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  • Author: Cullen S. Hendrix
  • Publication Date: 03-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Trump administration’s Africa strategy is rooted in three misconceptions about China’s African footprint—and a fourth about US-Africa economic relations—that are either factually incorrect or overstated in terms of the broader strategic challenges they pose to US interests: (1) Chinese engagement in Africa crowds out opportunities for trade and investment with and from the United States; (2) Chinese engagement in Africa is resource-seeking—to the detriment of US interests; (3) Chinese engagement in Africa is designed to foster debt-based coercive diplomacy; and (4) US-Africa economic linkages are all one-way and concessionary (i.e., aid-based). Hendrix finds little evidence to suggest Chinese trade and investment ties crowd out US trade and investment opportunities. China’s resource-seeking bent is evident in investment patterns, but it is more a function of Africa’s having comparatively large, undercapitalized resource endowments than China’s attempt to corner commodity markets. Chinese infrastructural development—particularly large projects associated with the Belt and Road Initiative—may result in increased African indebtedness to the Chinese, but there is little reason to think debt per se will vastly expand Chinese military capacity in the region. And finally, US-Africa economic relations are much less one-sided and concessionary (i.e., aid-based) than conventional wisdom suggests.
  • Topic: Bilateral Relations, Infrastructure, Economy, Trade, Donald Trump
  • Political Geography: Africa, China, North America, United States of America
  • Author: Julia Coronado, Simon Potter
  • Publication Date: 03-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The US monetary system faces significant challenges from advances in technology and changes in the macroeconomy that, left unaddressed, will threaten the stability of the US economy and financial system. At the same time, low interest rates mean that central banks will not have the policy ammunition they had in the past during the next recession. The Federal Reserve needs new tools to meet its mandates of price stability and maximum employment. It also needs to preserve the safety and soundness of the financial system in a rapidly digitizing world. The authors propose a Fed-backed digital currency to solve both problems. Their proposal creates a regulated system of digital currency accounts for consumers managed by digital payment providers and fully backed by reserves at the Fed. The system would be limited in size, to preserve the functions and stability of the existing banking system. Fed backing would mean low capital requirements, which would in turn facilitate competition. Low fees and no minimum balance requirements in the new system would also help financial institutions reach the roughly 25 percent of the US population that is currently either unbanked or underbanked. Digital accounts for consumers could also provide a powerful new stabilization tool for both monetary and fiscal policies. For fiscal policy, it could facilitate new automatic stabilizers while also allowing the Fed to provide quantitative easing directly to consumers. This tool could be used in a timely manner with broad reach to all Americans.
  • Topic: Economics, Government, Monetary Policy, Banks, Macroeconomics
  • Political Geography: North America, United States of America
  • Author: Julia Coronado, Simon Potter
  • Publication Date: 04-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the second part of their Policy Brief, Coronado and Potter discuss how the system of digital payment providers (DPPs) proposed in their first Policy Brief on this topic adds a new weapon to the monetary toolkit that could be implemented in a timely, effective, and inclusive manner. They describe how a digital currency backed by the Federal Reserve could augment automatic fiscal stabilizers and—more importantly—harness the power of “helicopter” money or quantitative easing directly to consumers in a disciplined manner. To implement QE directly to consumers, Coronado and Potter propose the creation of recession insurance bonds (RIBs)—zero-coupon bonds authorized by Congress and calibrated as a percentage of GDP sufficient to provide meaningful support in a downturn. Congress would create these contingent securities; Treasury would credit households’ digital accounts with them. The Fed could purchase them from households in a downturn after its policy rate hits zero. The Fed’s balance sheet would grow by the value of RIBs purchased; the initial matching liability would be deposits into the DPP system. The mechanism is easy for consumers to understand and could boost inflation expectations more than a debt-financed fiscal stimulus could.
  • Topic: Economics, Government, Monetary Policy, Insurance
  • Political Geography: North America, United States of America
  • Author: Soyoung Han, Marcus Noland
  • Publication Date: 04-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Summer Olympic Games are the most globalized sporting event on earth. Until now, the Summer Games had been postponed only three times—in 1916, 1940, and 1944—all because of world wars. So, the announcement that in response to the COVID-19 pandemic, the 2020 Tokyo Games would be postponed by a year is significant, implicit testimony to the destructiveness of the pandemic. The Tokyo Games were expected to continue the evolution of the Games away from the aristocratic European milieu where the modern Olympic movement began. As poverty has declined and incomes across the global economy have converged, participation in the Games has broadened and the pattern of medaling has become more pluralistic, particularly in sports with low barriers to entry in terms of facilities and equipment. This Policy Brief presents forecasts of medal counts at the 2020 Tokyo Summer Games had they had gone on as scheduled, setting aside possible complications arising from the coronavirus pandemic. The forecasts are not just a depiction of what might have been. They establish a benchmark that can be used when the Games are eventually held, to examine the impact of the uneven incidence of the pandemic globally.
  • Topic: Economics, Globalization, Sports, Olympics
  • Political Geography: Japan, Asia, Global Focus
  • Author: Soyoung Han, Marcus Noland
  • Publication Date: 05-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Despite steady progress, women remain grossly underrepresented in corporate leadership worldwide. The share of women executive officers and board members increased between 1997 and 2017, but progress was not uniform. Partly in response to gender quotas, the shares of female board members have risen rapidly in some countries while lagging elsewhere. This Policy Brief reports results derived from the financial records of about 62,000 publicly listed firms in 58 economies over 1997–2017, which together account for more than 92 percent of global GDP. The authors conclude that if, as emerging evidence in the literature indicates, gender diversity contributes to superior firm performance, then progress in this area could help boost productivity globally. Policymakers and corporate leaders should consider supportive public and private policies, including more gender-neutral tracking in education, firm protocols that encourage gender balance in hiring and promotion, enforceable antidiscrimination laws, public support for readily available and affordable high-quality childcare and maternity and paternity leave, and quotas.
  • Topic: Gender Issues, Women, Economic Inequality, Private Sector
  • Political Geography: Global Focus
  • Author: Olivier Blanchard, Thomas Philippon, Jean Pisani-Ferry
  • Publication Date: 06-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The measures that most governments took in response to the sudden collapse in economic activity during the COVID-19 lockdowns nearly exclusively focused on protecting vulnerable workers and firms. These measures included unemployment benefits, grants, transfers, loans at low rates, and tax deferrals. As lockdowns are lifted, governments must shift policies toward supporting the recovery and design measures that will limit the pain of adjustment while preserving productive jobs and firms. This Policy Brief explores how such measures can be designed, with particular emphasis on Europe and the United States. The authors propose a combination of unemployment benefits to help workers, wage subsidies and partially guaranteed loans to help firms, and debt restructuring procedures for small and medium-sized companies handicapped by excessive legacy debt from the crisis.
  • Topic: Debt, Economics, Government, Labor Issues, Unemployment, Coronavirus
  • Political Geography: Europe, North America, United States of America
  • Author: Ana González, Euijin Jung
  • Publication Date: 01-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: By refusing to fill vacancies in the World Trade Organization’s (WTO) Appellate Body—the top body that hears appeals and rules on trade disputes—the Trump administration has paralyzed the key component of the dispute settlement system. No nation or group of nations has more at stake in salvaging this system than the world’s big emerging-market economies: Brazil, China, India, Indonesia, Korea, Mexico, and Thailand, among others. These countries have actively and successfully used the dispute settlement system to defend their commercial interests abroad and resolve inevitable trade conflicts. The authors suggest that even though the developing countries did not create the Appellate Body crisis, they may hold a key to unlock it. The Trump administration has also focused its ire on a longstanding WTO practice of giving these economies latitude to seek “special and differential treatment” in trade negotiations because of their developing-country status. The largest developing economies, which have a significant stake in preserving a two-step, rules-based mechanism for resolving trade disputes, could play a role in driving a potential bargain to save the appeals mechanism. They could unite to give up that special status in return for a US commitment to end its boycott of the nomination of Appellate Body members.
  • Topic: Development, Government, World Trade Organization, Developing World, Donald Trump
  • Political Geography: China, Indonesia, India, South Korea, Brazil, North America, Mexico, Thailand, United States of America
  • Author: Olivier Blanchard, Lawrence H. Summers
  • Publication Date: 02-2020
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: With interest rates persistently low or even negative in advanced countries, policymakers have barely any room to ease monetary policy when the next recession hits. Fiscal policy will have to play a major and likely dominant role in stimulating the economy, requiring policymakers to fundamentally reconsider fiscal policy. Blanchard and Summers argue for the introduction of what they call “semiautomatic” stabilizers. Unlike purely automatic stabilizers (mechanisms built into government budgets that automatically—without discretionary government action or explicit triggers—increase spending or decrease taxes when the economy slows or enters a recession), semiautomatic stabilizers are targeted tax or spending measures that are triggered if, say, the output growth rate declines or the unemployment rate increases beyond a specified threshold. The authors argue that the trigger should be changes in unemployment rather than changes in output, and the design of semiautomatic stabilizers, whether they focus on mechanisms that rely primarily on income or on intertemporal substitution effects (changing the timing of consumption), depends crucially on the design of discretionary policy.
  • Topic: Economics, Government, Monetary Policy, Finance
  • Political Geography: Global Focus, United States of America
  • Author: Jeffrey J. Schott, Euijin Jung
  • Publication Date: 12-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: US refusal to allow the appointment of new judges (or members) to the World Trade Organization’s Appellate Body—a key component of its renowned dispute settlement system—has pushed the organization into an existential crisis. The Appellate Body no longer has the requisite number of members to hear new cases on appeal. The terms of two of the three remaining members have expired, leaving the WTO without an appeal function. US officials charge that certain Appellate Body decisions on WTO dispute panel rulings have expanded WTO obligations and constrained WTO rights—what trade lawyers call “judicial overreach”—and so they have blocked the appointment of new Appellate Body members until other WTO countries address US complaints. Schott and Jung analyze the WTO cases brought against the United States and find that the problem of judicial overreach seems to surface primarily in a subset of US losses in antidumping and countervailing duty (AD/CVD) cases that target specific methods of calculating dumping margins. They warn that disabling the whole appellate system is a disproportionate response to the specific problem. It will weaken enforcement of WTO obligations and undermine prospects for negotiations to update the WTO rulebook, thus corroding the rules-based trading system, one that has been modeled on US law and practice. A better approach would be to exempt AD/CVD cases from appellate review (while still subjecting them to dispute panel rulings). This targeted change in the WTO Appellate Body process, coupled with procedural reforms already advanced in proposals that have been widely supported by WTO members, could mitigate US concerns and allow the Appellate Body to be repopulated.
  • Topic: Government, World Trade Organization, Law, Judiciary, Trade
  • Political Geography: North America, United States of America
  • Author: Gonzalo Huertas
  • Publication Date: 09-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The unrelenting surge in prices in Venezuela has crippled the economy and deepened the humanitarian crisis there. Huertas lays out a feasible stabilization plan to stop Venezuela’s hyperinflation. The extent of the humanitarian crisis and shortage of basic goods and services suggests that, on the fiscal side, a stabilization plan should focus primarily on reallocating rather than reducing spending. The authorities should avoid austerity policies and instead spend on taking care of the Venezuelan people. Stabilizing the price level while providing relief to the country’s population would require significant financial assistance from the rest of the world, so it is critical that Venezuela secure strong financial support from the international community. Successful stabilization requires a credible plan to transition to a responsible fiscal policy, the financial resources to carry it out, and the political will to sustain it.
  • Topic: Security, Economics, Finance, Inflation, Humanitarian Crisis
  • Political Geography: South America, Venezuela
  • Author: Gary Clyde Hufbauer , Zhiyaou (Lucy) Lu
  • Publication Date: 10-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In early 2019, several important members of the World Trade Organization (WTO) submitted noteworthy proposals in a realm of international commerce that has evolved faster than rules to govern it: e-commerce or digital trade. While countries agree on less controversial subjects like banning unsolicited commercial electronic messages, the three leading WTO members—China, the European Union, and the United States—have big differences in their approaches to more challenging issues: data flows, data localization, privacy invasions by data collectors, transfer of source code, imposition of customs duties and internet taxes, and internet censorship. Their differing viewpoints lead Hufbauer and Lu to conclude that the prospect of reaching a high-level WTO e-commerce agreement is not promising. To reach an agreement, either most of the contentious issues must be dropped or the number of participating countries must be sharply reduced. A WTO accord, even of low ambition, would have value if only to establish basic digital norms on matters such as banning unsolicited commercial messages and protecting online consumers from fraudulent practices. A more ambitious accord covering the controversial issues should be negotiated in bilateral and/or plurilateral/regional pacts rather than in the WTO.
  • Topic: Economics, World Trade Organization, Finance, Privacy, Data
  • Political Geography: China, Europe, Asia, North America, United States of America, European Union
  • Author: Monica de Bolle
  • Publication Date: 10-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The fires in Brazil’s Amazon rainforest in the summer of 2019 represent a government policy failure over many years, especially recently, as Brazilian public agencies that are supposed to curb man-made fires have been deliberately weakened. In keeping with his far-right nationalist campaign promises, President Jair Bolsonaro’s government has intentionally backed away from efforts to combat climate change and preserve the environment, which has emboldened farmers, loggers, and other players to engage in predatory activities in the rainforest. De Bolle calculates that if the current rate of deforestation is maintained over the next few years, the Amazon would be dangerously close to the estimated “tipping point” as soon as 2021, beyond which the rainforest can no longer generate enough rain to sustain itself. The tragic fires have demonstrated that protecting the Amazon rainforest is a global cause. The international attention provides an opportunity for the governments of Brazil and the United States to stop denying climate change and cooperate on strategies to preserve the rainforest and develop ways to sustainably use its natural resources. The international community should revive and expand the Amazon Fund to invest in ways to reduce deforestation through the possible use of payments for environmental services. Brazil should adopt and enforce regulations on land use in the Amazon region while cracking down on illegal uses, such as logging and mining, and should restore conditional rural credit policies to fight deforestation.
  • Topic: Climate Change, Environment, Jair Bolsonaro
  • Political Geography: Brazil, South America
  • Author: David Reifschneider, David Wilcox
  • Publication Date: 11-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The Federal Reserve faces two important monetary policy challenges: First, since the Great Recession it has struggled to move inflation convincingly up to the 2 percent target level. Second, during the next recession it will struggle to deliver enough support to the economy unless the recession is unusually mild. As a result, the search is on for alternative policy frameworks that might allow the Fed to achieve its monetary policy objectives more effectively. Among the alternatives is average inflation targeting (AIT). The basic idea is simple: Instead of aiming to return inflation over the medium term to the target rate of 2 percent, the Fed would aim to return the average of inflation over some period to the target rate. The crucial innovation of AIT is that when inflation has been running below the target rate, it would have the Fed aim for above-target inflation in the future, in order to bring average inflation up toward the target. Simulations of the Fed’s workhorse econometric model of the US economy (the FRB/US model) suggest that AIT would be a weak addition to the Fed’s policy toolkit for dealing with recessions and persistently low inflation. In addition, simple versions of AIT would sometimes compel the Fed to run an undesirably restrictive monetary policy. AIT is thus not a very appealing alternative to the current framework.
  • Topic: Economics, Global Recession, Monetary Policy, Federal Reserve
  • Political Geography: North America, Global Focus, United States of America
  • Author: Sherman Robinson, Karen Thierfelder
  • Publication Date: 11-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The terms of the US-China trade war change often, but the tariff escalations have inflicted documented economic damage on both countries. Expanding the conflict will only increase the damage and reverberate across the world economy. This Policy Brief uses a computable general equilibrium model of the global economy to analyze three scenarios that could unfold in coming months. The first scenario is the current situation (as of June 2019). Two additional scenarios assume implementation of proposed US tariffs and Chinese responses. The models project the situation after the two countries and the rest of the world adjust across a time horizon of three to five years. For the United States, higher tariffs raise prices and reduce demand for consumers and producers. For China, the tariffs raise the prices of consumer goods but have less direct impact on producers, because the Chinese have exempted some intermediate inputs. US exports and imports decline under all three scenarios. But China can successfully divert its exports away from the United States and escape maximum economic damage.
  • Topic: Economics, Global Markets, Finance, Trade Wars, Trade
  • Political Geography: China, Asia, North America, United States of America
  • Author: Joseph E. Gagnon, Christopher G. Collins
  • Publication Date: 11-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Central banks in the three largest advanced economies (the United States, Japan, and the eurozone) have only limited ammunition to fight a recession based on the tools used to date. The Federal Reserve has the most amount of tried and tested ammunition in this group. If a recession were to hit the US economy now, the Fed would be able to deliver monetary stimulus equivalent to a cut in the short-term policy interest rate of about 5 percentage points, which is sufficient to fight a mild but not severe recession. The European Central Bank and the Bank of Japan have little ability to ease policy with tools used to date, about the equivalent of a 1 percentage point cut in the policy rate. But they can engage in more exotic forms of monetary policy, such as large-scale purchases of equity and real estate and direct transfers to households, which the Fed cannot do. These tools, however, are largely untested and face political resistance. An important implication of this analysis is that raising expected inflation before a recession hits has a much larger benefit than has been widely recognized. A higher long-run inflation rate gives central banks more room to not only cut their policy rates but also use forward guidance and quantitative easing to reduce longer-term rates.
  • Topic: Global Recession, Economy, Central Bank
  • Political Geography: Japan, Europe, North America, United States of America
  • Author: Cullen S. Hendrix, Sooyeon Kang
  • Publication Date: 07-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The nature and magnitude of geopolitical risk is changing more rapidly than the ability to anticipate it, with increasingly severe economic consequences. This Policy Brief discusses the economic costs and risks associated with episodes of political instability, arguing that firms, government agencies, and international institutions must update their forecasting and risk assessment efforts to take global factors into account. Since the global financial crisis, political instability has shifted from emerging-market countries in the developing world to larger, more globally impactful econo¬mies. Acknowledging this changing risk profile—and developing better tools to predict major episodes of instability—will allow both policymakers and firms to plan with greater confidence.
  • Topic: Economics, Geopolitics, Economy, Political stability
  • Political Geography: Global Focus
  • Author: Robert Z. Lawrence
  • Publication Date: 08-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For more than three decades the goal of becoming “the factory of the world” has been at the core of China’s development strategy. This strategy, in combination with high rates of domestic investment and low rates of consumption, made Chinese production the most manufacturing intensive in the world. But as its wages have risen, China’s competitiveness in the most labor-intensive manufacturing industries has eroded. Its ability to assemble products remains a major source of its exports, but it has also tried to shift toward more sophisticated value-added production domestically. Chinese domestic spending has shifted away from investment toward more consumption as citizens’ incomes have grown. Like Americans, Chinese people are also spending more on services than on manufactured goods. All these changes are fundamentally altering the structure of China’s production, reducing the role of manufacturing, and increasing the skill levels of workers in manufacturing. This Policy Brief reviews the challenges posed by these developments for China’s long-term goal of achieving more inclusive growth. It presents evidence that commonly held perceptions that Chinese manufacturing employment growth is robust are wrong. In fact, such growth has peaked and China is now following the pattern of structural change that is typical of a more mature emerging economy, in which the share of employment in manufacturing declines as workers are increasingly employed in services.
  • Topic: Bilateral Relations, Economic growth, Manufacturing
  • Political Geography: China, Asia, North America, United States of America
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 09-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For years China has been one of the world’s most rapidly growing sources of outward foreign direct investment. Since peaking in 2016, however, Chinese outward investments, primarily to the United States but also the European Union, have declined dramatically, especially in response to changes in China’s domestic rules on capital outflows and in the face of rising nationalism in the United States. Concerns about growing Chinese influence in other economies, the ascendant role of an authoritarian government in Beijing, and the possible security implications of Chinese dominance in the high-technology sector have put Chinese outward investments under intense international scrutiny. This Policy Brief analyzes the most recent trends in Chinese investments in the United States and the European Union and reviews recent political and regulatory changes both have adopted toward Chinese inward investments. It also explores the emerging transatlantic difference in the regulatory response to the Chinese information technology firm Huawei. Concerned about national security and as part of the ongoing broader trade friction with China, the United States has cracked down far harder on the company than the European Union.
  • Topic: Economics, International Trade and Finance, National Security, Foreign Direct Investment, Investment
  • Political Geography: China, Europe, Asia, North America, United States of America
  • Author: Lee G. Branstetter, Britta Glennon, J. Bradford Jensen
  • Publication Date: 06-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For decades, US multinational corporations (MNCs) conducted nearly all their research and development (R&D) within the United States. Their focus on R&D at home helped establish the United States as the unrivaled leader of innovation and technology advances in the world economy. Since the late 1990s, however, the amount of R&D conducted overseas by US MNCs has grown nearly fourfold and its geographic distribution has expanded from a few advanced industrial countries to many parts of the developing world, creating an innovation system that spans the globe. Like many aspects of globalization, including the offshoring of manufacturing over recent decades, the globalization of R&D raises concerns about US competitiveness and loss of technological leadership. At the same time, the spreading geographic location of innovation presents opportunities for US-based companies if the right policies are adopted to seize them. The research presented in this Policy Brief demonstrates that US innovators continue to remain involved in important ways in US MNCs' global R&D activities, and fears of a hollowing out of US capacity to innovate—based probably on previous fears about the hollowing out of US-based manufacturing—may be overstated. Indeed, the large and growing pool of highly educated scientists and engineers in the developing world could increase the rate of global productivity growth, to the advantage of US-based companies and the world in general. The authors conclude that a productive way to capitalize on the globalization of MNC R&D is not to oppose it but to combine emerging-market talent with MNC experience so that innovation can flourish to improve global living standards and fuel economic progress.
  • Topic: International Trade and Finance, Science and Technology, Multinational Corporations, Risk, Private Sector
  • Political Geography: North America, Global Focus, United States of America
  • Author: Adnan Mazarei
  • Publication Date: 06-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Suffering under Western sanctions and security challenges, Iran faces problems as well from its fragile banking system, which has been languishing for decades. Liquidity and solvency weaknesses pose a growing risk to the country’s financial stability. The sanctions reimposed by the United States in 2018 have heightened these vulnerabilities, but the problems also result from the heavy-handed role of the state, corruption, and the Central Bank of Iran’s failure to regulate and supervise the system. Iran’s ability to avoid a run on its banks is aided by their reliance on liquidity assistance, deposit insurance, and regulatory forbearance from the central bank. Depositors are forced to be patient because they have limited options to invest elsewhere. Iran has thus avoided a full-blown banking crisis. But the situation is not sustainable. Banks remain susceptible to external shocks, which could come from a complete halt to oil exports or war.
  • Topic: Security, Financial Crisis, Sanctions, Banks, Financial Institutions
  • Political Geography: Iran, Middle East, North America, United States of America
  • Author: Olivier Blanchard, Takashi Tashiro
  • Publication Date: 05-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For many years, the Japanese government has promised an eventual return to primary budget surpluses, but it has not delivered on these promises. Its latest goal is to return to primary balance by 2025. Blanchard and Tashiro, however, argue that, in the current economic environment in Japan, primary deficits may be needed for a long time, because they may be the best tool to sustain demand and output, alleviate the burden on monetary policy, and increase future output. What primary deficits are used for, however, is equally important, and the Japanese government should put them to better use. The authors recommend that, given Japan’s aging population, the government should spend on measures aimed at increasing fertility—and by implication population and output growth—which are likely to more than pay for themselves.
  • Topic: Economics, Government, Budget, Fiscal Policy, Deficit
  • Political Geography: Japan, Asia
  • Author: Adnan Mazarei
  • Publication Date: 04-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Faced with fluctuating oil prices and other uncertainties, the oil-rich countries of the Middle East and North Africa have made efforts—some for decades—to diversify their exports, in order to reduce their dependence on oil revenue and generate much-needed jobs. The results of these diversification efforts have been disappointing overall, raising concerns about the region's stability and potential risk to the global economy. Transparent public debates and dialogue are needed, especially with the private sector, about policies that have worked and those that have not, the costs and benefits of various diversification strategies, and improving governance of public resources being used for diversification.
  • Topic: Oil, Natural Resources, Gas, Finance, Diversification, Transparency
  • Political Geography: Middle East, North Africa
  • Author: Edwin M. Truman
  • Publication Date: 04-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The International Monetary Fund (IMF)—a quota-based institution—faces a test of its survival as the linchpin of the global financial safety net. Its roughly $1.4 trillion in total financial resources is scheduled to begin to shrink in 2020. In 2015, IMF members committed to strengthening IMF financial resources in the 15th General Review of Quotas, which will end in December 2019. Over the past 25 years, the United States has led the way for a gradual redistribution of IMF quota shares toward faster-growing emerging-market and developing countries. Any significant redistribution of quota shares requires an increase in total quotas. Because of its share of votes in the IMF, the United States must agree to any change in quotas. The Trump administration, however, has signaled that it favors no such change. If the United States does not reverse its stance, IMF members will lose an opportunity to strengthen the institution at a time of global financial uncertainty. Truman says the United States could still change its position and recommends how other member countries should press it to do so.
  • Topic: International Trade and Finance, Politics, International Monetary Fund, Global Political Economy, Donald Trump, Economic Cooperation
  • Political Geography: North America, Global Focus, United States of America
  • Author: Claudia Biancotti, Paolo Ciocca
  • Publication Date: 04-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Over the past few years, it has become apparent that a small number of technology companies have assembled detailed datasets on the characteristics, preferences, and behavior of billions of individuals. This concentration of data is at the root of a worrying power imbalance between dominant internet firms and the rest of society, reflecting negatively on collective security, consumer rights, and competition. Introducing data sharing mandates, or requirements for market leaders to share user data with other firms and academia, would have a positive effect on competition. As data are a key input for artificial intelligence (AI), more widely available information would help spread the benefits of AI through the economy. On the other hand, data sharing could worsen existing risks to consumer privacy and collective security. Policymakers intending to implement a data sharing mandate should carefully evaluate this tradeoff.
  • Topic: Security, Government, Science and Technology, Privacy, Internet, Monopoly, Artificial Intelligence
  • Political Geography: Global Focus
  • Author: Jeromin Zettelmeyer
  • Publication Date: 03-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: ermany’s new National Industrial Strategy 2030, unveiled by Economy Minister Peter Altmaier in February 2019, advocates an aggressive industrial policy. Although it stays clear of the virulent economic nationalism of the 1930s and the protectionism of President Donald Trump, its tone and much of its content are unmistakably nationalist. Zettelmeyer concludes that three of Altmaier’s five proposals—attempting to further raise the German share of manufacturing, restricting non-EU imports of intermediate goods, and promoting national champions in Germany and the European Union—are bad policies. The two remaining ideas—preventing some foreign takeovers and ramping up state support for certain technologies—are somewhat easier to justify, based on either market failures or the risk of technological dependence on foreign companies susceptible to political interference. But even in these areas, the specific policies proposed may well do more harm than good.
  • Topic: Economics, Nationalism, European Union, Donald Trump
  • Political Geography: Europe, Germany
  • Author: Cullen S. Hendrix, Sooyeon Kang
  • Publication Date: 07-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The nature and magnitude of geopolitical risk is changing more rapidly than the ability to anticipate it, with increasingly severe economic consequences. This Policy Brief discusses the economic costs and risks associated with episodes of political instability, arguing that firms, government agencies, and international institutions must update their forecasting and risk assessment efforts to take global factors into account. Since the global financial crisis, political instability has shifted from emerging-market countries in the developing world to larger, more globally impactful econo¬mies. Acknowledging this changing risk profile—and developing better tools to predict major episodes of instability—will allow both policymakers and firms to plan with greater confidence.
  • Topic: Economics, Financial Crisis, Geopolitics, Political stability, Risk
  • Political Geography: Global Focus
  • Author: Robert Z. Lawrence
  • Publication Date: 08-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For more than three decades the goal of becoming “the factory of the world” has been at the core of China’s development strategy. This strategy, in combination with high rates of domestic investment and low rates of consumption, made Chinese production the most manufacturing intensive in the world. But as its wages have risen, China’s competitiveness in the most labor-intensive manufacturing industries has eroded. Its ability to assemble products remains a major source of its exports, but it has also tried to shift toward more sophisticated value-added production domestically. Chinese domestic spending has shifted away from investment toward more consumption as citizens’ incomes have grown. Like Americans, Chinese people are also spending more on services than on manufactured goods. All these changes are fundamentally altering the structure of China’s production, reducing the role of manufacturing, and increasing the skill levels of workers in manufacturing. This Policy Brief reviews the challenges posed by these developments for China’s long-term goal of achieving more inclusive growth. It presents evidence that commonly held perceptions that Chinese manufacturing employment growth is robust are wrong. In fact, such growth has peaked and China is now following the pattern of structural change that is typical of a more mature emerging economy, in which the share of employment in manufacturing declines as workers are increasingly employed in services.
  • Topic: Economic growth, Manufacturing, Trade
  • Political Geography: China, Asia, North America, United States of America
  • Author: Lee G. Branstetter, Britta Glennon, J. Bradford Jensen
  • Publication Date: 06-2019
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For decades, US multinational corporations (MNCs) conducted nearly all their research and development (R&D) within the United States. Their focus on R&D at home helped establish the United States as the unrivaled leader of innovation and technology advances in the world economy. Since the late 1990s, however, the amount of R&D conducted overseas by US MNCs has grown nearly fourfold and its geographic distribution has expanded from a few advanced industrial countries to many parts of the developing world, creating an innovation system that spans the globe. Like many aspects of globalization, including the offshoring of manufacturing over recent decades, the globalization of R&D raises concerns about US competitiveness and loss of technological leadership. At the same time, the spreading geographic location of innovation presents opportunities for US-based companies if the right policies are adopted to seize them. The research presented in this Policy Brief demonstrates that US innovators continue to remain involved in important ways in US MNCs' global R&D activities, and fears of a hollowing out of US capacity to innovate—based probably on previous fears about the hollowing out of US-based manufacturing—may be overstated. Indeed, the large and growing pool of highly educated scientists and engineers in the developing world could increase the rate of global productivity growth, to the advantage of US-based companies and the world in general. The authors conclude that a productive way to capitalize on the globalization of MNC R&D is not to oppose it but to combine emerging-market talent with MNC experience so that innovation can flourish to improve global living standards and fuel economic progress.
  • Topic: Economics, Globalization, Multinational Corporations, Risk, Innovation
  • Political Geography: North America, United States of America
  • Author: Mary Lovely
  • Publication Date: 05-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: he Trump administration’s Section 301 tariffs are an ineffective response to US concerns about China’s high-technology aspirations. They are a prime example of 20th century tools aimed at the knowledge-embodying trade flows of the 21st century. Instead, these tariffs disadvantage American producers and harm US allies operating in East Asia while missing the mark on penalizing Chinese domestic firms that may have misappropriated US and other advanced economies’ technologies.
  • Topic: International Political Economy
  • Political Geography: America
  • Author: Tetyana Payosova, Gary Clyde Hufbauer , Euijin Jung
  • Publication Date: 04-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The mechanics of US withdrawal from the North American Free Trade Agreement (NAFTA) have been widely explored, with an emerging consensus among legal experts that President Donald Trump does have the authority to pull out of the accord. This Policy Brief examines the legal procedures in Canada and Mexico in the event that either country decides to withdraw or terminate NAFTA. Relative to the United States, Canada and Mexico have clearer legal procedures. To terminate NAFTA in Canada, the Department of International Trade would send the notice to withdrawal upon approval by the Cabinet and the Order in Council. In Mexico, the president can notify withdrawal from NAFTA under Article 2205, following Senate approval. To raise tariffs to the MFN level, Canada requires amendment of federal statutes that requires passage in both chambers of the Parliament through regular procedures. To raise its tariffs, Mexico requires a bill to amend federal legislation that has the approval of the Senate and the Chamber of Deputies.
  • Topic: International Political Economy
  • Political Geography: Canada, Mexico
  • Author: Jeromin Zettelmeyer et al
  • Publication Date: 04-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Greece’s debt currently stands at close to €330 billion, over 180 percent of GDP, with almost 70 percent owed to European official creditors. The fact that Greece’s public debts must be restructured is by now widely accepted. What remains controversial, however, is the extent of debt relief needed to make Greece’s debt sustainable.
  • Topic: International Political Economy, International Affairs
  • Political Geography: Greece
  • Author: Edwin M. Truman
  • Publication Date: 03-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Once again, the United States and other members of the International Monetary Fund (IMF) have been asked to address the adequacy of IMF financial resources and the distribution of voting power in the Fund. Observers are justified in thinking that they just witnessed this drama. IMF members completed an agreement on the size of IMF quota resources and governance—or voting power—reform in November 2010. As part of that agreement on the 14th general review of IMF quotas, members committed to bring forward the completion of the 15th general review of quotas to January 2014. The target was not met because the United States delayed approving the 2010 agreement until December 2015, which was necessary for the implementation of the 14th review. As a result, in December 2016, the governors of the IMF freshly resolved to complete the 15th review by the spring of 2019 or the fall of 2019 at the latest.
  • Topic: International Affairs
  • Political Geography: Global Focus
  • Author: Gary Clyde Hufbauer , Euijin Jung, (Lucy) Lu Zhiyao
  • Publication Date: 03-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The fraught negotiations over revising the North American Free Trade Agreement (NAFTA) have focused largely on US demands to limit imports from Canada and Mexico. But one little discussed step could help the United States increase exports to Canada and Mexico in a way the Trump administration ought to support. US express shipments to its NAFTA partners are far below potential, partly due to what are called low de minimis thresholds in those countries. The de minimis threshold refers to the value of imported goods below which no duty or tax is collected, and the customs declaration is very simple.
  • Topic: International Affairs
  • Political Geography: Global Focus
  • Author: Joseph Gagnon
  • Publication Date: 03-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Many countries have squandered their natural resource endowments. The International Monetary Fund and the World Bank routinely hector developing economies to save and invest more of their revenues from resources such as oil and gold for the benefit of future generations after the resources run out. But, can a country save too much of its resource revenues? Gagnon argues that since the first capital transfers to its Government Pension Fund Global in 1996, Norway has saved more than was needed to raise consumption of all generations equally. Norway’s excess saving imposes a cost on the rest of the world during periods of weak aggregate demand and ultralow interest rates. Gagnon proposes a counterfactual saving policy that would have increased Norway’s household consumption by nearly 9 percent on average from 1996 through 2017. The proposed policy would have reduced Norway’s current account surplus by more than one-third, or $13 billion per year on average, from 1996 through 2017. Even now, Norway could raise current consumption by more than US$2,000 per capita, while keeping the contribution of oil wealth to future generations equally large.
  • Topic: International Affairs
  • Political Geography: Norway
  • Author: Robert Z. Lawrence
  • Publication Date: 03-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: President Trump has asserted that trade balances are a key measure of a nation’s commercial success and that large US trade deficits prove that past trade approaches have been flawed. But trade deficits are not in fact a good measure of how well a country is doing with respect to its trade policies. Many of the assumptions on which the administration’s beliefs rest are not supported by the evidence. This Policy Brief argues that trade deficits are not necessarily bad, do not necessarily cost jobs or reduce growth, and are not a measure of whether foreign trade policies or agreements with other countries are fair or unfair. Efforts to use trade policy and agreements to reduce either bilateral or overall trade deficits are also unlikely to produce the effects the administration claims they will and instead lead to friction with US trading partners, harming the people the policies claim to help
  • Topic: International Political Economy
  • Political Geography: Global Focus
  • Author: Tetyana Payosova, Gary Clyde Hufbauer , Jeffrey Schott
  • Publication Date: 03-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Since its inception in 1995, the World Trade Organization’s (WTO) dispute settlement mechanism has resolved an impressive number of trade disputes and has earned a reputation as the “crown jewel” of the global trading system. Today, however, the mechanism is in crisis. WTO members have failed to negotiate updates to the rulebook, including rules on dispute settlement itself. As a result, the WTO Appellate Body increasingly is asked to render decisions on ambiguous or incomplete WTO rules. Its interpretations of such provisions have provoked charges by the United States and others that binding Appellate Body rulings, which establish precedents for future cases, effectively circumvent the prerogative of member countries to revise the WTO rulebook and thus undercut the national sovereignty of WTO members. For the past few years, US officials have blocked appointments of Appellate Body members to force WTO members to negotiate new rules that address US concerns and limit the scope for judicial overreach. If this problem is not resolved, the Appellate Body soon will not have enough members to review cases and the vaunted WTO dispute settlement system will grind to a halt.
  • Topic: International Affairs
  • Political Geography: Global Focus
  • Author: Olivier Blanchard, Christopher G. Collins, Mohammad R Jahan-Parvar, Thomas Pellet
  • Publication Date: 03-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Immediately following the US presidential election in November 2016, many economists were concerned that increased uncertainty over economic policy would lead to a decline in the US stock market. From the time of the election to the end of 2017, however, the stock market, as measured by the Standard and Poor's (S&P) 500 index, increased by about 25 percent. Price swings since then have led investors and economists to increasingly ask: Was the stock market rise justified by an increase in actual and expected future dividends, or did it reflect unhealthy price developments, which may reverse in the future?
  • Topic: International Political Economy
  • Political Geography: Global Markets
  • Author: William R Cline
  • Publication Date: 02-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The centerpiece of the Tax Cuts and Jobs Act (TCJA) of 2017 is the reduction in the corporate tax rate from 35 percent to 21 percent. The Joint Committee on Taxation has estimated the net revenue loss from the tax overhaul at $1 trillion over the next decade. The underlying premise of the legislation is that lower corporate taxes will spur growth, with trickle-down wage benefits that spread the resulting economic gains.
  • Topic: International Affairs
  • Political Geography: Global Focus
  • Author: Martin Chorzempa
  • Publication Date: 02-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Formidable barriers stand between the modern financial system and the hundreds of millions of Chinese citizens still using costly informal credit. For many, the financial data that could be used to give them a credit score that would lead to a fair priced loan exist but are not being used. This analysis finds that the most difficult barriers cutting these data off from their potential use for greater financial inclusion are the legal and political restrictions on data sharing and use, economic and competitive concerns from data holders, and the technical difficulty of integrating disparate systems. Policies that encourage coordination between public authorities and private actors in finance and technology can go a long way towards making these data available and driving access to credit in China. This shift would not only help borrowers: It would also encourage the needed economic rebalancing towards consumption, increase competition in the financial sector, raise efficiency through better credit allocation, and contribute to sustainable economic growth and social welfare.
  • Topic: International Political Economy
  • Political Geography: Global Focus
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 02-2018
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Few challenges facing the European Union—immigration pressures, the need to decrease security dependence on an increasingly erratic United States, and the United Kingdom's exit from the European Union (Brexit)—are compelling EU leaders to consider overhauling the revenue side of the European Union’s existing budget. To deal with these challenges in the future, the European Union will need resources—at a time when Europeans are increasingly skeptical about the effectiveness of budget-making in Brussels. Longstanding US budgetary procedures of trust fund accounting and earmarking government revenue towards specific priorities can provide a template for European policymakers. Shifting the EU budget towards more earmarked resources would reduce distrust among taxpayers by limiting Brussels’ spending discretion while focusing expenditures on specific challenges facing the European project.
  • Topic: International Political Economy, International Affairs
  • Political Geography: Europe
  • Author: Edwin M. Truman
  • Publication Date: 01-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: After the Obama administration's four failed attempts to win congressional approval of the 2010 quota and governance reform for the International Monetary Fund (IMF), it is time to recognize that implementation of the agreement may be indefinitely delayed. The international community must therefore prepare for the likelihood of a new world order in which the IMF augments its funding and reforms its governing structure without US participation. This Policy Brief examines four options for the IMF: First, wait for the US Congress to pass the necessary legislation. Second, complete a new, augmented IMF quota and governance package and again wait for the United States to give its formal approval. Third, bypass the US Congress and risk losing the US veto over a few important decisions on the structure of the IMF. Fourth, let the Fund adopt a reform and financing package within a structure that potentially excludes US participation and eliminates the US veto in the new entity.
  • Topic: Economics, International Trade and Finance, International Monetary Fund, Governance, Reform
  • Author: Ryan Rutkowski
  • Publication Date: 01-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Faced with slowing economic growth, Chinese policymakers now recognize that the service sector of the economy—transportation, communications, finance, and health care—could spur economic activity and employment. The catch is that China must reform these and other areas to accomplish this goal. Chinese leaders have outlined an ambitious agenda for reform, but myriad vested interests could slow or block their plans. This Policy Brief evaluates the steps taken so far and the difficulties that lie ahead in implementing them. If policymakers fail to reform and open up the service sector, they run the risk of seriously impairing China's growth prospects.
  • Topic: Economics, International Trade and Finance, Labor Issues, Financial Crisis, Reform
  • Political Geography: China
  • Author: Theodore H. Moran, Lindsay Oldenski
  • Publication Date: 02-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Japan is reemerging as the most important source of foreign direct investment (FDI) in the United States. In 2013 Japanese firms were the largest source of new inflows of FDI into the United States for the first time since 1992, injecting almost $45 billion of fresh investment into the US economy in that year alone. Moran and Oldenski show how Japanese investment in the United States differs from that of other countries along several dimensions. These differences not only make FDI by Japanese firms especially valuable but point to some important policy goals for attracting it. Although the automotive sector is the single largest industry for Japanese investment in the United States, the focus should not be on competing to attract the auto industry in particular nor should any active industrial policy of "picking winners" be pursued. Japanese investment is unique because of its research and development intensity, manifested across a number of industries in which Japanese multinationals invest other than automobiles. US policy should focus on reinforcing and expanding the factors that attract high-performing firms and high-value production stages to the United States, regardless of industry.
  • Topic: Development, Economics, Foreign Direct Investment, United States
  • Political Geography: Japan
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 03-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Conventional wisdom holds that the United States lags behind many other advanced countries in its spending on social, health, and welfare programs. In this Policy Brief, Jacob Kirkegaard argues that conventional wisdom is faulty, in that it overlooks the role of tax systems and private spending in delivering social programs in different societies. Taking the full effects of tax systems and spending by private and public sources into account, Kirkegaard finds that the true level of US social expenditures is fully comparable to European spending—and yet yields worse outcomes than in Europe. High aggregate social spending in the United States has a very low impact on overall income inequality and healthcare outcomes, for example. The Policy Brief also concludes that the United States relies excessively on tax subsidization to the detriment of fiscal sustainability, transparency, and redistributive fairness
  • Topic: Governance, Health Care Policy, Budget
  • Author: Avinash D. Persaud
  • Publication Date: 04-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Solvency II, which the European Parliament adopted in March 2014, codifies and harmonizes insurance regulations in Europe to reduce the risk of an insurer defaulting on its obligations and producing dangerous systemic side effects. The new directive tries to achieve these aims primarily by setting capital requirements for the assets of insurers and pension funds based on the annual volatility of the price of these assets. Persaud argues that these capital requirements will impose an asset allocation on life insurers and pension funds that does not serve the interests of consumers, the financial system, or the economy. The main problem with Solvency II is that the riskiness of the assets of a life insurer or pension fund with liabilities that will not materialize before 10 or sometimes 20 years is not well measured by the amount by which prices may fall during the next year. Solvency II fails to take account of the fact that institutions with different liabilities have different capacities for absorbing different risks and that it is the exploitation of these differences that creates systemic resilience. To correct this problem, Persaud offers an alternative approach that is more attuned to the risk that a pension fund or life insurer would fail to meet its obligations when they come due and less focused on the short-term volatility of asset prices.
  • Topic: Economics, International Trade and Finance, Budget
  • Author: Jose De Gregorio
  • Publication Date: 04-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Latin America's recent economic performance has been disappointing. After a very strong recovery from the Great Recession, growth has slowed considerably, and prospects for 2015 are dim. Among the seven largest economies in the region, output is expected to contract in Argentina, Brazil, and Venezuela, and Chile, Colombia, Mexico, and Peru are projected to grow by only about 3 percent. The decline was not caused by external factors but was mostly cyclical in nature and a result of low productivity. Although monetary and fiscal policies may still have a role in supporting demand in some instances, the main problem in the region is not a lack of demand but low productivity growth. Efforts must be made to foster productivity. Institutional weakness must be addressed and inequality reduced if sustainable high growth is to resume.
  • Topic: Economics, International Trade and Finance, Monetary Policy, Financial Crisis
  • Political Geography: Latin America
  • Author: William R. Cline
  • Publication Date: 06-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For nearly three decades, the dominant view on the role of the financial sector in economic development has been that greater financial depth facilitates faster growth. However, the Great Recession has shaken confidence in that view because of the contributing role of high leverage and such financial innovations as collateralized subprime mortgage-backed assets and derivatives on them. Recent studies from the International Monetary Fund and Bank for International Settlements have argued that "too much finance" reduces growth. In an environment of new doubts about finance following the Great Recession, these studies finding that there can be too much of it seem to have struck a responsive chord. Cline warns that these findings should be viewed with considerable caution. He first shows that correlation without causation could similarly lead to the conclusion that too many doctors spoil growth, for example. He the demonstrates algebraically that if the variable of interest, be it financial depth, doctors, or any other good or service that rises along with per capita income, is incorporated in a quadratic form into a regression of growth on per capita income, there will be a necessary but spurious finding that above a certain point more of the good or service in question causes growth to decline. In some situations, finance can become excessive; the crises of Iceland and Ireland come to mind. But it is highly premature to adopt as a new stylized fact the recent studies' supposed thresholds beyond which more finance reduces growth.
  • Topic: Economics, International Trade and Finance, International Monetary Fund, Financial Crisis
  • Author: Caroline Freund, Sarah Oliver
  • Publication Date: 06-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Regulatory standards protect consumers from defective products, but they impede trade when they differ across countries. The Transatlantic Trade and Investment Partnership (TTIP) seeks to reduce distortions in the automobile and other industries. Freund and Oliver evaluate the equivalence of automobile regulations in the United States and the European Union in terms of catastrophe avoidance and estimate the trade gains from harmonization. The UN 1958 Agreement on automobiles, which harmonizes regulations among signatories, is used to quantify the trade effect of regulatory convergence. The removal of regulatory differences in autos is estimated to increase trade by 20 percent or more. The effect on trade from harmonizing standards is only slightly smaller than the effect of EU accession on auto trade. The large economic gains from regulatory harmonization imply that TTIP has the potential to improve productivity while lowering prices and enhancing variety for consumers.
  • Topic: Economics, International Trade and Finance, Treaties and Agreements, European Union
  • Political Geography: Global Focus
  • Author: William R. Cline
  • Publication Date: 08-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Using his European Debt Simulation Model (EDSM), Cline examines whether and to what extent additional debt relief is needed in Greece under the new circumstances. Greece's debt burden is significantly lower than implied by the ratio of its gross debt to GDP, because of concessional interest rates on debt owed predominantly to the euro area official sector. The IMF's call for debt relief recognizes the lower interest burden but argues that the gross financing requirement is on track to exceed a sustainable range of 15 to 20 percent. But in the Fund's June Debt Sustainability Analysis that threshold would not be exceeded until after 2030. A sustainability diagnosis based on such a distant future date would seem at best illustrative rather than definitive. The euro area creditors might, nonetheless, be well advised to provide two types of interest relief: an earmarked portion of interest otherwise due to finance a public works employment program; and additional interest relief to compensate for budget shortfalls caused by growth below plan levels. The sovereign debt situation should be alleviated by carrying out the bank recapitalization directly from the European Stability Mechanism to the banks, rather than through the sovereign as the intermediary. The large increase in the ratio of gross debt to GDP imposed by bank recapitalization is mostly an optical illusion because there would be a corresponding rise in state assets, but this increase could, nonetheless, further erode perceptions of sustainability.
  • Topic: Debt, Economics, International Monetary Fund, Financial Crisis, Budget
  • Political Geography: Greece
  • Author: Jeffrey J. Schott
  • Publication Date: 08-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Korea's decision to delay joining the Trans-Pacific Partnership (TPP) talks was a tactical mistake. It is now left with primarily two options to participate: (1) ask to join the TPP, if possible between signature and entry into force, or (2) accede to the TPP after the agreement is ratified and goes into effect—either alone or as part of a group of countries seeking TPP membership. For Korea the burden of adjustment in the TPP—in terms of liberalization commitments—will probably be higher than had it joined as an original signatory. As a major trading nation, it stands to reap large gains from increased trade and investment with TPP countries and should opt to join the TPP as soon as the window for entry reopens.
  • Topic: Economics, Treaties and Agreements
  • Political Geography: South Korea
  • Author: Lindsay Oldenski
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Reshoring—when firms shift manufacturing production back to the United States—has been getting a great deal of publicity lately. Oldenski examines the most recent data on the global operations of US firms and concludes that although some companies have reversed their previous offshoring decisions, there is no evidence of a widespread reshoring trend. But this should not be considered a defeat for US competitiveness. US multinationals continue to move operations offshore, but they also continue to grow stronger, producing more in their US operations and adding more to total US exports. The structure of US manufacturing has changed, but the ability to adapt to the changing nature of global business has been and will continue to be crucial to the continued growth of US manufacturing.
  • Topic: Economics, International Trade and Finance
  • Political Geography: United States
  • Author: Monica de Bolle
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Public lending by the Brazilian Development Bank (BNDES) may have done more harm than good in Brazil, adversely affecting real interest rates and productivity growth. Specifically, BNDES's large amounts of subsidized lending are responsible for substantial credit market segmentation, choking off monetary policy transmission. As a result, to maintain price stability the Central Bank of Brazil is forced to raise interest rates more than it might do otherwise in the absence of BNDES lending. Restoring Brazil's capacity to grow in the medium term requires a thorough rethinking of the role of BNDES. In particular, the bank's lending rates should be aligned with market prices, term and risk premia, while taking into account that, with an adequate transparency framework, public development banks can increase private sector participation instead of crowding it out.
  • Topic: Development, Economics, International Trade and Finance, Markets
  • Political Geography: Brazil, Latin America
  • Author: Theodore Moran
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: For more than a decade, China has complained about what it maintains has been a pattern of erratic and politicized treatment of Chinese investors when they attempt to acquire US companies. The Chinese want the Committee on Foreign Investment in the United States (CFIUS) to be more open and transparent in its rulings and to not discriminate against Chinese firms. The United States is not likely to accede to these demands in any formal or legal manner. Moran proposes practical steps to address the concerns of Chinese investors without diluting CFIUS procedures. He provides a national security threat assessment filter, which allows Chinese investors—like investors of all nationalities—to determine when their proposed acquisitions might pose a genuine threat and when any such threat is simply not plausible. He also suggests that first-time Chinese investors seek expert counsel to overcome the secrecy surrounding CFIUS objections to figure out how to proceed with problematic acquisitions.
  • Topic: Economics, Markets, Foreign Direct Investment
  • Political Geography: United States
  • Author: Simeon Djankov
  • Publication Date: 09-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the 15 years of President Vladimir Putin's rule, state control over economic activity in Russia has increased and is greater today than in the immediate postcommunist era. The concentration of political and economic power in Putin's hands has led to an increasingly assertive foreign policy, using energy as a diplomatic tool, while plentiful revenues from extractive industries have obfuscated the need for structural reforms at home. The West's 2014 sanctions on Russia have brought about economic stagnation, and with few visible means of growth, the economy is likely to continue to struggle. Watching Europe struggle with its own growth, in part because of deficiencies in its economic model, Russia will not be convinced to divert from state capitalism without evidence of a different, successful economic model. Changing course can only be pursued in the presence of political competition; the current political landscape does not allow for such competition to flourish
  • Topic: Economics, Politics
  • Political Geography: Russia, Europe
  • Author: Jeffrey Schott, Eujiin Jung, Cathleen Cimino-Isaacs
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Of all the free trade agreements (FTAs) concluded by Korea with its major trading partners since the turn of the century, the Korea-China FTA may be the largest in trade terms. It is, however, far from the best in terms of the depth of liberalization and the scope of obligations on trade and investment policies. Korea and China agreed to liberalize a large share of bilateral trade within 20 years, but both sides incorporated extensive exceptions to basic tariff reforms and deferred important market access negotiations on services and investment for several years. Political interests trumped economic objectives, and the negotiated outcome cut too many corners to achieve such a comprehensive result. The limited outcome in the Korea-China talks has two clear implications for economic integration among the northeast Asian countries. First, prospects for the ongoing China-Japan-Korea talks will be limited and unlikely to exceed the Korea-China outcome. Second, Korea and Japan need to strengthen their bilateral leg of the northeast Asian trilateral and the best way is by negotiating a deal in the context of the Trans-Pacific Partnership.
  • Topic: Economics, International Trade and Finance, Politics, Bilateral Relations
  • Political Geography: United States, China, Asia, Korea
  • Author: Jacob Funk Kirkegaard
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: After surviving its worst economic downturn since the Great Depression and the near collapse of its common currency, Europe is now engulfed by hundreds of thousands of desperate migrants and refugees from the Middle East and Africa. It needs new and permanent migration institutions and resources not only to accommodate the influx of refugees but also to set up a new border control system throughout the region. These demands pose a challenge for European policymaking as serious as the euro crisis of the last five years. Kirkegaard proposes a migration and mobility union, to be implemented gradually, with the goal of comprehensively reforming European migration policy.
  • Topic: Economics, Migration, Politics, Refugee Issues
  • Political Geography: Europe
  • Author: Barbara Kotschwar, Tyler Moran
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: While women's presence in the leadership ranks of international sporting bodies has increased over the past decade, women continue to be underrepresented relative to their involvement in sports. Seeing qualified women in sports leadership positions can serve as a strong motivator for female athletes, which is important given the strong link between girls' participation in sports and positive outcomes in education, health, and positioning in the workforce. The important multiplier effects that sports can have for girls and women, and the important effects that positive female outcomes can have for economic growth, makes promoting gender equality in sports leadership a wise societal investment.
  • Topic: Education, Gender Issues, Human Welfare, Social Movement
  • Political Geography: Global Focus
  • Author: Tomas Hellebrandt, Paolo Mauro
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: In the next two decades, hundreds of millions of people in emerging economies are projected to reach income levels at which they will be able to afford cars and air travel. As purchasing power increases worldwide, people will spend proportionately less on food and beverages and more on transportation. Higher spending on transportation, especially in China, India, and Sub-Saharan Africa, will increase pressures on the infrastructure in these economies and aggravate global climate change. Governments will need to respond to these challenges in a fiscally sustainable and environmentally responsible way.
  • Topic: Emerging Markets, International Trade and Finance, Politics, Economies
  • Political Geography: Global Focus
  • Author: William R. Cline
  • Publication Date: 11-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The latest semiannual fundamental equilibrium exchange rate (FEER) estimates find that the US dollar is now overvalued by about 10 percent, comparable to levels in 2008 through early 2010 and again in 2011. Unlike then, the current strong dollar does not reflect a weak renminbi kept undervalued by major exchange rate intervention by China. Instead, China's current account surplus has fallen sharply relative to GDP, and its recent intervention has been to prevent excessive depreciation rather than to prevent appreciation. Additionally, declines in the real effective exchange rates (REERs) for major emerging-market economies and resource-based advanced economies, driven by falling commodity prices in recent months, have strengthened the dollar. Recent increases in the REERs for the euro area and Japan have removed their modest undervaluation identified in the last FEERs estimates in May, and the Chinese renminbi remains consistent with its FEER. The dollar's rise by nearly 15 percent in real effective terms over the past two years could impose a drag of nearly one-half percent annually on US demand growth over the next five years. As the Federal Reserve moves to normalize US monetary policy, it may need to consider a gentler rise in interest rates than it might otherwise have pursued, both to temper possible further strengthening of the dollar in response to higher interest rates and to help offset the demand compression from falling net export
  • Topic: Economics, International Trade and Finance, Monetary Policy, GDP
  • Political Geography: United States, China
  • Author: Angel Ubide
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: The rules and buffers created in the last few years to enable the euro area to withstand another sudden stop of credit and market-driven panic in one or more of its member states are welcome steps, but they are widely recognized as inadequate. Ubide proposes creating a system of stability bonds in the euro area, to be issued by a new European Debt Agency, to partially finance the debt of euro area countries—up to 25 percent of GDP. These stability bonds should be initially backed by tax revenues transferred from national treasuries, but ultimately by the creation of euro area–wide tax revenues, and used to fund the operations of national governments. They could also be used for euro area–wide fiscal stimulus, to complement the fiscal policies of member states. Such bonds would strengthen the euro area economic infrastructure, creating incentives for countries to reduce their deficits but not forcing them to do so when such actions would drive their economies further into a downturn. The bonds would permit the euro area to adopt a more flexible or expansionary fiscal policy during recessions.
  • Topic: Economics, International Trade and Finance, Monetary Policy, GDP
  • Political Geography: Europe
  • Author: Jeffrey Schott, Euijin Jung, Cathleen Cimino-Isaacs
  • Publication Date: 12-2015
  • Content Type: Policy Brief
  • Institution: Peterson Institute for International Economics
  • Abstract: Of all the free trade agreements (FTAs) concluded by Korea with its major trading partners since the turn of the century, the Korea-China FTA may be the largest in trade terms. It is, however, far from the best in terms of the depth of liberalization and the scope of obligations on trade and investment policies. Korea and China agreed to liberalize a large share of bilateral trade within 20 years, but both sides incorporated extensive exceptions to basic tariff reforms and deferred important market access negotiations on services and investment for several years. Political interests trumped economic objectives, and the negotiated outcome cut too many corners to achieve such a comprehensive result. The limited outcome in the Korea-China talks has two clear implications for economic integration among the northeast Asian countries. First, prospects for the ongoing China-Japan-Korea talks will be limited and unlikely to exceed the Korea-China outcome. Second, Korea and Japan need to strengthen their bilateral leg of the northeast Asian trilateral and the best way is by negotiating a deal in the context of the Trans-Pacific Partnership.
  • Topic: Economics, International Trade and Finance, Markets, Treaties and Agreements, Bilateral Relations
  • Political Geography: Korea