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601. S-Japan Relations and Southeast Asia: Meeting Regional Demands

Author:
Saul P. Limaye and Tsutomu Kikuchi
Publication Date:
01-2016
Content Type:
Working Paper
Institution:
East-West Center
Abstract:
Until recently, Southeast Asia had not been a region of sustained focus for the US-Japan relationship. But the situation is changing. The international relations of the Asia-Pacific is becoming more "multipolarized." This requires the US and Japan to think about the future of the region beyond the issue of US-China relations, which has preoccupied past discussions. A number of nations and institutions in the Asia-Pacific region will substantially affect the region's future. Southeast Asian nations and the Association of Southeast Asian Nations (ASEAN) are among them. A new era of more coordinated, sustained, and combined commercial and security involvement by the US and Japan in Southeast Asia may be at hand. In light of these changes, the East-West Center in Washington (EWCW), in collaboration with the Japan Institute of International Affairs (JIIA), and through the support of the Sasakawa Peace Foundation (SPF), initiated a dialogue with Southeast Asians about their perspectives on how the US-Japan relationship and alliance could or should approach cooperation with the region.
Topic:
Security, Economics, Markets, and Peacekeeping
Political Geography:
United States, Japan, China, and Asia-Pacific

602. From Catching Up to Forging Ahead in Advanced Manufacturing—Reflections on China’s Future of Jobshina's Evolving Role in Latin America: Can it Be a Win-Win?

Author:
Dieter Ernst
Publication Date:
03-2016
Content Type:
Working Paper
Institution:
East-West Center
Abstract:
This paper explores what we know about possible employment effects of the 10-year plan, issued by the State Council on May 19, 2015, entitled Made in China 2025. MIC2025 was designed to address China’s emerging labor shortage challenge. To achieve this goal, the plan seeks to boost labor productivity through an increased use of robots and through network-based upgrading of the entire industrial value chain and related services. How might the projected increase in labor productivity affect the creation and quality of jobs in China? Will China’s push into advanced manufacturing now move the country’s manufacturing employment closer to the pattern of “employment de-industrialization” observed in the US and other industrialized countries? How China will cope with the advanced manufacturing challenge for employment will have major implications not only for the US and other industrialized countries, but also for emerging economies and, most importantly for the majority of developing countries that are still struggling as latecomers to labor-intensive industrial manufacturing. The paper lays out objectives of the MIC 2025 plan and highlights a failure of Chinese policy makers to take into account employment effects and other labor market issues when they design their grand visions of industrial policy. The paper finds that until 2014, manufacturing has acted as an employment absorber in China. However new data on unemployment, labor force participation and income inequality signal that China may now be moving towards an “employment de-industrialization” pattern, unless enough knowledge-intensive service jobs will be created in China’s growing information economy. The paper concludes with implications for policy and further research.
Topic:
Economics, International Political Economy, Markets, and Labor Issues
Political Geography:
China

603. Porous Borders: The Study of Illegal Markets from a Sociological Perspective.

Author:
Matias Dewey
Publication Date:
02-2016
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
State concerns about crime and security issues have strongly affected conceptions of economic action outside the law, a traditional field of research in sociology. This increasing encroachment by policy-related concerns on the intellectual framework of the discipline has led, on one hand, to an almost exclusive focus on criminal organizations in the analyses of illegal economic activity. On the other hand, it has led to the downplaying of the importance of classic topics of sociological reflection, such as the embeddedness of action, the moral dimension of illegal products, or the relationship between social change and the spread of illegal exchanges. This short paper problematizes economic action outside the law by taking legal definitions and their effects seriously. It begins with the problem of naturalizing state definitions. This is followed by a discussion of the illegality of illegal markets, which illustrates sociological contributions. Finally, three dimensions of the study of illegal markets are suggested. Overall, the paper lays out a research program for this field of sociological inquiry.
Topic:
Security, Economics, Markets, and Sociology
Political Geography:
Global Focus

604. Permanent Budget Surpluses as a Fiscal Regime

Author:
Lukas Haffert
Publication Date:
02-2016
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
This paper challenges the focus on budget deficits that permeates the literature on fiscal policy. It analyzes countries running budget surpluses and asks why some of them preserved these surpluses while others did not. Whereas several OECD members recorded surpluses for just a few years, balanced budgets became the norm in Australia, Canada, Denmark, Finland, New Zealand, and Sweden in the late 1990s. The paper compares the fiscal policy choices of both types of countries from a historical-institutionalist perspective. It argues that a path-dependent shift in the balance of power among fiscal policy interests explains why surpluses persisted in one group of countries but not in the other. This reconfiguration of interests was triggered by a deep fiscal crisis and an ensuing expenditure-led consolidation. It can be interpreted as creating a new “surplus regime” in which fiscal policy became structured around the goals of balancing the budget and cutting taxes.
Topic:
Economics, Financial Crisis, Budget, and Europe
Political Geography:
Finland, Denmark, Sweden, and New Zealand

605. Critical Juncture in Cyprus Negotiations

Author:
Nilgün Arısan and Atila Eralp
Publication Date:
05-2016
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
The negotiations in Cyprus are at yet another critical juncture. Time is running short for a comprehensive settlement on the island. The present conducive environment is not likely to last indefinitely, as has been observed in previous rounds of negotiations. In fact, the Cyprus negotiations reflect some clear missed opportunities. Much valuable time has been spent on this process, and it should be apparent to all that drawing out the negotiations benefits no one. All actors involved should at this point be seeking a rapid conclusion of the talks.
Topic:
Economics, International Trade and Finance, and Treaties and Agreements
Political Geography:
Cyprus

606. Indonesia and China: Friends or Foes? Quality Competition and Firm Productivity

Author:
Yan Lili Ing, Miaojie Yu, and Rui Zhang
Publication Date:
12-2016
Content Type:
Working Paper
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
We define and measure "firm-product-destination-year-specific export quality" and investigate how quality competition from China affects Indonesian firm productivity in the domestic and export markets. Our results suggest that an increase in Chinese exported product quality by 10 percent will increase the productivity of Indonesian firms by 0.4 - 0.5 percent in Indonesia's domestic market, and increase Indonesian exporters' productivity by 2 percent in the export market. Where we limit our sample to exporters only, an increase in Chinese exported product quality will increase Indonesian firm productivity in the export market, but not in the domestic market. Our findings broaden the horizon through which firms could benefit from opening up to trade.
Topic:
Economics, International Political Economy, and International Trade and Finance
Political Geography:
Southeast Asia

607. Being Special: The Rise of Super Clubs in European Football

Author:
Matt Andrews
Publication Date:
01-2015
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Professional football clubs are ubiquitous in Europe. Every small to medium sized city has one. But most cities do not have an F.C. Barcelona or Bayern Munich or Manchester United. These are among the ‘super clubs’ of Europe: they win more games, attract more supporters, and make more money than other clubs. These clubs were not always the juggernauts one sees today, however. This paper looks at how they emerged. It tells more of an economic story than a sporting one, recounting a narrative similar to that one might tell about the emergence of successful multinational companies. According to this narrative, super clubs rise by producing increasingly more complex products because of expanding productive capabilities, providing growing opportunities for economic spillovers in the process. As indicated, this narrative focuses particularly on the ‘capabilities’ that have helped super clubs emerge. This focus draws on an emerging theory about economic complexity, which is used to frame the paper and is briefly introduced in section two (following an introduction to super clubs). The theory posits that production results from the creative combination of economic capabilities—or know-how. Some products require few common capabilities, are produced by everyone, and have relatively low value: like the average football club. Other products require many capabilities (including some that are rare), have high value, and are produced by a select group: like the super club. This theory is used to suggest two hypotheses about how football clubs become super: First, clubs do not become super by just producing better versions of the same products (a successful football team). Instead, over time, these clubs produce more complex, higher-value, globally consumed products. Second, clubs become super by accumulating new capabilities (or know-how) over time, manifest in new skills and people accessed through a range of ‘catalyst capabilities’ that source the skills. The catalyst capabilities include engagement mechanisms (through which skills are located and contracted), capital, infrastructure, and adaptive leadership. These hypotheses are put to the test in this study.
Topic:
Economics, Sports, and Economic Complexity
Political Geography:
Europe and European Union

608. Value Subtraction in Public Sector Production: Accounting vs Economic Cost of Primary Schooling in India

Author:
Lant Pritchett and Yamini Aiyar
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
We combine newly created data on per student government expenditure on children in government elementary schools across India, data on per student expenditure by households on students attending private elementary schools, and the ASER measure of learning achievement of students in rural areas. The combination of these three sources allows us to compare both the "accounting cost" difference of public and private schools and also the "economic cost"—what it would take public schools, at their existing efficacy in producing learning, to achieve the learning results of the private sector. We estimate that the "accounting cost" per student in a government school in the median state in 2011/12 was Rs. 14,615 while the median child in private school cost Rs. 5,961. Hence in the typical Indian state, educating a student in government school costs more than twice as much than in private school, a gap of Rs. 7,906. Just these accounting cost gaps aggregated state by state suggests an annual excess of public over private cost of children enrolled in government schools of Rs. 50,000 crores (one crore=10 million) or 0.6 percent of GDP. But even that staggering estimate does not account for the observed learning differentials between public and private. We produce a measure of inefficiency that combines both the excess accounting cost and a money metric estimate of the cost of the inefficacy of lower learning achievement. This measure is the cost at which government schools would be predicted to reach the learning levels of the private sector. Combining the calculations of accounting cost differentials plus the cost of reaching the higher levels of learning observed in the private sector state by state (as both accounting cost differences and learning differences vary widely across states) implies that the excess cost of achieving the existing private learning levels at public sector costs is Rs. 232,000 crores (2.78% of GDP, or nearly US$50 billion). It might seem counterintuitive that the total loss to inefficiency is larger than the actual budget, but that is because the actual budget produces such low levels of learning at such high cost that when the loss from both higher expenditures and lower outputs are measured it exceeds expenditures.
Topic:
Economics, Education, Government, Children, and Youth
Political Geography:
South Asia and India

609. Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt

Author:
Ishac Diwan, Philip Keefer, and Marc Schiffbauer
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
Using an original database of 469 politically connected firms under the Mubarak regime in Egypt, we explore the economic effects of cronyism. Previous research has shown that cronyism is lucrative. We address numerous questions raised by this research. First, do crony firms receive favorable regulatory treatment? We find that they do: connected firms are more likely to benefit from trade protection, energy subsidies, access to land, and regulatory enforcement. Second, does regulatory capture account for the high value of connected firms? In our sample, connected firms exhibit superior corporate performance relative to unconnected firms and this is systematically related to regulatory capture. Energy subsidies and trade protection, for example, account for the higher profits of politically connected firms. Third, do crony firms hurt growth? We exploit a natural experiment setting to show that the entry of politically connected firms into previously unconnected sectors slows employment growth and skews the distribution of employment towards less productive smaller firms.
Topic:
Economics, Economy, Business, Networks, and Cronyism
Political Geography:
Middle East, North Africa, and Egypt

610. The New European Parliament: Towards Economic Recovery

Author:
Michael Dauderstädt, Jose Enrique de Ayala, Domenec Ruiz Devesa, Vicente Palacio, and Vicente Palacio
Publication Date:
02-2015
Content Type:
Working Paper
Institution:
Fundación Alternativas
Abstract:
The new European Parliament (EP) elected in May 2014 is facing a state of emergency in Europe. As 2014 draws to a close, austerity policies and the threat of populism are jeopardizing the present and the future of the European project. Unemployment rates in Europe are double the unemployment rate in the US and growth in the Eurozone is expected to fall below 1% in 2015. Although “the worst of the crisis” would appear to be behind us, Europe continues to be vulnerable to further economic shocks going forward. In fact, the EU could well be teetering on the brink of a third recession, the immediate threats on the horizon being current deflationary trends and a growing periphery crisis that is already manifest in Greece and could well spread to France and Italy. There is much uncertainty about the short- and medium-term future. It is not clear whether institutions such as the EP or the European Central Bank (ECB) will exercise their powers to the limit in order to counterbalance those of the governments of Member States and the Council, whether and when Germany will step up and assume a more active role in Eurozone stimulus, whether some kind of reform of the Lisbon treaty is in the cards or what kind of solutions will be provided to countries like Greece whose economies remain on the verge of collapse. ECB Governor Mario Draghi’s July 2014 speech in Jackson Hole, during which he strongly emphasized job creation rather dwelling on inflation and alluded to the possibility of implementing demand-side policies, structural reforms linked to a rise in 5 productivity, and enhancing competitiveness on a basis other than lower labour costs, was a very good sign. More recently, ECB authorities announced a new round of quantitative easing (QE) to take place in early 2015, and EC President Jean Claude Juncker made a commitment to devote €315 billion to infrastructure as part of his investment plan. Although we cannot expect a radical shift in economic policy any time soon, at least a minimal “Brussels consensus” if the EU is ever to put itself on the sure track towards a sustained recovery, structural reforms will need to be accompanied by fiscal stimulus. The time looks ripe for revising the economic policies that failed to achieve the objectives for which they were devised: pulling Europe out of the crisis and accelerating growth and employment. The time also looks ripe for a deep political and institutional shift: restoring the role of EU institutions – mainly the EP and the Commission – in forging the destinies of European citizens. If we accept the viewpoint that the EP is the institution that best embodies the concept of a European democracy built on the will of average citizens, the question we must subsequently ask ourselves whether the incoming EP elected in May 2014 will be able to bring about the change of tack that Europe needs. If viewed from a strictly quantitative perspective, the final outcome of the May elections was less damaging than originally feared. The European People’s Party once again won a majority (with 221 seats compared to 265 in 2009), and the breakdown for the rest of the parties and groups, in order of representation, was: the Progressive Alliance of Socialists and Democrats (191/184); the Conservatives and Reformists (70/51); the Alliance of Liberals and Democrats (67/84); the Greens (50/55); the European United Left (52/35), the Non-attached Members group (52/27) and the anti-Union Europe of Freedom and Democracy (48/32). Voter turnout across the EU fell very slightly from the 43% registered in 2009 to 42.5% in May, but did not break the crucial “psychological barrier” of 40%. 6 Table 1. Current distribution of seats and Parliamentary Groups in the EP (2014- 19 legislature) Source: Europarl http://www.europarl.europa.eu/elections2014-results/en/electionresults-2014.html If one takes a tally of only the seats now held by the traditional “big three” (the European People’s Party, the Socialists and the Liberal-Democrats), it is obvious that the pro-European forces still enjoy a solid majority in the EP – a very welcome majority in the sense that it signals that a majority of European voters continue to believe in a more united Europe, even in the context of the current economic, social and institutional crisis. The good news, therefore, is that there may be a sufficient “critical mass” in favour of going forward with the integration process rather than reversing it. Moreover, if the big three are successful in building ad hoc alliances with other parties such as the European Left and the Greens regarding a social and economic platform for a better Europe, it might even be possible to muster a majority willing to go even further in a federalist direction. However, these new distribution figures reveal only a small part of the entire story. Firstly, they should not keep us from recognizing the qualitative significance of the rise of a heterogeneous group of anti-integration and anti-European forces in the EP that represent a growing number of Europeans willing to cast their votes for Eurosceptic, nationalistic, populist, or xenophobic parties. The rising tide of Eurosceptics and Europhobia within the EP could well be perceived as a potential Trojan horse that could eventually undermine the stability of the EU and its very existence. Even if divided by 7 country, ideology, opportunity and other criteria and unable (or unwilling) to forge strong, sustained parliamentary coalitions, taken together, these forces hold 170 out of 751 seats in the current EP – an impressive 22%. The number of MEPs of the French National Front increased from 3 in 2009 to 24 in 2014, the new German right-wing antiEuro party Alternative for Germany (AFD) won 7 seats, and UKIP - which won the popular vote in Britain - moved up to 24 (from 13 in 2009). The situation is more worrying if we take into consideration that an overwhelming number of European citizens (almost 58%) did not go to the polls to vote. Had they chosen to make their voices heard, their vote would have supposed a turning point for Europe in one direction or another. Secondly, Euroscepticism and Europhobia are also having a considerable impact on the national politics of Member States (MS), and the most alarming examples of this phenomenon have surfaced in the major, “hard core” countries upon which European construction heavily depends such as France, Italy, Germany, or even for that matter, the UK. What these diverse parties ultimately have in common is their fierce defence of national sovereignty. They have reached the point of setting national policy agendas throughout the EU. As of the end of November 2014, the National Front was still ahead in voter intention polls in France, the AFD was gaining support according to polls conducted in Germany, and similar surveys in the UK showed that support for the anti-immigration UKIP was holding strong. The rise of UKIP is putting David Cameron’s government under intense pressure to hold a referendum on Britain’s exit from the EU. The victory of Matteo Renzi’s centre-left Democratic Party in the May EP elections does not obscure the fact that the fiercely populist and Eurosceptic Five-Star movement remains the largest party in the Italian Chamber of Deputies since February 2013. Sweden’s xenophobic Democratic Party could hold the key to governance in that country after the March 2015 elections. For the first time, a majority of citizens in both France and Germany regard the EU as a problem. Parallel to these developments, the anti-Muslim street demonstrations are becoming more and more frequent in Germany and the Netherlands. Should the economic situation in Europe worsen, the diverse range of tensions originating in northern and southern MSs, not to mention the tensions between them, could ratchet support for populist movements to dangerously high levels.
Topic:
Economics, Europe Union, Election watch, and Unemployment
Political Geography:
United Kingdom, Europe, Germany, and Brussels

611. Understanding the Great Recession

Author:
Mario Seccareccia and Marc Lavoie
Publication Date:
12-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Some Fundamental Keynesian and Post-Keynesian Insights, with an Analysis of Possible Mechanisms to Achieve a Sustained Recovery Fears of deflation and long-term stagnation have become more commonplace since the Great Recession. Yet, within the mainstream, economists are divided into two camps: those who see the benefits of downward wage and price adjustment, as a private sector stabilizer, and those who fear deflationary pressures because of their destabilizing consequences. This paper reviews this theoretical literature using a simple “New Consensus” framework of analysis and it also seeks to describe how mainstream and heterodox economists analyzing the consequences of deflationary pressures come to very different conclusions on the nature of private sector stabilizers in a recessionary environment. After reviewing the different perspectives, the paper undertakes a comparative analysis of the experience of both the Great Depression and the Great Recession by looking at the behavior of certain key variables in three countries: Canada, the United States and the United Kingdom. The paper concludes that, if it was not for the quick actions of governments in stabilizing the economy through activist macroeconomic policies during the Great Recession, private sector stabilizers were actually less significant during the recent crisis than they were during the 1930s.
Topic:
Economics, Global Recession, Economic Theory, Sustainability, and Economic Recovery
Political Geography:
Global Focus

612. Veiled Repression: Mainstream Economics, Capital Theory, and the Distributions of Income and Wealth

Author:
Lance Taylor
Publication Date:
12-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The Cambridge UK vs USA capital theory debates of the 1960s showed that the workhorse mainstream growth model relies on unsustainable assumptions. Its standard interpretation is not consistent with the last four decades of data. Part of an estimated increase in the ratio of personal wealth to income in recent years is due to higher asset prices. The other side of the accounts reveals that financialization and growing business debt partially offset the greater net worth of households. Attempts to interpret growth in wealth principally as a consequence of capitalization of rents are misleading. An alternative growth model based on Cambridge ideas can help correct these misinterpretations.
Topic:
Economics, Income Inequality, Economic Theory, Repression, Capital, Redistribution, and Wealth
Political Geography:
North America and United States of America

613. The American Dual Economy: Race, Globalization, and the Politics of Exclusion

Author:
Peter Temin
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
I describe the American economy in the twenty-first century as a dual economy in the spirit of W. Arthur Lewis. Similar to the subsistence and capitalist economies characterized by Lewis, I distinguish a low-wage sector and a FTE (Finance, Technology, and Electronics) sector. The transition from the low-wage to the FTE sector is through education, which is becoming increasingly difficult for members of the low-wage sector because the FTE sector has largely abandoned the American tradition of quality public schools and universities. Policy debates about public education and other policies that serve the low-wage sector often characterize members of the low-wage sector as black even though the low-wage sector is largely white. This model of a modern dual economy explains difficulties in many current policy debates, including education, healthcare, criminal justice, infrastructure and household debts.
Topic:
Economics, Education, Globalization, Race, Capitalism, Exclusion, and Public Service
Political Geography:
North America and United States of America

614. The Greek “Rescue”: Where Did the Money Go?

Author:
Pablo Gabriel Bortz
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper analyses the financial assistance provided to Greece in the first two rescue packages granted by the Troika (European Union, European Central Bank and IMF). It looks particularly carefully at claims by Sinn that a third of the public credit granted to Greece financed its current account deficit, while another third funded capital flight by Greek nationals, with only the remaining third used to pay creditors. The paper shows that Sinn inflates the assistance given to Greece by mixing several different concepts in the total. It also critically reviews the claim that the assistance was used to finance the current account deficit or capital flight by Greek citizens. Realistic accounting shows that 54% of the financial assistance provided to Greece was used to repay (foreign) debt, while another 21% was used to recapitalize Greek banks (some of which were owned by foreign institutions). Other claims about the rescue package are also analysed in relation to the treatment of Greek and foreign banking exposure to sovereign debt.
Topic:
Economics, Finance, Banking, and Development Assistance
Political Geography:
Europe and Greece

615. Debt Servicing, Aggregate Consumption, and Growth

Author:
Mark Setterfield and Yun K. Kim
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
We develop a neo-Kaleckian growth model that emphasizes the importance of consumption behavior. In our model, workers first make consumption decisions based on their gross income, and then treat debt servicing commitments as a substitute for saving. Workers’ borrowing is induced by their desire to keep up with the consumption standard set by rentiers’ consumption, reflecting an aspect of the relative income hypothesis. As a result of this consumption and debt servicing behavior, consumer debt accumulation and income distribution have effects on aggregate demand, profitability, and economic growth that differ from those found in existing models. We also investigate the financial sustainability of the Golden Age and Neoliberal growth regimes within our framework. It is shown that distributional changes between the Golden Age and the Neoliberal regimes, together with corresponding changes in consumption emulation behavior via expenditure cascades, suffice to make the Neoliberal growth regime unsustainable.
Topic:
Debt, Economics, Economic Growth, Economic Theory, Profit, Sustainability, Models, and Consumption
Political Geography:
Global Focus

616. Innovative Enterprise or Sweatshop Economics? In Search of Foundations of Economic Analysis

Author:
William Lazonick
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
By integrating the history of industrial development in Britain and the United States with the ideas of leading economic thinkers, this essay demonstrates the absurdity of perfect competition as the ideal of economic efficiency. In Capitalism, Socialism, and Democracy, Joseph Schumpeter asserts: “perfect competition is not only impossible but inferior, and has no title to being set up as a model of ideal efficiency.” For neoclassical economists, the large corporation is a “market imperfection” that, compared with “perfect competition,” should result in higher product prices and lower industry output. Yet business history reveals the capability of the most productive enterprises to generate massive quantities of output at low costs to attain large market shares with buyers benefiting from low prices even as employees receive higher pay and shareholders ample dividends. By integrating the history of industrial development in Britain and the United States with the ideas of leading economic thinkers, this essay demonstrates the absurdity of perfect competition as the ideal of economic efficiency. Indeed, I show that, in their desire to make the market rather than the firm the main arbiter of resource allocation, neoclassical economists have enshrined the sweatshop as the foundation of their analysis, with profoundly negative consequences for understanding how a modern economy actually operates and performs. In doing so, neoclassical economists ignore not only the economic history of capitalism but also the intellectual history of their own discipline. I conduct a journey through two hundred years of economic thought – from Adam Smith’s The Wealth of Nations (1776) to Alfred Chandler’s The Visible Hand (1977) – to derive analytical foundations for a theory of innovative enterprise that can explain and explore firm- level sources of productivity growth in the economy. What then do more sophisticated theories of the firm rooted in the neoclassical tradition have to offer? In a section of this essay that I call (borrowing a phrase from Adolf Berle and Gardiner Means) “Economic Theory for ‘an Era of Corporate Plundering’,” I outline the shortcomings of Williamsonian transaction-cost theory and Jensenian agency theory for analyzing the role of the business corporation in the operation and performance of the economy. From the perspective of the theory of innovative enterprise, I demonstrate how the methodology of constrained optimization trivializes the business enterprise while the ideology that companies should be run to maximize shareholder value legitimizes financial predators, many senior corporate executives among them, in the looting of the industrial corporation. The “era of corporate plundering” since the mid-1980s has contributed to extreme concentration of income among the richest households and the erosion of middle- class employment opportunities. Finally, I call for a transformation of economic thinking so that the innovative enterprise is at the center of economic analysis. The theory of innovative enterprise exposes as costly intellectual failures “perfect competition” as the ideal of economic efficiency, “constrained optimization” as the prime tool of economic analysis, and “maximizing shareholder value” as the ideology of superior corporate governance. The theory of innovative enterprise provides, moreover, a clear and compelling rationale for sharing the gains of business enterprise among stakeholders in the broader community, in conjunction with government policies that seek to support sustainable prosperity, characterized by stable and equitable economic growth.
Topic:
Economics, Business, Economic Growth, Innovation, and Industry
Political Geography:
North America and United States of America

617. The Cyclically Adjusted Budget: History and Exegesis of a Fateful Estimate

Author:
Orsola Costantini
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper traces the evolution of the concept of the cyclically adjusted budget from the 1930s to the present. The idea of balancing the budget over the cycle was first conceived in Sweden in the 1930s by the economists of the Stockholm School and was soon reinterpreted and incorporated into the fiscal program of the American political coalition supporting the New Deal, especially by the Committee for Economic Development during and after World War II. In the 1960s, Keynesian economists associated with the Kennedy and Johnson administrations reformulated the notion. Despite their claims at the time, their version differed only in degree from the earlier CED approach, the transformation being largely conditioned by changing political circumstances. In the 1980s, however, the concept changed substantially. Methods for calculating it transformed dramatically, as the notion became a device to limit and direct governments’ fiscal policies in a wide sense, that is, including institutional (or “structural”) reforms. The final section of the paper considers the shifting uses of the notion in the European Growth and Stability Pact.
Topic:
Economics, Budget, Economic Growth, and Fiscal Policy
Political Geography:
Europe, North America, and United States of America

618. When Credit Bites Back: Leverage, Business Cycles and Crises

Author:
Oscar Jorda, Moritz Schularick, and Alan Taylor
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper studies the role of credit in the business cycle, with a focus on private credit overhang. Based on a study of the universe of over 200 recession episodes in 14 advanced countries between 1870 and 2008, we document two key facts of the modern business cycle: financial-crisis recessions are more costly than normal recessions in terms of lost output; and for both types of recession, more credit-intensive expansions tend to be followed by deeper recessions and slower recoveries. In additional to unconditional analysis, we use local projection methods to condition on a broad set of macroeconomic controls and their lags. Then we study how past credit accumulation impacts the behavior of not only output but also other key macroeconomic variables such as investment, lending, interest rates, and inflation. The facts that we uncover lend support to the idea that financial factors play an important role in the modern business cycle.
Topic:
Economics, Business, Fiscal Policy, Private Sector, and Credit
Political Geography:
North America and United States of America

619. Working Paper Exploring the Concept of Homeostasis and Considering its Implications for Economics

Author:
Antonio Damasio and Hanna Damasio
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The reality of human homeostasis expands the views on preferences and rational choice that are part of traditionally conceived Homo economicus and casts doubts on economic models that depend only on an “invisible hand” mechanism. In its standard format, the concept of homeostasis refers to the ability, present in all living organisms, of continuously maintaining certain functional variables within a range of values compatible with survival. The mechanisms of homeostasis were originally conceived as strictly automatic and as pertaining only to the state of an organism’s internal environment. In keeping with this concept, homeostasis was, and still is, often explained by analogy to a thermostat: upon reaching a previously set temperature, the device commands itself to either suspend the ongoing operation (cooling or heating), or to initiate it, as appropriate. This traditional explanation fails to capture the richness of the concept and the range of circumstances in which it can be applied to living systems. Our goal here is to consider a more comprehensive view of homeostasis. This includes its application to systems in which the presence of conscious and deliberative minds, individually and in social groups, permits the creation of supplementary regulatory mechanisms aimed at achieving balanced and thus survivable life states but more prone to failure than the fully automated mechanisms. We suggest that an economy is an example of one such regulatory mechanism, and that facts regarding human homeostasis may be of value in the study of economic problems. Importantly, the reality of human homeostasis expands the views on preferences and rational choice that are part of traditionally conceived Homo economicus and casts doubts on economic models that depend only on an “invisible hand” mechanism.
Topic:
Economics, Regulation, Models, and Homeostasis
Political Geography:
Global Focus

620. Are Low Interest Rates Deflationary? A Paradox of Perfect- Foresight Analysis

Author:
Mariana Garcia-Schmidt
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
A prolonged period of extremely low nominal interest rates has not resulted in high inflation. This has led to increased interest in the “Neo-Fisherian” proposition according to which low nominal interest rates may themselves cause inflation to be lower. The fact that standard models of the effects of monetary policy have the property that perfect foresight equilibria in which the nominal interest rate remains low forever necessarily involve low inflation (at least eventually) might seem to support such a view. Here, however, we argue that such a conclusion depends on a misunderstanding of the circumstances under which it makes sense to predict the effects of a monetary policy commitment by calculating the perfect foresight equilibrium consistent with the policy. We propose an explicit cognitive process by which agents may form their expectations of future endogenous variables. Under some circumstances, such as a commitment to follow a Taylor rule, a perfect foresight equilibrium (PFE) can arise as a limiting case of our more general concept of reflective equilibrium, when the process of reflection is pursued sufficiently far. But we show that an announced intention to fix the nominal interest rate for a long enough period of time creates a situation in which reflective equilibrium need not resemble any PFE. In our view, this makes PFE predictions not plausible outcomes in the case of policies of the latter sort. According to the alternative approach that we recommend, a commitment to maintain a low nominal interest rate for longer should always be expansionary and inflationary, rather than causing deflation; but the effects of such “forward guidance” are likely, in the case of a long- horizon commitment, to be much less expansionary or inflationary than the usual PFE analysis would imply.
Topic:
Economics, Monetary Policy, Inflation, and Interest Rates
Political Geography:
Global Focus

621. Is There a Debt-threshold Effect on Output Growth?

Author:
M. Hashem Pesaran
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper studies the long-run impact of public debt expansion on economic growth and investigates whether the debt-growth relation varies with the level of indebtedness. Our contribution is both theoretical and empirical. On the theoretical side, we develop tests for threshold effects in the context of dynamic heterogeneous panel data models with cross- sectionally dependent errors and illustrate, by means of Monte Carlo experiments, that they perform well in small samples. On the empirical side, using data on a sample of 40 countries (grouped into advanced and developing) over the 1965-2010 period, we find no evidence for a universally applicable threshold effect in the relationship between public debt and economic growth, once we account for the impact of global factors and their spillover effects. Regardless of the threshold, however, we find significant negative long-run effects of public debt build-up on output growth. Provided that public debt is on a downward trajectory, a country with a high level of debt can grow just as fast as its peers.
Topic:
Debt, Economics, Economic Growth, and Public Debt
Political Geography:
Global Focus

622. Social Interaction Models and Keynes’ Macroeconomics

Author:
Duncan Foley
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The central concepts of Keynes’ macroeconomic theories concerning the behavior of labor markets, aggregate demand, and asset pricing can be formulated as special cases of a general social interaction model. In its simplest form this model analyzes a system of interacting identical agents, each of whom controls the level of an action, and all of whom have the same utility functions trading off the effort required by the action with the monetary incentives for it. When the incentives include an interaction term involving the action levels of the other agents, the equilibrium outcome is in general Pareto-inefficient for the interacting agents, and multiple equilibria are possible. The expectations that lie at the heart of Keynes’ conception of macroeconomic equilibrium concern the behavior of other individuals rather than concrete forecasts of the concrete path of prices.
Topic:
Economics, Inequality, Microeconomics, Keynes, and Behavior
Political Geography:
Global Focus

623. Information and Economics: A New Way to Think About Expectations and to Improve Economic Prediction.

Author:
David Tuckett, Paul Ormerod, Rickard Nyman, and Robert Elliot Smith
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The largely unexpected arrival of the global economic crisis and the largely unpredicted slowness of the recovery from the Great Recession should be precipitating an intellectual crisis across economics and policy making. We require additional theories and additional methods to detect how an economy is evolving and to provide the basis for policy intervention (Haldane, 2014).
Topic:
Economics, Inequality, Microeconomics, and Behavior
Political Geography:
Global Focus

624. Twisting the economic tale: what literature can do that political economy can’t

Author:
Sara Thornton
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper will address the problem of how we might gain economic understanding from literature. It will look at the aesthetic form of literature as being an efficient vehicle for economic thinking.
Topic:
Economics, Political Economy, Culture, Inequality, History, and Literature
Political Geography:
Global Focus

625. Board Gender Diversity, Audit Fees and Auditor Choice

Author:
Judy Tsui
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Using a sample of U.S. firms spanning 2001-2011, we examine whether female directors (female audit committee members) affect audit quality in terms of audit effort and auditor choice. After correcting for endogeneity and other board, firm and industry characteristics, we find that firms with gender-diverse boards pay higher audit fees and are more likely to choose specialist auditors compared to their peers. Our findings suggest that boards with female directors are likely to demand higher audit quality, ceteris paribus.
Topic:
Economics, Gender Issues, Race, Culture, Inequality, Diversity, Private Sector, and Audit
Political Geography:
Global Focus

626. A New Rational Expectations Hypothesis: What Can Economists Really Know About the Future?

Author:
Roman Frydman and Michael Goldberg
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
John Muth proposed the Rational Expectations Hypothesis (REH) to represent how the market (an aggregate of its participants) understands and forecasts outcomes. REH imposes internal consistency between the market’s forecasts and “the relevant economic theory” (Muth 1961, p. 316). In implementing REH, economists have relied on a class of models that rest on a key premise: an economist can ignore the importance of quantitative changes in the economy’s structure that he himself could not specify ex ante with a probabilistic rule. In the early 1970s, Robert Lucas pointed out that once such models are upheld as “the relevant economic theory,” it follows on purely logical grounds that REH models represent rational forecasting and its implications for market outcomes. There is ample evidence that quantitative structural change is an important driver of outcomes in real-world markets, most notably those for assets. The evidence also shows that this change often is triggered by historical events that are not exact repetitions of similar events in the past, for example, the appointment of a new Federal Reserve chair or company CEO. The timing of these events may be unknown, and their quantitative impact on the economy’s structure depends on the extent of their novelty and the particular historical context in which they occur. As such, no one can fully anticipate — even in probabilistic terms — the structural change triggered by such events.
Topic:
Economics, Inequality, Microeconomics, and Behavior
Political Geography:
Global Focus

627. Input Diffusion and the Evolution of Production Network

Author:
Vasco Carvalho and Nico Voigtlander
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The adoption and diffusion of inputs in the production network is at the heart of technological progress. What determines which inputs are initially considered and eventually adopted by innovators? We examine the evolution of input linkages from a network perspective, starting from a stylized model of network formation. The adoption and diffusion of inputs in the production network is at the heart of technological progress. What determines which inputs are initially considered and eventually adopted by innovators? We examine the evolution of input linkages from a network perspective, starting from a stylized model of network formation. Producers direct their search for new inputs along vertical linkages, screening the network neighborhood of existing suppliers to identify potentially useful inputs. A subset of these is then adopted, following a tradeoff between the benefits from input variety and the costs of customizing new inputs. Guided by this framework, we document a novel stylized fact at both the sector and the firm level: producers are more likely to adopt inputs that are already used – directly or indirectly – by their current suppliers. In particular, using disaggregated input-output data, we show that initial network proximity of a sector in 1967 significantly increases the likelihood of adoption throughout the subsequent four decades. A one-standard deviation decrease in network distance is associated with an increase in the adoption probability by one third to one half. Similarly, U.S. firms are significantly more likely to develop new input linkages among their suppliers’ network neighborhood. Our results imply that the existing production network plays a crucial role in the diffusion of inputs and the evolution of technology.
Topic:
Economics, Science and Technology, Microeconomics, and Emerging Technology
Political Geography:
Global Focus

628. Discrimination, Social Identity, and Coordination: An Experiment

Author:
Vessela Daskalova
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper presents an experiment investigating the effect of social identity on hiring decisions. The question is whether people discriminate between own and other group candidate This paper presents an experiment investigating the effect of social identity on hiring decisions. The question is whether people discriminate between own and other group candidates. Key features of the experiment are: First, to consider whether they do so in individual, as well as in joint decisions; Second, to document whether the identity of the co‐decision maker matters in joint decisions. Substantial discrimination occurs in both individual and joint decision‐making situations. In joint decisions, decision makers discriminate when deciding with someone from their own group, but not when deciding with someone from the other group.
Topic:
Economics, Race, Employment, Inequality, Discrimination, Job Creation, Social Order, and Identity
Political Geography:
Global Focus

629. A Relationship and a Practice: On the French Sociology of Credit

Author:
Laure Lacan and Jeanne Lazarus
Publication Date:
02-2015
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
This paper aims to describe the social studies of credit developed in France over the past dozen years. We argue that this French sociology of credit, mostly centered on France, can be useful for researchers analyzing other countries, with other institutional particularities, because it proposes a specific method and a specific way to raise questions: credit is mostly understood as a result of social interactions embedded in organizational and legal structures. French researchers also deeply analyze the consequences of the organization of the credit market for inequalities, social stratification, and people’s life experiences. The first part of the paper focuses on works that have examined credit as a social test, looking at the institutional, technical, and social frameworks of money lending. Then, credit is understood as a sociological experiment: how is it integrated into household economies? How do people use forms of credit? Finally, the third part concentrates on credit failure, when a bank loan becomes a debt. This aspect is mostly framed in French sociology as “over-indebtedness,” which is an administrative and a social category. Throughout the paper, we address credit as both a relationship and a practice. This approach is heuristic, as we seek to demonstrate, because it enables us to show that credit is a social and political issue.
Topic:
Debt, Economics, Sociology, Inequality, and Credit
Political Geography:
Europe and France

630. Politics in the Interest of Capital: A Not-So-Organized Combat

Author:
Cornelia Woll
Publication Date:
07-2015
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
The rise in inequality has been explained with reference to organized groups and the lobbying of the financial sector. This article argues that the image of politics as organized combat is contradicted by empirical evidence on lobbying in the United States, and does not travel well to Europe. The power of finance does not operate through organized political influence. Rather, politics in the interest of capital unfolds as a structural feature of advanced economies over time. Tellingly, at the height of the financial crisis, one of the most promising strategies of institutions seeking government support was not organizing for combat, but collective inaction. Our challenge, then, is to explain how the power of finance has built up and is playing out in creating inequality. A more structural, less agency-focused perspective highlights how the rise of finance has been supported by actors that few would accuse of being finance-friendly, such as the European center-left parties and consumers. Reconceptualizing the power of finance has important implications for political solutions to rising inequality.
Topic:
Economics, Politics, Inequality, Finance, and Capital
Political Geography:
Europe

631. Financialization Is Marketization! A Study on the Respective Impact of Various Dimensions of Financialization on the Increase in Global Inequality

Author:
Olivier Godechot
Publication Date:
12-2015
Content Type:
Working Paper
Institution:
Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo)
Abstract:
In this paper, we study the impact of financialization on the rise in inequality in 18 OECD countries from 1970 to 2011 and measure the respective roles of various forms of financialization: the growth of the financial sector; the growth of one of its subcomponents, financial markets; the financialization of non-financial firms; and the financialization of households. We test these impacts using cross-country panel regressions in OECD countries. As dependent measures we use Solt’s (2009) Gini index, the World Top Incomes Database, and OECD inter-decile inequality measures. We show first that the share of the finance sector within the GDP is a substantial driver of world inequality, explaining between 20 and 40 percent of its increase from 1980 to 2007. When we decompose this financial sector effect, we find that this evolution was mainly driven by the increase in the volume of stocks traded in national stock exchanges and by the volume of shares held as assets in banks’ balance sheets. By contrast, the financialization of non-financial firms and of households does not play a substantial role. Based on this inequality test, we therefore interpret financialization as being mainly a phenomenon of marketization, redefined as the growing amount of social energy devoted to the trade of financial instruments on financial markets.
Topic:
Economics, Income Inequality, Financialisation, OECD, and Marketization
Political Geography:
Global Focus

632. Export Commodity Prices And Long-Run Growth Of Primary Commodities-Based African Economies

Author:
Solomon Abayomi Olakojo
Publication Date:
12-2015
Content Type:
Working Paper
Institution:
Centre for the Study of the Economies of Africa (CSEA)
Abstract:
There is a link between primary commodity export prices and economic performance. Many African economies are primary commodities export biased, often in few primary commodities. Previous studies focus on the impact of commodity prices on growth in Africa with little attention paid to different primary commodities and level of diversification in primary commodities export. This study, investigates the effect of primary commodity prices on the long-run growth of 24 primary commodities-based African economies; by commodity types and level of diversification in primary commodities exports.
Topic:
Economics, Economic Growth, Commodities, Diversification, and Exports
Political Geography:
Africa

633. An Experimental Game on Entrepreneurship and Labour Protection Policy

Author:
Beatriz Muriel and Marcelo Gutierrez
Publication Date:
12-2015
Content Type:
Working Paper
Institution:
Institute for Advanced Development Studies (INESAD)
Abstract:
We developed a game, in the line of experimental economics, using an expected utility framework, applied to 108 participants. Specifically, we evaluated the hypothesis that, facing uncertainty over potential employees’ skills, employers prefer a flexible labour policy rather than a protectionist one, and when the option of flexible labour contracts is not available, they choose not to undertake a business, reducing job creation. The empirical results show that 79.3% of participants prefer a flexible labour policy, as well as that when this option is excluded, some participants abstain from business undertakings---reducing job creation---, and instead become workers.
Topic:
Economics, Labor Issues, Employment, Risk, and Flexibility
Political Geography:
Global Focus

634. Canada and Asia: Prosperity and Security

Author:
Marius Grinius
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
Canadian Global Affairs Institute (CGAI)
Abstract:
Arguably the mid-1990s were Canada’s “Golden Age of Asia”, highlighted by the Team Canada trade visits by Prime Minister Jean Chretien and the provincial Premiers to China, India, Pakistan and Japan, as well as to Indonesia, Malaysia, the Philippines, Vietnam and Thailand. At the same time Canada played a prominent role in Asian security matters. This included Canadian expert participation in multilateral discussions on the South China Sea and in the North Pacific Cooperative Security Dialogue, a Canadian initiative. That particular Golden Age culminated with the Government proclaiming 1997 as “Canada’s Year of Asia Pacific”. Trade statistics indicate that Canada has once again rediscovered Asia, at least in terms of commercial prospects. What is less clear, however, is Canada’s commitment to the security and stability challenges that Asia continues to face. Notwithstanding all of the positive indicators of economic success in the Asia-Pacific region and all of the incentives for even greater prosperity within a predictable and peaceful environment, there are still many instances of potential military conflict that could jeopardize Asia’s economic successes. While Canada has considerable economic interests in Asia Pacific, its security record there is modest. Now, when China is our number two trading partner and Japan is number three, when we have our first Asian Free Trade Agreement, when we are looking to closer economic ties with the Asia-Pacific region, it would make sense for Canada to contribute more substantially to Asia Pacific’s long-term stability and security architecture. It has in the past. Canada has expressed its desire to join the East Asia Summit and the ASEAN Defence Ministers Meeting Plus Forum. It appears, however, that ASEAN is still not quite convinced of Canada’s commitment to Southeast Asia, or to Asia, and continues politely to stall until such time as Canada can show a serious, long-term track record of participation in ASEAN strategic and security priorities. The Asian way requires frequent and consistent face-time. Relationships matter. The regular message from polite ASEAN interlocutors remains the same: where is Canada? From the late 1980s and to about 2006, Canadian academic experts were closely involved in all relevant Asian fora, including the Pacific Economic Cooperation Council, the Council for Security Cooperation in Asia Pacific and the North Pacific Cooperative Security Dialogue. The Canadian Consortium on Asia Pacific Security, a group of some one hundred researchers across Canada, was highly active in Track II diplomacy (informal, non-governmental and unofficial) on Asian security issues. This included Canadian Law of the Sea experts who addressed South China Sea issues, a ten-year effort co-hosted and funded by Indonesia and CIDA. Government of Canada funding for this type of work, however, has dried up. All current Canadian Track II efforts are funded by private institutions. Just when China is taking an aggressive stance in the South China Sea, Canada is absent. Canada must demonstrate a stronger and more consistent commitment to Asia that goes well beyond the economic-commercial dimension. It must include a robust defence and security dimension. Canada has, for now, chosen to emphasize a mercantile foreign policy. Such an approach, however, must not ignore the need for a strong defence policy anchored within a vigorous foreign policy that is able to meet the challenges of the twenty-first century. This applies to Canada’s approach to the Asia-Pacific region as much as to the rest of the world. Neither a “Global Markets Action Plan” nor a separate “Canada First Defence Strategy”, both formulated in a policy vacuum, is sufficient. There is a serious need for a Foreign Policy and complementary Defence Policy review, one where the Asia-Pacific region will be prominent.
Topic:
International Relations, Security, Economics, Military Affairs, and Trade
Political Geography:
Canada, Asia, and North America

635. The Economic Impact of Huawei in the UK

Author:
Oxford Economics
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
Oxford Economics
Abstract:
In September 2012, Huawei commited to spending £1.3 billion in the UK. Almost three years later, the global information and communications leader is well on its way to doing just that—and with vast social and economic significance. In this report, Oxford Economics explores the contribution of Huawei to the UK economy over the three years 2012-2014, and assesses the company’s recent UK expenditure record over the five years 2013-2017, split equally between investment and procurement.
Topic:
Economics, Communications, and Investment
Political Geography:
United Kingdom and Europe

636. Three Myths Behind the Case for Grexit: A Destructive Analysis

Author:
Photis Lysandrou
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
Greece faces a stark choice: either to compromise on the terms laid down by its international creditors and thereby remain in the eurozone or reject any compromise on the terms and exit the eurozone. The Syriza government was elected in January, 2015, on the double promise that it would tear up the deeply unpopular memorandum imposed by the Troika while at the same keeping the euro. It was a promise that it could not keep. After several months of tough negotiations it has become clear that Greece's creditors, led by the German government, have no intention of accepting a renegotiated deal that substantively lightens Greece's debt burden and thus the need for the type of harsh austerity measures contained in the memorandum.
Topic:
Debt, Economics, Government, and Financial Crisis
Political Geography:
Europe and Greece

637. Why the UK's Fiscal Charter is Doomed to Fail: An Analysis of Austerity Economics during the First and the Second Cameron Governments

Author:
Richard Murphy and Ronen Palan
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
City Political Economy Research Centre (CITYPERC), University of London
Abstract:
The economic rationale for austerity policies harks back to a highly controversial proposals that originated in the 1990s known as 'expansionary fiscal contraction.' This paper explores these ideas relating to austerity and suggests that matters have not worked out as George Osborne expected. Furthermore, since the broad assumptions made by HM Treasury and the OBR remain the same in 2015 as they were in 2010, the paper presents an argument why austerity plans for the period 2016-2020 are also unlikely to succeed.
Topic:
Economics, Government, Austerity, and Fiscal Policy
Political Geography:
United Kingdom

638. Sustainable Northern Development: The Case For An Arctic Development Bank

Author:
Alan Gill and David Sevigny
Publication Date:
01-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
The creation of the multilateral development bank (MDB) model represents one of the most ingenious financial innovations in recent times. Initially designed to address the problems of financing reconstruction after World War II, this model has shown itself to be surprisingly adaptable to meet a range of other challenges. These have included fostering developing country growth, dealing with the developing world debt problem and facilitating the transition of countries within Central and Eastern Europe from centrally planned to market-based economies.
Topic:
Economics and War
Political Geography:
Eastern Europe and Chicago

639. Capital Flows and Capital Account Management in Selected Asian Economies

Author:
Rajeswari Sengupta and Abhuit Sen Gupta
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Gross capital inflows and outflows to and from emerging market economies have witnessed a significant increase since the early 2000s. This rapid increase in the volume of flows, accompanied by sharp swings in volatility, has amplified the complexity of macroeconomic management in emerging economies. This paper focuses on capital flows in selected emerging Asian economies, analyzing surge and stop episodes as well as changes in the composition of flows across these episodes, then evaluating the policy measures undertaken by these economies in response to the surge and stop of capital flows. This kind of analysis is highly relevant, especially at a time when emerging economies around the world are facing the repercussions of a potential monetary policy normalization in the United States and continuing quantitative easing measures by the European Central Bank, either of which could once again heighten the volatility of cross-border capital flows, thereby posing renewed macroeconomic challenges for major EMEs.
Topic:
Economics, Emerging Markets, International Trade and Finance, and Monetary Policy
Political Geography:
Asia

640. Financial Inclusion and Global Regulatory Standards: An Empirical Study across Developing

Author:
Mariana Magaldi de Sousa
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Expanding the access of financial services to low-income households and other disadvantaged groups has become an important public policy goal in the past decade. Many developing economies have encouraged the introduction of a variety of programs, services and branchless banking instruments ranging from automatic teller machines to cell phones to reach people for whom traditional, branch-based structures, had not. After the 2008 global financial crisis, the leaders of the Group of Twenty (G20) recognized the need to further promote these initiatives as key components in the development of healthy, vibrant and stable financial systems that contribute to sustainable economic growth and lower levels of income inequality. As a result, financial inclusion has become one of the new areas of international financial regulation coordination, alongside shadow banking, resolution regimes and new capital requirements.
Topic:
Development, Economics, and Health

641. Understanding Digital Intelligence and the Norms That Might Govern It

Author:
David Omand
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
This paper describes the nature of digital intelligence and provides context for the material published as a result of the actions of National Security Agency (NSA) contractor Edward Snowden. Digital intelligence is presented as enabled by the opportunities of global communications and private sector innovation and as growing in response to changing demands from government and law enforcement, in part mediated through legal, parliamentary and executive regulation. A common set of organizational and ethical norms based on human rights considerations are suggested to govern such modern intelligence activity (both domestic and external) using a three-layer model of security activity on the Internet: securing the use of the Internet for everyday economic and social life; the activity of law enforcement — both nationally and through international agreements — attempting to manage criminal threats exploiting the Internet; and the work of secret intelligence and security agencies using the Internet to gain information on their targets, including in support of law enforcement.
Topic:
Security, Economics, and Government
Political Geography:
Europe

642. Internationalization of the Renminbi: Developments, Problems and Influences

Author:
Ming Zhang
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Due to the 2008-2009 global financial crisis, the Chinese government began to promote renminbi (RMB) internationalization in order to raise its international status, decrease reliance on the US dollar (USD) and advance domestic structural reform. RMB internationalization has achieved progress not only in cross-border trade settlement, but also in the offshore RMB markets. However, the rampant cross-border arbitrage and the relatively slow development of RMB invoicing compared to RMB settlement are becoming increasingly problematic. RMB internationalization has exerted significant influence on not only the Chinese economy but also other emerging market economies. RMB internationalization complicates domestic monetary policy, exacerbates the currency mismatch on China's international balance sheet and increases both the scale and volatility of short-term capital flows. It offers emerging economies another alternative for pricing domestic currency and investing foreign exchange reserves. Its overall impact on the international monetary system's stability will depend on how the capital account is liberalized and the consistency and transparency of Chinese monetary policy. This paper concludes with five recommendations for Chinese policy makers to promote RMB internationalization in a sustainable way that is conducive to international stability.
Topic:
Development, Economics, and Government
Political Geography:
United States and China

643. The China (Shanghai) Pilot Free Trade Zone: Backgrounds, Developments and Preliminary Assessment of Initial Impacts

Author:
John Whalley
Publication Date:
02-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
The China (Shanghai) Pilot Free Trade Zone (SPFTZ) founded in September 2013, is a trial for China's new round of “reform and opening up” (China.org.cn 2008). The SPFTZ has promised liberalization on capital account and trade facilitation as its main objectives. This paper discusses reasons why China needs such a pilot zone after three decades of economic development, examines the differences between the SPFTZ and other free trade zones (FTZs) and highlights the developments of the SPFTZ since its inception. The SPFTZ's initial impressions are assessed, especially its impact on the opening of China's capital account and financial liberalization. The hope is that the success of the SPFTZ, and more pilot policies replicated in China, will give rise to a more balanced Chinese economy in the following decade.
Topic:
Development and Economics
Political Geography:
China

644. Myanmar: Cross-Cutting Governance Challenges

Author:
Marcus Noland and Cullen S. Hendrix
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
East-West Center
Abstract:
Since 2010, Myanmar has been in the midst of a multifaceted transition, involving economic reforms, the resolution of multiple long-standing civil conflicts, and a nascent transition to democratic rule. These transitions are coinciding with a resource-led economic boom. We assess the current status of governance institutions, as well as their performance in comparison to ASEAN and selected other countries. Specifically we discuss outstanding problem areas related to economic governance, particularly in the legal system, the business regulatory framework, and bureaucratic capacity, as well as the potential use of external policy anchors, particularly in the Extractive Industries Transparency Initiative (EITI) process, to strengthen Myanmar's ongoing reform effort.
Topic:
Economics
Political Geography:
Myanmar

645. Do Mobile Phone Surveys Work in Poor Countries?

Author:
Ben Leo, Robert Morello, Jonathan Mellon, Tiago Peixoto, and Stephen Davenport
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
East-West Center
Abstract:
In this project, we analyzed whether mobile phone-based surveys are a feasible and cost-effective approach for gathering statistically representative information in four low-income countries (Afghanistan, Ethiopia, Mozambique, and Zimbabwe). Specifically, we focused on three primary research questions. First, can the mobile phone survey platform reach a nationally representative sample? Second, to what extent does linguistic fractionalization affect the ability to produce a representative sample? Third, how effectively does monetary compensation impact survey completion patterns? We find that samples from countries with higher mobile penetration rates more closely resembled the actual population. After weighting on demographic variables, sample imprecision was a challenge in the two lower feasibility countries (Ethiopia and Mozambique) with a sampling error of +/- 5 to 7 percent, while Zimbabwe's estimates were more precise (sampling error of +/- 2.8 percent). Surveys performed reasonably well in reaching poor demographics, especially in Afghanistan and Zimbabwe. Rural women were consistently under-represented in the country samples, especially in Afghanistan and Ethiopia. Countries' linguistic fractionalization may influence the ability to obtain nationally representative samples, although a material effect was difficult to discern through penetration rates and market composition. Although the experimentation design of the incentive compensation plan was compromised in Ethiopia and Zimbabwe, it seems that offering compensation for survey completion mitigated attrition rates in several of the pilot countries while not reducing overall costs. These effects varied across countries and cultural settings.
Topic:
Economics
Political Geography:
Afghanistan, Mozambique, Zimbabwe, and Ethiopia

646. State Extraction and Anti-Colonial Rebellion – Quantitative Evidence from the Former German East Africa

Author:
Alexander De Juan
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
German Institute of Global and Area Studies
Abstract:
Does extraction increase the likelihood of antistate violence in the early phases of state building processes? While much research has focused on the impacts of war on state building, the potential “war‐making effects” of extraction have largely been neglected. The paper provides the first quantitative analysis of these effects in the context of colonial state‐building. It focuses on the Maji Maji rebellion against the German colonial state (1905–1907), the most substantial rebellion in colonial Eastern Africa. Analyses based on a newly collected historical data set confirm the correlation between extraction and resistance. More importantly, they reveal that distinct strategies of extraction produced distinct outcomes. While the intensification of extraction in state‐held areas created substantial grievances among the population, it did not drive the rebellion. Rather, the empirical results indicate that the expansion of extractive authority threatened the political and economic interests of local elites and thus provoked effective resistance. This finding provides additional insights into the mechanisms driving the “extraction–coercion cycle” of state building.
Topic:
Economics and War
Political Geography:
Africa and Germany

647. The Conservatorships of Fannie Mae and Freddie Mac: Actions Violate HERA and Established Insolvency Principles

Author:
Mark A. Calabria and Michael Krimminger
Publication Date:
02-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Not long ago a colleague of mine, who works regularly with legislators, attended a conference at which the lunch speaker, a famous economist, began by telling everyone why governments regulate financial institutions. The reasons the economist gave consisted of various (supposed) financial - market failures. Said the colleague to me later: “I just wanted to stand up and shout, 'That's got nothing to do with it!'”
Topic:
Economics

648. Agriculture and rural development for inclusive growth and food security in Morocco

Author:
Hafez Ghanem
Publication Date:
02-2015
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
Morocco has so far been a success story in the Arab world. It has followed a gradual approach to political reforms and democratization, which led to the adoption of a new constitution and the holding of free parliamentary elections in 2011. At the same time, economic growth averaged 4.5 percent between 2000 and 2010, reached 5.0 percent in 2011, 2.7 percent in 2012, and 4.4 percent in 2013. That is, Morocco has avoided the political upheavals and economic meltdowns that plagued other Arab Countries in Transition (ACTs). Maintaining this record of success will require continued political and economic reforms.
Topic:
Development and Economics
Political Geography:
Arabia and Morocco

649. Investing in Early Childhood Development: What is Being Spent, And What Does it Cost?

Author:
Vidya Putcha and Jacques van der Gaag
Publication Date:
02-2015
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
In the developing world, more than 200 million children under the age of five years are at risk of not reaching their full human potential because they suffer from the negative consequences of poverty, nutritional deficiencies and inadequate learning opportunities. Given these risks, there is a strong case for early childhood development (ECD) interventions in nutrition, health, education and social protection, which can produce long-lasting benefits throughout the life cycle. The results from the 2012 round of the Program for International Student Assessment (PISA)—an international, large-scale assessment that measures 15-year-olds\' performance in mathematics, reading and science literacy—demonstrate the benefits of ECD: Students in the countries that belong to the Organization for Economic Cooperation and Development (OECD) who had the benefit of being enrolled for more than one year in preprimary school scored 53 points higher in mathematics (the equivalent of more than one year of schooling), compared with students who had not attended preprimary school. Although there is much evidence that ECD programs have a great impact and are less costly than educational interventions later in life, very few ECD initiatives are being scaled up in developing countries. For example, in 2010, only 15 percent of children in low-income countries—compared with 48 percent worldwide—were enrolled in preprimary education programs. Furthermore, even though the literature points to larger beneficial effects of ECD for poorer children, within developing countries, disadvantaged families are even less likely to be among those enrolled in ECD programs. For instance, in Ghana, children from wealthy families are four times more likely than children from poor households to be enrolled in preschool programs.
Topic:
Development and Economics

650. Power, Markets, and Top Income Shares

Author:
Evelyne Huber, Huo Jingjing, and John D. Stephens
Publication Date:
04-2015
Content Type:
Working Paper
Institution:
Kellogg Institute for International Studies
Abstract:
The rise of the super-rich has attracted much political and academic attention in recent years. However, to date there have been few attempts to explain the cross-national variation in the recent rise of very top incomes. Drawing on the World Top Incomes Database, we study the income share of the top 1% in almost all current postindustrial democracies from 1975 to 2012. We find that extreme income concentration at the very top is a predominantly political phenomenon, not the outcome of economic changes. Top income shares are largely unrelated to economic growth, increased knowledge-intensive production, export competitiveness, market size, financialization, and wealth accumulation. Instead, they are driven by various political and policy changes that reflect a decline in the relative power and resources of labor, such as union density and centralization, secular-right governments, and cuts in top marginal income tax rates as well as in public spending on education.
Topic:
Economics, Industrial Policy, Political Economy, and Social Stratification

651. Guarantees, Subsidies, or Paying for Success? Choosing the Right Instrument to Catalyze Private Investment in Developing Countries

Author:
Owen Barder and Theodore Talbot
Publication Date:
05-2015
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
Governments, donors, and public sector agencies are seeking productive ways to ‘crowd in’ private sector involvement and capital to tackle international development challenges. The financial instruments that are used to create incentives for private sector involvement are typically those that lower an investment’s risk (such as credit guarantees) or those that lower the costs of various inputs (such as concessional loans, which subsidise borrowing).
Topic:
Development, Economics, and International Trade and Finance

652. Comparing Transnational IPR Policy: Closing the Gap in Canada's Patenting Regime

Author:
Samah Rahman and Shashanth Shetty
Publication Date:
07-2015
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Canada is lagging behind in research and development (R&D) commercialization, ranking fifteenth in the World Economic Forum’s 2015 Global Competitiveness Report. One of the most important contributing factors to the gap between R&D and competitiveness is that new entrepreneurs lack the monetary and informational resources to access intellectual property (IP) legal expertise. The authors of this brief argue that the Canadian government’s strategies have been ineffective, and its current policy initiatives have failed to consider the importance of disseminating IP legal knowledge directly to innovators. It is recommended that the government look to the models used by the United States and South Korea to mobilize IP legal knowledge within the entrepreneurial community. This can be achieved by establishing a national IP legal clinic at the university level — as well as increasing funding for existing programs and creating a virtual clinic — and including an IP rights application course in select university programs, targeting innovators who will require IP legal advice in the future.
Topic:
Economics and Intellectual Property/Copyright
Political Geography:
United States, Canada, and South Korea

653. Changing Attitudes under New and Old Systems

Author:
Carolyn Barnett
Publication Date:
07-2015
Content Type:
Working Paper
Institution:
Center for Strategic and International Studies
Abstract:
Elites in Tunisia and Jordan stress their need to invest in their human resources, because people are the only resources they have. An array of programs has arisen in both countries to help young people learn life and job skills, find appropriate careers, and launch new businesses. Yet a look at recent and ongoing workforce development efforts in each country reveals that these schemes are intended to produce something fundamentally different in each country. Tunisians are working to overcome the legacies of dictatorship and build a new, more democratic system while simultaneously carrying out economic reforms that aim to alter the state’s role in the economy. Jordanians are trying to alter society and economic incentives within a political status quo where too much change too quickly could threaten the political order, and the government therefore faces compelling reasons both to reform and to keep things as they are. This report examines how similar efforts have evolved in these contrasting contexts
Topic:
Democratization, Economics, Human Welfare, and Politics
Political Geography:
Middle East

654. Building a Sustainable Afghanistan

Author:
Trent Ruder
Publication Date:
09-2015
Content Type:
Working Paper
Abstract:
Drafted in 2012, the Tokyo Mutual Accountability Framework (TMAF) provides guidelines for Afghan reform and ongoing donor support and has proved useful, but it is hobbled by political, social, financial, and bureaucratic factors. The Ghani-Abdullah unity government, inaugurated in the autumn of 2014, is looking to refresh the agreement to fit an evolving political and economic context. Policy trade-offs are inevitable, however. They raise a critical question: Is the document intended to organize policy-level cooperation on all development efforts or is it a targeted and sequenced blueprint for enabling Afghan financial independence? This report examines the context and policy options of the TMAF and what it means for the future of Afghanistan.
Topic:
Economics, Politics, Governance, Reform, and Budget

655. Philanthropy, Welfare Capitalism or Radically Different Global Economic Model: What Would It Take to End Global Poverty within a Generation Based on Historical Growth Patterns?

Author:
Peter Edward and Andy Sumner
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
This paper considers the effectiveness and efficiency of global growth, as a route to poverty reduction, since 1990 and then demonstrates the redistributive challenges implicit in various poverty lines and scenarios: the significance being that this historical data can inform understanding and appreciation of what it would involve to end global poverty in the future. We find that a very modest redistribution of global growth could have ended poverty already at the lowest poverty lines. However, higher, but arguably more reasonable, poverty lines present radically different challenges to the current workings of national economic systems and to global (normative) obligations.
Topic:
Development, Economics, Humanitarian Aid, and Poverty

656. Taxes: Price of Civilization or Tribute to Leviathan?

Author:
Lant Pritchett and Yamini Aiyar
Publication Date:
08-2015
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
There are two dominant narratives about taxation. In one, taxes are the “price we pay for a civilized society” (Oliver Wendell Holmes Jr.). In this view taxes are not a necessary evil (as in the pairing of “death and taxes” as inevitable) but a positive good: more taxes buy more “civilization.” The other view is that taxes are “tribute to Leviathan”—a pure involuntary extraction from those engaged in economic production to those who control coercive power producing no reciprocal benefit. In this view taxes are a bane of the civilized. We consider the question of taxes as price versus tribute for contemporary India.
Topic:
Civil Society, Economics, Governance, and Budget
Political Geography:
India

657. Inequality and Fiscal Redistribution in Middle Income Countries: Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa

Author:
Nora Lustig
Publication Date:
08-2015
Content Type:
Working Paper
Institution:
Center for Global Development
Abstract:
This paper examines the redistributive impact of fiscal policy for Brazil, Chile, Colombia, Indonesia, Mexico, Peru and South Africa using comparable fiscal incidence analysis with data from around 2010. The largest redistributive effect is in South Africa and the smallest in Indonesia. While fiscal policy always reduces inequality, this is not the case with poverty.
Topic:
Economics, Poverty, and Social Stratification
Political Geography:
Africa, South America, and Latin America

658. Growth in an uncertain global environment: The outlook for Latin America

Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Economist Intelligence Unit
Abstract:
The growth rates witnessed in markets across Latin America in the decade to 2010 pulled millions out of poverty, led to rapid growth of the middle class and helped to demonstrate the promise of emerging markets. Since then, however, growth has slowed dramatically across the region. 2015 will mark the fifth successive year of deceleration in Latin America, which has slowed more than any other emerging market region. With concerns over the ability of emerging markets to withstand a slowdown in China and monetary policy normalisation in the US growing, risks to the growth and financing outlook for Latin America persist. However, as economic recovery starts to gather pace in the region, opportunities for investment and growth will also re-emerge. This report provides a snapshot of the current political and economic landscape in the region, and in some of Latin America’s largest economies: Brazil, Mexico and Argentina. Each article analyses key concerns and presents our view of the outlook going forward, helping you to influence decision-making and economic outcomes for your business.
Topic:
Development, Economics, Emerging Markets, Globalization, and International Trade and Finance
Political Geography:
Latin America

659. The Politics of 2 Percent: NATO and the Security Vacuum in Europe

Author:
Jan Techau
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
The members of the North Atlantic Treaty Organization (NATO) pledged in 2014 to increase their defense spending to 2 percent of their gross domestic products by 2024. It is unrealistic to assume that this goal will ever be reached by all 28 allies, and yet the 2 percent metric persists—and it has assumed a significance beyond its face value. It is about addressing Europe’s growing security vacuum and defining who will be in charge of European security.
Topic:
Security, NATO, Economics, and Military Affairs
Political Geography:
Europe

660. Kurdistan’s Politicized Society Confronts a Sultanistic System

Author:
Kawa Hassan
Publication Date:
08-2015
Content Type:
Working Paper
Abstract:
The Kurdistan region of Iraq enjoys more stability, economic development, and political pluralism than the rest of the country. And public opinion under the Kurdistan Regional Government (KRG) demands rule-of-law-based governance. But power is concentrated in the hands of the ruling parties and families, who perpetuate a nondemocratic, sultanistic system. These dynamics could foster instability in Kurdistan and its neighborhood, but could also provide a rare window of opportunity for democratization.
Topic:
Democratization, Development, Economics, Political Economy, Governance, and Authoritarianism
Political Geography:
Iraq, Middle East, and Kurdistan

661. The Silk Road, Sand Castles and the U.S. China Rivalry

Author:
Alan Guidetti
Publication Date:
07-2015
Content Type:
Working Paper
Institution:
The Geneva Centre for Security Policy
Abstract:
Rumours in American media and within policy circles in Washington hint at a shift in the making in US policy towards China. Accordingly, the carefully managed balance between cooperation and constraint, which was designed to accompany and guide the rise of China, might give way to a more confrontational US posture. The cause for a reorientation in US policy is ascribed to the assertiveness of Beijing in the territorial disputes and land reclamations in the China Seas. However, the growing US nervousness about China, as illustrated by blunt warnings to Beijing by Defense Secretary Ashton Carter, goes beyond the Chinese build-up of artificial islands, which fuels the current dispute. Washington recently opposed Chinese efforts to set up the Asian Infrastructure Investment Bank (AIIB), a central pillar of the “New Silk Road” project that will advance the centrality of China within the Eurasian space and beyond. As competition rises between the two powers, sources of tension multiply, thereby increasing risks of conflict.
Topic:
Foreign Policy, Economics, Power Politics, and Hegemony

662. Arctic Security Matters

Author:
Juha Jokela
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
European Union Institute for Security Studies
Abstract:
The Arctic region is currently undergoing major and rapid transformation, both environmentally and economically. This report, the outcome of a EUISS Task Force, examines how these changes carry significant political implications, and highlights the new security challenges that are emerging in the region.
Topic:
Economics, Environment, Politics, and Biosecurity
Political Geography:
Arctic

663. 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

664. After the freefall, what to expect from commodity prices

Publication Date:
10-2015
Content Type:
Working Paper
Institution:
Economist Intelligence Unit
Abstract:
After the plunge in commodity prices in 2015, the outlook for raw materials remains highly uncertain amid slowing economic growth in China and looming interest rate rises in the US. In China—which gobbles up nearly one-half of the world’s consumption of aluminium, copper and coal—demand for base materials risks moderating further as the economy moves away from an investment-driven growth model. This will continue to have knock-on effects on the performance of commodity-exporting economies, weighing down on global consumption of raw materials. However, supply responses are beginning to emerge from commodity producers worldwide. Coupled with less favourable weather prospects, this will lead to some market tightening next year, allowing for some price stabilisation after four years of decline. This report provides a snapshot of The Economist Intelligence Unit’s current commodity price indexes, exploring the changing prices for industrial raw materials and food, feedstuffs & beverages. Each article provides analysis and forecasts across a number of key commodities, helping you to assess the fast-changing environment of commodity markets and influence key decision-making processes.
Topic:
Economics, Emerging Markets, Industrial Policy, International Trade and Finance, and Monetary Policy
Political Geography:
China

665. Driving sustainable development through better infrastructure: Key elements of a transformation program

Author:
Lord Nicholas Stern, Jeremy Oppenheim, and Amar Bhattacharya
Publication Date:
07-2015
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
The agendas of accelerating sustainable development and eradicating poverty and that of climate change are deeply intertwined. Growth strategies that fail to tackle poverty and/or climate change will prove to be unsustainable, and vice versa. A common denominator to the success of both agendas is infrastructure development. Infrastructure is an essential component of growth, development, poverty reduction, and environmental sustainability.
Topic:
Climate Change, Development, Economics, Poverty, and Infrastructure
Political Geography:
Global Focus

666. Happiness and health in China: The paradox of progress

Author:
Carol Graham, Shaojie Zhou, and Junyi Zhang
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
The past two decades in China brought unprecedented rates of economic growth, development, and poverty reduction. Indeed, much of the reduction in the world’s extreme poverty rates during that time can be explained by the millions of people in China who exited poverty. GDP per capita and household consumption increased fourfold between the years 1990 and 2005.1 China jumped 10 places forward on the Human Development Index from 2008 until 2013, moving up to 93 of 187 countries, and life expectancy climbed to 75.3 years, compared to 67 years in 1980.
Topic:
Development, Economics, Health, and Human Welfare
Political Geography:
China

667. Aid procurement and the development of local industry: A question for Africa

Author:
Christine Zhang and Jeffrey Gutman
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
Economic development is often tied to the evolution of local industry. One way to assess a country’s emergence as a major player in the global economy is by examining the ability of its domestic firms to compete on the global market. Public procurement—the purchase of goods, works, and services by governments—represents a significant portion of this market, making up an estimated average of 15 to 30 percent of a country’s GDP. Procurement in the developing world is especially noteworthy, since large projects are often partially or wholly financed by external donors such as the World Bank and other international financial institutions (IFIs), which encourage developing country governments to internationally advertise the goods, works, or services they require and to select the most competitive bid they receive. Yet the role of IFI-funded procurement in the emergence of global markets, particularly for and among developing countries, is seldom a topic of empirical study, despite its linkages to global growth.
Topic:
Development, Economics, Emerging Markets, World Bank, and Developing World
Political Geography:
Global Focus

668. A Post-Sanctions Iran and the Eurasian Energy Architecture

Author:
Micha'el Tanchum
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Atlantic Council
Abstract:
With the removal of international sanctions on Iran, different markets will have a great interest in importing Iranian gas. But which market will benefit the most? In A Post-Sanctions Iran and the Eurasian Energy Architecture, Micha'el Tanchum, a Nonresident Senior Fellow at the Atlantic Council's Global Energy Center and the Eurasian Energy Futures Initiative, argues that the lifting of the sanctions carries the potential to radically restructure the Eurasian energy architecture and, as a consequence, reshape Eurasian geopolitics. After Iran meets its domestic demand for natural gas, it will have the option to export gas to two of the following three markets: European Union/Turkey, India, or China. Iran will not have enough natural gas to supply all three of these major markets. The pattern of Iran's gas exports in the immediate post-sanctions period will shape the relationship between two competing orientations in the Eurasian energy architecture: a system of energy relationships reinforcing the EU's outreach to the Eastern Neighborhood alongside a system of energy relationships reinforcing China's OBOR integration project. A pivot to China will not be favorable to EU's and NATO's interests as it decreases Europe's energy security. By contrast, an expanded Southern Gas Corridor to Europe would promote the extension of Euro-Atlantic influence in Eurasia.
Topic:
Economics, Emerging Markets, Energy Policy, and Sanctions
Political Geography:
Iran and Eurasia

669. China's Evolving Role in Latin America: Can it Be a Win-Win?

Author:
Enrique Dussel Peters
Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Atlantic Council
Abstract:
Weeks before Chinese President Xi Jinping meets with President Barack Obama in Washington, the Atlantic Council's Latin America Center launched a new report that unravels the complexities of the Latin America-China relationship. Titled China's Evolving Role in Latin America: Can it Be a Win-Win?, the report provides five recommendations to help both China and Latin America usher in a mutually beneficial post-commodity-boom relationship. The key to long-term success will be to insure that the relationship promotes—rather than delays—economic growth and social progress in the hemisphere. In the report, renowned Mexico-based China Expert Enrique Dussel Peters, an Atlantic Coucil author and Professor at the Graduate School of Economics at the National Autonomous University of Mexico (UNAM), calls for a ratcheting up of strategic planning and multilateral support so the relation¬ship is a win-win for all parties, including the United States. A deep dive of the state of play is provided for five countries: Argentina, Brazil, Cuba, Mexico, and Venezuela. These countries illustrate the spectrum of ties with China, ranging from those with long and complex historical relation¬ships to those almost entirely structured around recent opportunities for economic cooperation.
Topic:
Diplomacy, Economics, and Bilateral Relations
Political Geography:
China and Latin America

670. Risk Nexus: Overcome by cyber risks? Economic benefits and costs of alternate cyber futures

Publication Date:
09-2015
Content Type:
Working Paper
Institution:
Atlantic Council
Abstract:
In 2030, will the Internet and related information and communications technologies (ICTs) continue to drive global innovation and prosperity? Or will that bright promise be swamped by an unstable and insecure Internet, so overwhelmed by non-stop attacks that it has become an increasing drag on economic growth? The answers, as far as we can predict, are not promising and mean the difference in tens of trillions of dollars in global economic growth over the next fifteen years.
Topic:
Economics, Science and Technology, Communications, and Cybersecurity
Political Geography:
Global Focus

671. The Case against a Carbon Tax

Author:
Robert P. Murphy, Patrick J. Michaels, and Paul "Chip" Knappenberger
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
A vigorous campaign aimed at American policymakers and the general public has tried to create the perception that a federal carbon tax (or similar type of “carbon price”) is a crucial element in the urgently needed response to climate change. Within conservative and libertarian circles, a small but vocal group of academics, analysts, and political officials are claiming that a revenue-neutral carbon tax swap could even deliver a “double dividend” — meaning that the conventional economy would be spurred in addition to any climate benefits. The present study details several serious problems with these claims. The actual economics of climate change — as summarized in the peer-reviewed literature as well as the U.N. and Obama Administration reports — reveal that the case for a U.S. carbon tax is weaker than the public has been told.
Topic:
Climate Change, Economics, Energy Policy, and Politics
Political Geography:
Global Focus

672. On the Desirability of Nominal GDP Targeting

Author:
Julio Garin, Robert Lester, and Eric Sims
Publication Date:
08-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
This paper evaluates the welfare properties of nominal GDP targeting in the context of a New Keynesian model with both price and wage rigidity. In particular, we compare nominal GDP targeting to inflation and output gap targeting as well as to a conventional Taylor rule. These comparisons are made on the basis of welfare losses relative to a hypothetical equilibrium with flexible prices and wages. Output gap targeting is the most desirable of the rules under consideration, but nominal GDP targeting performs almost as well. Nominal GDP targeting is associated with smaller welfare losses than a Taylor rule and significantly outperforms inflation targeting. Relative to inflation targeting and a Taylor rule, nominal GDP targeting performs best conditional on supply shocks and when wages are sticky relative to prices. Nominal GDP targeting may outperform output gap targeting if the gap is observed with noise, and has more desirable properties related to equilibrium determinacy than does gap targeting.
Topic:
Economics, Human Welfare, Markets, and GDP
Political Geography:
Global Focus

673. The Supply of Transaction Assets, Nominal Income, and Monetary Policy Transmission

Author:
Joshua R. Hendrickson and David Beckworth
Publication Date:
06-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
Over the last few years, the Federal Reserve has conducted a series of large scale asset purchases. Given the Federal Reserve’s dual mandate, the objective of this policy has been to generate an increase in real economic activity while maintaining a low, stable rate of inflation. The effectiveness of large scale asset purchases and the ability of the central bank to achieve a particular target has been subject to debate. The monetary transmission mechanism is of primary importance for understanding the effects of both the recent large scale asset purchases and of monetary policy more generally. The purpose of this paper is to propose a monetary transmission mechanism and to present empirical support for this mechanism. In particular, this paper suggests that monetary policy is transmitted through changes in the growth rate of transaction assets through both a direct and indirect effect. First, an increase in the growth rate of the monetary base, whether through lump sum transfers or open market operations, generates a real balance effect that increases real economic activity. Second, the indirect effect is through bank lending. Since bank loans are often a function of nominal income, expansionary monetary policy increases bank lending. Since economics agents are forward-looking and the the effects of monetary policy are persistent, monetary policy is transmitted through the expected future time path of the growth of transaction assets and nominal income. This characteristic is especially important in light of the policy recommendations of Sumner (2011, 2012) and Woodford (2012), in which the central bank attaches an explicit target for the level of nominal income to large-scale asset purchases.1
Topic:
Economics, Markets, Monetary Policy, and Federal Reserve
Political Geography:
Global Focus

674. International Developments in the Insurance Sector: The Road to Financial Instability?

Author:
Therese M. Vaughan and Mark A. Calabria
Publication Date:
05-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
International activity related to the regulation and supervision of financial services has exploded since the global financial crisis. The crisis exposed weaknesses in the structure for regulating internationally active banks, and motivated a number of work streams aimed at strengthening standards (most notably, significant revisions to the Basel capital standard for internationally active banks, now known as Basel III). The insurance sector was also stressed by the meltdown in financial markets that occurred in 2007-2008, albeit far less than the banking sector, and, with the exception of AIG, it is generally recognized that insurers played little role in the financial crisis, and that traditional insurance activities do not pose a systemic risk to the financial system.1,2 Nonetheless, the insurance sector has also been targeted for a new stream of regulatory initiatives at the international level. The most important organizations with respect to these activities are the International Association of Insurance Supervisors (IAIS) and the Financial Stability Board (FSB), both based in Basel, Switzerland. The purpose of this paper is to review these developments and to highlight potential concerns for U.S. insurance markets.
Topic:
Economics, International Trade and Finance, Markets, and Financial Crisis
Political Geography:
Global Focus

675. Whose Side Are You On? Identifying the Distributive Preferences of Local Politicians in India

Author:
Mark Schneider and Neelanjan Sircar
Publication Date:
08-2015
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
The literature on decentralized public programs suggests that errors in the targeting of anti-poverty programs are rooted in the capture of these programs by local elites or local politicians. Consistent with the literature on moral economy in political science and experimental economics, we argue that voters in contexts of rural poverty prefer local leaders who target subsistence benefits to the poor. In a high information village context, where voters and leaders know each other, we argue that local elections lead to the selection of local leaders with pro-poor preferences over the distribution of these benefits. We show this with a novel theory of local politicians’ social preferences. We test our theory with unique data from a behavioral measure, conducted in the context of a lottery with a modest cash prize in rural India, that captures a scenario in which local leaders have full discretion and anonymity over allocation among members of their rural communities. We analyze our data using a novel estimation strategy that takes the characteristics of the pool of potential beneficiaries into account in decisions over allocation under a budget constraint. We find that local leaders have strong preferences for targeting the poor, and particularly those they believe supported them politically in the past. This article suggests that free and fair elections at the local level can powerfully encourage pro-poor targeting even in contexts of weak institutions and pervasive poverty. It also makes a fundamental contribution to research on distributive politics by challenging research in this area to demonstrate the effect of electoral strategies and other distortions on allocation relative to local leaders’ baseline distributive preferences.
Topic:
Democratization, Economics, Politics, Political Theory, and Elections
Political Geography:
India

676. Signaling Legitimacy to Foreign Investors: Evidence from Chinese IPOs on U.S. Markets.

Author:
Xu Jin, Donald Patton, and Martin Kenney
Publication Date:
05-2015
Content Type:
Working Paper
Abstract:
From 1999-2010 120 Chinese emerging growth firms undertook initial public stock offerings on U.S. markets. This provided a remarkable natural experiment for exploring how this class of organizations from a radically different political economy established their legitimacy and how, once established, this legitimacy permitted organizational and personnel flexibility for later firms. The increased legitimacy allowed changes in the backgrounds of the members of the IPO top management team (TMT) and independent members of the board of directors (BoD). We find that overall composition of both the TMT and BoD in terms of experience in the U.S. decreased and “Chineseness” increased, but at different rates. For the operational TMT members, U.S. experience decreased dramatically over time, except for the CFO who is the representative of investors within the TMT. Similarly, on the BoD, the venture capitalists continued to have high levels of US experience, while the other independent members tracked the TMT in having less US experience. In this increased legitimacy allows the acceptance of “foreign” operational management, but investors are less lenient in terms of ensuring that their “monitors,” the CFO and venture capitalists, should show evidence, i.e., U.S. experience and background, that they adhere to the investor’s values.
Topic:
Economics, International Trade and Finance, Markets, and Political Economy
Political Geography:
China

677. Responding to Uncertainty: Syndication Partner Choice by Foreign Venture Capital Firms in China.

Author:
Xiao Huang, Martin Kenney, and Donald Patton
Publication Date:
03-2015
Content Type:
Working Paper
Abstract:
Cross-border venture capital investment has grown dramatically. Drawing upon observations about the liability of foreignness, previous research has shown that foreign venture capitalists (VCs) tend to partner with local VCs in order to offset information asymmetry and the liabilities of foreignness. Much of the literature has suggested that local VCs should help reduce operational uncertainty. This paper examines syndication partner choice in China, which today is likely the most uncertain environment in which foreign VCs operate on a large scale. This provides an ideal environment for understanding partner selection under uncertainty. Our results show that foreign investors are more likely to choose Chinese investors in later rounds and in more mature portfolio firms. While foreign firms with more Chinese experience are more likely to co-invest with Chinese VCs, the older foreign VC firms are less likely to do so. Remarkably, having a Chinese office made foreign VCs less likely to coinvest. In seed-stage investments, when uncertainty is the greatest, foreign firms are least likely to co-invest with Chinese VCs, and this was not affected by the maturation of the market, while at the later stage, when uncertainty is lowest, they are most likely to co-invest.
Topic:
Economics, International Trade and Finance, Markets, and Political Economy
Political Geography:
China

678. Innovative Clusters & New Work: A Case Study of TaskRabbit

Author:
Emily Isaac
Publication Date:
03-2015
Content Type:
Working Paper
Institution:
Berkeley Roundtable on the International Economy
Abstract:
In the past five years, San Francisco has become home to dozens of new online and mobile “service networking” companies that claim to be “revolutionizing” the way work gets done. Making up what has come to be known as the “platform economy,” these technology companies provide the platforms for online and mobile marketplaces in which users can buy and sell their goods and services. Together, these “platform economy” companies make up a concentrated innovative cluster in the San Francisco Bay Area, and, more specifically, San Francisco proper. One of the sharing economy’s pioneers and largest success stories, TaskRabbit Inc. allows users to outsource small jobs and tasks to local contractors—or, in company lingo, neighborhood “Taskers.” Launched out of Boston in 2008, TaskRabbit is just one of many tech startups that have left Boston for the San Francisco Bay Area. Since relocating to San Francisco, the company has received $37.5 million in venture funding, is available in 20 cities, and reportedly has 1.25 million users and over 25,000 Taskers. Indeed, TaskRabbit exemplifies the immeasurable benefits of strategically locating a firm in an industry cluster.
Topic:
Economics, International Trade and Finance, Science and Technology, Communications, and Labor Issues
Political Geography:
United States

679. Awaiting the Second Big Data Revolution

Author:
Mark Huberty
Publication Date:
03-2015
Content Type:
Working Paper
Abstract:
“Big data” has been heralded as the agent of a third industrial revolution–one with raw materials measured in bits, rather than tons of steel or barrels of oil. Yet the industrial revolution transformed not just how firms made things, but the fundamental approach to value creation in industrial economies. To date, big data has not achieved this distinction. Instead, today’s successful big data business models largely use data to scale old modes of value creation, rather than invent new ones altogether. Moreover, today’s big data cannot deliver the promised revolution. In this way, today’s big data landscape resembles the early phases of the first industrial revolution, rather than the culmination of the second a century later. Realizing the second big data revolution will require fundamentally different kinds of data, different innovations, and different business models than those seen to date. That fact has profound consequences for the kinds of investments and innovations firms must seek, and the economic, political, and social consequences that those innovations portend.
Topic:
Economics, International Trade and Finance, Science and Technology, Communications, and Global Markets
Political Geography:
Global Focus

680. Awaiting the Second Big Data Revolution

Author:
Mark Huberty
Publication Date:
03-2015
Content Type:
Working Paper
Abstract:
“Big data” has been heralded as the agent of a third industrial revolution–one with raw materials measured in bits, rather than tons of steel or barrels of oil. Yet the industrial revolution transformed not just how firms made things, but the fundamental approach to value creation in industrial economies. To date, big data has not achieved this distinction. Instead, today’s successful big data business models largely use data to scale old modes of value creation, rather than invent new ones altogether. Moreover, today’s big data cannot deliver the promised revolution. In this way, today’s big data landscape resembles the early phases of the first industrial revolution, rather than the culmination of the second a century later. Realizing the second big data revolution will require fundamentally different kinds of data, different innovations, and different business models than those seen to date. That fact has profound consequences for the kinds of investments and innovations firms must seek, and the economic, political, and social consequences that those innovations portend.
Topic:
Economics, International Trade and Finance, Science and Technology, Communications, and Global Markets
Political Geography:
Global Focus

681. Afghan Economic Policy, Institutions and Society Since 2001

Author:
Paul Fishstein and Murtaza Edries Amiryar
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
United States Institute of Peace
Abstract:
The general expectation among Afghans after the fall of the Taliban was that the state, equipped with financial resources and technical assistance from the international community, would once again take the lead in the economic sphere. Instead, Kabul adopted a market economy. The move remains controversial in some quarters. This report, derived from interviews conducted in 2015 and 2010, takes stock of the competing ideologies in Afghanistan today with respect to the economy.
Topic:
Conflict Resolution, Development, Economics, and Markets
Political Geography:
Afghanistan and Central Asia

682. 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

683. 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

684. 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

685. 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

686. 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

687. 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

688. 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

689. 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

690. Financing SMEs in Europe: Stylised Facts, Policies, Challenges

Author:
Daniele Ciani, Paolo Finaldi Russo, and Valerio Vacca
Publication Date:
12-2015
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
This paper describes the main features of European SMEs’ financial behaviour and the policies recently put in place to support their funding. European SMEs are structurally more leveraged and charged with higher interest rates than large firms. Moreover, the crisis has deeply affected their fund-raising capacity, as banks reduced credit supply while non-bank funding was unavailable to most SMEs. Against this background, EU has focussed its policies on long-term investment and on a more favourable environment for SMEs financing, including through the launch of the Capital Markets Union. At the national level, most governments have provided guarantees and enhanced the role of national development banks. Nevertheless, key issues are still outstanding, such as the funding of innovative firms and the improvement of transparency and of the legal and regulatory frameworks.
Topic:
Economics, International Trade and Finance, Markets, and European Union
Political Geography:
Europe
Publication Identifier:
978-88-98650-71-2
Publication Identifier Type:
ISBN

691. Russia's Pivot to Asia: Myths and Realities

Author:
Daniele Fattibene
Publication Date:
11-2015
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
Russia’s “pivot to Asia” has come to the fore in the wake of the crisis over Ukraine. Growing tensions with the West over the common neighbourhood, coupled with economic sanctions, have accelerated this trend, with China gaining in strength as both an economic and military partner to Moscow. The Kremlin’s propaganda has sought to convince the broader public that Russia’s strategies in Eastern Europe, Central Asia and the Arctic region are a complement to China’s new Silk Road Economic Belt. Nonetheless, behind the headlines huge potential problems jeopardise the emergence of a durable Sino-Russian consensus in Eurasia. Against this backdrop, the EU should opt for “strategic patience.” This would be a far more effective policy choice than finger pointing, which only deepens the mutual ideological clash between the EU and Russia.
Topic:
Diplomacy, Economics, International Trade and Finance, Bilateral Relations, and Sanctions
Political Geography:
Russia, China, and Asia
Publication Identifier:
978-88-98650-69-9
Publication Identifier Type:
ISBN

692. 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

693. 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

694. 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

695. 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

696. 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

697. 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

698. 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

699. The Outlook for Algeria

Author:
Joffé George
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
Algeria today faces a triple crisis. The collapse in global oil prices during 2014 and 2015 has meant that its economic future is potentially extremely sombre. In political terms, the regime faces a complex and uncertain transition as the Bouteflika era comes to an end. Moreover, Algeria’s security environment is threatening, given the chaos in Libya, the emergence of extremism in Tunisia and the ongoing violence in northern Mali because of the extremist groups located there. This situation is further complicated by the persistence of “residual terrorism,” as the government terms it, inside Algeria itself and the chronic crisis with Morocco over the latter’s annexation of the Western Sahara in 1975. This paper analyses each of these factors in turn before seeking to outline short- to medium-term scenarios for the future.
Topic:
Security, Economics, Islam, Oil, and Terrorism
Political Geography:
North Africa
Publication Identifier:
978-88-98650-62-0
Publication Identifier Type:
ISBN

700. China's New Silk Road Initiative

Author:
Zhao Minghao
Publication Date:
10-2015
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
The European Council has mandated the High Representative of the Union for Foreign Affairs and Security Policy, Federica Mogherini, to draft a Global Strategy by June 2016. Given Europe’s status as a global power, such a strategy must respond to Europe’s own challenges as well as to the new grand strategies of other major players in world politics, like China. To better understand the central tenets of the Chinese leadership’s strategic thinking, two keywords are most important – the “Four Comprehensives” and the “One Belt and One Road” (OBOR). As an initiative mainly focusing on promoting Eurasian integration and reshaping Chinese geo-economic advantages, the OBOR is highly consequential to China’s interactions with Europe and the rest of the world at large in the decades to come. How to take advantage of the OBOR, create new EU-China synergies, and tackle relevant challenges are questions the EU leaders should be attentive to.
Topic:
Economics, International Cooperation, International Trade and Finance, Markets, and Bilateral Relations
Political Geography:
Europe and Asia
Publication Identifier:
978-88-98650-61-3
Publication Identifier Type:
ISBN