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2181. Gains from Offshoring? Evidence from U.S. Microdata

Author:
Ryan Monarch, Jooyoun Park, and Jagadeesh Sivadasan
Publication Date:
11-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We construct a new linked data set with over one thousand offshoring events by matching Trade Adjustment Assistance program petition data to confidential data on U.S. firm operations. We exploit these data to assess how offshoring affects domestic firm-level aggregate employment, output, wages and productivity. Consistent with heterogenous firm models where offshoring involves a fixed cost, we find that the average offshoring firm is larger and more productive than the average non-offshorer. After initiating offshoring, firms experience large declines in employment (46.2 per cent), output (38.5 per cent) and capital (28.8 per cent) relative to their industry peers. We find no significant change in average wages or in total factor productivity measures for offshoring firms. These results are consistent across two separate difference-in-differences (DID) approaches, an instrumental variables approach, and a number of robustness checks. Thus, we find offshoring to be a strong substitute for domestic activity in this large sample of offshoring events.
Topic:
Industrial Policy, Labor Issues, Manufacturing, Trade, Outsourcing, and Capital
Political Geography:
North America and United States of America

2182. How Public Information Affects Asymmetrically Informed Lenders: Evidence from a Credit Registry Reform

Author:
M. Ali Choudhary and Anil K. Jain
Publication Date:
11-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We exploit exogenous variation in the amount of public information available to banks about a firm to empirically evaluate the importance of adverse selection in the credit market. A 2006 reform introduced by the State Bank of Pakistan (SBP) reduced the amount of public information available to Pakistani banks about a firm's creditworthiness. Prior to 2006, the SBP published credit information not only about the firm in question but also (aggregate) credit information about the firm's group (where the group was defined as the set of all firms that shared one or more director with the firm in question). After the reform, the SBP stopped providing the aggregate group-level information. We propose a model with differentially informed banks and adverse selection, which generates predictions on how this reform is expected to affect a bank's willingness to lend. The model predicts that adverse selection leads less informed banks to reduce lending compared to more informed banks. We construct a measure for the amount of information each lender has about a firm's group using the set of firm-bank lending pairs prior to the reform. We empirically show those banks with private information about a firm lent relatively more to that firm than other, less-informed banks following the reform. Remarkably, this reduction in lending by less informed banks is true even for banks that had a pre-existing relationship with the firm, suggesting that the strength of prior relationships does not eliminate the problem of imperfect information.
Topic:
Public Opinion, Public Policy, Credit, and Banking
Political Geography:
Pakistan and Middle East

2183. Cyclically Adjusted Current Account Balances

Author:
Jane Haltmaier
Publication Date:
12-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The Great Financial Crisis coincided with a sizable reduction in global external imbalances, defined as the absolute value of the sum of individual country current account surpluses and deficits relative to global GDP. Although current account balances should not respond to a downturn that is uniform across countries, one that hits countries with current account deficits harder than those with surpluses might result in a decline in the global balance. This paper quantifies the cyclical portion of the current account balance for 35 countries using estimates of the severity of the cycle in each country relative to that of its trading partners in conjunction with three estimates of the sensitivity of the current account balance to changes in the output gap. Two of the estimates are derived from equations linking trade to income and the third is derived from the relationship between changes in current account balances and changes in output gap differentials. The main result is that the bulk of the reduction in the global current account imbalance since 2006 appears to have been structural. Cyclical forces are estimated to account for between 10 and 30 percent of the decline. In the aggregate, the cyclical effect is estimated to be currently holding down the global current account balance by about 1/2 percentage point. However, the size of the cyclical effect is more substantial for some countries. Both surplus and deficit countries have contributed to the decline in the absolute value of the global current account imbalance, but the contribution of the deficit countries is about twice as large as that of the surplus countries. Changes in oil prices have had largely offsetting effects on the global current account balance, but changes in real exchange rates in recent years have contributed to the reduction.
Topic:
Economics, Energy Policy, Oil, Natural Resources, Financial Crisis, GDP, Exchange Rate Policy, and Trade
Political Geography:
Global Focus

2184. Pioneers of a European Diplomatic System: EU Delegations in Moscow and Washington

Author:
Heidi Maurer and Kristi Raik
Publication Date:
05-2014
Content Type:
Commentary and Analysis
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
Since December 2009, the European Union has been represented abroad by more than 130 delegations, which are an integral part of the new European External Action Service (EEAS). This paper explores the performance and potential of the delegations in contributing to a common EU foreign policy. The delegations have to strike the right balance between performing the functions of traditional diplomatic missions, while also representing the EU as a political entity that is more than an international organization, but less than a state. The delegations act as a bridge between nascent EU diplomacy and the national diplomacies of the member states. They are also microcosms that gather together under one roof different elements of the EU’s external relations, ranging from the Common Foreign and Security Policy to trade and aid, energy and migration. The delegations have been rather successful in their three main tasks: representing the Union towards third countries, coordinating and providing services to the member states, and contributing to EU policy-making. This paper focuses on two key locations, Moscow and Washington, where the delegations are becoming visible diplomatic actors providing added value to member states as well as EU institutions. The authors argue that, following on from an early albeit cautious success, the delegations should take a stronger role in providing input into EU policy-making, promoting European interests abroad, and advancing consensus among member states’ representatives in the field. The EEAS headquarters should build a stronger link to the delegations, through more active political steering and by endeavouring to make more systematic use of the work on the ground.
Topic:
International Relations, Diplomacy, and European Union
Political Geography:
Russia, Europe, and United States of America

2185. Managing Conflict after Civil War: The Power-Sharing and Power-Dividing Approaches

Author:
Matthew Hoddie
Publication Date:
08-2014
Content Type:
Commentary and Analysis
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
This paper considers two institutional alternatives for managing conflict following the negotiated settlement of civil war. The most common set of institutional structures that former civil war combatants adopt are associated with power sharing. These power-sharing institutions may be constructed across the political, military, territorial, and economic dimensions of state power. Recent research suggests that post-civil war states that specify greater numbers of power-sharing institutions within their peace agreements tend to have a lower risk of the re-initiation of conflict. At the same time, critics of power sharing emphasize that these mechanisms lack a capacity to foster common identities among rivals and have characteristics that are inconsistent with the principles of democracy. An alternative to power sharing for states that are emerging from civil war is the adoption of power-dividing institutions. The core features of the power-dividing approach are limiting the scope of government authority and establishing a wide-ranging system of checks and balances intended to manage the competing interests within a country. In many respects, these institutional structures parallel those established by the constitution of the United States. Those who are sceptical about the power-dividing approach, however, point out that these institutions have not yet been adopted in any state emerging from civil war. It thus remains unclear how effective these structures would be at managing conflict within this particularly challenging environment.
Topic:
Civil War, Political Power Sharing, Democracy, Conflict, and Crisis Management
Political Geography:
Global Focus

2186. Not Another Transnistria: How sustainable is separatism in Eastern Ukraine?

Author:
András Rácz
Publication Date:
12-2014
Content Type:
Commentary and Analysis
Institution:
Finnish Institute of International Affairs (FIIA)
Abstract:
The situation in Eastern Ukraine is often compared with that of Transnistria, the separatist region of Moldova. However, the two cases differ for a number of reasons, all of which will make the “Novorossiya” project much harder for Russia to sustain than Transnistria. First and foremost, unlike Transnistria, the Donetsk and Luhansk People’s Republics in their current shape will be unable to influence the everyday political and economic functioning of Ukraine. Vis-à-vis the rest of Ukraine, they are much smaller than Transnistria is in relation to Moldova. The main energy pipelines leading to Ukraine do not cross the separatist territories, and with the economic ties getting severed, the main instrumental function of a frozen conflict – namely to constantly influence and destabilize the target country – is likely to be lost. There are also several other factors, including: the lack of ethnic, national, linguistic or cultural background that would provide identity foundations for the Novorossiya project; the reliance of the separatists on the continuous, massive presence of the Russian military; the damage already inflicted on Russia’s international reputation; the effect on Russian domestic politics; the need for considerable financial assistance from Russia to the separatist territories; and the risk of increasing soft security challenges directly affecting Russia. In addition to all this, it cannot be guaranteed that the separatist elites will always be fully obedient to the will of Moscow. The a priori readiness to defend and support the action of the local authorities will limit Moscow’s room for maneouvre. Costly both politically and economically, the Novorossiya project is able to serve the Russian strategic objectives vis-à-vis the rest of Ukraine much less than Transnistria was able to do so vis-à-vis Moldova. Hence, one probable scenario is a further escalation of hostilities to expand the separatist-controlled territory, which may unfold relatively soon. However, in the medium term, the gradual restoration of Ukraine’s constitutional order in the territory should also be considered possible, within the framework of a larger international compromise and provided that reforms progress in Ukraine.
Topic:
European Union, Separatism, and Post-Soviet Space
Political Geography:
Russia, Europe, Ukraine, and Eastern Europe

2187. Negotiations and possible spoilers in the Colombian peace process

Author:
Jorge M. Battaglino
Publication Date:
11-2014
Content Type:
Commentary and Analysis
Institution:
Norwegian Centre for Conflict Resolution
Abstract:
The peace negotiations between the Colombian government and the Revolutionary Armed Forces of Colombia – People’s Army (FARC-EP) have generated considerable attention among the international community and a substantial level of domestic political support. This optimistic trend is linked to a new negotiating dynamic in which the government decided to abandon a militarised approach to the conflict and acknowledged the guerrilla movement as a legitimate political actor, while the FARC-EP opted to moderate its historical radical demands. The reasons behind this mutual moderation are both strategic and the result of a social learning process (i.e. the “prolonged” conflict). This encouraging scenario, however, faces two potential challenges, i.e. to neutralise the emergence of spoilers of the peace talks and deal with the fragmentation/criminalisation of the FARC-EP. This expert analysis analyses the new negotiating dynamic, identifies the main challenges to the peace process, and indicates how guarantor states and the international community can contribute to reducing domestic political opposition in order to reach a durable agreement.
Topic:
Conflict Resolution, Negotiation, FARC, Dialogue, Peace Process, and Spoilers
Political Geography:
Colombia and South America

2188. Measuring the effectiveness of Norwegian peace facilitation

Author:
Javier Fabra-Mata
Publication Date:
01-2014
Content Type:
Commentary and Analysis
Institution:
Norwegian Centre for Conflict Resolution
Abstract:
Over the past twenty years Norway has established an international reputation as a peace facilitator. The Oslo Accords and Norway’s active involvement in other peace processes in the 1990s provided the basis for constructing a peace narrative around the supposed disinterestedness and uniqueness of the Norwegian approach, which has evolved over the years, with a major move towards the professionalisation of the country’s peace efforts. Critics have questioned the results and effectiveness of Norwegian peace engagement. While they point to the collapse of peace processes and conflict recurrence, Norwegians engaged in these processes take a more positive view, avoiding absolutes and underscoring instead less spectacular, but nonetheless important achievements. Over and above peace agreements, peace processes can generate a series of tangible and intangibles peace assets – e.g. confidence building, informal peace alliances, formal institutions, etc. – some of which may help to reduce the severity of the conflict and even survive the collapse of the peace process. This expert analysis deals with the issue of conceptualising success in peace facilitation. From a study of the fundamentals underlying Norwegian peace facilitation, it shows the importance of being able to measure the degree of success of peace processes, presenting a three-tier, modular proposal for Norway to capture tangible and intangible gains in the short, medium and long term.
Topic:
Negotiation, Dialogue, Professionalization, and Peace Process
Political Geography:
Norway and Global Focus

2189. Illicit drugs and peace negotiations in Colombia: challenges for the government and the FARC

Author:
Mónica Serrano
Publication Date:
02-2014
Content Type:
Commentary and Analysis
Institution:
Norwegian Centre for Conflict Resolution
Abstract:
This expert analysis critically assesses the political implications of the inclusion of the issue of illicit drugs in Colombia’s peace negotiations. It considers the ways in which the parties have approached the drug problem and lays out some of the critical questions regarding drug policy options. It also discusses what these negotiations tell us about the parameters within which drug policy reform may be realistically pursued in Colombia, which could also affect regional and international approaches to the issue. Drug policy reform has already prompted some searching questions in Latin America and an increasingly heated global debate. In the course of ongoing negotiations between the government of Colombia and the Revolutionary Armed Forces of Colombia the parties agreed to include the question of illicit drugs as the negotiations’ fourth agenda item, which is likely to test the process’s capacity to achieve far-reaching change. More than any other country (perhaps with the exception of Mexico), Colombia has shown that drug control policy needs urgent rethinking, as does the way in which the policy is applied. Will the peace negotiations mark a turning point in Colombia’s drug policy? And through the negotiations, will Colombia lead the way towards a more visionary international drug policy?
Topic:
Negotiation, Drugs, FARC, and Peace Process
Political Geography:
Colombia and South America

2190. Drugs and the peace process in Colombia: a moderate radical step

Author:
Juan Gabriel Tokatlian
Publication Date:
06-2014
Content Type:
Commentary and Analysis
Institution:
Norwegian Centre for Conflict Resolution
Abstract:
This expert analysis evaluates the May 16th 2014 agreement on illegal drugs reached between the government of Colombia and the Revolutionary Armed Forces of Colombia rebels in the context of the peace process taking place in Havana. This third agreement between the parties is very significant in its content and scope. If it progresses satisfactorily it will be the beginning of a gradual end to the “war on drugs” in the country and will defuse one of the issues – the drug trade – that has most hindered the attainment of peace in Colombia.
Topic:
Treaties and Agreements, Drugs, FARC, and Peace Process
Political Geography:
Colombia and South America