Search

Begin New Search Topic Economics Content Type Working Paper Publishing Institution Peterson Institute for International Economics

1. Carbon border adjustments, climate clubs, and subsidy races when climate policies vary

Author:
Kimberly Clausing and Catherine Wolfram
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Jurisdictions adopt heterogeneous climate policies that vary in terms of both ambition and policy approach, with some jurisdictions pricing carbon and others subsidizing clean production. We distinguish two types of policy spillovers associated with diverse policy approaches to climate change. First, when countries have different levels of climate ambition, free riders will benefit at the expense of more committed countries. Second, when countries pursue different approaches, carbon-intensive producers within cost-imposing jurisdictions will be at a relative competitive disadvantage compared with producers in subsidizing jurisdictions. Carbon border adjustments and climate clubs are attempts to respond to these policy spillovers, but when countries have divergent policy approaches, one policy alone will not be able to address both types of spillovers. We also consider the policy dynamics that result from carbon border adjustments and climate clubs; both have the potential to encourage upward harmonization of climate policy, but they come with risks. Further, the pressures of international competition in the presence of divergent climate policy approaches may result in subsidy races, which come with their own potential risks and benefits.
Topic:
Climate Change, Economics, Carbon Emissions, and Production
Political Geography:
Global Focus

2. Saving the WTO from the national security exception

Author:
Warren Maruyama and Alan Wm. Wolff
Publication Date:
05-2023
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
For any member of the World Trade Organization (WTO) not making alternative arrangements, enforceability of the rules of the global trading system, a distinguishing feature of the WTO, ceased to exist on December 11, 2019, because the United States blocked appointments to the Appellate Body of the WTO dispute settlement mechanism. A major obstacle to the United States accepting any resolution of this impasse—thus permitting dispute settlement to once again be binding on all WTO members—is settling the issue of whether claims of national security to legitimize trade measures are reviewable. This is a red line for the United States, which argues this claim is nonreviewable. In the emerging area of great power competition, the United States is unlikely to accept a return to fully effective WTO dispute settlement absent a compromise that finds determinations of national security nonjusticiable. This paper offers a compromise: There would be no adjudication of whether a trade measure was justified under the WTO’s national security exception, but those WTO members adversely affected would have an immediate right to rebalance trade concessions themselves by imposing retaliatory trade measures against the WTO member invoking the exception.
Topic:
Economics, International Trade and Finance, National Security, and World Trade Organization
Political Geography:
Global Focus

3. Trump ended WTO dispute settlement. Trade remedies are needed to fix it.

Author:
Chad P. Bown
Publication Date:
01-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Unhappy with the rulings of the WTO dispute settlement system, which disproportionately targeted US use of trade remedies, the United States ended the entire system in 2019. There are multiple hurdles to agreeing to new terms of trade remedy use and thus potentially restoring some form of binding dispute settlement. First, a change would affect access to policy flexibility by the now large number of users of trade remedies. Second, although China’s exports are the overwhelming target of trade remedies, exporters in other countries increasingly find themselves caught up in trade remedy actions linked to China. Third, critical differences posed by China’s economic model may call for new rules for trade remedies, but no consensus on those rules has emerged. Even some of the most promising reforms have practical limitations, create additional challenges, or may be politically unviable.
Topic:
Economics, Trade, Donald Trump, and WTO
Political Geography:
China and United States of America

4. The international financial system after COVID-19

Author:
Maurice Obstfeld
Publication Date:
02-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In March 2020, international markets seized up with a violence unequaled since the global financial crisis nearly a dozen years before. As economies around the world locked down in the face of the potentially deadly but completely novel SARS-CoV-2 virus, stock markets fell, firms and governments scrambled for cash, liquidity strains emerged even in the market for US Treasurys, and capital flows to emerging-market and developing economies (EMDEs) reversed violently. This paper reviews the evolution of global financial markets since the global financial crisis, changes in academic thinking about these markets’ domestic impacts, the strains seen during the COVID-19 crisis, and perils that may lie ahead. A key theme is that stability will be enhanced if the global community embraces reforms that elevate market resilience, rather than depending on skillful policymakers wielding aggressive but ad hoc policy interventions to ride to the rescue again.
Topic:
Economics, Markets, COVID-19, and Financial Systems
Political Geography:
Global Focus

5. Socioeconomic diversity of economics PhDs

Author:
Robert Schultz and Anna Stansbury
Publication Date:
03-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
It is well documented that women and racial and ethnic minorities are underrepresented in the economics profession, relative to both the general population and many other academic disciplines. Less is known about the socioeconomic diversity of the profession. In this paper, we use data from the National Science Foundation’s Survey of Earned Doctorates to examine the socioeconomic background of US economics PhD recipients as compared with US PhD recipients in other disciplines, proxying for socioeconomic background using PhD recipients’ parents’ educational attainment. We find that economics PhD recipients are substantially more likely to have highly educated parents, and less likely to have parents without a college degree, than PhD recipients in other disciplines. This is true both for US-born and non-US-born PhD recipients, but the gap between economics and other disciplines is starker for those born in the United States. The gap in socioeconomic diversity between economics and other PhD disciplines has increased over the last two decades.
Topic:
Economics, Women, Diversity, and Academia
Political Geography:
Global Focus

6. WTO 2025: Restoring binding dispute settlement

Author:
Alan Wm. Wolff
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Binding dispute settlement—the ability to obtain a final judgment of whether a member of the World Trade Organization (WTO) has acted inconsistently with its obligations—was the defining attribute of the WTO as created in 1995. Global commerce thrived on having the certainty provided by its taking place within this system. For well over a decade, the United States had complained that the dispute settlement system was undermining the trade remedies—antidumping, countervailing duties against subsidies, and safeguard actions against injurious imports—that were allowed under the WTO’s rules. When a populist US administration assumed office in 2017, it blocked appointments to the WTO’s Appellate Body. Today, the WTO dispute settlement system has become balkanized. The European Union and a number of other countries have banded together to put into place an alternative mechanism. Outside this system are the other two-thirds of the WTO members, including the United States. For most WTO members, no definitive result can be reached as to whether WTO obligations have been violated, as there is no assurance that WTO dispute settlement will be binding for them. This paper addresses how to reconstruct a system that the United States could join that would be broadly acceptable to others. It sets out a wide range of elements for negotiators to consider to rebuild the WTO dispute settlement system and make WTO agreements enforceable again.
Topic:
Economics, Trade, WTO, and Disputes
Political Geography:
Global Focus

7. WTO 2025: Enhancing global trade intelligence

Author:
Alan Wm. Wolff
Publication Date:
04-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
International trade flows based on information. Is the foreign market open? What are the conditions for entry? Are there customs duties to be paid and other regulations that need to be satisfied? Businesses thrive on getting as much certainty as they can find, and this requires reliable information. Is the competition subsidized? Are the competitors favored state-owned companies? During the pandemic, governments needed to know if food and medical supplies were going to be available from foreign sources and, most importantly, how available vaccines would be as most of the world’s countries could not produce any. Effective public policy cannot be made in the dark. The World Trade Organization, and the General Agreement on Tariffs and Trade before it, were founded with the idea of providing transparency. But more is needed to understand why trade is taking place, and even more important, when it is not, why not?
Topic:
Economics, Markets, Trade, and WTO
Political Geography:
Global Focus

8. WTO 2025: Constructing an executive branch

Author:
Alan Wm. Wolff
Publication Date:
05-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The World Trade Organization (WTO) as an institution accords much less of a role to its chief officer and her staff, namely the WTO Director-General and the Secretariat, than do any of its sister international organizations—the World Bank, the International Monetary Fund, the Organization for Economic Cooperation and Development—to their chief officers and staff. The WTO Secretariat is much smaller than its peer international organizations and underfunded. In considering WTO reform, this deficiency needs to be rectified if the WTO’s performance is to live up to its Members’ needs.
Topic:
Economics, World Bank, IMF, WTO, and OECD
Political Geography:
Global Focus

9. Public responses to foreign protectionism: Evidence from the US-China trade war

Author:
David Steinberg and Yeling Tan
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
America's recent turn toward protectionism has raised concerns about the future viability of the liberal international trading system. This study examines how and why public attitudes toward international trade change when one's country is targeted by protectionist measures from abroad. To address this question, the authors fielded three original survey experiments in the country most affected by US protectionism: China. First, they find consistent evidence that US protectionism reduces Chinese citizens' support for trade. This finding is replicated in parallel experiments on technology cooperation, and further validated outside of the China context with a survey experiment in Argentina. Second, they show that responses to US protectionism reflect both a "direct reciprocity" logic—citizens want to retaliate against the United States specifically—and a "generalized reciprocity" logic that reduces support for trade on a broader, systemic basis.
Topic:
Economics, Political Economy, Public Opinion, Trade, and Protectionism
Political Geography:
China, Asia, North America, and United States of America

10. Public responses to foreign protectionism: Evidence from the US-China trade war

Author:
David Steinberg and Yeling Tan
Publication Date:
06-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
America's recent turn toward protectionism has raised concerns about the future viability of the liberal international trading system. This study examines how and why public attitudes toward international trade change when one's country is targeted by protectionist measures from abroad. To address this question, the authors fielded three original survey experiments in the country most affected by US protectionism: China. First, they find consistent evidence that US protectionism reduces Chinese citizens' support for trade. This finding is replicated in parallel experiments on technology cooperation, and further validated outside of the China context with a survey experiment in Argentina. Second, they show that responses to US protectionism reflect both a "direct reciprocity" logic—citizens want to retaliate against the United States specifically—and a "generalized reciprocity" logic that reduces support for trade on a broader, systemic basis.
Topic:
Economics, International Trade and Finance, Protectionism, and Competition
Political Geography:
China, Asia, North America, and United States of America

11. 25 years of excess unemployment in advanced economies: Lessons for monetary policy

Author:
Joseph E. Gagnon and Madi Sarsenbayev
Publication Date:
10-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
For about 25 years before the COVID-19 pandemic, inflation was very low and stable in most advanced economies. A little noticed dark side of this impressive achievement is that unemployment rates were almost always higher than needed to keep inflation low. This widespread and persistent policy error arose because of a major flaw in standard macroeconomic models—the use of a linear Phillips curve. This flaw would have been far less costly if central banks had not chosen such a low target for inflation. This paper thus adds to the arguments in favor of a moderately higher inflation target. Even without a higher target, central banks need to use a broader range of economic models and should verify their estimates of the natural rate of unemployment by running the economy hot from time to time in order to see nascent inflationary pressure before throttling back.
Topic:
Economics, Monetary Policy, Unemployment, and COVID-19
Political Geography:
Global Focus

12. How carbon tariffs and climate clubs can slow global warming

Author:
Shantayanan Devarajan, Delfin S. Go, Sherman Robinson, and Karen Thierfelder
Publication Date:
09-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Slowing global warming requires countries to reduce carbon emissions, which imposes costs on their economies. To be effective, most countries must agree collectively to participate (e.g., the Paris Agreement, COP26). However, every country has an incentive not to comply and still reap the benefits of other countries’ actions—a classic free-rider problem. This paper evaluates recent recommendations to use trade policy to solve the free-rider problem associated with climate mitigation strategies. It shows that the European Union’s carbon border adjustment mechanism (CBAM tariffs) are effective at offsetting the unfair competitive advantage of noncompliant countries in the markets of compliant countries but have little effect on the trade of noncompliant countries, who can divert trade to other noncompliers. CBAM tariffs alone have little impact on global CO2 emissions. The paper also examines “climate clubs” (coalitions of countries that agree to impose carbon taxes or other equivalent policies and impose punitive tariffs on non-club members to induce them to join the club). It finds that punitive climate club tariffs can be effective in inflicting significant damage on the economies of nonmembers, providing a strong incentive for them to join the club. The paper identifies trade dependence between club and non-club members as an important consideration for the success of a climate club. Club members that are strongly linked to non-club members suffer losses when the club punishes non-club members, which would make them hesitant to impose punitive tariffs on a major nonmember trading partner.
Topic:
Climate Change, Economics, Tariffs, and Carbon Emissions
Political Geography:
Global Focus

13. A reform strategy to transform energy: From piecemeal to systemwide change

Author:
Steven Fries
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report on Climate Change Mitigation highlights the vast gap between climate change mitigation actions and climate stabilization goals. But its broad policy prescriptions are likely to leave policymakers pondering what specific actions to take. Informed by accumulating evidence on transforming aspects of energy systems like power generation from solar and wind resources and battery electric cars, this paper develops a more pointed energy reform strategy than that of the IPCC to deliver the necessary systemwide changes. It makes the case for two unorthodox policies. One is for governments to provide, in addition to R&D supports, market-creating supports for early deployment of low-carbon technologies in initial markets. The second is to sequence emissions pricing after innovation and market-creating supports and differentiate this pricing across key energy sectors rather than imposing one economywide price. Compared with a single price, targeting higher emissions pricing on sectors that are costlier to decarbonize still promotes cost-effective emission cuts but limits adverse distributional impacts. The paper also considers nonprice barriers to change and ways to coordinate domestic reforms across countries.
Topic:
Climate Change, Economics, Reform, Carbon Emissions, and Energy
Political Geography:
Global Focus

14. Green energy depends on critical minerals. Who controls the supply chains?

Author:
Luc Leruth, Adnan Mazarei, Pierre Régibeau, and Luc Renneboog
Publication Date:
08-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In light of the transition away from fossil fuel–based energy, this paper highlights the importance of understanding who controls vital parts of the global supply chains of critical minerals and rare earth elements (REEs). Analysis of direct ownership does not reveal the real sources of control over the decisions of the company. To identify those sources, the authors use an index that measures the degree to which important shareholders can affect voting decisions. This analysis is not straightforward, because companies along the supply chain are not necessarily incorporated in the countries in which mining and production activities take place, and shareholders can exert influence through multiple layers of subsidiaries. The analysis reveals that China’s control over the global value chains involving critical minerals and REEs extends beyond what is commonly assumed. It also sheds light on environmental, social, and governance issues in the countries in which mining and/or production take place. The paper advocates increasing transparency regarding the sources of control to better assess and manage economic and geopolitical risks; enhancing recycling, to reduce dependency on foreign supply; avoiding protectionist and trade-reducing reactions; and encouraging research and development in order to speed up the adoption of technologies of substitution.
Topic:
Economics, Geopolitics, Supply Chains, Minerals, Energy, and Green Transition
Political Geography:
Global Focus

15. Why gender disparities persist in South Korea’s labor market

Author:
Karen Dynan, Jacob Funk Kirkegaard, and Anna Stansbury
Publication Date:
07-2022
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Although the South Korean economy fared relatively well on the whole during the pandemic, the labor market consequences were uneven, with women experiencing worse outcomes than men. These gender disparities have reinforced and highlighted important longer-term gender-related challenges in the South Korean labor market. Despite an above-average level of female tertiary education, the gender pay gap in South Korea is at the top of the range among OECD countries. The labor force participation rate is 20 percentage points lower for women than for men, a difference that is about one-quarter larger than the average for high-income countries. These disparities—as well as fertility that is the lowest of any advanced economy country in the world—reduce South Korea's future economic prospects and will contribute to fiscal challenges as the population rapidly ages. The analysis in this paper suggests that the combination of low female employment and low fertility in South Korea reflects features of the traditional nature of work that create a particularly stark tradeoff for women between work and family and put pressure on women to choose one or the other. This tradeoff has increased in recent years because the opportunity cost of having a child has risen with the rapid growth in the tertiary education rate of South Korean women. Regressions based on individual-level data from the Korean Labor and Income Panel Study (KLIPS) show that the entire gap in female labor force participation is driven by married women, particularly women with children. Unmarried women with no children are just as likely to be employed as men. A sizable "child earnings penalty" for South Korean women is fully explained by women dropping out of the labor force after the birth of their first child rather than reducing hours or hourly wages. Although South Korea has made strides toward making work more family friendly, there is scope to do better.
Topic:
Economics, Inequality, Labor Market, Fertility, and Gender
Political Geography:
Asia and South Korea

16. How economic ideas led to Taiwan’s shift to export promotion in the 1950s

Author:
Douglas A. Irwin
Publication Date:
08-2021
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Taiwan was the first developing country to adopt an export-oriented trade strategy after World War II. The factors usually associated with big shifts in policy—a macroeconomic crisis, a change in political power or institutions, lobbying by export interests, pressure from international financial institutions—were not present; it was ideas that were key. In 1954, economist S. C. Tsiang proposed that Taiwan boost export earnings rather than squeeze import spending to deal with its chronic shortage of foreign exchange. He recommended a currency devaluation to establish a realistic exchange rate and a market-based system of foreign exchange allocation to end the inefficient rationing by the government. Four years later, a policymaker, K. Y. Yin, fought for the adoption of Tsiang’s proposal, helping clear the way for Taiwan’s phenomenal growth in trade.
Topic:
Economics, History, Exports, and Trade
Political Geography:
Taiwan and Asia

17. From hermit kingdom to miracle on the Han

Author:
Douglas A. Irwin
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In 1960, South Korea’s exports were about 1 percent of GDP, and the country’s ability to import depended almost entirely on US aid. After changing its foreign exchange and trade policies in the mid-1960s, Korea saw a surge in exports to more than 10 percent of GDP by the end of the decade. What factors account for the shift in policy that enabled this dramatic export growth to occur? The United States helped initiate the process by withholding financial assistance, pressuring Korea to devalue its currency and reform its foreign exchange regime. Initially, the Korean government resisted taking these steps, but in 1964 it became firmly committed to an export promotion strategy to boost foreign exchange earnings and end its dependence on American aid.
Topic:
Economics, Foreign Exchange, Reform, Exports, and Trade
Political Geography:
Asia and South Korea

18. Low inflation bends the Phillips curve around the world: Extended results

Author:
Jami Forbes, Joseph E. Gagnon, and Christopher G. Collins
Publication Date:
09-2021
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper revises and extends PIIE Working Paper 20-6. It continues to find strong support for a Phillips curve that becomes nonlinear when inflation is "low"—which our baseline model defines as less than 3 percent. The nonlinear curve is steep when output is above potential (slack is negative) but flat when output is below potential (slack is positive) so that further increases in economic slack have little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. When inflation is high, the Phillips curve is linear and relatively steep. These results are robust to placing the threshold between the high and low inflation regimes at 2, 3, or 4 percent inflation or for a threshold based on country-specific medians of inflation. In this nonlinear model, international factors play a large role in explaining headline inflation (albeit less so for core inflation), a role that has been increasing since the global financial crisis.
Topic:
Economics, Financial Crisis, Inflation, and Philips Curve
Political Geography:
Global Focus

19. Low inflation bends the Phillips curve around the world

Author:
Kristin Forbes, Joseph E. Gagnon, and Christopher G. Collins
Publication Date:
03-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper models inflation by combining the multicountry framework of one of its authors (Forbes) with the nonlinear specification proposed by the other two (Gagnon and Collins). The results find strong support for a Phillips curve that becomes nonlinear when inflation is low, in which case excess economic slack has little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. The estimates also show a significant and economically meaningful Phillips curve relationship between slack and inflation when slack is negative (i.e., when output is above long-run potential). In this nonlinear model, international factors play a large role in explaining headline inflation, a role that has increased over time, supporting the results of Forbes’ linear model.
Topic:
Economics, Inflation, and Data
Political Geography:
Global Focus

20. Export controls: America’s other national security threat

Author:
Chad P. Bown
Publication Date:
05-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
While the public was transfixed by the Trump administration’s policies alleging that imports were a threat to America’s national security during 2017–20, there was a concomitant and more quiet US policy shift on the export side. Addressing the national security threat presented by exports posed different economic and institutional challenges from those associated with import policy, including the acknowledgment that export controls for legitimate national security reasons can be the first-best policy to confront the problem at its source. Yet, export controls could also be misused as a beggar-thy-neighbor policy to redistribute economic well-being across countries, even from one ally to another. This paper describes how US export control policy evolved over 2017–20, as well as the international institutions—first the Coordinating Committee for Multilateral Export Controls (COCOM), then the Wassenaar Arrangement—historically tasked with multilateralizing US export restrictions used to protect national security. With the potential for US export control policy to brush up more frequently against WTO rules designed to limit the use of export restrictions, the paper also highlights new challenges for the WTO’s system of resolving trade disputes. Overall, a US failure to strike the right balance for its export control policy would result in it being ineffective at addressing national security risks, costly for the economy, and problematic for trade and diplomatic relations.
Topic:
Economics, Government, National Security, Exports, and Trade
Political Geography:
North America and United States of America

21. To what extent are tariffs offset by exchange rates?

Author:
Olivier Jeanne
Publication Date:
01-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In theory, tariffs are partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. Based on a calibrated model, this paper finds that US tariffs imposed in 2018 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. Tariff-related news explains about one-third of the renminbi depreciation observed in 2018.
Topic:
Economics, Tariffs, Exchange Rate Policy, and Currency
Political Geography:
North America and United States of America

22. Central bank policy sets the lower bound on bond yields

Author:
Joseph E. Gagnon and Olivier Jeanne
Publication Date:
01-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper shows that the scope for bond yields to fall below zero is strictly limited by market expectations about how far below zero central banks are willing to set their short-term policy rates. If a central bank communicates a credible commitment to keeping its policy rate above a given level under all circumstances, then bond yields must be higher than that level. This result holds true even in a model in which central banks are able to depress the term premium in bond yields below zero via large-scale purchases of long-term bonds, also known as quantitative easing (QE). QE becomes less effective as bond yields approach their lower bound.
Topic:
Economics, Finance, Central Bank, and Global Bond Market
Political Geography:
Global Focus

23. Global value chains and the removal of trade protection

Author:
Chad P. Bown, Aksel Erbahar, and Maurizio Zanardi
Publication Date:
02-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines how trade protection is affected by changes in the value-added content of production arising through global value chains (GVCs). Exploiting a new set of World Trade Organization (WTO) rules adopted in 1995 that impose an exogenously timed requirement for countries to reevaluate their previously imposed trade protection, the authors adopt an instrumental variables strategy and identify the causal effect of GVC integration on the likelihood that a trade barrier is removed. Using a newly constructed dataset of protection removal decisions involving 10 countries, 41 trading partners, and 18 industries over 1995–2013, they find that bilateral industry-specific domestic value-added growth in foreign production significantly raises the probability of removing a duty. The results are not limited to imports from China but are only found for the protection decisions of high-income countries. Back-of-the-envelope calculations indicate that rapid GVC growth in the 2000s freed almost a third of the trade flows subject to the most common temporary restrictions (i.e., antidumping) applied by high-income countries in 2006.
Topic:
Economics, International Trade and Finance, Global Markets, Finance, and Trade
Political Geography:
Global Focus

24. A program for strengthening the Federal Reserve's ability to fight the next recession

Author:
David Reifschneider and David Wilcox
Publication Date:
03-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
If the Federal Reserve does not decisively change the way it conducts monetary policy, it will probably not be capable of fighting recessions in the future as effectively as it fought them in the past. This reality helped motivate the Fed to undertake the policy framework review in which it is currently engaged. Researchers have suggested many steps the Fed could take to improve its recession-fighting ability; however, no consensus has emerged as to which of these steps would be both practical and maximally effective. This paper aims to fill that gap. It recommends that the Fed commit as soon as possible to a new approach for fighting recessions, involving two key elements. First, the Fed should commit that whenever it runs out of room to cut the federal funds rate further, it will leave the rate at its minimum level until the labor market recovers and inflation returns to 2 percent. Second, the Fed should commit that under the same circumstances, it will begin to purchase longer-term assets in volume and will continue such purchases until the labor market recovers. If the forces driving the next recession are not unusually severe, this framework might allow the Fed to be as effective at fighting that recession as it was in the past. If the next recession is more severe, however, the Fed will probably run out of ammunition even if it takes the two steps recommended here. Therefore, both monetary and fiscal policymakers should consider yet other steps they could take to enhance their ability to fight future recessions.
Topic:
Economics, Monetary Policy, and Federal Reserve
Political Geography:
North America, Global Focus, and United States of America

25. Why Trump shot the sheriffs: The end of WTO dispute settlement 1.0

Author:
Chad P. Bown and Soumaya Keynes
Publication Date:
03-2020
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
On December 10, 2019, the World Trade Organization’s (WTO) 25-year-old system of resolving disputes broke down. This paper explains why. It describes the dysfunctional system that preceded the WTO, when the United States dealt with politically troublesome imports by using voluntary export restraints and increasingly resorted to the “aggressively unilateral” Section 301 policy to resolve trade concerns. The WTO was a compromise between the rest of the world and the United States, whereby the latter accepted some constraints with the expectation that the new system of binding dispute settlement would serve its interests. But although the creation of the WTO resolved some concerns about American unilateralism in the short term, its system of handling disputes turned out to be politically unsustainable.
Topic:
Economics, World Trade Organization, Trade, and Donald Trump
Political Geography:
North America and United States of America

26. Global Dimensions of US Monetary Policy

Author:
Maurice Obstfeld
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that US monetary policy faces. It considers three main channels. The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations. The second channel is the determination of asset returns (including the natural real safe rate of interest) and financial conditions, given integration with global financial markets. The third channel, which is particular to the United States, is the potential spillback onto the US economy from the disproportionate impact of US monetary policy on the outside world. In themselves, global factors need not undermine a central bank’s ability to control the price level over the long term—after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path.
Topic:
Economics, Government, International Trade and Finance, and Monetary Policy
Political Geography:
North America and United States of America

27. WTO'ing a Resolution to the China Subsidy Problem

Author:
Chad P. Bown and Jennifer A. Hillman
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The United States, the European Union, and Japan have begun a trilateral process to confront the Chinese economic model, including its use of industrial subsidies and deployment of state-owned enterprises. This paper seeks to identify the main areas of tension and to assess the legal-economic challenges to constructing new rules to address the underlying conflict. It first provides a brief history of subsidy disciplines in the General Agreement on Tariffs and Trade and the World Trade Organization (WTO) predating any concerns introduced by China. It then describes contemporary economic problems with China’s approach to subsidies, their impact, and the apparent ineffectiveness of the WTO’s Agreement on Subsidies and Countervailing Measures to address them. Finally, it calls for increased efforts to measure and pinpoint the source of the problems—in a manner analogous to how the Organization for Economic Cooperation and Development took on agricultural subsidies in the 1980s—before providing a legal-economic assessment of proposals for reforms to notifications, evidence, remedies, enforcement, and the definition of a subsidy.
Topic:
Economics, World Trade Organization, Tariffs, and Trade
Political Geography:
Japan, Europe, Asia, North America, United States of America, and European Union

28. Should Monetary Policy Take Inequality and Climate Change into Account?

Author:
Patrick Honohan
Publication Date:
10-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Should central banks take more account of ethical issues, notably the impact of monetary policy actions on the distribution of income and wealth and on efforts to combat climate change, in the design and implementation of the wider monetary policy toolkit they have been using in the past decade? Although the scope to influence a range of objectives is more limited than is often supposed, and while it is vital to not derail monetary policy from its core purposes, central bank mandates justify paying more attention to such broad issues, especially if policy choices have a significant potential impact. Carefully managed steps in this direction could actually strengthen central bank independence while making some contribution to improving the effectiveness of public policy on these issues.
Topic:
Climate Change, Economics, Monetary Policy, Inequality, and Central Bank
Political Geography:
North America, Global Focus, and United States of America

29. Creating a Euro Area Safe Asset without Mutualizing Risk (Much)

Author:
Alvaro Leandro and Jeromin Zettelmeyer
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper explains and evaluates three proposals to create “safe assets” for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche “sovereign bond-backed securities” (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans (“E-bonds”); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds (“multitranche national bond issuance”). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. The authors find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bonds and multitranche national bond issuance have several interesting features—including inducing fiscal discipline—and warrant further exploration.
Topic:
Economics, Sovereign Wealth Funds, Banks, and Risk
Political Geography:
Europe and Global Focus

30. Measuring the Rise of Economic Nationalism

Author:
Monica de Bolle and Jeromin Zettelmeyer
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Since the mid-2000s, the platforms of major political parties in both advanced and emerging-market economies have increasingly emphasized policies that stress national sovereignty, reject multilateralism, and seek to advance national interests through measures that come at the expense of foreign interests. This paper documents this shift by evaluating the policy platforms of the largest political parties (about 55 in total) in the Group of Twenty (G-20) countries with regard to trade policy, foreign direct investment (FDI), immigration, and multilateral organizations. Preference shifts with respect to industrial policy, competition policy, and macroeconomic populism are also examined. In advanced economies, the biggest shifts were toward restrictions on immigration and trade and toward macroeconomic populism. In emerging-market economies, the largest preference shifts were toward industrial policies favoring specific sectors, macroeconomic populism, and industrial concentration. Trade protectionism and skepticism toward multilateral organizations and agreements have increased in both advanced and emerging-market economies. As of 2018, economic policy preferences in emerging-market economies were more nationalist and less liberal than in advanced countries, but the gap has narrowed. Right-wing parties tend to be more nationalist than left-wing parties in the areas of immigration restrictions, FDI restrictions, and antimultilateralism, but there is no significant difference with respect to trade protectionism.
Topic:
Economics, International Trade and Finance, Nationalism, Politics, Populism, and Macroeconomics
Political Geography:
Global Focus

31. Does Trade Reform Promote Economic Growth? A Review of Recent Evidence

Author:
Douglas A. Irwin
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Do trade reforms that significantly reduce import barriers lead to faster economic growth? In the two decades since the critical survey of empirical work on this question by Francesco Rodriguez and Dani Rodrik in 2000, new research has tried to overcome the various methodological problems that have plagued previous attempts to provide a convincing answer. This paper examines three strands of recent work on this issue: cross-country regressions focusing on within-country growth, synthetic control methods on specific reform episodes, and empirical country studies looking at the channels through which lower trade barriers may increase productivity. A consistent finding is that trade reforms that significantly reduce import barriers have a positive impact on economic growth, on average, although the effect differs across countries. Overall, these research findings should temper some of the previous agnosticism about the empirical link between trade reform and economic performance.
Topic:
Economics, Reform, Economic Growth, and Trade
Political Geography:
Global Focus

32. How to Restructure Sovereign Debt: Lessons from Four Decades

Author:
Lee Buchheit, Guillaume Chabert, Chanda DeLong, and Jeromin Zettelmeyer
Publication Date:
05-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper attempts to provide a playbook for the sovereign debt restructuring process, drawing on the experience with sovereign debt restructuring since the 1980s. It begins with a discussion of the participating actors and their interests. It then describes the considerations that must be weighed in designing, negotiating, and concluding a debt restructuring, in light of two problems: asymmetric information between the debtor and the creditors, and creditor coordination problems, which can lead to free riding (the “holdout” problem). The paper focuses on how these problems, which can lead to inefficiently negotiated outcomes, can be managed and minimized in practice.
Topic:
Debt, Economics, Sovereignty, and Finance
Political Geography:
Global

33. The 2018 US-China Trade Conflict after 40 Years of Special Protection

Author:
Chad P. Bown
Publication Date:
04-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In 2018, the United States suddenly increased tariffs on nearly 50 percent of its imports from China. China immediately retaliated with tariffs on more than 70 percent of imports from the United States. This paper assesses what happened in 2018 and attempts to explain why. It first constructs a new measure of special tariff protection to put the sheer scope and coverage of the 2018 actions into historical context. It then uses the lens provided by the 2018 special tariffs to explain the key sources of economic and policy friction between the two countries. This includes whether China’s state-owned enterprises and industrial subsidies, as well as China’s development strategy and system of forcibly acquiring foreign technology, were imposing increasingly large costs on trading partners. Finally, it also examines whether the US strategy to provoke a crisis—which may result in a severely weakened World Trade Organization—was deliberate and out of frustration with the institution itself.
Topic:
Economics, International Trade and Finance, World Trade Organization, Bilateral Relations, Trade Wars, Donald Trump, and Imports
Political Geography:
China, Asia, North America, and United States of America

34. Low Inflation Bends the Phillips Curve

Author:
Joseph E. Gagnon and Christopher G. Collins
Publication Date:
04-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The Phillips curve, which traces out a negative relationship between inflation and unemployment, has undergone tremendous changes over more than 100 years. Some researchers argue that the slope of the curve in the United States fell substantially around 20 years ago so that unemployment now has little or no effect on inflation. This paper shows that another hypothesis is equally consistent with the data: The Phillips curve may be nonlinear when inflation is low, with the economy having operated in the flat region of the curve for most of the past 20 years. The next few years may be decisive in the debate between these hypotheses, as unemployment has returned to a range in which a nonlinear curve ought to display significant steepness. A flat Phillips curve implies little change in inflation going forward, but a nonlinear curve implies moderate increases in inflation over the next few years.
Topic:
Economics, Inflation, and Unemployment
Political Geography:
North America and United States of America

35. Brexit: Everyone Loses, but Britain Loses the Most

Author:
Maria C. Latorre, Zoryana Olekseyuk, Hidemichi Yonezawa, and Sherman Robinson
Publication Date:
03-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines 12 economic simulation models that estimate the impact of Brexit (Britain’s exit from the European Union). Most of the studies find adverse effects for the United Kingdom (UK) and the EU-27. The UK’s GDP losses from a hard Brexit (reversion to World Trade Organization rules due to a lack of UK-EU agreement) range from –1.2 to –4.5 percent in most of the models analyzed. A soft Brexit (e.g., Norway arrangement, which seems in line with the nonbinding text of the political declaration of November 14, 2018, on the future EU-UK relationship) has about half the negative impact of a hard Brexit. Only two of the models derive gains for the UK after Brexit because they are based on unrealistic assumptions. The authors analyze more deeply a computable general equilibrium model that includes productivity and firm selection effects within manufacturing sectors and operations of foreign multinationals in services. Based on this latest model, they explain the likely economic impact of Brexit on a wide range of macroeconomic variables, namely GDP, wages, private consumption, capital remuneration, aggregate exports, aggregate imports, and the consumer price index.
Topic:
Economics, World Trade Organization, Brexit, and Multinational Corporations
Political Geography:
Britain, Europe, and European Union

36. EU Trade Policy amid the China-US Clash: Caught in the Cross-Fire?

Author:
Felipe González and Nicolas Véron
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
China's rapid rise and unique economic system and the increasingly aggressive and disruptive US trade policy are posing an unprecedented threat to the global rules-based trading and economic system. The European Union has critical interests at stake in the current escalation, even as it has so far been comparatively spared from US trade policy belligerence and China's reactions. In this context, the European Union should adopt an independent and proactive stance, building on recent efforts and going beyond them. The European Union, even more than the United States or China, has a strategic interest in the preservation of the global rules-based order embodied by the World Trade Organization (WTO). It must play a leading role in steering WTO reform and modernization, working closely with broadly aligned third countries such as Japan and other players. It should expand its outreach beyond its immediate negotiating counterparts in both the United States and China, and leading European officials at both the EU and member state levels should work at better understanding China. While strengthening its domestic policy instruments to address new challenges, such as the screening of foreign direct investment for security purposes, the European Union must also resist its own temptations of protectionism and economic nationalism. In support of these objectives, the European Union should prepare itself for difficult decisions, which may involve revising some of its current red lines in international trade negotiations. Conversely, the European Union should stand firm on principles such as refusing one-sided agreements and rejecting abusive recourse to national security arguments in trade policies. The European Parliament, in working with the European Council and the European Commission, will have a critical role to play in steering the European Union through these challenging times.
Topic:
International Relations, Economics, Trade Wars, and Trade Policy
Political Geography:
China, Europe, Asia, North America, United States of America, and European Union

37. Creating a Euro Area Safe Asset without Mutualizing Risk (Much)

Author:
Alvaro Leandro and Jeromin Zettelmeyer
Publication Date:
08-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper explains and evaluates three proposals to create “safe assets” for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche “sovereign bond-backed securities” (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans (“E-bonds”); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds (“multitranche national bond issuance”). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. The authors find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bonds and multitranche national bond issuance have several interesting features—including inducing fiscal discipline—and warrant further exploration.
Topic:
Economics, Regional Integration, Risk, and Fiscal Policy
Political Geography:
Europe

38. Protectionism under Trump: The China Shock, Intolerance, and the "First White President"

Author:
Marcus Noland
Publication Date:
06-2019
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In 2016, the United States elected an avowedly protectionist president. This paper uses US county-level electoral data to examine this outcome. The hypothesis that support for protectionism was purely a response to globalization is rejected. Exposure to trade competition encouraged a shift to the Republican candidate, but this effect is mediated by race, diversity, education, and age. If the turn toward protectionism is due to economic dislocation, then public policy interventions could mitigate the impact and support the reestablishment of a political consensus for open trade. If, however, the drivers are identity or cultural values, then the scope for constructive policy intervention is unclear.
Topic:
Economics, Politics, Donald Trump, and Protectionism
Political Geography:
China, Asia, North America, and United States of America

39. Hungary under Orbán: Can Central Planning Revive Its Economy?

Author:
Simeon Djankov
Publication Date:
07-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Since the promising start of its transition from a centrally planned economy to capitalism, Hungary has failed to join Western Europe in terms of living standards and democracy. The dominant political figure in Hungary, Prime Minister Viktor Orbán, shares many features with Russian president Vladimir Putin. Both view the increasing role of the state as economically beneficial, and both consider the Western European economic model to be flawed. Hungary is headed towards centrally planned capitalism, demonstrated by the partial nationalization of the banking sector, the monopolization of some sectors of the economy, and the reversal of the pension reforms of 1998. Plagued by the most persistent budget deficit of any post-communist country, Hungary's greatest challenge is to establish a fiscally sustainable growth path.
Topic:
Communism, Economics, Politics, Governance, Authoritarianism, and Russia
Political Geography:
Hungary and Western Europe

40. Inflation and Activity: Two Explorations and Their Monetary Policy Implications

Author:
Olivier Blanchard, Eugenio Cerutti, and Lawrence H. Summers
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Blanchard, Cerutti, and Summers explore two issues triggered by the global financial crisis. First, in most advanced countries, output remains far below the prerecession trend, suggesting hysteresis. The authors look at 122 recessions over the past 50 years in 23 countries and find that a high proportion of them have been followed by lower output or even lower growth. Second, while inflation has decreased, it has decreased less than anticipated, suggesting a breakdown of the relation between inflation and activity. The authors estimate a Phillips curve relation over the past 50 years for 20 countries and find that the effect of unemployment on inflation, for given expected inflation, decreased until the early 1990s but has remained roughly stable since then. The paper concludes with implications for monetary policy.
Topic:
Economics, Labor Issues, Monetary Policy, Financial Crisis, and GDP
Political Geography:
Global Focus

41. Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?

Author:
Olivier Blanchard, Gustavo Adler, and Irineu de Carvalho Filho
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Many emerging-market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. The authors study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, they look at the response of different countries to plausibly exogenous gross inflows and explore the cross-country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, they find that larger FXI leads to less exchange rate appreciation in response to gross inflows.
Topic:
Economics, Emerging Markets, Foreign Exchange, and Monetary Policy
Political Geography:
Global Focus

42. Are Capital Inflows Expansionary or Contractionary? Theory, Policy Implications, and Some Evidence

Author:
Olivier Blanchard, Jonathan D. Ostry, Atish R. Ghosh, and 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, and Monetary Policy
Political Geography:
Global Focus

43. Further Statistical Debate on "Too Much Finance"

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, and GDP
Political Geography:
Global Focus

44. The Influence of Foreign Direct Investment, Intrafirm Trading, and Currency Undervaluation on US Firm Trade Disputes

Author:
J. Bradford Jensen, Dennis P. Quinn, and 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, and Foreign Direct Investment
Political Geography:
United States of America

45. The OECD's "Action Plan" to Raise Taxes on Multinational Corporations

Author:
Gary Clyde Hufbauer, Eujiin Jung, Tyler Moran, and Martin Vieiro
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Hufbauer and colleagues critically evaluate the Organization for Economic Cooperation and Development’s ambitious multipart project titled Base Erosion and Profit Shifting (BEPS), which contains 15 "Actions" to prevent multinational corporations (MNCs) from escaping their "fair share" of the tax burden. Spurred by G-20 finance ministers, the OECD recommends changes in national legislation, revision of existing bilateral tax treaties, and a new multilateral agreement for participating countries. The proposition that MNCs need to pay more tax enjoys considerable political resonance as government budgets are strained, the world economy is struggling, income inequality is rising, and the news media have publicized instances of corporations legally lowering their global tax burdens by reporting income in low-tax jurisdictions and expenses in high-tax jurisdictions. Given that the US system taxes MNCs more heavily than other advanced countries and provides fewer tax incentives for research and development (R&D), implementation of the BEPS Actions would drive many MNCs to relocate their headquarters to tax-friendly countries and others to offshore significant amounts of R&D activity.
Topic:
Development, Economics, International Political Economy, and International Trade and Finance
Political Geography:
Global Focus

46. Enhancing Financial Stability in Developing Asia

Author:
Adam S. Posen and 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, and Politics
Political Geography:
Asia

47. The Tradability of Services: Geographic Concentration and Trade Costs

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, and Global Markets
Political Geography:
Global Focus

48. Recent Declines in Labor's Share in US Income: A Preliminary Neoclassical Account

Author:
Robert Z. Lawrence
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Over the past decade, the US economy has been plagued by sluggish wage growth and rising income inequality. The debate over inequality in the 1980s and 1990s focused on the growing disparity between the earnings of skilled and unskilled workers and the earnings of the super-rich. Growing inequality between capital and labor income has now been added to these concerns. Remarkably, the growth in real GDP per worker over the decade of the 2000s, which averaged 1.7 percent annually, was actually more rapid than in the 1970s, 1980s, or 1990s, yet in the 2000s workers saw almost no increase in their take-home pay. Consistent with this gap between labor productivity and wage growth was a pronounced decline in the share of US national income earned by workers. As labor's share has declined, the share of capital has risen and has been especially concentrated in corporate profits. As profits are far less equally distributed than wages, this increase has contributed to rising income inequality. There are several plausible reasons for this development—globalization, automation, weak bargaining power of labor, political capture, higher markups—but the natural starting point for explaining factor income shares is the neoclassical theory of the functional distribution of income enumerated by John Hicks and Joan Robinson in the 1930s. In this framework there are two possible explanations for labor's recent declining share. The first is that capital and labor are gross substitutes, and the second is that capital and labor are gross complements. Several papers have explained the recent decline in labor's share in income by claiming that capital has been substituted for labor. Lawrence puts forward the alternative "gross complements" explanation for the declining US labor share. He shows that despite a rise in measured capital-labor ratios, labor-augmenting technical change in the United States has been sufficiently rapid that effective capital-labor ratios have actually fallen in the sectors and industries that account for the largest portion of the declining labor share in income since 1980. In combination with estimates that corroborate the consensus in the literature that the elasticity of substitution is less than 1, these declines in the effective capital-labor ratio can account for much of the recent fall in labor's share in US income at both the aggregate and industry level. Paradoxically, these results also suggest that increased capital formation, ideally achieved through a progressive consumption tax, would raise labor's share in income.
Topic:
Economics, Globalization, Markets, and Labor Issues
Political Geography:
United States

49. An Old Boys' Club No More: Pluralism in Participation and Performance at the Olympic Games

Author:
Marcus Noland and Kevin Stahler
Publication Date:
05-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Decades ago, the Summer Olympic Games were an old boys' club; by many measures the Winter Games still are. Now, however, this old boys' club must compete with talented athletes from almost every country on earth, large and small, rich and poor, many of whom have found their comparative sporting niches. Looking forward, the image of the incumbent champion—rich, European, and male—will become ever more antiquated. This paper models the historical determinants of success at the Olympic Games in the context of their growing pluralism, evolving from their aristocratic and largely European male roots to the more gender-inclusive and geographically diverse showcase of athletic talent that is seen today. A wide set of socioeconomic variables is correlated with winning medals, particularly with respect to the Summer Games and women's events. Host advantage is particularly acute in judged contests such as gymnastics. However, there is evidence that the influence of correlates such as country size, per capita income, and membership in the communist bloc is declining over time as competition becomes increasingly diverse. These effects are less evident in the Winter Games, events that require significant capital investments, and judged contests.
Topic:
Diplomacy, Economics, Gender Issues, and Sports
Political Geography:
Global Focus

50. Testing the Modigliani-Miller Theorem of Capital Structure Irrelevance for Banks

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, and Budget
Political Geography:
Global Focus

51. The Future of Worldwide Income Distribution

Author:
Tomas Hellebrandt and Paolo Mauro
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Over the next two decades the structure of world population and income will undergo profound changes. Global income inequality is projected to decline further in 2035, largely owing to rapid economic growth in the emerging-market economies. The potential pool of consumers worldwide will expand significantly, with the largest net gains in the developing and emerging-market economies. The number of people earning between US$1,144 and US$3,252 per year in 2013 prices in purchasing power parity terms will increase by around 500 million, with the largest gains in Sub-Saharan Africa and India; those earning between US$3,252 and US$8,874 per year in 2013 prices will increase by almost 1 billion, with the largest gains in India and Sub-Saharan Africa; and those earning more than US$8,874 per year will increase by 1.2 billion, with the largest gains in China and the advanced economies.
Topic:
Economics, Emerging Markets, Globalization, and Labor Issues
Political Geography:
Africa and Asia

52. Financing Productivity- and Innovation-Led Growth in Developing Asia: International Lessons and Policy Issues

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, and Science and Technology
Political Geography:
Asia

53. The Financial Sector and Growth in Emerging Asian Economies

Author:
William R. Cline
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The financial sectors in Asian emerging-market economies are now relatively unlikely to provoke new financial crises, either because of reforms after the East Asian financial crisis in the later 1990s or because of the dominance of state-owned banks not subject to bank runs. Financial intermediation is surprisingly high and is consistent with higher rates of saving and investment and hence growth in the main economies of the region (as compared to, say, counterparts in Latin America). Nonetheless, there are sharply diverging patterns (e.g., high foreign ownership of banks in Korea versus minimal presence in China) and differing national structures (bank dominated, portfolio oriented, and diversified) within Asia. Cline recommends establishing long-term plans to improve efficiency in state-owned banks or reduce their dominance and pursuing bank capitalization targets at least as ambitious as those of Basel III. Cline also calls for ensuring adequate regulation of growing nonbank intermediaries, reversing a recent trend toward national barriers to foreign banks in some economies, and improving the legal security of bank regulators.
Topic:
Economics, Emerging Markets, Financial Crisis, and Reform
Political Geography:
Asia

54. Maintaining Financial Stability in the People's Republic of China during Financial Liberalization

Author:
Nicholas Borst and Nicolas R. Lardy
Publication Date:
08-2015
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
China's banking system is now the largest in the world, and its capital markets are rapidly approaching the size of those in the advanced economies. Borst and Lardy trace the evolution of China's financial system away from a traditional bank-dominated and state-directed financial system toward a more complex, market-based system. They analyze and outline the optimal sequence of financial reforms needed to manage the new risks accompanying this evolution.
Topic:
Economics, Markets, Financial Crisis, and Reform
Political Geography:
China

55. Versailles Redux? Eurozone Competitiveness in a Dynamic Balassa-Samuelson-Penn Framework

Author:
Arvind Subramanian and Kevin Stahler
Publication Date:
11-2014
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Prima facie, competitiveness adjustments in the eurozone, based on unit labor cost developments, appear sensible and in line with what the economic analyst might have predicted and the economic doctor might have ordered. But a broader and arguably better—Balassa-Samuelson-Penn (BSP)—framework for analyzing these adjustments paints a very different picture. Taking advantage of the newly released PPP-based estimates of the International Comparison Program (2011), we identify a causal BSP relationship. We apply this framework to computing more appropriate measures of real competitiveness changes in Europe and other advanced economies in the aftermath of the recent global crises. There has been a deterioration, not improvement, in competitiveness in the periphery countries between 2007 and 2013. Second, the pattern of adjustment within the eurozone has been dramatically perverse, with Germany having improved competitiveness by 9 percent and with Greece's having deteriorated by 9 percent. Third, real competitiveness changes are strongly correlated with nominal exchange rate changes, which suggests the importance of having a flexible (and preferably independent) currency for effecting external adjustments. Fourth, internal devaluation—defined as real competitiveness improvements in excess of nominal exchange rate changes—is possible but seems limited in scope and magnitude. Our results are robust to adjusting the BSP framework to take account of the special circumstances of countries experiencing unemployment. Even if we ignore the BSP effect, the broad pattern of limited and lopsided adjustment in the eurozone remains.
Topic:
Economics, Industrial Policy, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:
Europe

56. Official Financial Flows, Capital Mobility, and Global Imbalances

Author:
Joseph E. Gagnon, Tamim Bayoumi, and Christian Saborowski
Publication Date:
10-2014
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
We use a cross-country panel framework to analyze the effect of net official flows (chiefly foreign exchange intervention) on current accounts. We find that net official flows have a large but plausible effect on current account balances. The estimated effects are larger with instrumental variables (42 cents to the dollar on average compared with 24 without instruments), reflecting a possible downward bias in regressions without instruments owing to an endogenous response of net official flows to private financial flows. We consistently find larger impacts of net official flows when international capital flows are restricted and smaller impacts when capital is highly mobile. A further result is that there is an important positive effect of lagged net official flows on current accounts that we believe operates through the portfolio balance channel.
Topic:
Economics, Foreign Exchange, and Monetary Policy

57. Understanding Differences in Growth Performance in Latin America and Developing Countries between the Asian and Global Financial Crises

Author:
Roberto Alvarez and José De Gregorio
Publication Date:
11-2014
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Latin American performance during the global fi nancial crisis was unprecedented. Many developing and emerging countries successfully weathered the worst crisis since the Great Depression. Was it good luck? Was it good policies? In this paper we compare growth during the Asian and global fi nancial crises and fi nd that a looser monetary policy played an important role in mitigating crisis. We also fi nd that higher private credit, more fi nancial openness, less trade openness, and greater exchange rate intervention worsened economic performance. Our analysis of Latin American countries confi rms that eff ective macroeconomic management was key to good economic performance. Finally, we present evidence from a sample of 31 emerging markets that high terms of trade had a positive impact on resilience.
Topic:
Economics, Global Recession, Monetary Policy, and Financial Crisis
Political Geography:
Asia and Latin America

58. Regime Change, Democracy, and Growth

Author:
Caroline Freund and Mélise Jaud
Publication Date:
04-2014
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The empirical literature on the relationship between democracy and growth has yielded conflicting results. Cross-country studies have failed to identify a significant impact of democracy on growth, while within-country studies have found a strong positive effect of the transition to democracy on growth. We reconcile the conflicting evidence by showing that the positive effect of democratic transitions results from regime change as opposed to democratization. We identify over 100 transitions in the last half-century with various outcomes: to and from democracy, some partial, and some failed. The variety of experiences allows us to compare the growth outcome of democratic transitions with that of other transitions rather than with a no-transition counterfactual. Conditioning on regime change filters out selection effects and shows that transition to democracy yields no growth dividend compared to other types of regime change. We also show that countries that democratize slowly do not gain from regime change. These results suggest that the growth dividend from political transition results from swift regime change rather than from democratization.
Topic:
International Relations, Democratization, and Economics
Political Geography:
Brazil

59. Labor Market Slack in the United Kingdom

Author:
David G. Blanchflower and David N. F. Bell
Publication Date:
07-2014
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines the amount of slack in the UK labor market and finds the downward adjustments made by the Monetary Policy Committee (MPC) to both unemployment and underemployment invalid. Without evidence to support its assessment of the output gap, the MPC reduces the level of unemployment based on its claim that long-term unemployment does not affect wages. The authors produce evidence to the contrary and present arguments on why the MPC's halving of the level of underemployment in the United Kingdom is inappropriate. Bell and Blanchflower set out arguments on why they believe the level of slack is greater than the MPC calibrates. Consistent with that is the fact that real wages in the United Kingdom continue to fall.
Topic:
Economics, Markets, and Labor Issues
Political Geography:
United Kingdom and Europe

60. The Federal Reserve Engages the World (1970–2000): An Insider's Narrative of the Transition to Managed Floating and Financial Turbulence

Author:
Edwin M. Truman
Publication Date:
08-2014
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper traces the evolution of the Federal Reserve and its engagement with the global economy over the last three decades of the 20th century: 1970 to 2000. The paper examines the Federal Reserve's role in international economic and financial policy and analysis covering four areas: the emergence and taming of the great inflation, developments in US external accounts, foreign exchange analysis and activities, and external financial crises. It concludes that during this period the US central bank emerged to become the closest the world has to a global central bank.
Topic:
Economics, Foreign Exchange, and Financial Crisis
Political Geography:
United States

61. Demographic versus Cyclical Influences on US Labor Force Participation

Author:
William R. Cline and Jared Nolan
Publication Date:
07-2014
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper applies time series analysis to distinguish between cyclical and demographic causes of the decline of the labor force participation rate. Some public discussions suggest that the decline of US unemployment from its 2009 peak of 10 percent to about 6 percent by mid-2014 grossly exaggerates recovery because most of the decline reflects the exit of discouraged workers from the labor force. This study finds instead that one-half to two-thirds of the decline in labor force participation by about 3 percentage points from late 2007 to early 2014 is attributable to aging of the population. Although about one-third is found attributable to the lagged influence of high, and especially long-term, unemployment, going forward the potential rebound in the participation rate from recovery is projected to be approximately offset by further aging of the population.
Topic:
Demographics, Economics, Labor Issues, and Population
Political Geography:
United States

62. The Greek Debt Restructuring: An Autopsy

Author:
Jeromin Zettelmeyer, Christoph Trebesch, and Mitu Gulati
Publication Date:
08-2013
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief— over 50 percent of 2012 GDP—with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector pressure on key creditors. But it did so at a cost. The timing and design of the restructuring left money on the table from the perspective of Greece, created a large risk for European taxpayers, and set precedents—particularly in its very generous treatment of holdout creditors—that are likely to make future debt restructurings in Europe more difficult.
Topic:
Debt, Economics, Monetary Policy, and Financial Crisis
Political Geography:
Europe and Greece

63. How to Measure Underemployment?

Author:
David G. Blanchflower and David N. F. Bell
Publication Date:
08-2013
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
One of the factors that may inhibit reductions in unemployment as the economy recovers is the extent to which existing workers would like to work more hours and employers may prefer to let them work longer hours before making new hires. This phenomenon suggests that the unemployment rate does not capture the full extent of excess capacity in the labor market. But how should it be measured? In this paper we argue that the United States does not have the necessary statistical tools to calibrate this form of underemployment. We describe an index that captures the joint effects of unemployment and underemployment and provides a more complete picture of labor market excess capacity. We show how this index can be implemented using British data and describe its evolution over the Great Recession. Comparisons of our index with unemployment rates suggest that unemployment rates understate differences in labor market excess capacity by age group and overstate differences by gender. We also show that being unable to work the hours that one desires has a negative effect on well-being. Finally, we recommend that the Current Population Survey conducted by the US Bureau of Labor Statistics might be extended to enable the construction of an equivalent US index.
Topic:
Economics, International Trade and Finance, Markets, and Labor Issues
Political Geography:
United States and Europe

64. The Hyperglobalization of Trade and Its Future

Author:
Arvind Subramanian and Martin Kessler
Publication Date:
08-2013
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper describes seven salient features of trade integration in the 21st century: Trade integration has been more rapid than ever (hyperglobalization); it is dematerialized, with the growing importance of services trade; it is democratic, because openness has been embraced widely; it is criss-crossing because similar goods and investment flows now go from South to North as well as the reverse; it has witnessed the emergence of a mega-trader (China), the first since Imperial Britain; it has involved the proliferation of regional and preferential trade agreements and is on the cusp of mega-regionalism as the world's largest traders pursue such agreements with each other; and it is impeded by the continued existence of high barriers to trade in services. Going forward, the trading system will have to tackle three fundamental challenges: In developed countries, the domestic support for globalization needs to be sustained in the face of economic weakness and the reduced ability to maintain social insurance mechanisms. Second, China has become the world's largest trader and a major beneficiary of the current rules of the game. It will be called upon to shoulder more of the responsibilities of maintaining an open system. The third challenge will be to prevent the rise of mega-regionalism from leading to discrimination and becoming a source of trade conflicts. We suggest a way forward—including new areas of cooperation such as taxes—to maintain the open multilateral trading system and ensure that it benefits all countries.
Topic:
Economics, Globalization, International Trade and Finance, Markets, and Treaties and Agreements
Political Geography:
China

65. The Hyperglobalization of Trade and Its Future

Author:
Arvind Subramanian and Martin Kessler
Publication Date:
07-2013
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper describes seven salient features of trade integration in the 21st century: Trade integration has been more rapid than ever (hyperglobalization); it is dematerialized, with the growing importance of services trade; it is democratic, because openness has been embraced widely; it is criss-crossing because similar goods and investment flows now go from South to North as well as the reverse; it has witnessed the emergence of a mega-trader (China), the first since Imperial Britain; it has involved the proliferation of regional and preferential trade agreements and is on the cusp of mega-regionalism as the world's largest traders pursue such agreements with each other; and it is impeded by the continued existence of high barriers to trade in services. Going forward, the trading system will have to tackle three fundamental challenges: In developed countries, the domestic support for globalization needs to be sustained in the face of economic weakness and the reduced ability to maintain social insurance mechanisms. Second, China has become the world's largest trader and a major beneficiary of the current rules of the game. It will be called upon to shoulder more of the responsibilities of maintaining an open system. The third challenge will be to prevent the rise of mega-regionalism from leading to discrimination and becoming a source of trade conflicts. We suggest a way forward—including new areas of cooperation such as taxes—to maintain the open multilateral trading system and ensure that it benefits all countries.
Topic:
Economics, Emerging Markets, Globalization, and International Trade and Finance
Political Geography:
Europe, Asia, and North America

66. Asian and European Financial Crises Compared

Author:
Edwin M. Truman
Publication Date:
10-2013
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The European and Asian financial crises are the two most recent major regional crises. This paper compares their origins and evolution. The origins of the two sets of crises were different in some respects, but broadly similar. The two sets of crises also shared similarities in their evolution, but here the differences were more significant. The European crisis countries received more external financial support, despite the fact that they involved more solvency issues while the Asian crises involved more liquidity issues. On balance, the reform programs in the European crises were less demanding and rigorous than in the Asian crises. Partly as a consequence, the negative impacts on the global economy have been larger. I draw three lessons from this analysis: First, history will repeat itself; there will be other external financial crises. Second, other countries have a stake in appropriate crisis management. Third, the IMF and other countries were mistaken in treating the European crises as individual country crises rather than as a crisis for the euro area as a whole that demanded policy conditionality on all members of the euro area.
Topic:
Economics, International Trade and Finance, International Monetary Fund, and Financial Crisis
Political Geography:
Europe and Asia

67. Why Growth in Emerging Economies Is Likely to Fall

Author:
Anders Åslund
Publication Date:
11-2013
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Emerging-market growth from 2000 to 2012 was untypically high. This paper highlights the many reasons why emerging-economy growth is likely to be lower going forward. Much of the catch-up potential has already been used up. The extraordinary credit and commodity booms are over, and many large emerging economies are financially fragile. They have major governance problems, so they need to carry out major structural reforms to be able to proceed with a decent growth rate, but many policymakers are still in a state of hubris and not very inclined to opt for reforms. They are caught up in state and crony capitalism. Rather than providing free markets for all, the West might limit its endeavors to its own benefit. Economic convergence has hardly come to an end, but it has probably reached a hiatus that is likely to last many years. The emerging economies need to improve their quality of governance and other economic policies substantially to truly catch up. For a decade or so, the West could take the global economic lead once again as in the 1980s.
Topic:
Economics, Emerging Markets, International Trade and Finance, Monetary Policy, and Governance
Political Geography:
Russia, China, India, South Africa, and Brazil

68. Financial Reform after the Crisis: An Early Assessment

Author:
Nicolas Véron
Publication Date:
01-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper aims to take stock of global efforts towards financial reform since the start of the financial crisis in 2007–08, and to provide a synthetic (if simplified) picture of their status as of January 2012. Underlying dynamics are described and analyzed both at the global level (particularly G-20, IMF, and FSB) and in individual jurisdictions, as well as the impact the crisis has had on these regions. The possible next steps of financial reform are then reviewed, including: the ongoing crisis management in Europe, the new emphasis on macroprudential approaches, the challenges posed by globally integrated financial firms, the implementation of harmonized global standards, and the links between financial systems and growth.
Topic:
Economics, International Trade and Finance, Markets, Global Recession, and Financial Crisis
Political Geography:
Europe

69. Transportation and Communication Infrastructure in Latin America: Lessons from Asia

Author:
Barbara Kotschwar
Publication Date:
04-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In Latin America, inadequate transportation infrastructure has been identified as an increasingly important impediment to the region's further integration in global trade and a significant factor preventing countries from properly taking advantage of the multitude of regional, plurilateral, and bilateral trade agreements signed in the past decade and a half. This paper examines transport and communications infrastructure initiatives in Latin American and Asian regional trade arrangements and finds several lessons Asia can teach Latin America.
Topic:
Development, Economics, International Trade and Finance, Communications, and Infrastructure
Political Geography:
Asia and Latin America

70. Global Imbalances and Foreign Asset Expansion by Developing Economy Central Banks

Author:
Joseph E. Gagnon
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Over the past 10 years, central banks and governments throughout the developing world have accumulated foreign exchange reserves and other official assets at an unprecedented rate. This paper shows that this official asset accumulation has driven a substantial portion of the recent large global current account imbalances. These net official capital flows have become large relative to the size of the industrial economies, and they are a significant factor contributing to the weakness of the economic recovery in the major industrial economies.
Topic:
Development, Economics, Emerging Markets, Globalization, Markets, Monetary Policy, and Financial Crisis

71. Spillover Effects of Exchange Rates: A Study of the Renminbi

Author:
Arvind Subramanian, Aaditya Mattoo, and Prachi Mishra
Publication Date:
03-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper estimates the impact of China's exchange rate changes on exports of competitor countries in third markets, known as the "spillover effect." Recent theory is used to develop an identification strategy in which competition between China and its developing country competitors in specific products and destinations plays a key role. The variation is used—afforded by disaggregated trade data—across exporters, importers, product, and time to estimate this spillover effect. The results show robust evidence of a statistically and quantitatively significant spillover effect. Estimates suggest that, on average, a 10 percent appreciation of China's real exchange rate boosts a developing country's exports of a typical 4-digit Harmonized System (HS) product category to third markets by about 1.5 to 2 percent. The magnitude of the spillover effect varies systematically with product characteristics as implied by theory.
Topic:
Development, Economics, and Markets
Political Geography:
China

72. Chinese Investment in Latin American Resources: The Good, the Bad, and the Ugly

Author:
Theodore H. Moran, Julia Muir, and Barbara Kotschwar
Publication Date:
02-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
China's need for vast amounts of minerals to sustain its high economic growth rate has led Chinese investors to acquire stakes in natural resource companies, extend loans to mining and petroleum investors, and write long-term procurement contracts for oil and minerals in Africa, Latin America, Australia, Canada, and other resource-rich regions. These efforts to procure raw materials might be exacerbating the problems of strong demand; "locking up" natural resource supplies, gaining preferential access to available output, and extending control over the world's extractive industries. But Chinese investment need not have a zero-sum effect if Chinese procurement arrangements expand, diversify, and make more competitive the global supplier system. Previous Peterson Institute research (see Moran 2010) and new research undertaken in this paper, show that the majority of Chinese investments and procurement arrangements serve to help diversify and make more competitive the portion of the world natural resource base located in Latin America. For a more comprehensive analysis, the authors conduct a structured comparison of four Peruvian mines with foreign ownership: two Organization for Economic Cooperation and Development-based, and two Chinese. They examine what conditions or policy measures are most effective in inducing Chinese investors to adopt international industry standards and best-practices, and which are not. They distill from this case study some lessons for other countries in Latin America, Africa, and elsewhere that intend to use Chinese investment to develop their extractive sectors: first, that financial markets bring accountability; second, that the host country regulatory environment makes a significant difference; and third, that foreign investment is a catalyst for change.
Topic:
Economics, International Trade and Finance, and Natural Resources
Political Geography:
China, Canada, Latin America, and Australia

73. Overlooked Opportunity: Tradable Business Services, Developing Asia, and Growth

Author:
J. Bradford Jensen
Publication Date:
11-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper argues that developing Asia is overlooking an opportunity for increased growth and development through trade in business services. Developing Asia would benefit from liberalizing services trade as it has benefited from liberalizing goods trade. This argument rests on these key findings: business services are important for growth, developing Asia is relatively under-endowed with business services, many business services are tradable, and developing Asia has relatively high barriers to services trade.
Topic:
Economics, Emerging Markets, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Israel and Asia

74. Assessing Potential Inflation Consequences of QE after Financial Crises

Author:
Samuel Reynard
Publication Date:
11-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Financial crises have been followed by different inflation paths which are related to monetary policy and money creation by the banking sector during those crises. Accounting for equilibrium changes and non-linearity issues, the empirical relationship between money and subsequent inflation developments has remained stable and similar in crisis and normal times. This analysis can explain why the financial crisis in Argentina in the early 2000s was followed by increasing inflation, whereas Japan experienced deflation in the 1990s and 2000s despite quantitative easing. Current quantitative easing policies should lead to increasing and persistent inflation over the next years.
Topic:
Development, Economics, Emerging Markets, Monetary Policy, and Financial Crisis
Political Geography:
Latin America

75. The Services Sector in Asia: Is It an Engine of Growth?

Author:
Donghyun Park and Kwanho Shin
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The underdeveloped services sector in Asia has the potential to become a new engine of economic growth in developing Asia, which has traditionally relied on export-oriented manufacturing to power its growth. In this paper, Park and Shin empirically analyze the prospects for the services sector in Asia. Their analysis of 12 Asian countries indicates that the services sector has already contributed substantially to the region's growth in the past. Somewhat surprisingly, in light of the difficulty of achieving productivity gains in services, they also find that services labor productivity grew at a healthy pace in much of the region. Overall their analysis provides substantial cause for optimism about the role of the services sector as an engine of growth in Asia. However, they caution that some Asian countries where the services sector is currently struggling, such as Korea and Thailand, will find it more challenging to develop the sector.
Topic:
Economics, Emerging Markets, Industrial Policy, International Trade and Finance, Markets, and Monetary Policy
Political Geography:
Asia

76. Performance of the Services Sector in Korea: An Empirical Investigation

Author:
Donghyun Park and Kwanho Shin
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
There is a widespread perception that Korea's services sector lags behind its dynamic world-class manufacturing sector. This paper empirically analyzes the past performance of Korea's services sector in order to assess its prospects as an engine of growth. The analysis resoundingly confirms the conventional wisdom of an underperforming service sector. In light of Korea's high income and development level, the poor performance of modern services is of particular concern. The authors identify a number of factors underlying the poor performance and set forth policy recommendations for addressing them. Overall, Korea faces a challenging but navigable road ahead in developing a high value-added services sector.
Topic:
Development, Economics, Emerging Markets, Industrial Policy, and International Trade and Finance
Political Geography:
Israel and Korea

77. The Renminbi Bloc Is Here: Asia Down, Rest of the World to Go?

Author:
Arvind Subramanian and Martin Kessler
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
A country's rise to economic dominance tends to be accompanied by its currency becoming a reference point, with other currencies tracking it implicitly or explicitly. For a sample comprising emerging market economies, we show that in the last two years, the renminbi has increasingly become a reference currency which we define as one which exhibits a high degree of co-movement (CMC) with other currencies. In East Asia, there is already a renminbi bloc, because the renminbi has become the dominant reference currency, eclipsing the dollar, which is a historic development. In this region, 7 currencies out of 10 co-move more closely with the renminbi than with the dollar, with the average value of the CMC relative to the renminbi being 40 percent greater than that for the dollar. We find that co-movements with a reference currency, especially for the renminbi, are associated with trade integration. We draw some lessons for the prospects for the renminbi bloc to move beyond Asia based on a comparison of the renminbi's situation today and that of the Japanese yen in the early 1990s. If trade were the sole driver, a more global renminbi bloc could emerge by the mid-2030s but complementary reforms of the financial and external sector could considerably expedite the process.
Topic:
Development, Economics, Emerging Markets, Foreign Exchange, and Monetary Policy
Political Geography:
China and Asia

78. Prospects for Services Trade Negotiations

Author:
Jeffrey J. Schott, Julia Muir, and Minsoo Lee
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Trade and investment in services are difficult to measure, and the regulatory barriers that inhibit the free flow of services are hard to quantify. As a result, very little attention has been paid to dismantling barriers to services trade and investment. Rather, free trade negotiations tend to focus on liberalizing merchandise trade. This paper examines what has been achieved in both regional and multilateral compacts by surveying international precedents involving Asian countries in which services reforms have been included in bilateral and regional trade pacts. The authors then assess the prospects for services trade negotiations and explore how services trade negotiations could be pursued over the next decade through two distinct channels: the Trans-Pacific Partnership (TPP) and a plurilateral approach among groups of WTO countries. The authors find that in the case of developing Asia, free trade agreements have largely excluded services or have only committed to "lock in" current practices in a narrow subset of service sectors. This is also the case in agreements negotiated between developing countries, which have produced less substantial commitments to liberalize services than those negotiated between developing and developed countries. Multilateral negotiations on services have also underperformed, as substantive negotiations on services in the Doha Round never really got underway. To that end, the authors advocate a stronger effort by developing Asian countries to prioritize services negotiations in their regional arrangements and to expand coverage of services in those pacts to a broad range of infrastructure services that are included in other FTAs in force or under construction in the Asia-Pacific region.
Topic:
International Relations, Development, Economics, Globalization, International Trade and Finance, Markets, and World Trade Organization
Political Geography:
Asia

79. Transactions: A New Look at Services Sector Foreign Direct Investment in Asia

Author:
Jacob Funk Kirkegaard
Publication Date:
10-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In this paper Kirkegaard presents new micro-level data consisting of individual greenfield investment projects and mergers and acquisitions as a source for detailed analysis of services sector cross-border investment flows among the Asian Development Bank (ADB) regional membership in Asia. The new transactional foreign direct investment (FDI) data are methodologically distinct from traditional BPM5-compliant FDI data but found to yield generally comparable aggregates, when compared with the latest available International Monetary Fund (IMF) data from the Comprehensive Direct Investment Survey for the ADB regional membership. The services sectors are found to receive considerably larger amounts of foreign investment, when compared with the Asian region's manufacturing and raw materials sectors. OECD countries account for roughly three-quarters of total recorded inward services sector FDI of about $2 trillion, relatively evenly split between the United States, the EU-27, and regional OECD-level-income countries. The presence of sizable regional "upward flowing" services sector investments into OECD-level-income economies is verified. Kirkegaard draws preliminary policy conclusions based on the new transactional FDI data results concerning prospects for regional services sector liberalization, threshold income levels for inward services sector FDI, upward-flowing regional services FDI, and preferred modes of services sector investments.
Topic:
Economics, Emerging Markets, International Trade and Finance, and Foreign Direct Investment
Political Geography:
United States, Israel, and Asia

80. Capital Account Policies and the Real Exchange Rate

Author:
Olivier Jeanne
Publication Date:
09-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper presents a simple model of how a small open economy can undervalue its real exchange rate using its capital account policies. The paper presents several properties of such policies, and proposes a rule of thumb to assess their welfare cost. The model is applied to an analysis of Chinese capital account policies.
Topic:
Development, Economics, Emerging Markets, and Monetary Policy
Political Geography:
China

81. John Williamson and the Evolution of the International Monetary System

Author:
Edwin M. Truman
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Throughout his brilliant career, John Williamson has frequently focused his considerable analytical skills and powers of persuasion on reform of the international monetary system. This paper examines two principal areas of his concern: (1) exchange rates and the adjustment process, and (2) international liquidity, seigniorage, and the stability of the system. With respect to exchange rates, I find that there has been a moderate reduction in variability, but over the past 40 years external imbalances have, if anything, worsened. The adjustment process has malfunctioned. With respect to international liquidity, reserves have expanded rapidly, but their expansion has been demand-determined, has not involved a remonetization of gold or an increase in inflation. I find that concerns about the size and maldistribution of seigniorage are misplaced. Moreover, we are seeing a steady evolution toward a multicurrency international monetary and financial system. However, reserve diversification does not appear to have adversely affected exchange rate volatility to date. I conclude that the principal benefits of the Bretton Woods international monetary system remain and the principal weaknesses remain. But the system is evolving. It could be improved with respect to the adjustment process and the role of the International Monetary Fund as the international lender of last resort.
Topic:
Economics, Foreign Exchange, International Trade and Finance, International Monetary Fund, Monetary Policy, and Financial Crisis

82. Sovereign Debt Sustainability in Italy and Spain: A Probabilistic Approach

Author:
William R. Cline
Publication Date:
08-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper introduces a new probabilistic approach to sovereign debt projections and presents new estimates of debt ratios through 2020 for Italy and Spain. The new approach takes account of likely correlations across 243 alternative scenarios with three states (good, baseline, bad) for five key variables (growth, interest rate, primary surplus, bank recapitalization, and privatization). The 25th and 75th percentile scenarios are reported, as are the baseline and probability-weighted outcomes. The results suggest sovereign debt is sustainable in both Italy (where debt ratios are likely to decline because of a high primary surplus) and Spain (where the ratios rise but at a decelerating pace and from relatively low levels).
Topic:
Debt, Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
Spain and Italy

83. Gender in Transition: The Case of North Korea

Author:
Stephan Haggard and Marcus Noland
Publication Date:
06-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper uses a survey of 300 North Korean refugees to examine the experience of women in North Korea's fitful economic transition. Like other socialist states, North Korea has maintained a de jure commitment to women's rights. However, the authors find that women have been disproportionately shed from state-affiliated employment and thrust into a market environment characterized by weak institutions and corruption. As a result, the state and its affiliated institutions are increasingly populated by males, and the market, particularly in its retail aspects, is dominated by women. Among the most recent cohort of refugees to leave North Korea, more than one-third of male respondents indicate that criminality and corruption is the best way to make money, and 95 percent of female traders report paying bribes to avoid the penal system. In short, the increasingly male-dominated state preys on the increasingly female-dominated market. These results paint a picture of a vulnerable group that has been disadvantaged in North Korea's transition. Energies are directed toward survival, mass civil disobedience is reactive, and as a group, this population appears to lack the tools or social capital to act collectively to improve their status.
Topic:
Corruption, Economics, and Gender Issues
Political Geography:
Israel and North Korea

84. The Dollar and Its Discontents

Author:
Olivier Jeanne
Publication Date:
05-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Has the US dollar delivered the benefit that the rest of the world is expecting from its holdings of international liquidity? US government debt has been liquid and safe, and it is supplied in sufficient quantity. But it has given a low return to the countries that accumulated the most reserves, especially when those returns are measured in terms of the countries' own consumption. Jeanne argues that countries that accumulate the most reserves should expect a low return in terms of their own consumption and that international monetary reform can do little to change that fact.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States

85. The Microeconomics of North–South Korean Cross-Border Integration

Author:
Stephan Haggard and Marcus Noland
Publication Date:
05-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Economic integration between North and South Korea occurs through three modalities: traditional arm's-length trade and investment, processing on commission (POC) trade, and operations within the Kaesong Industrial Complex (KIC). In order, these three modalities are characterized by decreasing exposure of South Korean firms to North Korean policy and infrastructure. Through a survey of 200 South Korean firms operating in North Korea, the authors find that these modalities of exchange matter greatly in terms of implied risk. For example, firms operating in the KIC are able to transact on significantly looser financial terms than those outside it. The authors find that direct and indirect South Korean public policy interventions influence these different modalities of exchange and thus impact entry, profitability, and sustainability of South Korean business activities in the North. In effect, the South Korean government has substituted relatively strong South Korean institutions for the relatively weak Northern ones in the KIC, thus socializing risk. As a result, the level and type of cross-border integration observed in the survey is very much a product of South Korean public policy.
Topic:
Conflict Resolution, Economics, International Trade and Finance, and Infrastructure
Political Geography:
South Korea and North Korea

86. Networks, Trust, and Trade: The Microeconomics of China–North Korea Integration

Author:
Stephan Haggard and Marcus Noland
Publication Date:
05-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
A central hope of engagement with North Korea is that increased cross-border exchange will encourage the strengthening of institutions, and eventually, a moderation of the country's foreign policy. An unprecedented survey of Chinese enterprises operating in North Korea reveals that trade is largely dominated by state entities on the North Korean side, although the authors cannot rule out de facto privatization of exchange. Little trust is evident beyond the relationships among Chinese and North Korean state-owned enterprises. Formal networks and dispute settlement mechanisms are weak and do not appear to have consequences for relational contracting. Rather, firms rely on personal ties for identifying counterparties and resolving disputes. The weakness of formal institutions implies that the growth in exchange does not conform with the expectations of the engagement model and may prove self-limiting. The results also cast doubt that integration between China and North Korea, at least as it is currently proceeding, will foster reform and opening.
Topic:
Foreign Policy, Economics, International Trade and Finance, and Bilateral Relations
Political Geography:
China, Israel, and North Korea

87. Lessons from Reforms in Central and Eastern Europe in the Wake of the Global Financial Crisis

Author:
Anders Åslund
Publication Date:
04-2012
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The response of the ten new eastern members of the European Union to the global financial crisis has valuable lessons of crisis resolution for the euro area. These countries were severely hit by the crisis in the fall of 2008 and responded with extensive reforms. Crisis made the unthinkable possible. This paper outlines the main reform measures that the ten Central and East European (CEE) countries carried out. It then quantifies to what extent the CEE countries resolved the macroeconomic crisis and explores the effects of the reforms on future growth prospects. The fourth and major section discusses how the political economy of the crisis resolution actually worked. Finally, the author examines what lessons euro area countries can learn from the crisis resolution of the newest members of the European Union.
Topic:
Debt, Economics, International Trade and Finance, Markets, Political Economy, and Financial Crisis
Political Geography:
Europe

88. A China Round of Multilateral Trade Negotiations

Author:
Arvind Subramanian and Aaditya Mattoo
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Until recently, the World Trade Organization (WTO) has been an effective framework for cooperation because it has continually adapted to changing economic realities. The current Doha Agenda is an aberration because it does not reflect one of the biggest shifts in the international economic and trading system: the rise of China. Even though China will have a stake in maintaining trade openness, an initiative that builds on but redefines the Doha Agenda would anchor China more fully in the multilateral trading system. Such an initiative would have two pillars. First, a new negotiating agenda that would include the major issues of interest to China and its trading partners, and thus unleash the powerful reciprocal liberalization mechanism that has driven the WTO process to previous successes. Second, new restraints on bilateralism and regionalism that would help preserve incentives for maintaining the current broad non-discriminatory trading order.
Topic:
Economics, Globalization, International Trade and Finance, and Markets
Political Geography:
China and Israel

89. Asian Regional Policy Coordination

Author:
Edwin M. Truman
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper addresses two central questions for Asia and the world: (1) What is the purpose of Asian regional policy coordination going forward? (2) Will Asian regional policy coordination substitute or complement global policy coordination? The paper examines the potential coverage and content of such policy coordination, what is meant by Asia in this context, and how Asia fits in with global policy coordination processes. Truman addresses three related aspects of Asian regional policy coordination: macroeconomic policies, reserve management, and crisis management. He concludes that while the countries in the Asian region have not completely exploited the scope for regional policy coordination, more ambitious efforts focused on close integration are not likely to bear fruit, in particular, if they are conceived and promoted under the banner of Asian exceptionalism. These conclusions are based on two main considerations: First, Asian economies differ, and will continue to differ, sufficiently in size and stage of development such that it is difficult to conceive of a successful voluntary blending of their interests. Second, the central lesson of the global financial crisis and its current European coda is that global economic and financial integration has advanced sufficiently that countries can run but they cannot hide individually or in sub-global groups of countries.
Topic:
Economics, International Trade and Finance, and Regional Cooperation
Political Geography:
Europe and Asia

90. Rent(s) Asunder: Sectoral Rent Extraction Possibilities and Bribery by Multinational Corporations

Author:
Nathan Jensen, Edmund Malesky, and Dimitar Gueorguiev
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
We argue that openness to foreign investment can have differential effects on corruption, even within the same country and under the exact same domestic institutions over time. Our theoretical approach departs from standard political economy by attributing corruption motives to firms as well as officials. Rather than interpreting bribes solely as a coercive “tax” imposed on business activities, we allow for the possibility that firms may be complicit in using bribes to enter protected sectors. Thus, we expect variation in bribe propensity across sectors according to expected profitability which we proxy with investment restrictions. Specifically, we argue that foreign investment will not be associated with corruption in sectors with fewer restrictions and more competition, but will increase dramatically as firms seek to enter restricted and uncompetitive sectors that offer higher rents. We test this effect using a list experiment, a technique drawn from applied psychology, embedded in a nationally representative survey of 10,000 foreign and domestic businesses in Vietnam. Our findings show that the impact of domestic reforms and economic openness on corruption is conditional on polices that restrict competition by limiting entry into the sector.
Topic:
Corruption, Economics, and Foreign Direct Investment

91. Delivering on US Climate Finance Commitments

Author:
Trevor Houser and Jason Selfe
Publication Date:
11-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
At the United Nations climate change conference in Copenhagen in 2009 and Cancun in 2010, the United States joined other developed countries in pledging to mobilize $100 billion in public and private sector funding to help developing countries reduce greenhouse gas emissions and adapt to a warmer world. With a challenging US fiscal outlook and the failure of cap-and-trade legislation in the US Congress, America's ability to meet this pledge is increasingly in doubt. This paper identifies, quantifies, and assesses the politics of a range of potential US sources of climate finance. It finds that raising new public funds for climate finance will be extremely challenging in the current fiscal environment and that many of the politically attractive alternatives are not realistically available absent a domestic cap-and-trade program or other regime for pricing carbon. Washington's best hope is to use limited public funds to leverage private sector investment through bilateral credit agencies and multilateral development banks.
Topic:
Climate Change, Development, Economics, Energy Policy, Politics, and Foreign Direct Investment
Political Geography:
United States, America, Washington, and United Nations

92. Applying Hubbert Curves and Linearization to Rock Phosphate

Author:
Cullen S. Hendrix
Publication Date:
11-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Rock phosphate is a critical, nonrenewable resource for which there is no known substitute in agriculture. Cordell, Drangert, and White (2009) use Hubbert methodology (1956) to estimate the peak—the year after which production will monotonically decline—of world rock phosphate production at 2033–34. This note assesses the applicability of Hubbert's (1949) peak methodology to world rock phosphate production, based on (a) the ability of the model to produce accurate in-sample and out-of-sample forecasts and stable estimates of ultimately recoverable reserves, and (b) the degree to which the rock phosphate market approximates the theoretical conditions underpinning the Hubbert model. In both respects, the application of Hubbert methodology to rock phosphate is found to be problematic.
Topic:
Agriculture, Economics, International Trade and Finance, Markets, and Natural Resources

93. India's Growth in the 2000s: Four Facts

Author:
Arvind Subramanian and Utsav Kumar
Publication Date:
11-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper marks the first attempt at examining the growth performance across Indian states for the 2000s, a period also marked by the global financial crisis. Four key findings are reported. First, consistent with the fact that the 2000s was the best ever decade for Indian macroeconomic performance, growth increased across almost all major states in 2001–09 compared to 1993–2001. Second, nevertheless, there is a continued phenomenon of divergence or rising inequality across states: On average the richer states in 2001 grew faster in 2001–09. Third, during the crisis years of 2008 and 2009, states with the highest growth in 2001–07 suffered the largest deceleration. Since states with the highest growth were also the most open, it seems that openness creates dynamism and vulnerability. Finally, although the demographic dividend—a young population boosting economic dynamism—was evident before 2000, there is little evidence that there was any dividend in the 2000s. Demography alone cannot be counted on for future economic growth.
Topic:
Demographics, Development, Economics, Industrial Policy, International Trade and Finance, and Social Stratification
Political Geography:
South Asia and India

94. Asia and Global Financial Governance

Author:
C. Randall Henning and Mohsin S. Khan
Publication Date:
10-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Currently, Asia's influence in global financial governance is not consistent with its weight in the world economy. This paper examines the role of Asia in the International Monetary Fund (IMF) and the Group of Twenty (G-20). It looks in particular at how the relationship between East Asian countries and the IMF has evolved since the Asian financial crisis of 1997–98 and outlines how Asian regional arrangements for crisis financing and economic surveillance could constructively interact with the IMF in the future. It also considers ways to enhance the effectiveness of Asian countries in the G-20 process.
Topic:
Development, Economics, Emerging Markets, Globalization, International Trade and Finance, and Monetary Policy
Political Geography:
Israel and Asia

95. A Generalized Fact and Model of Long-Run Economic Growth: Kaldor Fact as a Special Case

Author:
Daniel Danxia Xie
Publication Date:
02-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper provides new evidence on the long-run relationship between economic growth and labor's share in national income, based on a comprehensive panel data set for 123 countries from 1950 to 2004. Xie's primary finding is that labor's share follows a cubic relationship with real GDP per capita over the long process of development. At the beginning of the modern economic growth process, the share of labor in national income first decreases until an initial threshold is reached. After that, labor's share keeps increasing until the country's GDP per capita reaches a second threshold before falling again. Xie argues that these dynamics apply not only to the less developed countries in the postwar years, but also to the advanced countries like the United States and the United Kingdom during their early economic take-offs, starting in the late 18th and 19th century, respectively. Finally, he proposes a two-sector constant elasticity of substitution (CES)-type growth model and simulate the model to replicate and explain the possible mechanism behind such a nonlinear pattern of movements in labor's share.
Topic:
Economics, International Trade and Finance, Labor Issues, and Monetary Policy
Political Geography:
United States and United Kingdom

96. Too Big to Fail: The Transatlantic Debate

Author:
Morris Goldstein and Nicolas Véron
Publication Date:
01-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Although the United States and the European Union were both seriously impacted by the financial crisis of 2007, resulting policy debates and regulatory responses have differed considerably on the two sides of the Atlantic. In this paper the authors examine the debates on the problem posed by "too big to fail" financial institutions. They identify variations in historical experiences, financial system structures, and political institutions that help one understand the differences of approaches between the United States, EU member states, and the EU institutions in addressing this problem. The authors then turn to possible remedies and how they may be differentially implemented in America and Europe. They conclude on which policy developments are likely in the near future.
Topic:
Economics and Financial Crisis
Political Geography:
United States, America, and Europe

97. Current Account Imbalances Coming Back

Author:
Joseph Gagnon
Publication Date:
01-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper finds statistically robust and economically important effects of fiscal policy, external financial policy, net foreign assets, and oil prices on current account balances. The statistical model builds upon and improves previous explanations of current account balances in the academic literature. A key advance is that the model captures the effect of external financial policies, including exchange rate policies, through data on net official financial flows. Based on current and expected future policies, current account imbalances in major G-20 economies are likely to widen much more in the next five years than projected by the International Monetary Fund (IMF). This paper concludes with a discussion of appropriate policies to prevent widening imbalances.
Topic:
Economics, International Trade and Finance, Markets, and Monetary Policy

98. Capital Controls: Myth and Reality-A Portfolio Balance Approach

Author:
Carmen M. Reinhart, Nicolas E. Magud, and Kenneth S. Rogoff
Publication Date:
03-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a "success" and (iv) the empirical studies lack a common methodology-furthermore these are significantly "overweighted" by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by: being very explicit about what measures are construed as capital controls. Also, given that success is measured so differently across studies, we sought to "standardize" the results of over 30 empirical studies we summarize in this paper. The standardization was done by constructing two indices of capital controls: Capital Controls Effectiveness Index (CCE Index), and Weighted Capital Control Effectiveness Index (WCCE Index). The difference between them lies in that the WCCE controls for the differentiated degree of methodological rigor applied to draw conclusions in each of the considered papers. Inasmuch as possible, we bring to bear the experiences of less well known episodes than those of Chile and Malaysia. Then, using a portfolio balance approach we model the effects of imposing capital controls on short-term flows. We find that there should exist country-specific characteristics for capital controls to be effective. From this simple perspective, this rationalizes why some capital controls were effective and some were not. We also show that the equivalence in effects of price- vs. quantity-capital control are conditional on the level of short-term capital flows.
Topic:
Development, Economics, International Trade and Finance, and Markets
Political Geography:
Latin America and Southeast Asia

99. Capital Account Liberalization and the Role of the Renminbi

Author:
Nicholas R. Lardy and Patrick Douglass
Publication Date:
02-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Despite an erosion of consensus on its benefits, capital account convertibility remains a long-term goal of China. This paper identifies three major preconditions for convertibility in China: a strong domestic banking system, relatively developed domestic financial markets, and an equilibrium exchange rate. The authors examine each of these in turn and find that, in significant respects, China does not yet meet any of the conditions necessary for convertibility. They then evaluate China's progress to date on capital account liberalization, including recent efforts to promote renminbi internationalization and greater use of the renminbi in trade settlement. The paper concludes with an overview of remaining obstacles to convertibility and policy recommendations.
Topic:
Development, Economics, and Monetary Policy
Political Geography:
China

100. Integrating Reform of Financial Regulation with Reform of the International Monetary System

Author:
Morris Goldstein
Publication Date:
02-2011
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper links reform of the international financial regulatory system with reform of the international monetary system because as this recent global crisis demonstrates so vividly, the root causes can come from both the financial and monetary spheres and they can interact in variety of dangerous ways. On the financial regulatory side, I highlight three problems: developing a better tool kit for pricking asset-price bubbles before they get too large; shooting for national minima for regulatory bank capital that are at least twice as high those recently agreed as part of Basel III; and implementing a comprehensive approach to "too-big-to-fail" financial institutions that will rein-in their past excessive risk-taking. On the international monetary side, I emphasize what needs to be done to discourage "beggar-thy-neighbor" exchange rate policies, including agreeing on a graduated set of penalties for countries that refuse persistently to honor their international obligations on exchange rate policy.
Topic:
Economics, International Trade and Finance, Monetary Policy, and Financial Crisis