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  • Author: Kristin Forbes, Joseph E. Gagnon, Christopher G. Collins
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper models inflation by combining the multicountry framework of one of its authors (Forbes) with the nonlinear specification proposed by the other two (Gagnon and Collins). The results find strong support for a Phillips curve that becomes nonlinear when inflation is low, in which case excess economic slack has little effect on inflation. This finding is consistent with evidence of downward nominal wage and price rigidity. The estimates also show a significant and economically meaningful Phillips curve relationship between slack and inflation when slack is negative (i.e., when output is above long-run potential). In this nonlinear model, international factors play a large role in explaining headline inflation, a role that has increased over time, supporting the results of Forbes’ linear model.
  • Topic: Economics, Inflation, Data
  • Political Geography: Global Focus
  • Author: Chad P. Bown
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: While the public was transfixed by the Trump administration’s policies alleging that imports were a threat to America’s national security during 2017–20, there was a concomitant and more quiet US policy shift on the export side. Addressing the national security threat presented by exports posed different economic and institutional challenges from those associated with import policy, including the acknowledgment that export controls for legitimate national security reasons can be the first-best policy to confront the problem at its source. Yet, export controls could also be misused as a beggar-thy-neighbor policy to redistribute economic well-being across countries, even from one ally to another. This paper describes how US export control policy evolved over 2017–20, as well as the international institutions—first the Coordinating Committee for Multilateral Export Controls (COCOM), then the Wassenaar Arrangement—historically tasked with multilateralizing US export restrictions used to protect national security. With the potential for US export control policy to brush up more frequently against WTO rules designed to limit the use of export restrictions, the paper also highlights new challenges for the WTO’s system of resolving trade disputes. Overall, a US failure to strike the right balance for its export control policy would result in it being ineffective at addressing national security risks, costly for the economy, and problematic for trade and diplomatic relations.
  • Topic: Economics, Government, National Security, Exports, Trade
  • Political Geography: North America, United States of America
  • Author: Olivier Jeanne
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: In theory, tariffs are partially offset by a currency appreciation in the tariff-imposing country or by a depreciation in the country on which the tariff is imposed. Based on a calibrated model, this paper finds that US tariffs imposed in 2018 should not have had a large impact on the dollar but may have significantly depreciated the renminbi. This prediction is consistent with a high-frequency event analysis looking at the impact of tariff-related news on the dollar and the renminbi. Tariff-related news explains about one-third of the renminbi depreciation observed in 2018.
  • Topic: Economics, Tariffs, Exchange Rate Policy, Currency
  • Political Geography: North America, United States of America
  • Author: Joseph E. Gagnon, Olivier Jeanne
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper shows that the scope for bond yields to fall below zero is strictly limited by market expectations about how far below zero central banks are willing to set their short-term policy rates. If a central bank communicates a credible commitment to keeping its policy rate above a given level under all circumstances, then bond yields must be higher than that level. This result holds true even in a model in which central banks are able to depress the term premium in bond yields below zero via large-scale purchases of long-term bonds, also known as quantitative easing (QE). QE becomes less effective as bond yields approach their lower bound.
  • Topic: Economics, Finance, Central Bank, Global Bond Market
  • Political Geography: Global Focus
  • Author: Chad P. Bown, Aksel Erbahar, Maurizio Zanardi
  • Publication Date: 02-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines how trade protection is affected by changes in the value-added content of production arising through global value chains (GVCs). Exploiting a new set of World Trade Organization (WTO) rules adopted in 1995 that impose an exogenously timed requirement for countries to reevaluate their previously imposed trade protection, the authors adopt an instrumental variables strategy and identify the causal effect of GVC integration on the likelihood that a trade barrier is removed. Using a newly constructed dataset of protection removal decisions involving 10 countries, 41 trading partners, and 18 industries over 1995–2013, they find that bilateral industry-specific domestic value-added growth in foreign production significantly raises the probability of removing a duty. The results are not limited to imports from China but are only found for the protection decisions of high-income countries. Back-of-the-envelope calculations indicate that rapid GVC growth in the 2000s freed almost a third of the trade flows subject to the most common temporary restrictions (i.e., antidumping) applied by high-income countries in 2006.
  • Topic: Economics, International Trade and Finance, Global Markets, Finance, Trade
  • Political Geography: Global Focus
  • Author: David Reifschneider, David Wilcox
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: If the Federal Reserve does not decisively change the way it conducts monetary policy, it will probably not be capable of fighting recessions in the future as effectively as it fought them in the past. This reality helped motivate the Fed to undertake the policy framework review in which it is currently engaged. Researchers have suggested many steps the Fed could take to improve its recession-fighting ability; however, no consensus has emerged as to which of these steps would be both practical and maximally effective. This paper aims to fill that gap. It recommends that the Fed commit as soon as possible to a new approach for fighting recessions, involving two key elements. First, the Fed should commit that whenever it runs out of room to cut the federal funds rate further, it will leave the rate at its minimum level until the labor market recovers and inflation returns to 2 percent. Second, the Fed should commit that under the same circumstances, it will begin to purchase longer-term assets in volume and will continue such purchases until the labor market recovers. If the forces driving the next recession are not unusually severe, this framework might allow the Fed to be as effective at fighting that recession as it was in the past. If the next recession is more severe, however, the Fed will probably run out of ammunition even if it takes the two steps recommended here. Therefore, both monetary and fiscal policymakers should consider yet other steps they could take to enhance their ability to fight future recessions.
  • Topic: Economics, Monetary Policy, Federal Reserve
  • Political Geography: North America, Global Focus, United States of America
  • Author: Chad P. Bown, Soumaya Keynes
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: On December 10, 2019, the World Trade Organization’s (WTO) 25-year-old system of resolving disputes broke down. This paper explains why. It describes the dysfunctional system that preceded the WTO, when the United States dealt with politically troublesome imports by using voluntary export restraints and increasingly resorted to the “aggressively unilateral” Section 301 policy to resolve trade concerns. The WTO was a compromise between the rest of the world and the United States, whereby the latter accepted some constraints with the expectation that the new system of binding dispute settlement would serve its interests. But although the creation of the WTO resolved some concerns about American unilateralism in the short term, its system of handling disputes turned out to be politically unsustainable.
  • Topic: Economics, World Trade Organization, Trade, Donald Trump
  • Political Geography: North America, United States of America
  • Author: Rudolf Furst
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Institute of International Relations Prague
  • Abstract: The Euro-Japanese rapprochement stimulates the Japanese interest in the new EU member states, which are then matched with Japanese investments and Japan’s global trade strategy. The V4 countries benefit from their geographical position, existing infrastructure and political stability, industrial tradition, and low labour costs, emphasizes Rudolf Fürst.
  • Topic: Economics, Bilateral Relations, Labor Issues, European Union, Political stability, Industry
  • Political Geography: Japan, Europe, Asia
  • Author: Clara Gillespie
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: Korea Economic Institute of America (KEI)
  • Abstract: Under President Moon Jae-in, South Korea has set an ambitious target to move from being “first in the world” in the race to 5G to “first in global quality.” Yet, while a range of industry and government stakeholders are investing heavily in making this vision a reality, a number of factors are likely to weigh on whether or not these efforts yield significant results. These include uncertainties about how to further accelerate development in ways that lead to better returns on investments, and about how to navigate complex geopolitical considerations, including ongoing debates about Huawei’s involvement in 5G network infrastructure. Each of these areas will, in turn, require domestic stakeholders to make complex assessments about potential tradeoffs and risks. Thus, this paper assesses South Korea’s emerging 5G era at the one-year mark, and highlights key successes, setbacks, and ongoing challenges. Building on these findings, the paper concludes by offering several potential scenarios for future development, and suggestions for ways forward.
  • Topic: Economics, Science and Technology, 5G
  • Political Geography: Asia, South Korea
  • Author: Trevon Logan, Peter Temin
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: This paper records the path by which African Americans were transformed from enslaved persons in the American economy to partial participants in the progress of the economy. The path was not monotonic, and we organize our tale by periods in which inclusiveness rose and fell. The history we recount demonstrates the staying power of the myth of black inferiority held by a changing white majority as the economy expanded dramatically. Slavery was outlawed after the Civil War, and blacks began to participate in American politics en masse for the first time during Reconstruction. This process met with white resistance, and black inclusion in the growing economy fell as the Gilded Age followed and white political will for black political participation faded. The Second World War also was followed by prosperity in which blacks were included more fully into the white economy, but still not completely. The Civil Rights Movement proved no more durable than Reconstruction, and blacks lost ground as the 20th century ended in the growth of a New Gilded Age. Resources that could be used to improve the welfare of whites and blacks continue to be spent on the continued repressions of blacks.
  • Topic: Economics, Race, History, Capitalism, Slavery
  • Political Geography: United States, Global Focus
  • Author: Jorge Ignacio Del Castillo Machicado
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Institute for Advanced Development Studies (INESAD)
  • Abstract: This article researches on the evolution of the business regulatory framework of Bolivia from 2006 to 2017 and its relationship with the country’s Labor productivity, Total Factor Productivity, and its Informal Economy size. To do this, it analyzes the Doing Business annual reports and standardizes each year overall score to the most recent methodology developed by the World Bank Group. Furthermore, it complements its finding with qualitative data through semi-structured interviews to key actors in the Bolivian economy. Overall, this paper finds that few steps have been taken to improve Bolivia’s Business regulatory framework from the period of 2006-2017, result in a lower rank in the Doing Business report and keeping its score constant. The lack of initiative in working towards more efficient policies, complex nature and poor adaptability of new technological practices have stagnated the improvements of business regulations along their lifecycles. As a consequence, Bolivia Total Factor Productivity, Informal Economy size and Labor productivity have shown no improvement over the last 10 years.
  • Topic: Economics, Science and Technology, Labor Issues, World Bank, Regulation, Business
  • Political Geography: Latin America, Bolivia
  • Author: Amat Adarov, Mahdi Ghodsi
  • Publication Date: 05-2020
  • Content Type: Working Paper
  • Institution: The Vienna Institute for International Economic Studies (WIIW)
  • Abstract: The preferential trade agreement between the Eurasian Economic Union (EAEU) and Iran on mutual trade entered into force in October 2019. In this report we estimate its expected impact at aggregate and sectoral levels using the gravity model of trade based on the global sample of bilateral trade flows at the HS 6-digit level. The analysis suggests that the implementation of the agreement will boost mutual trade for both trading partners, with relatively greater gains expected for the EAEU’s exports to Iran. On aggregate, the total gains in mutual trade are estimated to reach almost USD 46 million, with exports from the EAEU to Iran expected to increase by 9.7%, compared with a rise in exports from Iran to the EAEU of up to 4%. The difference in the impact will also be significant across the five EAEU countries as well as across sectors, with the major export gains expected to accrue in the chemicals and agri-food sectors, especially trade in miscellaneous fruits and vegetables, as well as in the textile, polymer production and metals sectors.
  • Topic: Economics, Treaties and Agreements, Global Political Economy, Exports, Trade
  • Political Geography: Iran, Kazakhstan, Armenia, Belarus
  • Author: Amat Adarov, Robert Stehrer
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: The Vienna Institute for International Economic Studies (WIIW)
  • Abstract: The paper studies the drivers of productivity at country and sectoral levels over the period 2000-2017 with the focus on the impact of capital accumulation and structure. The analysis confirms an especially important role of ICT and intangible digital capital for productivity growth, particularly in the manufacturing sectors. While backward global value chain participation and EU integration are also found to be instrumental for accelerating productivity growth, the impact of inward foreign direct investment is not robustly detected when the data is purged from the effects of special purpose entities and outlier countries.
  • Topic: Economics, Foreign Direct Investment, European Union, Digital Economy, Capital Flows, Trade
  • Political Geography: Europe, Global Focus
  • Author: Mahdi Ghodsi, Oliver Reiter, Robert Stehrer, Roman Stöllinger
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: The Vienna Institute for International Economic Studies (WIIW)
  • Abstract: The global economy is currently experiencing a new wave of technological change involving new technologies, especially in the realm of artificial intelligence and robotics, but not limited to it. One key concern in this context is the consequences of these new technologies on the labour market. This paper provides a comprehensive analysis of the direct and indirect effects of the rise of industrial robots and productivity via international value chains on various industrial indicators, including employment and real value added. The paper thereby adds to the existing empirical work on the relationship between technological change, employment and industrial growth by adding data on industrial robots while controlling for other technological advancements measured by total factor productivity (TFP). The results indicate that the overall impact of the installation of new robots did not statistically affect the growth of industrial employment during the period 2000–2014 significantly, while the overall impact on the real value added growth of industries in the world was positive and significant. The methodology also allows for a differentiation between the impact of robots across various industries and countries based on two different perspectives of source and destination industries across global value chains.
  • Topic: Economics, Science and Technology, Digital Economy, Economic growth, Industry, Robotics
  • Political Geography: Global Focus
  • Author: Arvind Subramanian
  • Publication Date: 07-2019
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: My recent research paper “India's GDP Mis-estimation: Likelihood, Magnitudes, Mechanisms, and Implications,” (hereafter “GDP paper”) and the associated op-ed in the Indian Express on June 11, 2019 have generated considerable debate. This is encouraging because serious argument and counter-argument are the basis for good policy-making. Since the issue itself is of great importance, the counter-arguments to my analysis warrant a considered response. That is the aim of this note, which is a complement to the original paper, addressing both the larger issues and some of the specific points that have been raised. The note is structured as follows. Section II describes my engagement with India’s GDP estimation when I was Chief Economic Adviser. Section III elaborates on the framework/approach underlying the GDP paper. Section IV makes explicit the key puzzle surrounding India’s growth estimates, and addresses the possible explanations for it. Section V explores the puzzle in greater detail. Section VI provides additional cross-country evidence on growth and price deflators, which support the findings of the original paper, namely that growth during 2011-16 was likely overestimated by a significant margin. Section VII addresses two broad objections to the main findings. Section VIII discusses some of the methodological critiques of the paper. Section IX offers some thoughts on the way forward.
  • Topic: Economics, Political Economy, International Development, Economic growth
  • Political Geography: South Asia, India
  • Author: Alice Evans
  • Publication Date: 06-2019
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: Support for gender equality has risen, globally. Analyses of this trend focus on individual and/or country-level characteristics. But this overlooks sub-national variation. Citydwellers are more likely to support gender equality in education, employment, leadership, and leisure. Why is this? This paper investigates the causes of rural-urban differences through comparative, qualitative research. It centres on Cambodia, where the growth of rural garment factories enables us to test theories that female employment fosters support for gender equality: potentially closing rural-urban differences; or whether other important aspects of city-living accelerate support for gender equality. Drawing on this rural and urban fieldwork, the paper suggests why social change is faster in Cambodian cities. First, cities raise the opportunity costs of gender divisions of labour – given higher living costs and more economic opportunities for women. Second, cities increase exposure to alternatives. People living in more interconnected, heterogeneous, densely populated areas are more exposed to women demonstrating their equal competence in socially valued, masculine domains. Third, they have more avenues to collectively contest established practices. Association and exposure reinforce growing flexibility in gender divisions of labour. By investigating the causes of subnational variation, this paper advances a new theory of growing support for gender equality.
  • Topic: Economics, Gender Issues, Urbanization, Women, Inequality
  • Political Geography: Cambodia, Southeast Asia
  • Author: Alice Evans
  • Publication Date: 03-2019
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: This paper shows that countries may reduce labour repression if they perceive this as conducive to export growth. This paper traces what happened before, in the presence of, and then following the withdrawal of international economic incentives for pro-labour reforms in Vietnam and Bangladesh. The Government of Vietnam announced it would allow independent trade unions, in order to join the Trans-Pacific Partnership (TPP) and increase market access. Similarly, the Government of Bangladesh rescinded restrictions on unions, following global condemnation of Rana Plaza and fear of buyers leaving en masse. Both governments reduced labour repression to promote export growth. With high-level authorisation, Vietnamese and Bangladeshi activists and reformists became less fearful, and mobilised for substantive change. However, these economic incentives were short-lived: after Trump’s election, the USA withdrew from TPP; buyers continued to source from Bangladesh, and squeezed prices (without requiring labour reforms). Both governments then amped up labour repression - notwithstanding private regulation, economic upgrading, industry growth, and mass strikes.
  • Topic: Economics, Labor Issues, Reform, Economic growth, Trans-Pacific Partnership
  • Political Geography: Bangladesh, South Asia, Vietnam
  • Author: Maurice Obstfeld
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper is a partial exploration of mechanisms through which global factors influence the tradeoffs that US monetary policy faces. It considers three main channels. The first is the determination of domestic inflation in a context where international prices and global competition play a role, alongside domestic slack and inflation expectations. The second channel is the determination of asset returns (including the natural real safe rate of interest) and financial conditions, given integration with global financial markets. The third channel, which is particular to the United States, is the potential spillback onto the US economy from the disproportionate impact of US monetary policy on the outside world. In themselves, global factors need not undermine a central bank’s ability to control the price level over the long term—after all, it is the monopoly issuer of the numeraire in which domestic prices are measured. Over shorter horizons, however, global factors do change the tradeoff between price-level control and other goals such as low unemployment and financial stability, thereby affecting the policy cost of attaining a given price path.
  • Topic: Economics, Government, International Trade and Finance, Monetary Policy
  • Political Geography: North America, United States of America
  • Author: Chad P. Bown, Jennifer A. Hillman
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The United States, the European Union, and Japan have begun a trilateral process to confront the Chinese economic model, including its use of industrial subsidies and deployment of state-owned enterprises. This paper seeks to identify the main areas of tension and to assess the legal-economic challenges to constructing new rules to address the underlying conflict. It first provides a brief history of subsidy disciplines in the General Agreement on Tariffs and Trade and the World Trade Organization (WTO) predating any concerns introduced by China. It then describes contemporary economic problems with China’s approach to subsidies, their impact, and the apparent ineffectiveness of the WTO’s Agreement on Subsidies and Countervailing Measures to address them. Finally, it calls for increased efforts to measure and pinpoint the source of the problems—in a manner analogous to how the Organization for Economic Cooperation and Development took on agricultural subsidies in the 1980s—before providing a legal-economic assessment of proposals for reforms to notifications, evidence, remedies, enforcement, and the definition of a subsidy.
  • Topic: Economics, World Trade Organization, Tariffs, Trade
  • Political Geography: Japan, Europe, Asia, North America, United States of America, European Union
  • Author: Patrick Honohan
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Should central banks take more account of ethical issues, notably the impact of monetary policy actions on the distribution of income and wealth and on efforts to combat climate change, in the design and implementation of the wider monetary policy toolkit they have been using in the past decade? Although the scope to influence a range of objectives is more limited than is often supposed, and while it is vital to not derail monetary policy from its core purposes, central bank mandates justify paying more attention to such broad issues, especially if policy choices have a significant potential impact. Carefully managed steps in this direction could actually strengthen central bank independence while making some contribution to improving the effectiveness of public policy on these issues.
  • Topic: Climate Change, Economics, Monetary Policy, Inequality, Central Bank
  • Political Geography: North America, Global Focus, United States of America
  • Author: Alvaro Leandro, Jeromin Zettelmeyer
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper explains and evaluates three proposals to create “safe assets” for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche “sovereign bond-backed securities” (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans (“E-bonds”); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds (“multitranche national bond issuance”). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. The authors find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bonds and multitranche national bond issuance have several interesting features—including inducing fiscal discipline—and warrant further exploration.
  • Topic: Economics, Sovereign Wealth Funds, Banks, Risk
  • Political Geography: Europe, Global Focus
  • Author: Monica de Bolle, Jeromin Zettelmeyer
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Since the mid-2000s, the platforms of major political parties in both advanced and emerging-market economies have increasingly emphasized policies that stress national sovereignty, reject multilateralism, and seek to advance national interests through measures that come at the expense of foreign interests. This paper documents this shift by evaluating the policy platforms of the largest political parties (about 55 in total) in the Group of Twenty (G-20) countries with regard to trade policy, foreign direct investment (FDI), immigration, and multilateral organizations. Preference shifts with respect to industrial policy, competition policy, and macroeconomic populism are also examined. In advanced economies, the biggest shifts were toward restrictions on immigration and trade and toward macroeconomic populism. In emerging-market economies, the largest preference shifts were toward industrial policies favoring specific sectors, macroeconomic populism, and industrial concentration. Trade protectionism and skepticism toward multilateral organizations and agreements have increased in both advanced and emerging-market economies. As of 2018, economic policy preferences in emerging-market economies were more nationalist and less liberal than in advanced countries, but the gap has narrowed. Right-wing parties tend to be more nationalist than left-wing parties in the areas of immigration restrictions, FDI restrictions, and antimultilateralism, but there is no significant difference with respect to trade protectionism.
  • Topic: Economics, International Trade and Finance, Nationalism, Politics, Populism, Macroeconomics
  • Political Geography: Global Focus
  • Author: Douglas A. Irwin
  • Publication Date: 05-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Do trade reforms that significantly reduce import barriers lead to faster economic growth? In the two decades since the critical survey of empirical work on this question by Francesco Rodriguez and Dani Rodrik in 2000, new research has tried to overcome the various methodological problems that have plagued previous attempts to provide a convincing answer. This paper examines three strands of recent work on this issue: cross-country regressions focusing on within-country growth, synthetic control methods on specific reform episodes, and empirical country studies looking at the channels through which lower trade barriers may increase productivity. A consistent finding is that trade reforms that significantly reduce import barriers have a positive impact on economic growth, on average, although the effect differs across countries. Overall, these research findings should temper some of the previous agnosticism about the empirical link between trade reform and economic performance.
  • Topic: Economics, Reform, Economic growth, Trade
  • Political Geography: Global Focus
  • Author: Lee Buchheit, Guillaume Chabert, Chanda DeLong, Jeromin Zettelmeyer
  • Publication Date: 05-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper attempts to provide a playbook for the sovereign debt restructuring process, drawing on the experience with sovereign debt restructuring since the 1980s. It begins with a discussion of the participating actors and their interests. It then describes the considerations that must be weighed in designing, negotiating, and concluding a debt restructuring, in light of two problems: asymmetric information between the debtor and the creditors, and creditor coordination problems, which can lead to free riding (the “holdout” problem). The paper focuses on how these problems, which can lead to inefficiently negotiated outcomes, can be managed and minimized in practice.
  • Topic: Debt, Economics, Sovereignty, Finance
  • Political Geography: Global
  • Author: Chad P. Bown
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: In 2018, the United States suddenly increased tariffs on nearly 50 percent of its imports from China. China immediately retaliated with tariffs on more than 70 percent of imports from the United States. This paper assesses what happened in 2018 and attempts to explain why. It first constructs a new measure of special tariff protection to put the sheer scope and coverage of the 2018 actions into historical context. It then uses the lens provided by the 2018 special tariffs to explain the key sources of economic and policy friction between the two countries. This includes whether China’s state-owned enterprises and industrial subsidies, as well as China’s development strategy and system of forcibly acquiring foreign technology, were imposing increasingly large costs on trading partners. Finally, it also examines whether the US strategy to provoke a crisis—which may result in a severely weakened World Trade Organization—was deliberate and out of frustration with the institution itself.
  • Topic: Economics, International Trade and Finance, World Trade Organization, Bilateral Relations, Trade Wars, Donald Trump, Imports
  • Political Geography: China, Asia, North America, United States of America
  • Author: Joseph E. Gagnon, Christopher G. Collins
  • Publication Date: 04-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: The Phillips curve, which traces out a negative relationship between inflation and unemployment, has undergone tremendous changes over more than 100 years. Some researchers argue that the slope of the curve in the United States fell substantially around 20 years ago so that unemployment now has little or no effect on inflation. This paper shows that another hypothesis is equally consistent with the data: The Phillips curve may be nonlinear when inflation is low, with the economy having operated in the flat region of the curve for most of the past 20 years. The next few years may be decisive in the debate between these hypotheses, as unemployment has returned to a range in which a nonlinear curve ought to display significant steepness. A flat Phillips curve implies little change in inflation going forward, but a nonlinear curve implies moderate increases in inflation over the next few years.
  • Topic: Economics, Inflation, Unemployment
  • Political Geography: North America, United States of America
  • Author: Maria C. Latorre, Zoryana Olekseyuk, Hidemichi Yonezawa, Sherman Robinson
  • Publication Date: 03-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines 12 economic simulation models that estimate the impact of Brexit (Britain’s exit from the European Union). Most of the studies find adverse effects for the United Kingdom (UK) and the EU-27. The UK’s GDP losses from a hard Brexit (reversion to World Trade Organization rules due to a lack of UK-EU agreement) range from –1.2 to –4.5 percent in most of the models analyzed. A soft Brexit (e.g., Norway arrangement, which seems in line with the nonbinding text of the political declaration of November 14, 2018, on the future EU-UK relationship) has about half the negative impact of a hard Brexit. Only two of the models derive gains for the UK after Brexit because they are based on unrealistic assumptions. The authors analyze more deeply a computable general equilibrium model that includes productivity and firm selection effects within manufacturing sectors and operations of foreign multinationals in services. Based on this latest model, they explain the likely economic impact of Brexit on a wide range of macroeconomic variables, namely GDP, wages, private consumption, capital remuneration, aggregate exports, aggregate imports, and the consumer price index.
  • Topic: Economics, World Trade Organization, Brexit, Multinational Corporations
  • Political Geography: Britain, Europe, European Union
  • Author: Felipe González, Nicolas Véron
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: China's rapid rise and unique economic system and the increasingly aggressive and disruptive US trade policy are posing an unprecedented threat to the global rules-based trading and economic system. The European Union has critical interests at stake in the current escalation, even as it has so far been comparatively spared from US trade policy belligerence and China's reactions. In this context, the European Union should adopt an independent and proactive stance, building on recent efforts and going beyond them. The European Union, even more than the United States or China, has a strategic interest in the preservation of the global rules-based order embodied by the World Trade Organization (WTO). It must play a leading role in steering WTO reform and modernization, working closely with broadly aligned third countries such as Japan and other players. It should expand its outreach beyond its immediate negotiating counterparts in both the United States and China, and leading European officials at both the EU and member state levels should work at better understanding China. While strengthening its domestic policy instruments to address new challenges, such as the screening of foreign direct investment for security purposes, the European Union must also resist its own temptations of protectionism and economic nationalism. In support of these objectives, the European Union should prepare itself for difficult decisions, which may involve revising some of its current red lines in international trade negotiations. Conversely, the European Union should stand firm on principles such as refusing one-sided agreements and rejecting abusive recourse to national security arguments in trade policies. The European Parliament, in working with the European Council and the European Commission, will have a critical role to play in steering the European Union through these challenging times.
  • Topic: International Relations, Economics, Trade Wars, Trade Policy
  • Political Geography: China, Europe, Asia, North America, United States of America, European Union
  • Author: Alvaro Leandro, Jeromin Zettelmeyer
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper explains and evaluates three proposals to create “safe assets” for the euro area based on sovereign bonds, in which sovereign risk is limited through diversification and some form of seniority. These assets would be held by banks and other financial institutions, replacing concentrated exposures to their own sovereigns. The paper focuses on three ideas: (1) to create multitranche “sovereign bond-backed securities” (SBBS), of which the senior tranche would constitute a safe asset; (2) to create a senior, publicly owned financial intermediary that would issue a bond backed by a diversified portfolio of sovereign loans (“E-bonds”); and (3) to issue sovereign bonds in several tranches and induce banks to hold a diversified pool of senior sovereign bonds (“multitranche national bond issuance”). Public attention (including public criticism) has so far focused on the first idea; the other two have not yet been seriously debated. The authors find that none of the competing proposals entirely dominates the others. SBBS do not deserve most of the criticism to which they have been subjected. At the same time, E-bonds and multitranche national bond issuance have several interesting features—including inducing fiscal discipline—and warrant further exploration.
  • Topic: Economics, Regional Integration, Risk, Fiscal Policy
  • Political Geography: Europe
  • Author: Marcus Noland
  • Publication Date: 06-2019
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: In 2016, the United States elected an avowedly protectionist president. This paper uses US county-level electoral data to examine this outcome. The hypothesis that support for protectionism was purely a response to globalization is rejected. Exposure to trade competition encouraged a shift to the Republican candidate, but this effect is mediated by race, diversity, education, and age. If the turn toward protectionism is due to economic dislocation, then public policy interventions could mitigate the impact and support the reestablishment of a political consensus for open trade. If, however, the drivers are identity or cultural values, then the scope for constructive policy intervention is unclear.
  • Topic: Economics, Politics, Donald Trump, Protectionism
  • Political Geography: China, Asia, North America, United States of America
  • Author: Susan Ariel Aaronson
  • Publication Date: 07-2019
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: Many wealthy states are transitioning to a new economy built on data. Individuals and firms in these states have expertise in using data to create new goods and services as well as in how to use data to solve complex problems. Other states may be rich in data but do not yet see their citizens’ personal data or their public data as an asset. Most states are learning how to govern and maintain trust in the data-driven economy; however, many developing countries are not well positioned to govern data in a way that encourages development. Meanwhile, some 76 countries are developing rules and exceptions to the rules governing cross-border data flows as part of new negotiations on e-commerce. This paper uses a wide range of metrics to show that most developing and middle-income countries are not ready or able to provide an environment where their citizens’ personal data is protected and where public data is open and readily accessible. Not surprisingly, greater wealth is associated with better scores on all the metrics. Yet, many industrialized countries are also struggling to govern the many different types and uses of data. The paper argues that data governance will be essential to development, and that donor nations have a responsibility to work with developing countries to improve their data governance.
  • Topic: Development, Economics, Governance, Data
  • Political Geography: Global Focus
  • Publication Date: 09-2019
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: Canada’s Arctic Agenda: Into the Vortex brings together leading Arctic thinkers to examine key elements of Canadian Arctic and Northern policy. These experts reflect on the progress that has been made in the past few years in Arctic policies and programs and consider the impact of powerful forces of change and division, both within Canada and abroad, which have produced a vortex of economic, security, environmental and identity challenges for the Canadian Arctic. Addressing the intense, if understated, debate on Canada’s Arctic agenda, this report’s contributors share the consistent message that Northerners must play a leadership role in creating and implementing the policies that affect them. The report also includes a collection of interviews with Jane Glassco Northern Fellows. These thoughtful Indigenous women from across the North in Canada share their perspectives and ideas on the policy issues that require urgent attention to ensure the prosperity of their Northern communities. The well-informed essays and interviews in this report will spark conversation about Canada’s Arctic policy priorities and provide concrete advice to inform the work of Canada’s policy makers moving forward.
  • Topic: Security, Economics, Environment, Identities
  • Political Geography: Canada, North America, Arctic
  • Author: Andrew Walter
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Centre for International Governance Innovation
  • Abstract: This paper explores the role of emerging-country members in the Basel process, a key aspect of the global financial standard-setting process. It argues that this process has been significantly more politically resilient than adjacent aspects of global economic governance, in part because major emerging countries obtain continuing “intra-club” benefits from participation within it. The most important of these are learning benefits, but status and sometimes influence over standard-setting outcomes can also be valuable. The paper outlines how these benefits could be enhanced to secure the ongoing resilience of global financial regulatory governance. It recommends some modest reforms to further improve the position of emerging countries in the process and to bolster its perceived legitimacy among members and non-member countries.
  • Topic: Economics, International Trade and Finance, Governance, Regulation
  • Political Geography: Global Focus
  • Author: Hamidreza Azizi, Leonid Issaev
  • Publication Date: 02-2019
  • Content Type: Working Paper
  • Institution: The Geneva Centre for Security Policy
  • Abstract: Discussion paper for the workshop on: “The Politics and Modalities of Reconstruction in Syria”, Geneva, Switzerland, 7-8 February 2019. There has historically been low levels of trade and investment from both Russia and Iran with Syria, with trade in military items being a notable exception. While the trade relationship between Syria and its two main allies predates the conflict, levels of trade had been remarkably low before the crisis, in contrast to mainstream perceptions. Yet, these figures cannot be confirmed due to unavailability of a comprehensive record of the Syrian bilateral relationship with Iran and Russia. Internationally imposed sanctions have discouraged Russian and Iranian companies from doing business with Syria. Lacking any other resources, the only way that Syrian could repay debts to its allies would be to grant exclusive access to energy and natural resources. This however would reduce the public revenue needed to rebuild state institutions, and also encourage foreign rivalry over economic opportunities. As Syria lacks any coordination mechanism for post-war economic reconstruction, Russia and Iran have set their eyes on the energy sector, where Russia has the upper hand. Yet, cooperation is also possible in other sectors, such as Syria’s rail sector. In order to understand the Russian and Iranian economic relationship with Syria, two factors should be considered. First is the informal relationship between Syria and its two allies, which has taken the form of unofficial agreements and trade. These would be important when sanctions are lifted. The second factor is military exports to Syria, expected to be large, given the scale of war and Syrian reliance on Russia and Iran. Due to lack of official data, this paper will not consider both issues.
  • Topic: Economics, Sanctions, Conflict, Syrian War, Investment, Trade
  • Political Geography: Russia, Iran, Middle East, Syria
  • Author: Liudmila Zakharova
  • Publication Date: 12-2019
  • Content Type: Working Paper
  • Institution: Korea Economic Institute of America (KEI)
  • Abstract: The New Northern Policy, proclaimed by the South Korean President Moon Jae-in in Vladivostok in September 2017, is designed to boost economic cooperation between Russia and South Korea. However, two years after a special presidential committee was created to plan and coordinate joint economic efforts, few results have been achieved. Bilateral trade has continued to increase with limited change to its structure: Russia mostly sends its mineral resources to South Korea and receives industrial products in return. New ROK investment in the Russian Far East has yet to occur, despite South Korea’s efforts to assist its businesses in finding profitable Russian projects. Seoul tried to convince Moscow that concluding a free trade agreement in the near future is necessary for intensified cooperation, but Russia prefers a more gradual approach to trade liberalization. InterKorean rapprochement in 2018 laid a foundation for further progress in the implementation of multilateral economic projects involving Russia if the international sanctions against North Korea were to be eased. Therefore, bilateral relations between Russia and the ROK can also be viewed from the perspective of promoting regional cooperation with North Korean participation.
  • Topic: International Relations, Economics, Bilateral Relations
  • Political Geography: Russia, Asia, South Korea, North Korea, Korea
  • Author: Jiwon Nam, Kristin Vekasi
  • Publication Date: 06-2019
  • Content Type: Working Paper
  • Institution: Korea Economic Institute of America (KEI)
  • Abstract: Tensions between South Korea and Japan are frustratingly persistent. Despite the shared interests of both countries, such as economic development in Southeast Asia, and keeping a robust alliance with the United States, South Korea and Japan maintain a bellicose relationship because of unresolved historical misunderstandings and territorial disputes. Inconsistent diplomatic policies and lack of strong leaders have made it difficult to prevent unnecessary hostility between South Korea and Japan. Fear of losing support has prevented politicians from pursuing friendly policies towards each other. Businesspeople, too, have been reluctant to pursue friendly policies towards each other, because of preconceived risks of being targeted for backlash. An examination of economic data shows these risks are minimal, and political tensions do not affect business or consumer behavior. Current efforts from both Korean and Japanese business organizations to improve cooperation include student exchange programs, recruitment processes, and public diplomacy. We urge the business community to advocate more to improve bilateral relations. Economic relations alone are insufficient to handle the task of improving a difficult relationship; there is also a need for leadership. In South Korea-Japan relations, the business community should step in and provide that role.
  • Topic: Economics, Bilateral Relations, Business , Private Sector
  • Political Geography: Japan, Asia, South Korea, North America, Korea, United States of America
  • Author: Théo Clément
  • Publication Date: 06-2019
  • Content Type: Working Paper
  • Institution: Korea Economic Institute of America (KEI)
  • Abstract: While North Korea has developed Special Economic Zones for several decades now, these zones have attracted little attention from foreign investors, due to a mix of lack of economic reforms in the DPRK, the tense geopolitical situation, and China’s peculiar economic engagement towards North Korea. With the denuclearization process and North-South dialogue moving forward, this situation could change as South Korea’s announced policy of economic engagement with the North could provide Pyongyang the opportunity to play Beijing against Seoul to maximize its interests and attract foreign investment in Special Economic Zones from partners keen to maintain close ties with the DPRK.
  • Topic: Economics, Bilateral Relations, Investment, Trade, Denuclearization
  • Political Geography: Asia, South Korea, North Korea, Korea
  • Author: John Macwilliams, Sarah Lamonaca, James Kobus
  • Publication Date: 08-2019
  • Content Type: Working Paper
  • Institution: Center on Global Energy Policy
  • Abstract: The Pacific Gas and Electric (PG&E) bankruptcy, which was caused by liabilities resulting from massive wildfires, has widely been called the first climate change bankruptcy. It will likely not be the last, as climate change exacerbates natural disasters, leading to more frequent and intense wildfires, storms, and flooding. Wildfires alone could become up to 900 percent more destructive in certain regions by midcentury, and utility assets will also be increasingly exposed to threats stemming from hurricanes, rising sea levels, and other climate-related events. These extreme weather events will increase costs to utility-sector stakeholders, including investor-owned utilities, state and local governments, ratepayers, and taxpayers. These risks could place financial stress on utility companies, drive up electricity rates, crowd out essential investment in renewable energy and grid upgrades, and disrupt service. In this paper, Columbia University’s Center on Global Energy Policy reviews and analyzes the PG&E bankruptcy, assesses how capital markets have reacted to the bankruptcy through the lens of valuations in the US utility sector, and discusses policy implications of California’s recent legislative response to wildfire risk. This paper examines market indicators to assess investor expectations of climate risk exposure and likely cost allocation. Neither debt nor equity markets suggest widespread concern about climate risk in the utility sector. In the absence of strong market signals to encourage climate risk mitigation, the authors find that policy frameworks are needed to ensure that companies make necessary preventative investments and to define how costs will be allocated among stakeholders. This paper also reviews a recently passed California bill aimed at achieving these objectives and the lessons and best practices it offers for other policy makers. In short, the paper finds the following: Market indicators suggest that the California wildfires and subsequent PG&E bankruptcy have not caused imminent concern about climate risks in the utility sector. Equity valuations for the sector remain strong, with a utility stock index trading at a higher-than-average premium to the market benchmark. In credit markets, regulated utilities in the United States have raised more than $50 billion of corporate debt in 2019 to date, and borrowing spreads are currently below historical averages. There are several reasons why markets may not reflect widespread climate risk to utilities, despite the scientific evidence around likely future damage. Investors may believe that cost increases from climate change will occur too far in the future to materially impact the present value of their investments. Even if investors believe that climate change risks are material to valuation, they may also believe that such risks will not be considered by other investors for some time. Investors may be viewing wildfires as a California-specific risk, though the regional skew of wildfires is likely to shift significantly in coming years. They may lack the information or modeling tools for assessing the likelihood and geographic dispersion of high-impact tail events, such as the wildfires that PG&E faced. Financial markets may also reflect the belief that the costs of climate change in the utility sector will fall predominantly on ratepayers, insurance companies, and/or taxpayers rather than investors, and therefore investors may not view themselves as materially exposed. California’s recent creation of a wildfire insurance fund with contributions from both ratepayers and companies provides important policy lessons for designing comprehensive frameworks to allocate climate damage costs. These include the strengthening of both regulatory and corporate climate resilience expertise, mandating preventative investment as a prerequisite for cost-recovery mechanisms, defining utility financial exposure for climate damage situations, and providing cash for utilities to provide essential services when facing large disasters. The policy also presents some potential pitfalls that may be instructive for other state policy makers. The legislation sets aside large reserves for future damage, a necessary measure, but one that will result in higher electric bills. The bill does not allow utilities to earn a return on safety-related spending, which broadly diminishes incentives for proactive climate mitigation investment. The potential insufficiency of the wildfire fund also creates uncertainty about future cost allocation. Finally, failing to reform the California legal framework that allows utilities to be held liable for damages they did not cause perpetuates risks for companies and ratepayers. If the first climate change bankruptcy is indicative of a new reality, it is not that utilities are going to go bankrupt overnight. Rather, climate disasters will increasingly add financial stress to utility-sector stakeholders, as costs accumulate from both acute events and damaging extreme weather impacts. Adapting the regulatory bargain for a climate-exposed future will require lawmakers, regulators, and shareholders to develop new approaches and new incentive structures to ensure an accountable, robust utility sector. Moreover, while climate change is already presenting real financial challenges to utilities, it will not be the only sector to face large climate-driven costs. Other corporate actors can look to the utility experience to better understand how policy makers, investors, and companies will respond to the growing financial threat from climate change.
  • Topic: Climate Change, Economics, Gas, Electricity
  • Political Geography: United States, California
  • Author: Garcia Isabella
  • Publication Date: 09-2019
  • Content Type: Working Paper
  • Institution: Centre for Global Political Economy, University of Sussex
  • Abstract: In 2018/2019 the CGPE launched an annual Gender & Global Political Economy Undergraduate Essay Prize competition, open to all undergraduate students within the School of Global Studies. The winner of the 2018/2019 competition is Isabella Garcia for the essay “How do global supply chains exacerbate gender-based violence against women in the Global South?” Isabella graduated with a BA in International Relations and Development in July and will join the MA cohort in our Global Political Economy programme for 2019/2020. Given the very strong field of submissions, the award committee further decided to award a second-place prize to Yume Tamiya for the essay “Does the rise of the middle class disguise existing inequalities in Brazil?”. Yume graduated with a BA in International Development with International Education and Development. We are delighted to publish both of these excellent essays in the CGPE Working Paper series.
  • Topic: Economics, Gender Issues, Women, Gender Based Violence , Global South
  • Political Geography: Africa, Latin America, Mexico, Democratic Republic of Congo
  • Author: Yume Tamiya
  • Publication Date: 09-2019
  • Content Type: Working Paper
  • Institution: Centre for Global Political Economy, University of Sussex
  • Abstract: In 2018/2019 the CGPE launched an annual Gender & Global Political Economy Undergraduate Essay Prize competition, open to all undergraduate students within the School of Global Studies. The winner of the 2018/2019 competition is Isabella Garcia for the essay “How do global supply chains exacerbate gender-based violence against women in the Global South?” Isabella graduated with a BA in International Relations and Development in July and will join the MA cohort in our Global Political Economy programme for 2019/2020. Given the very strong field of submissions, the award committee further decided to award a second-place prize to Yume Tamiya for the essay “Does the rise of the middle class disguise existing inequalities in Brazil?”. Yume graduated with a BA in International Development with International Education and Development. We are delighted to publish both of these excellent essays in the CGPE Working Paper series.
  • Topic: Development, Economics, Inequality, Economic growth
  • Political Geography: Brazil, Latin America
  • Author: Saliha Metinsoy
  • Publication Date: 09-2019
  • Content Type: Working Paper
  • Institution: Centre for Global Political Economy, University of Sussex
  • Abstract: Why does the International Monetary Fund (IMF) assign more stringent labor conditions in some cases and not others? This paper argues that the Fund’s bureaucratic organizational culture and neoliberal economic beliefs dictate its interpretation of international economics and predict the stringency of labor conditions in its programs. Particularly, the Fund staff envisage that lower unit labor costs would indirectly increase competitiveness, boost exports, and contribute to the balance of payments in fixed exchange rate regimes, where currency depreciation is not possible. To this end, the Fund assigns more stringent labor conditions in fixed regimes compared to floating ones. To test this theory, the paper uses a mixed method. It firstly demonstrates the association between exchange rate regimes and the stringency of labor conditions in Fund programs in a global sample. It then complements this analysis by showing particular organizational habits and beliefs at work in two cases, namely in Latvia and Hungary in 2008 under their respective IMF programs. Furthermore, the paper shows that distribution of income away from labor groups (i.e. lowered wages) is in fact by design in IMF programs in an attempt to increase competitiveness in fixed regimes.
  • Topic: Economics, International Monetary Fund, International Development, Neoliberalism
  • Political Geography: Europe, Eastern Europe, Hungary, Latvia
  • Author: Michael Kende1, Nivedita Sen
  • Publication Date: 01-2019
  • Content Type: Working Paper
  • Institution: Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
  • Abstract: E-commerce has long been recognized as a driver of growth of the digital economy, with the potential to promote economic development. The benefits come from lower transaction costs online, increased efficiency, and access to new markets. The smallest of vendors can join online marketplaces to increase their sales, while larger companies can use the Internet to join global value chains (GVCs), and the largest e-commerce providers are now among the most valuable companies in the world.
  • Topic: Development, Economics, Science and Technology, World Trade Organization, Digital Economy, Economic growth, Free Trade
  • Political Geography: United States, Europe, Switzerland, Global Focus
  • Author: Chanya Punyakumpol
  • Publication Date: 02-2019
  • Content Type: Working Paper
  • Institution: Centre for Trade and Economic Integration, The Graduate Institute (IHEID)
  • Abstract: Is there a doctrine of 'stare decisis' in international trade and international investment law? From a positive law perspective, the answer is a definite no. However, as many scholars have observed, in practice, there has been a strong level of deference from the Appellate Body to its previous rulings, but less so from investment tribunals. Using social network analysis to assess actual citations from the Appellate Body Reports and investment arbitrations from the inception to the current time, this paper examines the evolution and 'status quo' of citation networks in international trade and international investment arbitrations. It asks, not only whether there is a 'de facto' rule of precedent in the two regimes, but also when it occurs and how the development links with the institutional design of dispute settlement. The results show how the doctrine of 'stare decisis' diverges in international trade and international investment, as well as the importance of institutional design in shaping and constraining the behaviors of tribunals.
  • Topic: Economics, Globalization, International Trade and Finance, Law, Finance, Global Political Economy
  • Political Geography: Global Focus
  • Author: Tarek A. Hassan, Laurence van Lent, Stephan Hollander, Ahmed Tahoun
  • Publication Date: 01-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: Using tools from computational linguistics, we construct new measures of the impact of Brexit on listed firms in the United States and around the world: the share of discussions in quarterly earnings conference calls on costs, benefits, and risks associated with the UK’s intention to leave the EU. Using this approach, we identify which firms expect to gain or lose from Brexit and which are most affected by Brexit uncertainty. We then estimate the effects of these different kinds of Brexit exposure on firm-level outcomes. We find that concerns about Brexit-related uncertainty extend far beyond British or even European firms. US and international firms most exposed to Brexit uncertainty have lost a substantial fraction of their market value and have reduced hiring and investment. In addition to Brexit uncertainty (the second moment), we find that international firms overwhelmingly expect negative direct effects of Brexit (the first moment), should it come to pass. Most prominently, firms expect difficulties resulting from regulatory divergence, reduced labor mobility, trade access, and the costs of adjusting their operations post-Brexit. Consistent with the predictions of canonical theory, this negative sentiment is recognized and priced in stock markets but has not yet had significant effects on firm actions.
  • Topic: Economics, Political Economy, Regional Cooperation, Brexit, Global Political Economy, Economic Policy
  • Political Geography: Britain, United States, United Kingdom, Europe, European Union
  • Author: Joseph Halevi
  • Publication Date: 06-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: This paper analyzes the early stages of the formation of the Common Market. The period covered runs from the end of WW2 to 1959, which is the year in which the European Payments Union ceased to operate. The essay begins by highlighting the differences between the prewar political economy of Europe and the new dimensions and institutions brought in by the United States after 1945. It focuses on the marginalization of Britain and on the relaunching of French great power ambitions and how the latter determined, in a very problematical way, the European complexion of France. Because of France’s imperial aspirations, France, not West Germany, emerged as the politically crisis prone country of Europe acting as a factor of instability thereby jeopardizing the process of European integration, Among the large European nations, Germany and Italy appear, for opposite economic reasons, as the countries most focused on furthering integration. Germany expressed the strongest form of neomercantilism while Italy the weakest.
  • Topic: Economics, Political Economy, Global Political Economy, World War II, Common Market
  • Political Geography: United States, Europe, Germany, Global Focus
  • Author: Joseph Halevi
  • Publication Date: 11-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: This essay deals with the contradictory dynamics that engulfed Europe from 1959 to 1979, the year of the launching of the European Monetary System. It focuses on how the macroeconomic frame- work of stop-go policies in the 1960s ended up privileging external – intra-European - exports at the expense of domestic demand. The paper offers a very tentative explanation as to why stop-go policies, by weakening domestic demand, did not put an end to the to the ‘long boom’ earlier as they should have. The French crisis of 1968-69 leading to the demise of De Gaulle is discussed at length, as is the renewal of the German export drive in the wake of a nominal revaluation of the D-Mark in 1969. Finally, the revival of labor struggles in Italy in the same year is put in the context of the structural weaknesses of the Italian economy as analyzed by the late Marcello de Cecco. The conclusion is that European countries had neither the political culture nor the institutional mechanisms to coordinate mutually advantageous policies. Their so-called cooperation was an exercise in establishing hegemony while defending the interests specific to the dominant economic groups of each country. The essay then deals with the formation of the EMS as an expression of efforts to establish and enforce economic dominance.
  • Topic: Economics, Markets, History, Monetary Policy, Capitalism, Common Market, Macroeconomics
  • Political Geography: Europe
  • Author: Joseph Halevi
  • Publication Date: 11-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: The paper highlights the position of German authorities, showing that they were quite lucid about the fundamental weaknesses inherent in a process that separated monetary from fiscal policies by giving priority to the centralization of the former. Instead of repeating the well known critiques levelled against the EMU – for which readers are referred to the unsurpassed treatment by Stiglitz, the essay highlights the splintering of Europe in the way in which it has unfolded during the 1990s and in the first decade of the present millennium. In particular the early economic and political origins of the terminal crisis of Italy are located between the late 1980s and the 1990s. France is shown to belong increasingly to the so-called European periphery by virtue of a weakening industrial structure and persistent balance of payments deficits. The paper argues that France regains its central role by political means and through its weight as an active nuclear military power centered on maintaining its imperial interests and posture especially in Africa. The first decade of the present millennium is portrayed as the period in which a distinct German economic area had been formed in the midst of Europe with a strong drive to the east with an increasingly powerful gravitational pull towards the People’s Republic of China.
  • Topic: Economics, International Political Economy, Political Economy, History, Macroeconomics
  • Political Geography: Africa, China, Europe, Asia, Germany, Global Focus
  • Author: Lance Taylor
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: Expansionary macroeconomic policy with a strong redistributive component is an attractive proposition, most recently launched on the basis of Modern Monetary Theory or MMT. The Theory is a synthesis of familiar ideas, newly relevant but scarcely path-breaking. Its basics – Chartalist or fiat money, functional finance, and models based on consistent national accounting – come straight from Maynard Keynes, Abba Lerner, and Wynne Godley. Functional finance is the heart of fiscalist Keynesianism built upon automatic stabilizers for the business cycle. MMT’s job guarantee proposal is one more stabilizer which could be a modest helpful supplement to the system which exists. National accounting comparisons of a possible MMT package with the 2008 crash and the Trump tax cut are presented with emphasis on autonomous shifts in demand. The package could have problems with debt sustainability and external balance. Inflation is unlikely if wage repression in the USA is not reversed. But strong wage increases are presumably a goal of MMT.
  • Topic: Economics, Monetary Policy, Finance, Economic Theory, Macroeconomics, Money
  • Political Geography: United States
  • Author: Catherine Ruetschli, Mark Glick
  • Publication Date: 10-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: The Big Tech companies, including Google, Facebook, Amazon, Microsoft and Apple, have individually and collectively engaged in an unprecedented number of acquisitions.When a dominant firm purchases a start-up that could be a future entrant and thereby increase competitive rivalry, it raises a potential competition issue. Unfortunately, the antitrust law of potential competition mergers is ill-equipped to address tech mergers. We contend that the Chicago School’s assumptions and policy prescriptions hobbled antitrust law and policy on potential competition mergers. We illustrate this problem with the example of Facebook. Facebook has engaged in 90 completed acquisitions in its short history (documented in the Appendix to this paper). Many antitrust commentators have focused on the Instagram and WhatsApp acquisitions as cases of mergers that have reduced potential competition. We show the impotence of the potential competition doctrine applied to these two acquisitions. We suggest that the remedy for Chicago School damage to the potential competition doctrine is a return to an empirically tractable structural approach to potential competition mergers.
  • Topic: Economics, Science and Technology, Communications, Law, Digital Economy, Macroeconomics, Monopoly, Antitrust Law
  • Political Geography: United States
  • Author: Mark Glick
  • Publication Date: 07-2019
  • Content Type: Working Paper
  • Institution: Institute for New Economic Thinking (INET)
  • Abstract: Since the publication of Robert Bork’s The Antitrust Paradox, lawyers, judges, and many economists have defended “Consumer welfare” (CW) as a standard for decisions about antitrust goals and enforcement priorities. This paper argues that the CW is actually an empty concept and is an inappropriate goal for antitrust. Welfare economists concede that there is no credible measurable link between price and output and human well-being. This means that the concept of CW does not legitimate limited antitrust enforcement, nor does it justify the exclusion of other antitrust goals that require more active enforcement practices. This paper contends that antitrust policy is not welfare based at all, and that if it were, antitrust policy and enforcement would differ significantly from the Chicago School vision. Without the fiction that economists can establish that in the short run lower price and higher output measurably increases welfare more than other goals, recent defenses of the CW standard resolve down to arguments based on unsupported assumptions.
  • Topic: Economics, Law, Legal Theory , Economic Theory, Macroeconomics, Antitrust Law, Microeconomics
  • Political Geography: United States