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  • Author: Maria-Louise Clausen
  • Publication Date: 12-2019
  • Content Type: Policy Brief
  • Institution: Danish Institute for International Studies
  • Abstract: The state of Iraq is struggling to exert control over its territory. As a result, remote surveillance is being used to enhance the effectiveness of policing. However, constant surveillance may have a negative impact on emerging state–society relations. RECOMMENDATIONS ■ Invest in research focusing on the impact of surveillance on state–society relations in the Global South. ■ Work to introduce transparency in the use of surveillance in the Global South. ■ Encourage a discussion of issues of privacy and the regulation of airspace in the Global South.
  • Topic: Security, Defense Policy, Fragile States, Surveillance, Violence, Justice
  • Political Geography: Iraq, Middle East, Global South
  • 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