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  • Author: Scott Lincicome, Huan Zhu
  • Publication Date: 06-2021
  • Content Type: Working Paper
  • Institution: The Cato Institute
  • Abstract: In the wake of the COVID-19 pandemic and rising U.S.-China tensions, American policymakers have again embraced “industrial policy.” Both President Biden and his predecessor, as well as legislators from both parties, have advocated a range of federal support for American manufacturers to fix perceived weaknesses in the U.S. economy and to counter China’s growing economic clout. These and other industrial policy advocates, however, routinely leave unanswered important questions about U.S. industrial policy’s efficacy and necessity: What is “Industrial Policy”? Advocates of “industrial policy” often fail to define the term, thus permitting them to ignore past failures and embrace false successes while preventing a legitimate assessment of industrial policies’ costs and benefits. Yet U.S. industrial policy’s history of debate and implementation establishes several requisite elements – elements that reveal most “industrial policy successes” not to be “industrial policy” at all. What are the common obstacles to effective U.S. industrial policy? Several obstacles have prevented U.S. industrial policies from generating better outcomes than the market. This includes legislators’ and bureaucrats’ inability to “pick winners” and efficiently allocate public resources (Hayek’s “Knowledge Problem”); factors inherent in the U.S. political system (Public Choice Theory); lack of discipline regarding scope, duration, and budgetary costs; interaction with other government policies that distort the market at issue; and substantial unseen costs. What “problem” will industrial policy solve? The most common problems purportedly solved by industrial policy proposals are less serious than advocates claim or unfixable via industrial policy. This includes allegations of widespread U.S. “deindustrialization” and a broader decline in American innovation; the disappearance of “good jobs”; the erosion of middle‐​class living standards; and the destruction of American communities. Do other countries’ industrial policies demand U.S. industrial policy? The experiences of other countries generally cannot justify U.S. industrial policy because countries have different economic and political systems. Regardless, industrial policy successes abroad – for example, in Japan, Korea and Taiwan – are exaggerated. Also, China’s economic growth and industrial policies do not justify similar U.S. policies, considering the market‐​based reasons for China’s rise, the Chinese policies’ immense costs, and the systemic challenges that could derail China’s future growth and geopolitical influence. These answers argue strongly against a new U.S. embrace of industrial policy. The United States undoubtedly faces economic and geopolitical challenges, including ones related to China, but the solution lies not in copying China’s top‐​down economic planning. Reality, in fact, argues much the opposite.
  • Topic: Government, Industrial Policy, Manufacturing, COVID-19
  • Political Geography: China, Asia, North America, United States of America
  • Author: Risto Rönkkö, Stuart Rutherford, Kunal Sen
  • Publication Date: 03-2021
  • Content Type: Working Paper
  • Institution: United Nations University
  • Abstract: In this paper, we examine the economic impact of the COVID-19 pandemic on the livelihoods of the poor. We use an unusually rich data set from a ‘financial diaries’ study known as the Hrishipara Daily Diaries Project. The data set tracks the economic and financial transactions of 60 individuals and their families in a semi-rural setting in Bangladesh on a real-time basis from October 2019 to September 2020. We document individual diarists’ behavioural responses to COVID-19, which reveal the varied experiences of the poor during the pandemic. We find that the pandemic and associated government lockdowns had significant negative effects on the livelihoods of the poor in our study, with financial inflows and outflows, incomes, and household expenditures below pre-pandemic levels during the pandemic period. To cope with the pandemic, households drew down on their cash reserves at home, as well as cutting down on non-food expenditures to protect their spending on food.
  • Topic: Economics, Government, Finance, Pandemic, COVID-19
  • Political Geography: Bangladesh, South Asia
  • Author: Marcus Noland, Eva (Yiwen) Zhang
  • Publication Date: 03-2021
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: By Election Day 2020, the COVID-19 pandemic had killed 234,244 Americans and caused the sharpest macroeconomic downturn in US history. Hypothetical calculations using county-level electoral data show that in a “no pandemic” scenario or a scenario in which the severity of the pandemic was mitigated by 30 percent, Donald Trump would have lost the popular vote but won the electoral vote. In the 20 percent mitigation scenario, the electoral vote would have been tied, giving Trump a presumptive victory in the House of Representatives. For the second time in a row (and the third time since 2000), the candidate who lost the popular vote would have been elected president of the United States.
  • Topic: Government, Politics, Elections, Donald Trump, COVID-19
  • Political Geography: North America, United States of America
  • Author: Julia Anderson, Francesco Papadia, Nicolas Véron
  • Publication Date: 04-2021
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: n 2020, European governments mitigated the economic impact of COVID-19 lockdowns and other pandemic-fighting programs through a host of initiatives, including efforts to support credit, such as guarantees for bank loans, particularly to small and medium-sized enterprises. This paper presents detailed information about these national credit support programs in the largest national economies of the European Union (France, Germany, Italy, and Spain) and the United Kingdom. The information was collected through thorough examination of published material and extended exchanges with national authorities and financial sector participants. The analysis focuses on (1) how countries positioned themselves on the many tradeoffs that emerged in designing and implementing the programs; and (2) what explains differences in usage across countries and its leveling off everywhere in the second half of 2020.
  • Topic: Government, European Union, Finance, Fiscal Policy, COVID-19
  • Political Geography: United Kingdom, Europe
  • Author: Anna Gelpern, Sebastian Horn, Scott Morris, Brad Parks, Christoph Trebesch
  • Publication Date: 05-2021
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: China is the world’s largest official creditor, but basic facts are lacking about the terms and conditions of its lending. Very few contracts between Chinese lenders and their government borrowers have ever been published or studied. This paper is the first systematic analysis of the legal terms of China’s foreign lending. The authors collect and analyze 100 contracts between Chinese state-owned entities and government borrowers in 24 developing countries in Africa, Asia, Eastern Europe, Latin America, and Oceania, and compare them with those of other bilateral, multilateral, and commercial creditors. Three main insights emerge. First, the Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. Second, Chinese lenders seek advantage over other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises to keep the debt out of collective restructuring (“no Paris Club” clauses). Third, cancellation, acceleration, and stabilization clauses in Chinese contracts potentially allow the lenders to influence debtors’ domestic and foreign policies. Even if these terms were unenforceable in court, the mix of confidentiality, seniority, and policy influence could limit the sovereign debtor’s crisis management options and complicate debt renegotiation. Overall, the contracts use creative design to manage credit risks and overcome enforcement hurdles, presenting China as a muscular and commercially savvy lender to the developing world.
  • Topic: Foreign Policy, Debt, Government, Banking
  • Political Geography: China, Asia
  • Author: John C. K. Daly
  • Publication Date: 02-2021
  • Content Type: Working Paper
  • Institution: The Jamestown Foundation
  • Abstract: Amidst growing political dissatisfaction, the Russian government is grappling with the apparent vulnerabilities of the country’s internet. On February 1, Dmitry Medvedev, the deputy chairperson of the Security Council of the Russian Federation, acknowledged during an extensive interview with Russian media what foreign analysts have long suspected: disconnecting Russia from the internet is possible (TASS, February 1). And as if to provide a rationale for such potential action, the previous week, the Federal Security Service’s (FSB) National Coordination Center for Computer Incidents (NKTsKI) reported a threat of possible cyberattacks by the United States and its allies against Russia’s critical infrastructure (Interfax, January 22).
  • Topic: Government, Internet, Repression
  • Political Geography: Russia, Eurasia
  • Author: Petar Jolakoski, Branimir Jovanovic, Joana Madjoska, Viktor Stojkoski, Dragan Tevdovski
  • Publication Date: 02-2021
  • Content Type: Working Paper
  • Institution: The Vienna Institute for International Economic Studies (WIIW)
  • Abstract: If firm profits rise to a level far above than what would have been earned in a competitive economy, this might give the firms market power, which might in turn influence the activity of the government. In this paper, we perform a detailed empirical study on the potential effects of firm profits and markups on government size and effectiveness. Using data on 30 European countries for a period of 17 years and an instrumental variables approach, we find that there exists a robust relationship between firm gains and the activity of the state, in the sense that higher firm profits reduce government size and effectiveness. Even in a group of developed countries, such as the European countries, firm power may affect state activity.
  • Topic: Development, Economics, Government, International Political Economy, Profit
  • Political Geography: Europe, Global Focus
  • Author: Abigail Bellows, Nada Zohdy
  • Publication Date: 11-2020
  • Content Type: Working Paper
  • Institution: Carnegie Endowment for International Peace
  • Abstract: The pandemic is spurring elite and grassroots civic actors to cooperate more, but the gulf between them remains wide. Civic actors must seize the opportunity for reform on open government issues. From Africa to Latin America to Europe, the coronavirus pandemic has generated a surge in public demand for government transparency and accountability. To seize this window for reform, elite and grassroots civic actors concerned with open governance must overcome the cleavage that has long existed between them. Thus far, the pandemic has catalyzed some new civic collaborations, but not at the scale or depth needed to seize that window. In general, civil society groups report feeling more isolated during the pandemic. In some places, the urgency of tackling open government issues during the pandemic has helped overcome that isolation by deepening partnerships among existing networks. But in other places, those partnerships have yet to take shape, and new alliances are less likely to form without the benefit of face-to-face interactions. Even the partnerships that have crystallized or deepened do not appear to be changing the fundamental roles of elite and grassroots civic actors. It is possible that this shift may happen over time. Or it may be that the pandemic alone is not enough to dislodge structural barriers to deeper cooperation. The pandemic has dramatically changed the operations of elite and grassroots actors alike. The impact of those changes on collaboration between the two depends on preexisting levels of technological capacity. In places with limited connectivity, the pandemic has exacerbated the digital divide, adversely affecting grassroots actors. Meanwhile, in places with good connectivity, technology is enabling broader (though shallower) participation, laying the groundwork for more elite-grassroots collaboration. Although many civil society groups are struggling financially during the pandemic, those effects are mitigated to some degree by continuing donor interest in the open government sector. This is encouraging, as coalition building requires dedicated, flexible resources. Finally, it is a more dangerous time to be working on open government issues in general, and grassroots actors bear disproportionate risks in doing so. This underscores the need for more vertical alliances to mitigate civic space threats.
  • Topic: Civil Society, Government, Health, Pandemic, COVID-19
  • Political Geography: Global Focus
  • Author: Armenak Tokmajyan
  • Publication Date: 07-2020
  • Content Type: Working Paper
  • Institution: Carnegie Endowment for International Peace
  • Abstract: In southern Syria, the regime, opposition, foreign powers, and local groups navigate a contentious zone of conflict. Any shift in this delicate balance could mean yet another escalation. Syria’s conflict has transformed the country’s southern border region into a zone of regional contention. The status quo there, largely forged and maintained by Russia since 2018, aims to prevent expanded control by the regime of Syrian President Bashar al-Assad and Iranian and pro-Iranian military forces, which could trigger a regional confrontation. The south will remain a volatile area, probably for years, and its fate will be affected by regional politics, not the government’s will.
  • Topic: Government, Conflict, Syrian War
  • Political Geography: Iran, Middle East, Syria
  • Author: Hijab Shah, Melissa Dalton
  • Publication Date: 09-2020
  • Content Type: Working Paper
  • Institution: Carnegie Endowment for International Peace
  • Abstract: Following the August Beirut port explosion, the Lebanese Armed Forces must rebuild trust with the civilian population. The LAF can serve as a critical pillar in Lebanese government efforts to strengthen national security and identity in the midst of the crisis, in light of security sector assistance from the United States and other Western partners. The Lebanese Armed Forces (LAF), and Lebanon more broadly, is one of the largest recipients of foreign assistance in the Middle East. The United States and allied governments have sought to build the capabilities and professionalism of the LAF since the 2006 Israel-Hezbollah war, focusing primarily on counterterrorism and border security. The LAF stood in stark contrast to other Lebanese security services in their restraint vis-à-vis the civilian population during the 2019 protests. However, recent reported violent incidents against civilians, ambiguity of the role of police forces, and concerns about both recovery efforts following the August 2020 port explosion in Beirut and extended powers under the state of emergency established by the Lebanese parliament have raised international concerns about the role of Lebanon’s security services, including the LAF. The LAF has a critical role to play in stabilizing Lebanon through a multi-faceted crisis, but will need to take concrete steps to bolster its professionalism. Lebanon’s modern politics have long been defined by confessionalism, a reality that persists even as the country is engulfed in crisis. International assistance to the LAF over the last fourteen years had intended to support the LAF as a legitimate national institution transcending confessions and supporting a broader sense of Lebanese security and identity. In the midst of the ongoing crisis in Lebanon, political turmoil at the helm of the country, and the ongoing coronavirus pandemic, there is an important opportunity for the international community to support a new path for governance in the country—as shaped and envisioned by its populace. This opportunity hinges upon leveraging existing channels of support to the LAF and building in conditionality mechanisms that hold the LAF accountable for its actions, while continuing to promote a clear articulation of priorities for the LAF and a plan to improve military effectiveness through policy and doctrine; training and equipment, education, and exercises; operations; and institutional capacity building.
  • Topic: Security, Government, Politics, International Security, Military Affairs, Identity
  • Political Geography: Middle East, Lebanon
  • Author: Zeinab Abul-Magd, İsmet Akça, Shana Marshall
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Carnegie Endowment for International Peace
  • Abstract: Egyptian and Turkish military businesses have used their institutional privileges to dominate their respective economies, but they have key differences. Turkey’s military businesses are centrally managed while Egypt’s use multiple complex conglomerates. In recent years, Turkish and Egyptian military institutions have followed divergent paths in their respective states. After many decades of full or partial control over the government, the Turkish military today is largely marginalized in politics. By contrast, after periods of exclusion from power, the Egyptian military is now in full control of the state. Despite these differences, both military institutions are powerful economic actors within their states. They have developed extensive civilian economic enterprises over the decades, dominating important sectors by capitalizing on their political influence, legal and regulatory privileges unique to their enterprises, and opportunities provided by market liberalization.
  • Topic: Government, Economy, Business , Liberalization
  • Political Geography: Turkey, Middle East, Egypt
  • Author: Ricardo Hausmann, Ulrich Schetter
  • Publication Date: 07-2020
  • Content Type: Working Paper
  • Institution: The John F. Kennedy School of Government at Harvard University
  • Abstract: In this paper, we develop a heterogeneous agent general equilibrium framework to analyze optimal joint policies of a lockdown and transfer payments in times of a pandemic. In our model, the effectiveness of a lockdown in mitigating the pandemic depends on endogenous compliance. A more stringent lockdown deepens the recession which implies that poorer parts of society find it harder to subsist. This reduces their compliance with the lockdown, and may cause deprivation of the very poor, giving rise to an excruciating trade-off between saving lives from the pandemic and from deprivation. Lump-sum transfers help mitigate this trade-off. We identify and discuss key trade-offs involved and provide comparative statics for optimal policy. We show that, ceteris paribus, the optimal lockdown is stricter for more severe pandemics and in richer countries. We then consider a government borrowing constraint and show that limited fiscal space lowers the optimal lockdown and welfare, and increases the aggregate death burden during the pandemic. We finally discuss distributional consequences and the political economy of fighting a pandemic.
  • Topic: Development, Government, Political Economy, Inequality, Economic Growth, Fiscal Policy, Pandemic, COVID-19
  • Political Geography: Global Focus
  • Author: Tamirace Fakhoury
  • Publication Date: 12-2020
  • Content Type: Working Paper
  • Institution: Istituto Affari Internazionali
  • Abstract: Prior to 2011, Lebanon was no traditional gatekeeper in managing migrant and refugee flows to the EU. Following mass refugee influx from Syria, the small Middle Eastern state acquired key importance in the EU’s architecture of externalisation, alternatively framed as the set of norms and practices that the EU crafts to govern migration from a distance. Lebanon currently hosts more than 1.5 million Syrian refugees and since 2012 the EU has been the key funding power seeking to help the refugee-hosting state cope with the spillover effects that mass displacement brought about on the country. The EU’s recently published New Pact on Migration and Asylum reiterates support to refugees and refugee-hosting countries – including those in Syria’s neighbourhood – as one of the central elements of cooperation with third countries on migration and displacement. After nearly a decade of cooperation between the EU and Lebanon in this area, and ahead of the EU’s new budgetary and policy-planning cycle (2021–27), now is a key moment to critically assess EU-Lebanon cooperation on displacement from Syria.
  • Topic: Government, Foreign Aid, European Union, Refugees, Economy, Syrian War
  • Political Geography: Europe, Middle East, Lebanon, Syria
  • 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: Sean Hagan
  • Publication Date: 07-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: Over the past 40 years, the International Monetary Fund (IMF) has played a central role in the sovereign debt restructuring process. If the COVID-19 pandemic leads to a significant wave of sovereign debt distress, this role will be closely scrutinized. The paper analyzes how IMF policies have evolved to shape the incentives of sovereigns and their creditors at each stage of the sovereign debt restructuring process. It also identifies a number of issues that the IMF will likely have to address as a result of the pandemic, including (1) assessment of debt sustainability in a macroeconomic environment of considerable uncertainty, (2) treatment of official bilateral creditors, and (3) potential benefits—and challenges—of introducing additional incentives to maximize creditor participation in any debt restructuring.
  • Topic: Debt, Emerging Markets, Government, International Monetary Fund, Financial Crisis, Macroeconomics, COVID-19
  • Political Geography: Global Focus
  • Author: Erica Bosio, Simeon Djankov, Edward Glaeser, Andrei Shleifer
  • Publication Date: 08-2020
  • Content Type: Working Paper
  • Institution: Peterson Institute for International Economics
  • Abstract: This paper examines a new dataset of laws and practices governing public procurement, as well as procurement outcomes, in 187 countries. The authors measure regulation as restrictions on the discretion of the procuring agents. They find that laws and practices are highly correlated with each other across countries, and better practices are correlated with better outcomes, but laws themselves are not correlated with outcomes. To shed light on this puzzle, they present a model of procurement in which both regulation and public sector capacity determine the efficiency of procurement. In the model, regulation is effective in countries with low public sector capacity and detrimental in countries with high public sector capacity because it inhibits the socially optimal exercise of discretion. The paper finds evidence broadly consistent with this prediction: Regulation of procurement improves outcomes but only in countries with low public sector capacity.
  • Topic: Government, Law, Regulation, Procurement
  • Political Geography: Global Focus
  • Author: Robert Sutter
  • Publication Date: 01-2020
  • Content Type: Working Paper
  • Institution: East-West Center
  • Abstract: The so-called “truce” in the trade war with the signing of the phase one U.S.-China trade agreement on January 15 comes amid indicators that the intense U.S. government consensus pushback against a wide range of perceived challenges posed by China may be subsiding.
  • Topic: Government, Bilateral Relations, Economy, Trade Wars
  • Political Geography: China, Asia, North America, United States of America
  • Author: Dylan O'Driscoll, Amal Bourhrous, Meray Maddah, Shivan Fazil
  • Publication Date: 10-2020
  • Content Type: Working Paper
  • Institution: Stockholm International Peace Research Institute
  • Abstract: Nearly a decade after the Arab Spring, the substantial political change that many across the Middle East and North Africa (MENA) have hoped for has yet to be seen. In fact, as the 2019 wave of protests shows, street protests continue to endure in the region, often over the same recurring issues. This paper takes a regional approach to understanding the state of the social contract in MENA countries. It describes, country-by-country, the impact of protest movements, or their absence, on relations between society and the state, and the likely effect of the COVID-19 pandemic on those relations. It then examines the roles and impact of external actors, and the attitudes that they have adopted towards protests. Based on this analysis, the authors recommend that the European Union (EU) adopts a new approach to regional security and stability that takes the needs of the populations as the starting point. This would involve a broader EU agreement on priorities in MENA that emphasize aspects that answer those needs.
  • Topic: Government, Arab Spring, Protests, COVID-19
  • Political Geography: Middle East, North Africa
  • Author: Paul A. Goble
  • Publication Date: 12-2020
  • Content Type: Working Paper
  • Institution: The Jamestown Foundation
  • Abstract: Turkmenistan, far and away the most closed country in the former Soviet space, seldom receives much attention except as the butt of dismissive jokes or, more recently, when its leaders tried to deny that COVID-19 is present in their country even as they took measures intended to hinder its spread (see EDM, July 21). But multiple reports over the last few days suggest Turkmenistan is fast descending into an economic crisis that makes its continued socio-political stability ever less likely. Moreover, this Central Asian country now has an opposition based abroad that is increasingly capable of providing leadership to local Turkmenistanis infuriated by the domestic situation they find themselves in as a result of the authorities’ oppressive policies.
  • Topic: Government, Crisis Management, Domestic Policy
  • Political Geography: Central Asia, Turkmenistan
  • Author: Harold Furchtgott-Roth, Kirk R. Arner
  • Publication Date: 06-2020
  • Content Type: Working Paper
  • Institution: Hudson Institute
  • Abstract: American businesses and consumers have an unequal relationship. Consumers generally are and should be sovereign because a consumer—not a seller, nor a third party, nor even the government—usually decides what to purchase. Consumers must like a business to buy its product or service. If a business has poor service, sales will suffer. And if a business is tainted by scandal, customers will flee. As courtiers of purchasing power, businesses go on bended knee to pay homage to the consumer. Typically, a business need not like a consumer to sell products or services. In most lines of business, a seller must sell to anyone willing to pay. And although there are types of businesses where a seller can legally refuse a sale, most rational sellers seek as many customers as possible.
  • Topic: Economics, Government, Sovereignty, Regulation
  • Political Geography: Global Focus