Copyright (c) 2010 Berkeley Electronic Press All rights reserved. http://www.bepress.com/gej Recent documents in Global Economy Journal en-us Fri, 19 Feb 2010 23:30:33 PST 3600 http://www.bepress.com/gej/vol10/iss1/7 http://www.bepress.com/gej/vol10/iss1/7 Fri, 19 Feb 2010 12:09:06 PST Coming out of the global recession, it has been suggested that certain United States' trading partners that have relied on exchange rates policy should switch to the industrial policy, particularly, government subsidies for private sector research and development. The present paper argues that the recession itself is sufficient bad news. The prospect of our trading partners instigating an R&D subsidy game in the interests of an export-led growth strategy is even more sobering--especially if the U.S. fails to respond with its own R&D subsidy program. Whatever your view of the American Recovery and Reinvestment Act of 2009, one could make the case that the U.S. economy would have been better served investing in new technologies leading to new factories producing innovative products rather than simply paving a road to, at best, business as usual. Richard T. Gretz International Public Policy http://www.bepress.com/gej/vol10/iss1/6 http://www.bepress.com/gej/vol10/iss1/6 Fri, 19 Feb 2010 12:09:04 PST There has been tremendous pressure on the Obama Administration to justify the actions taken with regards to the U.S. financial crisis which has managed to eliminate, overnight, over a quarter of the middle class wealth and leave one in six adults without a job or underemployed, while generating a bailout debt that was unimaginable in scale and scope only five years ago. In response to this public pressure, in mid-June 2009, the Obama Administration issued a white paper titled “Financial Regulatory Reform - A New Foundation: Rebuilding Financial Supervision and Regulation" (published by the U.S. Department of Treasury) covering a wide range of areas of financial regulation that proposed a new architecture for financial supervision. Although the White Paper touches upon many of the Administration's promised responses to the crisis with regards to new financial regulations and supervisory changes, it has been criticized as being too narrow in the scope and breath needed to manage the sheer size and scale of the impact of the U.S. financial crisis. This paper focuses on ten concerns and issues of note with the Obama Administration's actions and responses to date with regards to the U.S. financial/banking crisis and its 2009 White Paper on “Financial Regulatory Reform." They are as follows: (1) No Discussion and Minimal Attempt by the Administration to Relay Their Understanding of and Global Transmission of This Financial Crisis, (2) Proposed Financial Oversight Council, (3) Increased Powers for the Federal Reserve, (4) Most Recommendations Do Not Follow the Trend Toward Supervision Consolidation, (5) Macroeconomic vs. Microeconomic Supervision, (6) Government in the Financial Markets and Industry, (7) No Significant International Standard Setting or Coordination to Date, (8) Issue of Too Big to Fail Still at Large, (9) Obama Administration's PR Debacle, and (10) Something to Show after Spending $1.4 Trillion Plus. Scheherazade S. Rehman International Finance http://www.bepress.com/gej/vol10/iss1/5 http://www.bepress.com/gej/vol10/iss1/5 Fri, 19 Feb 2010 12:09:00 PST Every new U.S. administration brings renewed hope and vigor to the World regarding unrealized dreams and aspirations as well as unfinished and not realized agendas. The U.S. has not neglected Latin America, even according to some the region has probably benefited from U.S. involvement in the Middle East and Afghanistan.A New Partnership for the Americas is the name that the Obama group used during the election campaign. The common thread is a preference to develop cooperation through converging national interests as articulated by the U.S. and Latin American Caribbean governments.The U.S. and Cuban government officials are talking for the first time in years raising hopes for a thaw in long-icy relations. President Obama has granted Cuban-Americans the right to travel freely to Cuba and to send remittances there, and to give U.S. telecommunications companies the right to pursue business there represents a first step in trying for better relations.If the new Obama administration thought that a change in the rhetoric and tone would make the likes of Castro, Chavez and others see things the U.S. way, a new lesson was learned in that sometimes countries disagree simply because their goals are mutually exclusive.A year after Barack Obama became U.S. president, pledging "a new beginning" in relations with Cuba and wining praise from Fidel Castro, bitter rhetoric is once more flying between the two states.At the outset it has to be recognized that the U.S. government actually understands what is happening in Latin America. The U.S. policy is highly sophisticated and often seems more drastic on its understanding of what is happening than some or most of its critics. Looking at some people's history of the hemisphere it is remarkable and transformative that for the first time in many years, the U.S. does not seem to care much what happens in Latin America. In an interconnected world, power does not need to be a zero sum game, and nations need not fear the success of another. Cultivating spheres of cooperation--not competing spheres of influence--will lead to progress in the Caribbean and Latin America. Engagement meaning expanded cooperation with and the need to broaden policy efforts with the group of leftists rules countries such as Brazil, Bolivia, Chile, Ecuador, Nicaragua, Uruguay, Peru and Venezuela beyond the previous administration focus on regional economic integration through competitive liberalization. Raul Moncarz Economic Development International Finance International Public Policy http://www.bepress.com/gej/vol10/iss1/4 http://www.bepress.com/gej/vol10/iss1/4 Fri, 19 Feb 2010 12:08:59 PST Despite his promise of "change," President Obama's trade policies during his first year took a backseat to other administration priorities. There were few notable achievements, as Obama deferred action on Bush-era bilateral agreements and chose not to push forward on multilateral negotiations. However, in trade administration there were victories in WTO dispute-resolution cases and some evidence of greater determination to enforce U.S. trade remedy laws. Alfred E. Eckes Commercial Policy http://www.bepress.com/gej/vol10/iss1/3 http://www.bepress.com/gej/vol10/iss1/3 Fri, 19 Feb 2010 12:08:57 PST This study demonstrates that the HO model proves useful for assessing the competitive factors in the delivery of services. However, further analysis that draws on the modeling framework of microeconomics and industrial organization is required. Emmanuel Nyahoho International Trade http://www.bepress.com/gej/vol10/iss1/2 http://www.bepress.com/gej/vol10/iss1/2 Fri, 19 Feb 2010 12:08:54 PST The United States and the European Union have generated dozens of bilateral Regional Trading Agreements (RTA) across the globe. All of these trading arrangements have detailed agreements on rules of origin (ROOs). Those rules are required in order to ensure that the perceived benefits of the Free Trade Agreements (FTA) are not subverted or deflected. These rules have their greatest impact on a firm's cost structure when applied to the trade of intermediate goods. Determination of the origin of final goods becomes more complicated where imported intermediates are used and the WTO 'substantial transformation' rules are implemented. There is relatively little literature on the impact of these rules of origin on trade. (Cadot et al., 2006; Duttagupta and Panagariya, 2002; and Falvey and Reed, 1998, 2002). The existing literature hypothesizes that these rules can easily be used to restrict or suppress trade between countries, or to divert trade away from more efficient suppliers to less efficient ones. The empirical evidence to support the trade distortions is based on the number and complexity of the rules of origin. In order to determine the degree to which the post-RTA trade flows are indeed affected by ROO requires a micro-based review of increased transaction costs, rather than the number of rules. The intent of this paper is to suggest a formal methodology, which relies on the literature about tariff-equivalents, to evaluate rules of origin requirements. The suggested approach, applied at the 5-digit HS level will provide a more robust evaluation of ROOs. The suggested methodology could also be used to investigate the oft-asserted hypothesis that with time and reduced tariff barriers, the costs associated with ROOs will diminish. Joseph Pelzman Commercial Policy International Trade Regionalism http://www.bepress.com/gej/vol10/iss1/1 http://www.bepress.com/gej/vol10/iss1/1 Fri, 19 Feb 2010 12:08:51 PST The paper explores incentives of national trade representatives (TRs) in international negotiations when trade policy basically follows a non-cooperative track with countries imposing tariffs on each other's exports due to "terms of trade cum international political economy" considerations. The paper shows that negotiations might get stuck even if a limited form of mutual trade liberalization Pareto-dominates the initial Nash-equilibrium in trade policies. The dilemma is rooted in a second-mover advantage, which adds considerable inertia to the Nash equilibrium of protectionism. The second-mover advantage arises whenever the countries' tariffs are strategic complements, with the latter, in turn, conditional on the traded goods being complements in final demand. Barbara Dluhosch International Trade http://www.bepress.com/gej/vol9/iss4/8 http://www.bepress.com/gej/vol9/iss4/8 Tue, 12 Jan 2010 14:58:36 PST The success of Chile's economy in the past decades is relevant to the efforts of other emerging countries to achieve rapid economic growth. One of Chile's main accomplishments has been a steady increase in exports. The increase was in physical volume of exports, not in unit value. This increase was the result of a correct strategy of opening the economy, which permitted the more competitive Chilean businesses to access external markets. This strategy may be reaching a point of diminishing returns, so the dilemma that Chile now faces is relevant to other emerging countries as they try to grow their economies rapidly. To achieve significant further growth in the long run, Chile needs to move into new kinds of business opportunities, in categories and areas where it has not established a foothold. To break into these new areas, Chile has to develop new capabilities and new strategies. The old way of growing the economy is running into constraints. The data is about Chile's wood products export industry, which is the country's most successful in terms of adding value as measured by macro metrics. That export industry is not as well known as Chile's wine and fresh fruit export industries but has a more impressive record. The firms in Chile's wood export industry, despite being successful in increasing the dollar value of products exported, have not been able to make themselves competitive in stages of wood production beyond basic and repetitive processes. Other emerging countries are facing the same challenge. Chilean wood products exporting firms in Chile have been slow to respond to signals from the market. They have not been able to achieve high standards of quality or precision, and they have worked only with local raw materials. These firms have attempted to export manufactured products, but these attempts have failed. For those reasons many observers argue that the advantage in the market that these firms enjoy is due to superior endowments of natural resources rather than to corporate strategies. High raw material prices have not triggered a new chapter in this history. On the contrary, this comfortable situation has lulled the country into complacency. Other countries were in the same comfortable situation and now the financial crisis has intervened. Chile's present slow growth is discouraging but might prod the country to achieve greater sophistication in exporting goods and services. Francisco Arroyo Economic Development http://www.bepress.com/gej/vol9/iss4/7 http://www.bepress.com/gej/vol9/iss4/7 Tue, 12 Jan 2010 14:58:35 PST This study attempts to examine the effects of real bilateral exchange rates on Malaysia's bilateral trade balances with its three major trading partners: the USA, Japan, and Singapore. The results suggest that the bilateral trade balance, real exchange rate, domestic and foreign incomes are cointegrated. In the long-run, Malaysia's bilateral trade balances are found to be responsive to the changes of bilateral exchange rate in the cases of the USA and Singapore but irresponsive for Japan. There is a clear evidence of the J-curve effect only in the case of Malaysia's trade balance with the United States. The results also indicate that devaluation tends to be recessionary. The findings suggest that Malaysia could use undervalued exchange rate strategy to improve its trade balances with the United States and Singapore but not Japan. Mohammed B. Yusoff Exchange Rates International Trade http://www.bepress.com/gej/vol9/iss4/6 http://www.bepress.com/gej/vol9/iss4/6 Tue, 12 Jan 2010 14:58:32 PST The current economic crisis has long-term causes that are rooted in the economic dynamics of globalization. I argue that globalization (a) increases the world economic growth rate; (b) is consistent with development, underdevelopment and miracle growth; (c) increases inequality in leading countries; and (d) generates a transition path along which the interest rate diminishes if capital accumulates at a faster rate than technological change. This condition is generated by cheap-factor-seeking foreign direct investment (FDI), which by combining advanced technologies with low costs yields extraordinary profits and experiences lower incentives for innovation. Over the period 1980-2007, liberalization unleashed a wave of globalization, and the international sector experienced miracle growth. Profits rose to all time highs and global saving exceeded global investment. This savings glut or investment shortfall fueled a global housing appreciation, after which excessive risk in a deregulated financial market led to a financial meltdown. While restoring financial markets and reducing the housing market fallout have been immediate priorities for the U.S., economic growth can only be recovered by restoring global investment. Lowering interest rates cannot generate very much investment, nor will consumption flows from fiscal spending. To stimulate the global economy, whole new economic sectors and technologies must be developed in advanced countries, and economic development deepened in underdeveloped countries. At the same time, a global harmonization of corporate taxes, ending the corporate tax haven loophole, would raise funds for publicly provided goods that complement private investment and balance incentives between local and international production. It would also reduce the polarization between developed and underdeveloped countries, balance global markets with global governance, and strengthen global cooperation. David A. Mayer-Foulkes Economic Development International Trade Multinational Corporations http://www.bepress.com/gej/vol9/iss4/5 http://www.bepress.com/gej/vol9/iss4/5 Tue, 12 Jan 2010 14:58:30 PST Over the past decade emerging markets accumulated foreign currency reserves to insure against the risks of global financial integration. They were wise to do so. Countries with large reserves have fared better in the crisis of 2008/09. Yet collectively reserve accumulation had unintended consequences. It has contributed to the build-up of global imbalances and financial distortions that helped create the macroeconomic backdrop for the crisis. This article looks at recent patterns of global capital flows from the perspective of economic history, trying to set events in a longer term perspective. It argues that the crisis could mark the end of the latest attempt to manage the financial stability risks of capital market integration. Emerging markets will not consent to facing global financial flows without large foreign currency reserves, but a return to currency interventions and reserve accumulation would be equally problematic. Historically, the ups and downs of global capital market integration have been driven by varying assessments of the benefits of capital mobility. With the recent crisis the time for such a reassessment might have come. Moritz Schularick Economic Integration International Finance International Monetary Policy http://www.bepress.com/gej/vol9/iss4/4 http://www.bepress.com/gej/vol9/iss4/4 Tue, 12 Jan 2010 14:58:28 PST Using quarterly data from 1973 to 2008, we provide evidence that current account (CA) deficits exceeding 4.2% of GDP ("Mann's rule") do have a significant lowering effect on the U.S. dollar value against major currencies. Controlling for inflation, public debt, and a broad trade weighted index, excessive CA deficits have a negative long-run impact on the USD. Along the transition path, much faster speeds of adjustment to long-run equilibrium are found when current account deficits in excess of Mann's rule are considered: 20% of the deviations from the long-run equilibrium are corrected in a month against 8% or 9% without Mann's rule. This suggests that excessive values of the CA deficit are "priced in" in international foreign exchange markets. Contrary to earlier evidence in favor of CA sustainability, we conjecture that economic conditions have made investors more sensitive to bad news for the U.S. dollar. Radhames A. Lizardo International Finance http://www.bepress.com/gej/vol9/iss4/3 http://www.bepress.com/gej/vol9/iss4/3 Tue, 12 Jan 2010 14:58:25 PST One of the most prominent features in the evolution of the European Union (EU) has been its geographical expansion. Using a dynamic general equilibrium approach, this paper predicts the effects of future eastward expansions of the EU on both inter- and intra-national flows of trade and labor. Underlying the simulations is a spatial model of the EU incorporating heterogeneous firms, intra-industry trade, iceberg trade costs, and many possible locations. Locations are populated by a large number of potential firms, and these firms employ labor that varies across countries in its relative skill. The dynamics of the model are such that unprofitable firms are forced to exit in the long run, and workers have the opportunity to migrate in response to steep gradients in real compensation. Novel features of the data used here are that locations are defined in a very precise way and that the simulations take as their starting point a proxy for the actual distribution of economic activity across the European landmass. The model is calibrated to match aggregate trade and migration data from the 2004 enlargement as well as data on exporter characteristics. Simulations of enlargement predict an increase in aggregate exports of potential new members to the previous EU-15 of 4.7 percent of GDP in the five-year period following adoption of the acquis communautaire and net migration flows from potential new members to the previous EU-15 of 1.3 percent of aggregate acceding country population over the same period. Moreover, the simulations deliver many of the stylized facts of economic geography. Justin B. May Economic Integration International Trade http://www.bepress.com/gej/vol9/iss4/2 http://www.bepress.com/gej/vol9/iss4/2 Tue, 12 Jan 2010 14:58:23 PST This study attempts to determine three things: (1) whether structural changes or shifts exist in the outward foreign direct investment (FDI) data from OECD countries to eight Asian countries, (2) if a linkage exists across OECD FDI flow patterns, and (3) whether the determinants of FDI are consistently the same during the different periods as determined by structural breaks. In order to estimate the structural breaks, Bai and Perron's (1998, 2003) model is utilized because it allows for more than one break in the data. Because the time of the 1997-1998 Asian financial crisis is of interest, the breaks are associated with this event. The results of the principal component analysis show that the signs of the explanatory variables differ from those previously found in the literature. The correlation coefficients between FDI and trade openness, the most significant explanatory variable in the study, are positive and significant for all countries and all periods with the exception of Thailand during the pre pre-crisis period. For most of the periods studied, some sort of Granger causality seemed to exist between FDI and trade openness, mostly in the form of feedback. Maria E. de Boyrie International Finance National and Regional Studies http://www.bepress.com/gej/vol9/iss4/1 http://www.bepress.com/gej/vol9/iss4/1 Tue, 12 Jan 2010 14:58:20 PST Although empirical literature offers rich insights on the relationship of FDI and economic growth, it provides mixed evidence on the existence of productivity externalities in the host country generated by foreign multinational companies. A branch of literature suggests that the positive impact of FDI is conditional on countries stock of human capital or a threshold absorptive capacity. Most of the studies that came up with these conclusions are either based on developing or a mix of developing and developed country experiences. There is a dearth of literature explicitly focused on developed country experiences. Moreover, most literature has focused on the impact of inward FDI on host country economic growth. Does outward FDI exert any influence on source country economic growth? This paper addresses these issues using panel time series data from 25 OECD countries for the period 1980-2004 in a cross-country regression framework. It finds that both inward and outward are positively correlated with host and source country economic growth. However, the impact of FDI on economic growth is moderate. Results suggest that the elasticity of GDP growth with respect to both inward and outward FDI in the host and source countries is about 0.01. Madanmohan Ghosh Economic Development International Trade Multinational Corporations http://www.bepress.com/gej/vol9/iss3/9 http://www.bepress.com/gej/vol9/iss3/9 Thu, 24 Sep 2009 15:34:36 PDT The purpose of this study is: (1) to examine the determinants of economic growth in Japan over time, and (2) to see if there is any time-series support for FDI-led growth hypothesis in Japan. To achieve these goals the study uses a model that is based on the postulates of de Mello. Employing a 35-year period of annual data, the model is estimated by using the Beach-Mackinnon technique, which corrects for autocorrelation. The estimation results suggest: (1) the major determinants of economic growth in Japan are total factor productivity, and domestic investment growth; (2) there are no causal relationships between foreign direct investment growth and economic growth in either direction; and (3) there are no causal relationships between foreign direct investment growth and total factor productivity growth in either direction. Parviz Asheghian Economic Development International Finance International Trade http://www.bepress.com/gej/vol9/iss3/8 http://www.bepress.com/gej/vol9/iss3/8 Thu, 24 Sep 2009 15:34:33 PDT Trade in products from intensive farming of livestock has the potential to lead to disputes, especially as opposition to factory farming on ethical, health, environmental, and developmental grounds has increased. Many European countries currently prohibit livestock agricultural practices that are allowed in the United States, Canada, and elsewhere, thus creating the possibility of international economic conflict. WTO regulations permit the consideration of health and environmental factors as possible causes for placing limitations on imports but not ethical or developmental causes. While the WTO currently does not directly recognize concerns about animal welfare and developmental issues, interest groups and parties emphasizing these factors can support other efforts to limit imports. Brenda J. Lutz Commercial Policy International Trade http://www.bepress.com/gej/vol9/iss3/7 http://www.bepress.com/gej/vol9/iss3/7 Thu, 24 Sep 2009 15:34:31 PDT This paper evaluates sovereign wealth funds in light of the extreme volatility of energy prices and the severe global recession that began in 2008. A recent paper by Das characterized the assets of funds as showing steady growth in the past and likely increased importance in the future. However, recent developments have reduced the relative importance of funds and have demonstrated the sensitivity of the funds to energy prices and world business cycles. Investments by sovereign wealth funds have the potential to introduce political influence into corporate governance, but this potential is much smaller than the interventions into corporate governance by governments of the United States and elsewhere connected to corporate bail-outs during the recession. Lack of transparency remains a problem for certain sovereign wealth funds, but anti-recession interventions by governments have been characterized by extreme lack of transparency. Thomas J. Grennes International Finance http://www.bepress.com/gej/vol9/iss3/6 http://www.bepress.com/gej/vol9/iss3/6 Thu, 24 Sep 2009 15:34:28 PDT Sounds that we hear on the radio are the product of music being superimposed on carrier waves. In a similar way, the economic cycles we have seen in recent decades have been carried on the evolution of the information technology (IT). In this paper, we put forth our view that the current financial crisis is driven by a structural change from outside of the financial world. Developments that alter the path of economic growth of the world are deemed to be structural changes. We believe that the IT revolution was a structural change in this sense of altering the path of growth and has been a root cause of the two most recent business cycles. An important factor that is often missed is the causal (cause and effect) relationship between various sectors and fields, which will prove to be important for decision-makers, policy-makers and researchers. John E. Silvia Internationalism http://www.bepress.com/gej/vol9/iss3/5 http://www.bepress.com/gej/vol9/iss3/5 Thu, 24 Sep 2009 15:34:26 PDT States around the world appear more determined than ever to end tax haven abuse. The new U.S. administration, for example, is taking action against both major tax haven problems: corporation income tax avoidance and personal income tax evasion. Some progress may be made. This essay argues, however, that only radically new policy will likely suffice either to shore up corporate tax revenues or to sharply diminish evasion. Global formula apportionment is needed if the corporate income tax is to be preserved, and only a combination of automatic information sharing among governments and source withholding can stamp out evasion. As in most areas of international economic policy, U.S. leadership is essential. Robert T. Kudrle Fiscal Policy International Public Policy Multinational Corporations