report provides a snapshot of The Economist Intelligence Unit’s current commodity price indexes, exploring the changing prices for industrial raw materials and food, feedstuffs & beverages. Each article provides analysis and forecasts across a number of key commodities, helping you to assess the fast-changing environment of commodity markets and influence key decision-making processes.
  • Topic: Economics, Emerging Markets, Industrial Policy, International Trade and Finance, Monetary Policy
  • Political Geography: China
  • Author: Homi Kharas
  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: The Brookings Institution
  • Abstract: The Addis Ababa Action Agenda reaffirms the central role of development banks in providing concessional and non-concessional long-term financing, countercyclical financing, guarantees and leverage, policy advice, capacity building, and other support to the post-2015 agenda. "We recognize the significant potential of multilateral development banks and other international development banks in financing sustainable development and providing know-how. We stress that development banks should make optimal use of their resources and balance sheets, consistent with maintaining their financial integrity, and should update and develop their policies in support of the post-2015 development agenda, including the sustainable development goals (SDGs)."
  • Topic: Development, International Trade and Finance, Treaties and Agreements, United Nations, World Bank
  • Political Geography: Global Focus
  • Author: Therese M. Vaughan, Mark A. Calabria
  • Publication Date: 05-2015
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: International activity related to the regulation and supervision of financial services has exploded since the global financial crisis. The crisis exposed weaknesses in the structure for regulating internationally active banks, and motivated a number of work streams aimed at strengthening standards (most notably, significant revisions to the Basel capital standard for internationally active banks, now known as Basel III). The insurance sector was also stressed by the meltdown in financial markets that occurred in 2007-2008, albeit far less than the banking sector, and, with the exception of AIG, it is generally recognized that insurers played little role in the financial crisis, and that traditional insurance activities do not pose a systemic risk to the financial system.1,2 Nonetheless, the insurance sector has also been targeted for a new stream of regulatory initiatives at the international level. The most important organizations with respect to these activities are the International Association of Insurance Supervisors (IAIS) and the Financial Stability Board (FSB), both based in Basel, Switzerland. The purpose of this paper is to review these developments and to highlight potential concerns for U.S. insurance markets.
  • Topic: Economics, International Trade and Finance, Markets, Financial Crisis
  • Political Geography: Global Focus
  • Author: Emily Isaac
  • Publication Date: 03-2015
  • Content Type: Working Paper
  • Institution: Berkeley Roundtable on the International Economy
  • Abstract: In the past five years, San Francisco has become home to dozens of new online and mobile “service networking” companies that claim to be “revolutionizing” the way work gets done. Making up what has come to be known as the “platform economy,” these technology companies provide the platforms for online and mobile marketplaces in which users can buy and sell their goods and services. Together, these “platform economy” companies make up a concentrated innovative cluster in the San Francisco Bay Area, and, more specifically, San Francisco proper. One of the sharing economy’s pioneers and largest success stories, TaskRabbit Inc. allows users to outsource small jobs and tasks to local contractors—or, in company lingo, neighborhood “Taskers.” Launched out of Boston in 2008, TaskRabbit is just one of many tech startups that have left Boston for the San Francisco Bay Area. Since relocating to San Francisco, the company has received $37.5 million in venture funding, is available in 20 cities, and reportedly has 1.25 million users and over 25,000 Taskers. Indeed, TaskRabbit exemplifies the immeasurable benefits of strategically locating a firm in an industry cluster.
  • Topic: Economics, International Trade and Finance, Science and Technology, Communications, Labor Issues
  • Political Geography: United States
  • Author: Olivier Blanchard, Jonathan D. Ostry, Atish R. Ghosh, Marcos Chamon
  • Publication Date: 11-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The workhorse open-economy macro model suggests that capital inflows are contractionary because they appreciate the currency and reduce net exports. Emerging-market policymakers, however, believe that inflows lead to credit booms and rising output, and the evidence appears to go their way. To reconcile theory and reality, the authors extend the set of assets included in the Mundell-Fleming model to include both bonds and nonbonds. At a given policy rate, inflows may decrease the rate on nonbonds, reducing the cost of financial intermediation, potentially offsetting the contractionary impact of appreciation. The authors explore the implications theoretically and empirically and find support for the key predictions in the data.
  • Topic: Economics, Emerging Markets, International Trade and Finance, Monetary Policy
  • Political Geography: Global Focus
  • Author: William R. Cline
  • Publication Date: 10-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Cline critiques OECD findings on "too much finance," which seem to imply that the optimal amount of credit in an economy is zero, given the linear specification of the main tests. If these results were taken literally, there would be a radical policy implication: Growth would be maximized by completely eliminating credit finance. He then finds that the negative impact of additional finance on growth is reversed when the appropriate (purchasing-power-parity) per capita income is applied and country fixed effects are removed. Separate tests for countries with intermediated finance below and above 60 percent of GDP show a significant positive effect of finance on growth in the lower group but an insignificant effect in the higher group. He also responds to critics of his earlier study.
  • Topic: Economics, International Political Economy, International Trade and Finance, GDP
  • Political Geography: Global Focus
  • Author: J. Bradford Jensen, Dennis P. Quinn, Stephen Weymouth
  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The authors investigate a puzzling decline in US firm antidumping (AD) filings in an era of persistent foreign currency undervaluations and increasing import competition. Firms exhibit heterogeneity both within and across industries regarding foreign direct investment (FDI). Firms making vertical, or resource-seeking, investments abroad are less likely to file AD petitions and firms are likely to undertake vertical FDI in the context of currency undervaluation. Hence, the increasing vertical FDI of US firms makes trade disputes far less likely. Data on US manufacturing firms reveals that AD filers generally conduct no intrafirm trade with filed-against countries. Persistent currency undervaluation is associated over time with increased vertical FDI and intrafirm trade by US multinational corporations (MNCs) in the undervaluing country. Among larger US MNCs, the likelihood of an AD filing is negatively associated with increases in intrafirm trade. The authors confirm that undervaluation is associated with more AD filings. However, high levels of intrafirm imports from countries with undervalued currencies significantly decrease the likelihood of AD filings. The study also highlights the centrality of firm heterogeneity in international trade and investment in understanding political mobilization over international economic policy.
  • Topic: Economics, International Political Economy, International Trade and Finance, Foreign Direct Investment
  • Political Geography: United States of America
  • Author: Gary Clyde Hufbauer, Eujiin Jung, Tyler Moran, Martin Vieiro
  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Hufbauer and colleagues critically evaluate the Organization for Economic Cooperation and Development’s ambitious multipart project titled Base Erosion and Profit Shifting (BEPS), which contains 15 "Actions" to prevent multinational corporations (MNCs) from escaping their "fair share" of the tax burden. Spurred by G-20 finance ministers, the OECD recommends changes in national legislation, revision of existing bilateral tax treaties, and a new multilateral agreement for participating countries. The proposition that MNCs need to pay more tax enjoys considerable political resonance as government budgets are strained, the world economy is struggling, income inequality is rising, and the news media have publicized instances of corporations legally lowering their global tax burdens by reporting income in low-tax jurisdictions and expenses in high-tax jurisdictions. Given that the US system taxes MNCs more heavily than other advanced countries and provides fewer tax incentives for research and development (R&D), implementation of the BEPS Actions would drive many MNCs to relocate their headquarters to tax-friendly countries and others to offshore significant amounts of R&D activity.
  • Topic: Development, Economics, International Political Economy, International Trade and Finance
  • Political Geography: Global Focus
  • Author: Adam S. Posen, Nicolas Veron
  • Publication Date: 09-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Given no generally accepted framework for financial stability, policymakers in developing Asia need to manage, not avoid, financial deepening. This paper supports Asian policymakers' judgment through analysis of the recent events in the United States and Europe and of earlier crisis episodes, including Asia during the 1990s. There is no simple linear relationship between financial repression and stability—financial repression not only has costs but, so doing can itself undermine stability. Bank-centric financial systems are not inherently safer than systems that include meaningful roles for securities and capital markets. Domestic financial systems should be steadily diversified in terms of both number of domestic competitors and types of savings and lending instruments available (and thus probably types of institutions). Financial repression should be focused on regulating the activities of financial intermediaries, not on compressing interest rates for domestic savers. Cross-border lending should primarily involve creation of multinational banks' subsidiaries in the local economy—and local currency lending and bond issuance should be encouraged. Macroprudential tools can be useful, and, if anything, are more effective in less open or less financially deep economies than in more advanced financial centers.
  • Topic: Economics, International Trade and Finance, Markets, Politics
  • Political Geography: Asia
  • Author: Antoine Gervais
  • Publication Date: 08-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: To date, empirical studies have focused almost exclusively on the trade exposure of the manufacturing sector, implicitly assuming that services are not tradable. However, because service trade has grown over time and now accounts for about 20 percent of global international transactions (and 30 percent of US exports), the traditional assumption that goods are tradable and services are not is increasingly inadequate. Gervais and Jensen use a unique dataset on the distribution of producers and consumers across regions of the United States to estimate the share of economic activity exposed to international competition. Their estimation method is a natural extension of the gravity model of trade and identifies trade costs in the absence of trade data. The estimated trade costs are higher on average for service industries, but there is considerable variation across industries within sectors. Using the trade cost estimates, they classify industries into tradable and nontradable categories. They find that accounting for tradable service industries nearly doubles the international exposure of the US economy, tradable services value added is unevenly distributed across geographical regions, labor productivity and wages are higher on average for tradable industries, and potential welfare gains from trade liberalization in the service sector are sizable.
  • Topic: Economics, International Trade and Finance, Labor Issues, Global Markets
  • Political Geography: Global Focus
  • Author: Philip Saure
  • Publication Date: 07-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: With its cost- and time-intensive research and development, the pharmaceutical sector can generate large trade imbalances. These imbalances may arise because investment and output occur in different years; they are sizable if pharmaceuticals account for a large and growing share of exports. Switzerland's recent trade surplus results from this effect, which also explains why the Swiss trade surplus is exceptionally resilient. The Swiss trade surplus is, therefore, a poor indicator for exchange rate assessments.
  • Topic: Foreign Exchange, Health, International Trade and Finance, Markets
  • Political Geography: Switzerland
  • Author: Daniele Ciani, Paolo Finaldi Russo, Valerio Vacca
  • Publication Date: 12-2015
  • Content Type: Working Paper
  • Institution: Istituto Affari Internazionali
  • Abstract: This paper describes the main features of European SMEs’ financial behaviour and the policies recently put in place to support their funding. European SMEs are structurally more leveraged and charged with higher interest rates than large firms. Moreover, the crisis has deeply affected their fund-raising capacity, as banks reduced credit supply while non-bank funding was unavailable to most SMEs. Against this background, EU has focussed its policies on long-term investment and on a more favourable environment for SMEs financing, including through the launch of the Capital Markets Union. At the national level, most governments have provided guarantees and enhanced the role of national development banks. Nevertheless, key issues are still outstanding, such as the funding of innovative firms and the improvement of transparency and of the legal and regulatory frameworks.
  • Topic: Economics, International Trade and Finance, Markets, European Union
  • Political Geography: Europe
  • Publication Identifier: 978-88-98650-71-2
  • Publication Identifier Type: DOI
  • Author: Daniele Fattibene
  • Publication Date: 11-2015
  • Content Type: Working Paper
  • Institution: Istituto Affari Internazionali
  • Abstract: Russia’s “pivot to Asia” has come to the fore in the wake of the crisis over Ukraine. Growing tensions with the West over the common neighbourhood, coupled with economic sanctions, have accelerated this trend, with China gaining in strength as both an economic and military partner to Moscow. The Kremlin’s propaganda has sought to convince the broader public that Russia’s strategies in Eastern Europe, Central Asia and the Arctic region are a complement to China’s new Silk Road Economic Belt. Nonetheless, behind the headlines huge potential problems jeopardise the emergence of a durable Sino-Russian consensus in Eurasia. Against this backdrop, the EU should opt for “strategic patience.” This would be a far more effective policy choice than finger pointing, which only deepens the mutual ideological clash between the EU and Russia.
  • Topic: Diplomacy, Economics, International Trade and Finance, Bilateral Relations, Sanctions
  • Political Geography: Russia, China, Asia
  • Publication Identifier: 978-88-98650-69-9
  • Publication Identifier Type: DOI
  • Author: Nicola Casarini
  • Publication Date: 10-2015
  • Content Type: Working Paper
  • Institution: Istituto Affari Internazionali
  • Abstract: With the One Belt One Road (OBOR), arguably Beijing’s major diplomatic outreach in decades, a process towards greater Sino-European connectivity has been put in place. The implementation of the OBOR in Europe has focused so far on financing infrastructure projects, in particular railways in Southeast Europe and ports in the Mediterranean Sea. This has been complemented by growing monetary linkages between the People’s Bank of China and European central banks through the establishment of currency swap agreements and yuan bank clearing – so-called “offshore renminbi hubs” – with the aim of lowering transaction costs of Chinese investment and bolstering the use of the Chinese currency. While there are undoubtedly great economic opportunities, China’s OBOR initiative also presents the EU with a major political challenge. There is the risk, in fact, that a scramble for Chinese money could further divide EU member states and make it difficult for Brussels to fashion a common position vis-à-vis Beijing. Furthermore, China’s economic penetration into Europe may lead – if not properly managed – to a populist backlash as well as a strain in relations with Washington. All these elements should be taken into consideration by EU policymakers, as China’s OBOR makes inroads into the Old Continent.
  • Topic: Development, International Trade and Finance, Bilateral Relations, Infrastructure
  • Political Geography: China, Europe
  • Publication Identifier: 978-88-98650-64-4
  • Publication Identifier Type: DOI
  • Author: William R. Cline
  • Publication Date: 04-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Some advocates of far higher capital requirements for banks invoke the Modigliani-Miller theorem as grounds for judging that associated costs would be minimal. The M&M theorem holds that the average cost of capital to the firm does not depend on its capital structure (ratio of equity finance to debt finance), because any reduction in capital cost from switching to higher leverage using lower-cost debt is exactly offset by an induced increase in the unit cost of higher-cost equity capital as a consequence of the associated rise in risk. Statistical tests for large US banks in 2002–13 find that less than half of this M&M offset attains in practice. Higher capital requirements would thus impose increases in lending costs, with associated output costs from lower capital formation. These costs to the economy would need to be compared with benefits from lower risk of banking crises to arrive at optimal levels of capital requirements.
  • Topic: Economics, International Trade and Finance, Markets, Politics, Budget
  • Political Geography: Global Focus
  • Author: Ajai Chopra
  • Publication Date: 03-2015
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Growth in developing Asia will need to rely more on improvements in productivity growth and less on capital deepening. Although there is no single reform path to spur productivity growth, financial system deepening is central to a more efficient allocation of capital across sectors and can facilitate innovation and technology transfer. But malfunctioning financial systems can also result in the misallocation of resources, making it important that policymakers focus less on increasing the size of the financial sector and more on improving its intermediation function. Chopra discusses the steps to mobilize Asia's ample private savings for long-term financing, especially to tackle the region's infrastructure deficit and improve access to financing for small and medium enterprises, which can help raise productivity. As many countries in Asia shift from a development model based on technology absorption to one that promotes innovation, specialized finance and investors can play a critical role in allowing innovative firms to conduct research, adopt technologies necessary for inventions, and ultimately commercialize innovations.
  • Topic: Economics, International Trade and Finance, Markets, Science and Technology
  • Political Geography: Asia
  • Author: Zhao Minghao
  • Publication Date: 10-2015
  • Content Type: Working Paper
  • Institution: Istituto Affari Internazionali
  • Abstract: The European Council has mandated the High Representative of the Union for Foreign Affairs and Security Policy, Federica Mogherini, to draft a Global Strategy by June 2016. Given Europe’s status as a global power, such a strategy must respond to Europe’s own challenges as well as to the new grand strategies of other major players in world politics, like China. To better understand the central tenets of the Chinese leadership’s strategic thinking, two keywords are most important – the “Four Comprehensives” and the “One Belt and One Road” (OBOR). As an initiative mainly focusing on promoting Eurasian integration and reshaping Chinese geo-economic advantages, the OBOR is highly consequential to China’s interactions with Europe and the rest of the world at large in the decades to come. How to take advantage of the OBOR, create new EU-China synergies, and tackle relevant challenges are questions the EU leaders should be attentive to.
  • Topic: Economics, International Cooperation, International Trade and Finance, Markets, Bilateral Relations
  • Political Geography: Europe, Asia
  • Publication Identifier: 978-88-98650-61-3
  • Publication Identifier Type: DOI