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  • Author: Pepper D. Culpepper
  • Publication Date: 01-2001
  • Content Type: Working Paper
  • Institution: Minda de Gunzburg Center for European Studies, Harvard University
  • Abstract: Faced with the fact of sweeping regulatory reform, how do companies decide how to respond to a new set of policies? This paper argues that this problem requires a new conception of policymaking: a conception that recognizes the analytical primacy of achieving coordination under uncertainty. I call this challenge the problem of securing decentralized cooperation. Negotiated reforms are a common leitmotif of the current wave of reforms taking place in various European countries, whereas American attempts to reinvent government opt to replace the state with the market. There are general lessons in this approach for both strategies. Unlike the earlier attempts to establish neo-corporatist bargains at the national level in European countries, the success of bargained pacts in Europe will depend increasingly on allowing private actors to design the best solutions to centrally identified problems. The challenges of bringing private information to bear on public policy will increase in the future, and not only in supply-side economic policy reforms. One such area is environmental regulation, which is typically viewed as an area of pure state regulation. This is also an area where market-based solutions are frequently proposed as the most efficient solution to problems of pollution. As I demonstrate through the initiative of the Chesapeake Bay Program in the United States, the challenges identified above for areas of economic policymaking are now relevant to environmental initiatives, even in liberal market economies such as the US and the UK. The extent of government success in such initiatives will be determined by the ability of governments to understand the importance of private information and their capacity to develop private sector institutions that can help procure it. Attempts to replace a malfunctioning state with a market solution, currently very much in vogue in certain quarters in the United States, will fail, as long as they do not recognize the distinctive problems inherent in securing decentralized cooperation.
  • Topic: Economics, Industrial Policy
  • Political Geography: United States, United Kingdom, Europe
  • Author: Martin Schludi
  • Publication Date: 11-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: This paper analyzes national processes of pension reform in countries with systems of old-age provision largely following the Bismarckian type (Austria, France, Germany, Italy, Sweden). Operating on a defined benefit/pay-as-you-go basis and mainly financed out of wage-based social contributions, pension systems in these countries are highly vulnerable to demographic and economic pressures. Therefore, pension reform has emerged as a major issue in these countries since the early 1990s. Although there are substantial similarities in the direction of reform, the degree of policy change varies considerably even among countries with similar legacies in pension policy. As a closer inspection of national patterns of pension policy-making shows, the political feasibility of pension reforms and the degree of adjustment in pension policy critically depends on the government's ability to orchestrate a reform consensus either with the parliamentary opposition or with the trade unions. The paper tries to identify the conditions under which a “pension pact” between those actors is likely to emerge.
  • Topic: Economics, Government, International Trade and Finance
  • Author: Lane Kenworthy
  • Publication Date: 10-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: A commonly-held view suggests that affluent nations face a tradeoff between incomes and jobs. According to this view, in the United States pay for workers at the bottom of the earnings distribution (relative to those in the middle) is very low and government unemployment-related benefits (the “replacement rate”) are stingy, but this facilitates the creation of lots of new jobs and encourages such individuals to take those jobs. The result is a high rate of employment and low unemployment. In much of Western Europe relative pay levels are higher for those at the bottom and benefits are more generous, but this is said to discourage job creation and to reduce the willingness of the unemployed to accept low-wage jobs. The consequence is low employment and high unemployment. I undertake a comparative assessment of this tradeoff view, based on pooled cross-section time-series analyses of 14 OECD countries in the 1980s and 1990s. The findings suggest that greater pay equality and a higher replacement rate do reduce employment growth in low-productivity private-sector service industries and in the economy as a whole. However, these effects are relatively weak. The results point to a variety of viable options for countries wishing to maintain or move toward a desirable combination of jobs and equality.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, Europe
  • Author: Steffen Ganghof
  • Publication Date: 09-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: Competitive pressure on some capital income tax rates reinforces a generic "quadrilemma" or a four-way tradeoff in domestic income taxation. To maintain competitiveness, governments have to cut some tax rates on capital income down to "international standards." If these cuts lead to a de-alignment of different rates on capital income, domestic allocation becomes more inefficient, all else being equal. Cutting all tax rates on capital income to a uniform low level, while maintaining high and progressive tax rates on labor incomes, avoids this inefficiency, but sacrifices comprehensive income taxation, that is, joint and equal taxation of capital and labor incomes. Finally, reducing all income tax rates to international standards, including top rates on labor income, implies a strong significant reduction in the progressiveness of labor income taxation (and/or significant revenue losses). As a result, governments that aim at all four goals” competitiveness, allocative efficiency, horizontal equity (comprehensive income taxation) and progressivity – and want to maintain a given revenue level cannot avoid seriously compromising one of them. This paper analyzes how this income tax quadrilemma has played out in seven OECD countries: Australia, Denmark, Finland, Germany, New Zealand, Norway, and Sweden. Combining the results of this matched comparison with exploratory data analysis for all OECD countries, the paper discusses the general implications of the quadrilemma for the domestic political economy of tax competition and the future of "domestic compensation" in open states.
  • Topic: Economics, International Trade and Finance, Political Economy
  • Political Geography: Finland, Norway, Denmark, Georgia, Australia, Sweden, New Zealand
  • Author: Anke Hassel, Jürgen Beyer
  • Publication Date: 11-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: The paper examines whether and how the increasing internationalisation of firms impacts on the operation of a co-ordinated market economy. Following the tenets of agency theory it assumes that an emerging market for corporate control changes the monitoring mechanisms that oversee management. Since Anglo- American forms of monitoring are usually associated with a higher return for investors compared with Continental European firms, a change in the distribution of the net value added of firms is expected. Using financial data on 59 large German companies, the paper shows that the emerging convergence of German corporate governance practices to Anglo-American standards has had a weak, but significant, impact on the distribution of net value added. This is in contrast to the impact of the internationalisation of firms on product markets, which does not have an effect. Since the market for corporate control is, however, still underdeveloped in Germany, the main effects remain to be seen.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: America, Europe, Germany
  • Author: Richard Deeg
  • Publication Date: 06-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: How can we determine when an existing institutional path or trajectory is ending and being replaced with a new one? How does such a process take place? How can we distinguish between institutional innovation within an existing trajectory and a switchover to a new trajectory or path? This paper explores these questions by examining the pattern of institutional change in the German financial system. The paper advances four theoretical claims: First, that endogenous developments can disrupt an institutional path and lead to a new one. Second, that an event sequence involving a move to a new institutional path may not follow from a contingent event yet may nonetheless be marked by increasing returns processes. Third, that increasing returns in politics are not automatic and must be cultivated by actors in order to be realized. Finally, that the concept of path is still in need of a measurable conceptualization before any further advances in path dependent arguments can be made.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Germany
  • Author: Martin Hopner
  • Publication Date: 05-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: Within the context of debates over national “varieties” of capitalism, this paper discusses the shareholder value orientation of the 40 largest listed German companies. Three dimensions of shareholder value are distinguished: the communicative dimension, the operative dimension and the dimension of managerial compensation. A shareholder value index compiling data on accounting, investor relations, variable top-management compensation and the implementation of profitability goals makes it possible to compare the shareholder orientations of the companies. The shareholder value phenomenon is explained first by the exposure to markets – the international product market, capital market pressures and the market for corporate control – and, secondly, by internal developments – changing management careers, increasing management compensation and reduced monitoring by banks and corporate networks – which cause external impulses to increase shareholder value to fall on fertile ground. Conflicts over shareholder orientation result in changing coalitions between shareholders, management, and employees. Shareholder value does not make companies opt out of central collective agreements or endanger the existence of employees' codetermination, but it does lead to more market-driven industrial relations.
  • Topic: Economics, Industrial Policy, International Trade and Finance
  • Political Geography: Germany
  • Author: Gregory Jackson, Martin Hopner
  • Publication Date: 04-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: Corporate governance in Germany is often described as a bank-oriented, blockholder or stakeholder model where markets for corporate control have not played a significant role. This case study of the hostile takeover of Mannesmann AG by Vodafone in 2000 demonstrates how systemic changes during the 1990s have eroded past institutional barriers to takeovers. These changes include the strategic reorientation of German banks from the “house bank” to investment banking, the growing consensus and productivity orientation of employee codetermination and corporate law reform. A significant segment of German corporations are now subjected to a market for corporate control. The implications for the German model are examined in light of both claims by agency theory for the efficiency of takeover markets, as well as the institutional complementarities within Germany's specific “variety” of capitalism. While the efficiency effects are questionable, the growing pressures for German corporations to achieve the higher stock market valuations of their Anglo-American competitors threaten the distributional compromises underlying the German model.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: America, Germany
  • Author: Fritz W. Scharpf
  • Publication Date: 07-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: This Working Paper is an attempt, occasioned by the evaluation of the Max Planck Institute for the Study of Societies, to provide a conceptual framework within which institute research on multi-level European problem solving could be discussed in the context of a more comprehensive overview of the literature. The framework combines an institutional dimension (distinguishing between supranational, joint-decision and intergovernmental modes of EU policy making) and a policy dimension (distinguishing between market-creating, market-enabling, market-correcting and redistributive policies). As institutional modes differ in their capacity for conflict resolution, and as policy types differ in the likelihood of severe policy conflict, greater or lesser problem-solving capacity can be explained by the location of a particular policy area on both of these dimensions.
  • Topic: Economics, Government, International Trade and Finance
  • Political Geography: Europe
  • Author: Philipp Genschel
  • Publication Date: 05-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: Does globalization undermine the fiscal basis of the welfare state? The conventional wisdom believes so: open borders cause tax competition, which in turn leads to a race to the bottom in capital taxation. However, the data show that revenues from capital taxation are fairly stable in OECD countries. Some observers conclude from this that globalization does not pose much of a challenge to the welfare state. This conclusion is unwarranted because it overlooks that tax competition was not the only challenge facing welfare states during the 1980s and 1990s. There was also slow growth, rampant unemployment, and high levels of precommitted spending. These problems exerted countervailing pressures that prevented a race to the bottom in taxation. Yet, this does not mean that national autonomy has not been diminished. The welfare state is trapped in between external pressures to reduce the tax burden on capital and internal pressures to maintain revenue levels and relieve the tax burden on labor.
  • Topic: Economics, Globalization, Human Welfare, International Trade and Finance
  • Author: Bernhard Kittel
  • Publication Date: 03-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: The process of wage determination is mediated by the institutional framework of the labor market. Bargaining systems differ not only in their mode of governance, but also in the way that wages are related to unemployment, inflation, and productivity growth. Based on annual data for the period 1971–1996 from 20 OECD countries, the paper uses a pooled time-series cross-section model to show that bargaining modes affect the speed at which wages are adjusted and the extent to which macroeconomic factors affect wages. Contrary to the expectations of mainstream economics, uncoordinated bargaining does not turn out to be the most flexible mode. Pattern setting and peak-level coordination, if legally enforceable, are modes of labor market governance that are at least as flexible and responsive, if not more so. Hence these labor market institutions cannot be blamed for excessive rigidity.
  • Topic: Economics, International Trade and Finance
  • Author: Christoffer Green-Pedersen
  • Publication Date: 01-2001
  • Content Type: Working Paper
  • Institution: Max Planck Institute for the Study of Societies
  • Abstract: The performance of the Danish economy in the 1990s has been successful to the extent that scholars are talking about a "Danish miracle". The importance of government policies to Denmark's economic success is taken as a point of departure in investigating why Danish governments have been able to govern the economy successfully in the 1990s. The paper argues that two factors have been important. First, the functioning of Danish parliamentarianism has been reshaped to strengthen the bargaining position of minority governments, which became the rule in Danish politics after the landslide election in 1973. Today, Danish minority governments can enter agreements with changing coalitions in the Danish parliament. The paper thus challenges the conventional wisdom about minority governments as weak in terms of governing capacity. Second, the changed socioeconomic strategy of the Social Democrats after returning to power in 1993 has been important because it has created a political consensus around a number of controversial reforms.
  • Topic: Economics, Government, Political Economy, Politics
  • Political Geography: Europe, Denmark
  • Author: Philip H. Gordon, Sophie Meunier
  • Publication Date: 03-2001
  • Content Type: Journal Article
  • Journal: French Politics, Culture Society
  • Institution: Conference Group on French Politics Society
  • Abstract: Concerns about the potentially negative effects of globalization are particularly salient in France because of France's longstanding desire to maintain a universal culture and concomitant fear of cultural domination. This article analyzes the impact of globalization on various aspects of French culture-including the entertainment industry (movies, audiovisuals, and books), food, and language-and shows why the French resist globalization more on cultural than economic grounds. The article also looks at French policy responses to the cultural "threat" of globalization and argues that those policies are both less effective and less necessary than many French seem to think.
  • Topic: Economics, Globalization
  • Political Geography: France
  • Author: Éric Dupin
  • Publication Date: 03-2001
  • Content Type: Journal Article
  • Journal: French Politics, Culture Society
  • Institution: Conference Group on French Politics Society
  • Abstract: This article examines why political corruption has become not only more visible in the past twenty years in France, but also more serious as a problem. After looking briefly at changes in the role of the judiciary and the media, the author focuses on issues of campaign finance and the economic insecurities electoral officials often face in the current political system. Psychological factors have mattered as well. Too many members of the political elite have assumed that political power entitled them to material advantages and exemption from conventional standards of ethical conduct. The concentration of power and weak boundaries between political, economic, and administrative elites have made the problem particularly acute in France.
  • Topic: Economics
  • Political Geography: France
  • Publication Date: 03-2001
  • Content Type: Journal Article
  • Journal: French Politics, Culture Society
  • Institution: Conference Group on French Politics Society
  • Abstract: Although political corruption in France is hardly new, only at the end of the twentieth century have public authorities made important efforts to address it. This article explains why, stressing underlying economic conditions in the 1980s and 1990s and changes in the composition and norms in the judicial, police, and administrative professions. The author goes on to argue that despite the publicity given to recent scandals, the attack on corruption remains restrained and politicians of both the Left and the Right remain ambivalent about facing the problem.
  • Topic: Economics
  • Political Geography: France
  • Author: Richard Kuisel
  • Publication Date: 06-2001
  • Content Type: Journal Article
  • Journal: French Politics, Culture Society
  • Institution: Conference Group on French Politics Society
  • Abstract: What might a historical perspective provide toward understanding the current bout of bashing Uncle Sam? There is a pattern to Gallic anti-Americanism. It peaks, as it did in the 1950s and again today, when the U.S. postures as a socio-economic model and threatens a cultural invasion. But there are also new features to contemporary attacks on America. What has intensified French perceptions of American domination stems from changes within France as the nation pursues competitiveness and openness. These changes have brought a perception among the French that they have lost an idealized construction of "France" and are increasingly powerless over forces like globalization and European integration. Globalization in particular magnifies the presence and power of America. Anxiety about loss is transferred to an America that appears intrusive and selfserving. Neo-anti-Americanism is a form of retaliation—retaliation against a seemingly omnipotent United States which tries to impose the self-serving process of globalization on France; retaliation against our obstructionist, expendable and unreliable hegemony in international politics; and retaliation against American promotion of our flawed social model, which challenges a traditional construction of Frenchness.
  • Topic: Economics
  • Political Geography: United States, America, Europe
  • Author: John H. Rogers, Jonathan H. Wright, Jon Faust
  • Publication Date: 08-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: We estimate a monetary policy reaction function for the Bundesbank and use it as a benchmark to assess the monetary policy of the ECB since the launch of the euro in January 1999. We find that euro interest rates are low relative to this benchmark. We consider several possible reasons for this, including the divergence between core and headline inflation, inflation having turned out to be higher than could have been foreseen by the ECB and the possibility that the ECB is focussing only on macroeconomic conditions in a subset of member countries. We argue that these potential explanations cannot account for the difference between recent interest rates and our estimated Bundesbank benchmark. Our results suggest that the reaction function of the ECB features a high weight on the output gap relative to the weight on inflation, compared to the Bundesbank.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: United States
  • Author: Jane Ihrig, Joseph E. Gagon
  • Publication Date: 07-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: The pass-through of exchange rate changes into domestic inflation appears to have declined in many countries since the 1980s. We develop a theoretical model that attributes the change in the rate of pass-through to increased emphasis on inflation stabilization by many central banks. This hypothesis is tested on twenty industrial countries between 1971 and 2003. We find widespread evidence of a robust and statistically significant link between estimated rates of pass-through and inflation variability. We also find evidence that observed monetary policy behavior may be a factor in the declining rate of pass-through.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: United States
  • Publication Date: 07-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: The battle against international bribery and other forms of public corruption remains a high priority for the United States. As President George W. Bush stated in his May 2001 message to the Second Global Forum on Fighting Corruption, “The corruption of governmental institutions threatens our common interests in promoting political and economic stability, upholding core democratic values, ending the reign of dictators, and creating a level playing field for lawful business activities.
  • Topic: Foreign Policy, Defense Policy, Economics
  • Political Geography: United States
  • Author: Chang-Jin Kim, Jeremy Piger, Richard Startz
  • Publication Date: 05-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: This paper investigates the relationship between permanent and transitory components of U.S. recessions in an empirical model allowing for business cycle asymmetry. Using a common stochastic trend representation for real GNP and consumption, we divide real GNP into permanent and transitory components, the dynamics of which are different in booms vs. recessions. We find evidence of substantial asymmetries in postwar recessions, and that both the permanent and transitory component have contributed to these recessions. We also allow for the timing of switches from boom to recession for the permanent component to be correlated with switches from boom to recession in the transitory component. The parameter estimates suggest a specific pattern of recessions: switches in the permanent component lead switches in the transitory component both when entering and leaving recessions.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: United States, Mexico
  • Author: Jane Haltmaier
  • Publication Date: 04-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: The paper uses capital and labor utilization rates to derive estimates of the Japanese output gap and potential output. Two techniques are used. The first uses the cyclical indicators to adjust potential output estimates derived from a Hodrick-Prescott filter over the most recent period when such estimates are generally considered to be unreliable. The second estimates equilibrium levels of the cyclical indicators and uses an Okun's Law-type relationship to derive output gaps and potential output. The second method is also applied to the components of potential output to derive a third estimate. These methods suggest that the current Japanese output gap is considerably larger than a simple Hodrick-Prescott filter would suggest.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States, Japan
  • Author: Francis E. Warnock
  • Publication Date: 04-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: The Tesar and Werner (1995) finding of very high turnover rates on foreign equity portfolios is based on an underestimation of cross-border equity positions. Foreign turnover rates calculated using information from comprehensive benchmark surveys on cross-border holdings are much lower than previously reported and comparable to domestic turnover rates. However, the basic intuition from the Tesar-Werner study, that transaction costs do not help explain the observed home bias, is confirmed using data on transaction costs in 41 markets.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States
  • Author: Neil R. Ericsson, Esfandiar Maasoumi, Grayham E. Mizon
  • Publication Date: 03-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: This retrospective provides a biographical history of Denis Sargan's career and reviews his contributions to econometrics, emphasizing the breadth of his work in both theoretical and applied econometrics. We include a complete bibliography for Denis and a list of PhD theses that he supervised--students were a substantive facet of his professional life. Finally, two of Denis's previously unpublished manuscripts on model building now appear in print.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States
  • Author: John H. Rogers, Hayden P. Smith
  • Publication Date: 03-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: Using consumer price indexes from cities in the U.S., Canada and Mexico, we estimate the "border effect" on U.S.-Mexican relative prices and find that it is nearly an order of magnitude larger than for U.S.-Canadian prices. However, during a very stable sub-period in Mexico (May 1988 to November 1994), the "width" of the U.S.-Mexican border falls dramatically and becomes approximately equal to the U.S.-Canadian border. We then show that when consideration is limited to cities lying geographically very close to the U.S.-Mexican border--San Diego, Los Angeles, Houston, Dallas, Tijuana, Mexicali, Juarez, and Matamoros--the border width falls compared to that estimated with the full sample of U.S. and Mexican cities, but falls only very slightly. We also present evidence that the border effect in U.S.-Mexican prices is not primarily due to the border effect in U.S.-Mexican wages. Finally, using the prices of 276 highly dis-aggregated goods and services, we estimate the variability of relative prices of different items within Mexican cities. This measure of relative price variability declines during the stable peso sub-period, but by less than the decline in nominal and real (i.e., CPI-based) exchange rate variability. Our results are strong evidence of a "nominal border effect" in relative prices within NAFTA, but also indicate that real side influences are important.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: United States, Canada, North America, Mexico
  • Author: John H. Rogers
  • Publication Date: 03-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: If price levels are initially different across the euro area, convergence to a common level of prices would imply that inflation will be higher in countries where prices are initially low. Price level convergence thus provides a potential explanation for recent cross-country differences in European inflation, a worrisome development under the ECBs "one-size-fits-all" monetary policy. I present direct evidence on price level convergence in Europe, using a unique data set, and then investigate how much of the recent divergence of national inflation rates can be explained by price level convergence. I show that between 1990 and 1999 prices did become less dispersed in the euro area. Convergence is especially evident for traded goods, and more in the first half of the 1990s than the second half. By some measures, traded goods price dispersion across the euro area is now close to that across U.S. cities. Despite an on-going process of convergence, deviations from the law of one price are large. Finally, I find a statistically-significant and robust negative relationship between the 1999 price level and 2000 inflation rate in Europe, and that the contribution of price level convergence to explaining inflation differentials is often quite important economically. Still, factors other than price convergence explain most of the cross-country inflation differences.
  • Topic: Economics, Emerging Markets, International Trade and Finance
  • Political Geography: Europe
  • Publication Date: 03-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: In its 1996 report, the Defense Science Board (DSB) recommended that the Pentagon invest an additional $3 billion to strengthen defenses of its information networks. This report was viewed by some as unrealistic and prophetic by others, but in all cases it faced a readership with a very uneven appreciation of the effects of disruptive technology and dicontinuous change. The defense establishment has increased its intellectual capital on the subject of Defensive Information Systems (DIO) considerably since 1996. However, it has yet to fully accomodate the realities of an information intensive future in its architecture, processes, and investments. Technology has continued to evolve and the problems have become much more difficult and complex. DoD must now accomplish more than anyone could have imagined in 1996. Perhaps more important is the dawning realization that incremental modifications to our existing institutions and processes will not produce the adaptation we need.
  • Topic: Defense Policy, Economics, Science and Technology
  • Political Geography: United States
  • Author: Neil R. Ericsson
  • Publication Date: 02-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: This paper provides an introduction to forecast uncertainty in empirical economic modeling. Forecast uncertainty is defined, various measures of forecast uncertainty are examined, and some sources and consequences of forecast uncertainty are analyzed. Empirical illustrations with the U.S. trade balance, U.K. inflation and real national income, and the U.S./U.K. exchange rate help clarify the issues involved.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States, United Kingdom
  • Author: Jinill Kim, Andrew Levin, Sunghyun Henry Kim
  • Publication Date: 02-2001
  • Content Type: Working Paper
  • Institution: Board of Governors of the Federal Reserve System
  • Abstract: In this paper, we investigate the welfare implications of alternative financial market structures in a two-country endowment economy model. In particular, we obtain an analytic expression for the expected lifetime utility of the representative household when sovereign bonds are the only internationally traded asset, and we compare this welfare level with that obtained under complete asset markets. The welfare cost of incomplete markets is negligible if agents are very patient and shocks are not very persistent, but this cost is dramatically larger if agents are relatively impatient and shocks are highly persistent. For realistic cases in which agents are very patient and shocks are highly persistent (that is, the discount factor and the first-order autocorrelation are both near unity), the welfare cost of incomplete markets is highly sensitive to the specific values of these parameters. Finally, using a non-linear solution algorithm, we confirm that a two-country production economy with endogenous labor supply has qualitatively similar welfare properties.
  • Topic: Economics, Human Welfare, International Trade and Finance
  • Political Geography: United States
  • Author: Niyazi B. Gunay, Ismail Cem
  • Publication Date: 04-2001
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: On March 28, 2001, His Excellency Ismail Cem, foreign minister of Turkey, addressed The Washington Institute's Policy Forum. The following is a rapporteur's summary of his remarks. Over the past four years Turkish foreign policy has been experiencing a transformation. Turkey now sees itself not only as part of Europe but also as part of Asia. The Asian character of Turkey, which has been downplayed for decades, has been revitalized, making Turkish foreign policy more active in the Middle East and the former Soviet Union and helping Turkey to improve relations simultaneously with the Arabs and Israel. Turkey's relations with the European Union are progressing favorably; EU membership is a goal, but not an obsession for Turkey.
  • Topic: International Relations, Foreign Policy, Economics
  • Political Geography: Europe, Washington, Turkey, Middle East, Arabia
  • Author: Amy W. Hawthorne
  • Publication Date: 04-2001
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: Urgent regional matters — such as Iraq and the Arab–Israeli peace process — will dominate the agenda during Egyptian president Hosni Mubarak's visit to Washington this week, while Egypt's transition to a free-market economy and U.S.– Egypt trade ties will also receive attention. Egyptian domestic politics, however, will register little, aside from U.S. frustrations over anti-Semitism in the Egyptian press and concern about the status of Egypt's Coptic Christians. Although the regime appears quite stable, having secured a "victory" in its 1990s conflict with violent extremist groups, the state of political reform in Egypt, America's most important Arab ally, merits a closer look. That is because Egypt's long-term economic reform — in which Washington has invested so much — can succeed only if accompanied by meaningful political liberalization.
  • Topic: Security, Economics, Human Rights, Political Economy, Politics
  • Political Geography: United States, Iraq, America, Washington, Middle East, Israel, Arabia, Egypt
  • Author: Alan Makovsky
  • Publication Date: 03-2001
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: Turkey's economic crisis is naturally the leading issue in bilateral U.S.-Turkish relations, and it is almost certainly topping the agenda of today's meetings of Foreign Minister Ismail Cem with Vice President Richard Cheney and other senior officials. Of course, these meetings pose the difficult question of how much Washington should do, if anything, to bail out its strategically vital ally. But this is only one of several uncertainties characterizing U.S.-Turkish relations in the early days of the Bush administration. Because so much of Turkey's importance to the United States derives from its critical strategic location, bilateral relations are greatly affected by U.S. policies toward other states in Turkey's region. Of most concern to Turkey will be the evolution of Bush administration policy toward Iraq, Iran, and Russia, and also toward Europe's nascent bid to develop an autonomous security capacity.
  • Topic: International Relations, Security, Defense Policy, Economics, Energy Policy
  • Political Geography: Russia, United States, Iraq, Europe, Iran, Washington, Turkey, Middle East
  • Author: Yossi Baidatz
  • Publication Date: 03-2001
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: In recent weeks, a simmering debate between the two major power centers in domestic Lebanese politics has spilled into public view. This debate pits newly installed Prime Minister Rafiq Hariri, who represents those who want Lebanon to take advantage of Israel's withdrawal from southern Lebanon to focus on internal stability, economic reconstruction and securing foreign investment, against Hizballah leader Shaykh Hassan Nasrallah, who — with the support of Syria and Iran — champions maintaining Lebanon's role on the front line of the ongoing revolutionary resistance against Israel. This tension was described in the Lebanese newspaper an-Nahar as the choice between "Hanoi" (Nasrallah) and "Hong Kong" (Hariri). As with most Middle East crises, the development of this delicate and flammable dispute carries both risks and opportunities for Lebanon and other players on the Middle East scene.
  • Topic: International Relations, Security, Foreign Policy, Economics, International Political Economy, Politics, Terrorism
  • Political Geography: United States, Europe, Iran, Middle East, Israel, Syria, Hong Kong
  • Author: Alan Makovsky
  • Publication Date: 03-2001
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: Turkey's economic near-meltdown last week — its second financial crisis in three months — was precipitated by political problems, not by narrowly economic issues. Until the political problems are addressed, the prospects for any new economic package will be questionable. With Turkish leaders and the International Monetary Fund (IMF) both seemingly floundering, Turkey likely would welcome suggestions on how to proceed, and the United States would do well to send a special high-level representative to Ankara for several days, as a source of informal advice and as a powerful symbol of U.S. support.
  • Topic: Economics, Political Economy, Politics, International Monetary Fund
  • Political Geography: United States, Turkey, Middle East
  • Author: Amy Hawthorne
  • Publication Date: 01-2001
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: Bahraini Emir Sheikh Hamad bin Issa al-Khalifa announced January 23 that a national referendum will be held February 14-15 on a National Charter, under which the lower house of a national assembly would be elected in 2004. Sheikh Hamad's reformist moves are the latest example of a trend in the Gulf kingdoms toward the establishment of representative institutions. However, Bahrain's proposed reforms are unlikely to be sufficiently far-reaching to address the political and economic discontent among Bahrain's Shia majority.
  • Topic: Security, Economics, Government, Politics
  • Political Geography: Middle East, Bahrain
  • Author: Alan Makovsky
  • Publication Date: 01-2001
  • Content Type: Policy Brief
  • Institution: The Washington Institute for Near East Policy
  • Abstract: This is the first of two PolicyWatch pieces about Syria under Bashar al-Asad. This article examines the domestic situation in Syria; the next article will look at Syrian foreign policy.On January 11, a petition signed by a thousand Syrian intellectuals appeared in the Lebanese press demanding — inter alia — freedom of expression, release of political prisoners, and an end to martial law in place since 1963. A similar such petition, published in September with ninety-nine signers, has evidently sparked a broader movement. And on January 20, the first-ever elections for many positions within Bashar al-Asad's Baath Party will be held.
  • Topic: Economics, Government, Politics
  • Political Geography: Syria
  • Author: Leo A. Grünfeld
  • Publication Date: 12-2001
  • Content Type: Working Paper
  • Institution: Norwegian Institute of International Affairs
  • Abstract: In this paper, we analyse how R investment decisions are affected by R spillovers between firms, taking into consideration that more R investment improves the ability to learn from competing firms - the so-called absorptive capacity effect of R The model in this paper is an extension of d'Aspremont and Jacquemin (1988), where they show that exogenous R spillovers reduce the incentive to invest in R when firms compete in a Cournot duopoly. Our model treats R spillovers as endogenous, being a function of absorptive capacity effects. Contrary to earlier studies, we show that absorptive capacity effects do not necessarily drive up the incentive to invest in R This only happens when the market size is small or the absorptive capacity effect is weak. Otherwise firms will actually chose to cut down on R Furthermore, absorptive capacity effects also increase the critical rate of spillovers that determines whether participating in research joint ventures leads to lower or higher R investment. Finally, we show that strong learning effects of own R are not necessarily goodfor welfare. Moreover, if the market size is large, welfare will be at its highest when the learning effect is small.
  • Topic: Economics, Industrial Policy, International Trade and Finance
  • Political Geography: Europe
  • Author: Hege Medin
  • Publication Date: 10-2001
  • Content Type: Working Paper
  • Institution: Norwegian Institute of International Affairs
  • Abstract: This article presents two models of international trade under monopolistic competition. In increasing returns sectors firms face fixed, in addition to variable, trade costs, therefore both exporters and non-exporters may coexist. While nonexporters benefit from access to large domestic markets, exporters benefit from access to large foreign markets. Consequently, a small country has a higher share of exporting firms than a large one. In contrast to standard models, increasing returns sectors turn out more open in small countries than in large ones, and small countries may be net exporters of such commodities, despite the disadvantage of a smaller home market.
  • Topic: Economics, International Trade and Finance
  • Political Geography: Europe
  • Author: Per Botolf Maurseth
  • Publication Date: 05-2001
  • Content Type: Working Paper
  • Institution: Norwegian Institute of International Affairs
  • Abstract: Research on economic growth has experienced remarkable progress the last decade. The neoclassical perspective has benefited from development of new mathematical methods and new approaches to market structure, economics of scale and spillover effects. At the same time evolutionary theories on economic development have appeared, partly competing but also complementary to neoclassical theorising. In this paper, the development of the two perspectives on economic growth is reviewed and they are compared with each other. Despite evident differences there seems to be convergence between the two traditions. The two perspectives therefore do not belong to different paradigms in the Kuhnian sense and they can hardly be categorised as two isolated research programmes in the sense of Imre Lakatos. Evolutionary and neoclassical growth economics draw inspiration from similar sources, they are overlapping and to some extent complementary. The two traditions also interact with each other.
  • Topic: Development, Economics, International Trade and Finance
  • Political Geography: Europe
  • Author: Thomas A. Gresik
  • Publication Date: 06-2001
  • Content Type: Working Paper
  • Institution: Kellogg Institute for International Studies
  • Abstract: Financial and real investment flexibility, tax competition, and superior economic information by transnationals both creates a rationale for corporate income taxation and limits the effectiveness of such taxation. While these factors have led to a variety of transnational tax policies, such as deferral, double taxation, apportionment, and trade rules, very few of these institutional features have been integrated into tax competition and agency models. This paper shows how the integration of investment flexibility, tax competition, and agency issues is crucial to our understanding of corporate tax policies.
  • Topic: Economics, Government, International Trade and Finance
  • Author: Steven Weber, John Zysman
  • Publication Date: 08-2001
  • Content Type: Working Paper
  • Institution: Berkeley Roundtable on the International Economy
  • Abstract: Driven by two fundamental processes, rapid technological change as well as social innovation and reorganization, a new digital economy, the E-conomy, is emerging. Rather than merely adding an Internet sector to the economy, the E-conomy has brought about tools for thought, tools that transform every sector of the economy by amplifying brainpower the way steam engines amplified muscle power during the Industrial Revolution. For analytic purposes, the rise of the E-conomy can be told as a story composed of 1) networks and tools, 2) e-business and e-society, 3) the productivity dilemma resolved, and 4) governance and politics. In the short run, the transformative processes unleashed by the E-conomy are likely to lead to new bargains among existing coalitions and interest groups. In the long run, the changes underway promise to fundamentally alter the political sociology of vast communities, give rise to new interests and coalitions, and transform the institutional foundation of social, economic and political life.
  • Topic: Economics, Government, Political Economy, Politics, Science and Technology
  • Author: Ariel Colonomos
  • Publication Date: 11-2001
  • Content Type: Working Paper
  • Institution: Centre d'Etudes et de Recherches Internationales
  • Abstract: At a time when the use of sanctions has intensified considerably, criticism directed at embargos is gaining ground. In interpreting this significant rise in opposition, this article shows how and why mobilization against sanctions has developed, what sort of actors are involved and what forms it takes. This research brings to light the formation of networks and coalitions against both unilateral and multilateral measures. It underlines the role, status and scope of those whose business it is to fashion norms, by questioning the main analytical categories their strategies are usually based on. An expertise in embargo assessment, destined to levy judgment on a type of very specific violence, is developing in both national and transnational public spaces. This research, analyzing the emergence of this expertise, sheds light on the development of a conception of unjust sanctions and identifies the mechanisms of its construction on an international scale. This text in particular underlines the importance of traditions of just war, especially their reinterpretation by actors on the international scene and its moral norm-makers. Considering the development of these standards allows us to grasp one of the most decisive aspects of the use of force in the post-cold war world, as well as the establishment of certain international reforms.
  • Topic: Development, Economics, International Cooperation, International Trade and Finance
  • Author: Arturo Borja Tamayo, Philippe Faucher, Scott Morgenstern, Daniel Nielson
  • Publication Date: 07-2001
  • Content Type: Working Paper
  • Institution: Centro de Investigación y Docencia Económicas
  • Abstract: This working paper studies the negotiations of the North American Free Trade Agreement (NAFTA) in two industrial chains: textile-apparel and auto parts-automotive. It compares two theoretical models. The first uses two internal variables (interest group strength and industry competitiveness) to explain the tariffs that were negotiated for the phase-out period of NAFTA. The second explores alternatives to increase the explanatory capacity of two-level games models. It incorporates the element of asymmetry between countries, and questions Putnam's (1988) hypothesis on the impact of domestic politics upon international negotiations. This second model explains the difference in the rules of origin that were adopted in NAFTA for the two industrial chains. The work reaches three conclusions. First, it confirms the necessity to specify different dependent variables to explain the outcomes of international trade agreements. Second, it concludes that a model using the two-level logic has explanatory advantages over one that does not combine levels. Third, it points out the potential to combine elements from the two models to reach a more complete explanation.
  • Topic: Economics, Industrial Policy, International Trade and Finance
  • Political Geography: North America
  • Author: Charles W. Parker III, Susan Minushikin
  • Publication Date: 07-2001
  • Content Type: Working Paper
  • Institution: Centro de Investigación y Docencia Económicas
  • Abstract: For the first time in its modern history, Mexico is confronting a financial sector that is controlled by foreign investors. At the same time it is highly concentrated. The economic challenges that such an industry structure presents were the focus of public debate over the sales of Bancomer and Banco Serfin. The political challenges have not yet become a part of the public debate. These include changing relations between the banks and the government. This paper traces the history of government-bank relations and speculates on how this relationship may change given the new structure of Mexico's financial sector.
  • Topic: Economics, Industrial Policy, International Trade and Finance
  • Political Geography: North America, Mexico
  • Author: Raymond J. Struyk, L. Jerome Gallagher
  • Publication Date: 11-2001
  • Content Type: Working Paper
  • Institution: Urban Institute
  • Abstract: A hallmark of the administration of social assistance under the socialist regimes in Eastern Europe and the USSR was the universal nature of eligibility for benefits, either to all citizens or to categories of deserving citizens, e.g., the physically handicapped. During the transition period since the collapse of the Soviet Union, the Russian Federation has taken limited steps to improve the targeting of benefits. The challenge to improvement is acute because the administration of the great majority of programs rests with agencies of local government. The question addressed here is how amenable local program administration is to improved targeting and more progressive program administration in general. Presented is an analysis of the results of assessments of two pilot programs implemented in two Russian cities in 2000–2001. The “school lunch pilot” introduced means testing in the school lunch program on a citywide basis; eligible families receive cash payments and all children pay the same price for their lunches in cash. The “jobs pilot” is a new, local means-tested program that provides cash support to families while unemployed workers search for work; continued receipt of funds is conditional on a minimum job search effort. We find that both programs were successfully implemented and that there was little resistance to the sharper targeting. On the other hand, a variety of problems with program administration were identified—problems that need to be addressed if program integrity and credibility are to be maintained.
  • Topic: Economics, Government, Human Welfare
  • Political Geography: Russia, Europe, Asia
  • Author: Raymond J. Struyk, Kirill Chagin
  • Publication Date: 08-2001
  • Content Type: Working Paper
  • Institution: Urban Institute
  • Abstract: In the Russian Federation the delivery of social services to deserving population groups is mostly the responsibility of municipalities and other local governments. Services are delivered by municipal agencies. One way to inject competition into the delivery system is for local government to hold competitions to contract for social service delivery. The competitions can be open to nonprofit organizations (NPOs), some of which have been providing assistance in recent years to needy individuals and families similar to those that would be contracted.
  • Topic: Economics, Human Welfare, Non-Governmental Organization
  • Political Geography: Russia, Europe, Asia
  • Author: Wayne Vroman, Vera Brusentsev
  • Publication Date: 07-2001
  • Content Type: Working Paper
  • Institution: Urban Institute
  • Abstract: This paper examines Australia's scheme of unemployment protection and makes some comparisons with unemployment protection in the United States of America. A major concern of the paper is to understand the differences in unemployment duration between these two economies. Policies followed in the United States intended to reduce duration are reviewed for possible applicability in Australia.
  • Topic: Economics, Government, Human Welfare
  • Political Geography: United States, Australia, Southeast Asia
  • Author: Wendy Zimmermann, Jeffrey S. Passel
  • Publication Date: 04-2001
  • Content Type: Working Paper
  • Institution: Urban Institute
  • Abstract: For at least the last century and a half, the immigrant population in the United States has been highly concentrated in a handful of states. Even at the beginning of the 20th century, when the foreign-born population was less than half its current size, just over half of all immigrants lived in only six states. By 1990, that share had increased to nearly three-quarters. But, between 1990 and 1999, the geographic concentration of immigrants began to wane slightly, as the foreign-born population grew substantially faster in states that have not traditionally received large numbers of immigrants. This dispersal of the immigrant population is particularly noteworthy in the face of dramatically increased numbers, especially in the new settlement areas, and policy changes surrounding the noncitizen population.
  • Topic: Demographics, Economics, Migration
  • Political Geography: United States, California
  • Publication Date: 12-2001
  • Content Type: Policy Brief
  • Institution: The Conference Board
  • Abstract: The Conference Board announced today that the U.S. leading index increased by 1.2 percent, the coincident index increased by 0.1 percent, and the lagging index decreased by 0.1 percent in December.The increase in the leading index in December is the largest gain since February of 1996. With this month's gain, the leading index has increased for three consecutive months bringing the index level above the pre-recession peak.The leading index continues to be driven by the expansionary monetary policy initiatives of the Federal Reserve. This is further strengthened by a rebound in the employment and expectations components in recent months.The coincident index's gain this month is the first in five months. This, coupled with a robust leading index, indicates that the economy, barring any unexpected shock, is gathering momentum.
  • Topic: Economics, Political Economy
  • Political Geography: United States
  • Publication Date: 11-2001
  • Content Type: Policy Brief
  • Institution: The Conference Board
  • Abstract: The Conference Board announced today that the U.S. leading index increased by 0.5 percent, the coincident index decreased by 0.2 percent, and the lagging index decreased by 0.7 percent in November. Gains in the financial, housing and expectations components propelled the leading index up in November for a second consecutive month. Should this pattern in the leading index continue, an economic recovery in the first half of next year may be possible. The coincident index continued to weaken as industrial production declined in thirteen of the last fourteen months while nonagricultural employees declined in six of the last eight months. Compared to the coincident index's average decline of 3.3 percent in the previous six recessions, the current decline has been relatively shallow. To date, the coincident index has declined by only 1.4 percent from its peak of 117.1 in December 2000.
  • Topic: Economics, Political Economy
  • Political Geography: United States
  • Publication Date: 10-2001
  • Content Type: Policy Brief
  • Institution: The Conference Board
  • Abstract: The Conference Board announced today that the U.S. leading index increased by 0.3 percent, the coincident index decreased by 0.2 percent, and the lagging index decreased by 0.3 percent in October.
  • Topic: Economics, Political Economy