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  • 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: Matti Pesu
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Finnish Institute of International Affairs
  • Abstract: This Briefing Paper looks into the fundamentals of the Baltic Sea security landscape in the early 2020s. It argues that three interconnected security dynamics shape the present, ‘post-2014’ security environment in Northeastern Europe. That is to say, Russia’s assertive behaviour in the region and in Europe more broadly, NATO’s reassurance and deterrence measures in the area, and Finland’s and Sweden’s closer integration into the Western defence network all affect hard se- curity dynamics in the Baltic Sea region. These three dynamics underlie the tense regional stability that emerged after a period of alarmism and turbulence in the immediate aftermath of Russia’s ac- tions in Ukraine. Fundamentally, the stability is the product of the interplay between the three dynamics. In other words, NATO’s reassurance and deterrence measures accompanied by Finland’s and Sweden’s in- tegration into the Western security and defence system act as a counterweight to Russia’s actions in the region, creating a balance of power holding Russia’s ambitions in check. Investigating the sources of regional balance is rele- vant for multiple reasons. The region remains a poten- tial hotspot between Russia and the West and, thus, it merits close and continuous attention. Moreover, the word ‘stability’ frequently features in foreign policy parlance in Northern Europe, particularly in Finland and Sweden. Given this rhetorical proclivity, attention needs to be paid to the factors that actually constitute stability and the state of hard security in the Baltic Sea area. The paper consists of three analytical parts. First, it provides a brief historical overview of the twists and turns in the regional security landscape from the early post-Cold War era to today. The second part introduces the three dynamics in detail, followed by an analysis of how they are interconnected. The paper concludes by contemplating how regional stability could best be preserved in the 2020s.
  • Topic: Security, Defense Policy, NATO, International Cooperation, Military Strategy
  • Political Geography: Russia, Europe, Baltic Sea
  • Author: Juha Jokela, Ilari Aula
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: Finnish Institute of International Affairs
  • Abstract: The EU needs to assume more responsibility in defending its interests and security. Brexit will constitute an additional challenge for the EU in this respect, and has led to calls to strengthen the efficiency of the the Common Foreign and Security Policy, including EU sanctions, which currently form one of the toughest and most increasingly used tools in the EU’s foreign policy toolbox. The UK has been the most active and influential member state in formulating the EU’s sanctions policy. The EU could largely replace the technical expertise provided by the UK, yet the level of ambition of the EU’s sanctions policy is likely to decrease. Even though the UK has taken measures to maintain the sanctions regimes it agreed to as an EU member state, an independent UK sanctions policy could result in divergence. The envisaged coordination mechanisms between EU and UK sanctions policies can mitigate some of the negative implications of Brexit, but they cannot replace the UK’s EU membership.
  • Topic: Regional Cooperation, Sanctions, European Union, Brexit
  • Political Geography: United Kingdom, Europe
  • Author: Kristiina Silvan
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Finnish Institute of International Affairs
  • Abstract: In March 2019, Kazakhstan’s authoritarian leader, Nursultan Nazarbayev, stepped down after three decades of rule and yielded power to his nominated successor, Kassym-Zhomart Tokayev. However, Nazarbayev has paradoxically remained the most powerful political actor in Kazakhstan. Kazakhstan’s model of gradual leadership succession could serve as an example to authoritarian states around the world, but it is particularly significant in the post-Soviet context. Institutional and constitutional changes that took place in the 1990s were aimed at concentrating power in the presidency. However, modifications initiated by Nazarbayev in the 2000s and 2010s sought to weaken the Kazakh presidency while strengthening power vested in himself personally, in order to ensure the continuation of a political status quo and his family’s well-being after the transfer of power. Despite the careful preparation and Tokayev’s relatively smooth ascension to power, it is still too early to evaluate the success of the transfer due to the vast powers retained by Nazarbayev. The transition of power in Kazakhstan remains an ongoing process and, as such, unpredictable.
  • Topic: Power Politics, Authoritarianism, Leadership, Transition
  • Political Geography: Central Asia, Kazakhstan
  • Author: Mika Aaltola
  • Publication Date: 04-2020
  • Content Type: Working Paper
  • Institution: Finnish Institute of International Affairs
  • Abstract: Since late 2019, the world has sought – frantically at times – to appropriate policies for responding to the coronavirus pandemic (Covid-19). This Working Paper reviews the political significance of Covid-19 in order to understand the ways in which it challenges the existing domestic order, international health governance actors and, more fundamentally, the circulation-based modus operandi of the present world order. The analysis begins with the argument that contagious diseases should be regarded as complex open-ended phenomena with various features; they are not reducible to biology and epidemiology alone. In particular, politics and social reactions – in the form of panic and blamecasting, for example – are prominent features with clear historical patterns, and should not, for the sake of efficient health governance, be treated as aspects extraneous to the disease itself. The Working Paper further highlights that when a serious infectious disease spreads, a “threat” is very often externalized into a culturally meaningful “foreign” entity. Pandemics tend to be territorialized, nationalized, ethnicized, and racialized. This has also been the case with Covid-19.
  • Topic: Governance, Public Health, Pandemic, COVID-19
  • Political Geography: Global Focus
  • Author: Charly Salonius-Pasternak
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Finnish Institute of International Affairs
  • Abstract: To address Covid-19, Finland has activated its Emergency Powers Act for the first time ever. While the outcome remains uncertain, Finland’s plan for how to protect its citizens and vital functions of society has withstood its initial confrontation with reality. The authorities are cooperating with private and third-sector actors to ensure that implementation is effective and to anticipate further steps.
  • Topic: Public Health, Pandemic, COVID-19, Medicine
  • Political Geography: Europe, Finland
  • Author: Jyrki Kallio
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Finnish Institute of International Affairs
  • Abstract: China has garnered international goodwill by aiding countries hardest hit by the Covid-19 pandemic. China is in a position to show that it takes its ideal of creating a global community with a shared future seriously. However, the country’s other actions undermine its soft-power dissemination efforts.
  • Topic: International Cooperation, Public Health, Pandemic, COVID-19
  • Political Geography: China, Asia
  • Author: Marco Siddi
  • Publication Date: 03-2020
  • Content Type: Working Paper
  • Institution: Finnish Institute of International Affairs
  • Abstract: Thus far, Italy has been the EU member most affected by the Covid-19 pandemic, as well as the first one to take drastic measures to fight contagion. The country is now a reference for lessons learned and a test case for solidarity in the EU.
  • Topic: European Union, Public Health, Pandemic, COVID-19
  • Political Geography: Europe, Italy