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421. Estimates of Fundamental Equilibrium Exchange Rates, May 2011

Author:
William R. Cline and John Williamson
Publication Date:
05-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
This policy brief updates our estimates of fundamental equilibrium exchange rates (FEERs) to the latest available data, which for exchange rates are the average rates of April 2011, and for the IMF's balance of payments forecasts, those published in the April 2011 issue of World Economic Outlook (WEO; see IMF 2011a). It is the central study in what has now become a regular annual cycle, in which we draw out what we believe to be the implications of the IMF's forecasts for the pattern that exchange rates need to take if the world is to approach a reasonably satisfactory medium-run position. This past year we also published an interim policy brief (Cline and Williamson 2010b) in which we updated our calculations to the average exchange rates of October 2010, as well as commented on Brazilian Finance Minister Guido Mantega's description of international monetary events as constituting "currency wars." As in the previous year, however, the November 2010 policy brief updated our estimates only for intervening changes in market exchange rates. We did not make use of the IMF's revised autumn WEO forecasts to update our estimates of FEERs; on the contrary, we assumed the FEERs estimated in May 2010 were correct. In contrast, this policy brief presents totally new estimates of FEERs.
Topic:
Economics and Monetary Policy
Political Geography:
United States and China

422. Corporate Tax Reform for a New Century

Author:
Gary Clyde Hufbauer and Woan Foong Wong
Publication Date:
04-2011
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
In his State of the Union address, President Barack Obama stressed four ingredients of American prosperity: faster innovation, better education, less deficit, and more jobs. As the president recognized in his address, the US free enterprise system drives the private sector to innovate, invest, and create jobs. This policy brief concentrates on how reforming the corporate tax system can strengthen the private sector, thereby spurring both innovation and job.
Topic:
Economics, Globalization, International Trade and Finance, Monetary Policy, and Financial Crisis
Political Geography:
United States

423. The role of multinationals in sparking industrialization: From "infant industry protection" to "FDI-led industrial take-off"

Author:
Terutomo Ozawa
Publication Date:
06-2011
Content Type:
Policy Brief
Institution:
Columbia Center on Sustainable Investment
Abstract:
Although not yet fully conceptualized as a new catch-up model in mainstream development economics, the infant industry argument (protectionism designed to replace imports with domestic substitutes) is giving way to a foreign direct investment (FDI)-led model of industrialization.
Topic:
Development, Economics, Industrial Policy, and Foreign Direct Investment
Political Geography:
United States, Japan, and China

424. The coming harmonization of climate change policy and international investment law

Author:
Daniel M. Firger
Publication Date:
05-2011
Content Type:
Policy Brief
Institution:
Columbia Center on Sustainable Investment
Abstract:
Developments in climate change policy and international investment law may be ushering in a new era characterized by profound harmonization between the two regimes. Although policy instruments such as the Kyoto Protocol's “Clean Development Mechanism” (CDM) have been in existence for years, it is only relatively recently that the international community has turned to low-carbon foreign direct investment (FDI) and away from command-and-control regulation as the preferred means by which to achieve future greenhouse gas emissions reductions. Meanwhile, states have begun to renegotiate international investment agreements (IIAs) or sign new treaties to take into account policy goals, including climate change mitigation, that extend beyond the regime's traditional preoccupation with investor protection. Though still somewhat tentative, emerging trends in both arenas are thus showing unmistakable signs of convergence.
Topic:
Climate Change, Economics, Industrial Policy, and Foreign Direct Investment
Political Geography:
United States and China

425. Is the party-appointed arbitrator a "pernicious institution"? A reply to Professor Hans Smit

Author:
Giorgio Sacerdoti
Publication Date:
04-2011
Content Type:
Policy Brief
Institution:
Columbia Center on Sustainable Investment
Abstract:
Some readers of the Columbia FDI Perspective No. 33 of December 14, 2010 may have been surprised to read Hans Smit's contribution against party-appointed arbitrators. The opening of his Perspective could not be expressed in more sweeping terms: "In my judgment, party-appointed arbitrators should be banned unless their role as advocates for the party that appointed them is fully disclosed and accepted. Until this is done, arbitration can never meet its aspiration of providing dispassionate adjudication..."
Topic:
Economics, Human Rights, Foreign Direct Investment, and Law
Political Geography:
United States

426. Inward FDI in Norway and its policy context

Author:
Leo A. Grünfeld and Gabriel R.G. Benito
Publication Date:
04-2011
Content Type:
Working Paper
Institution:
Columbia Center on Sustainable Investment
Abstract:
Norwegian inward foreign direct investment (IFDI) has increased rapidly since 2000. A stock of US$ 30 billion in 2000 grew by almost 300% to US$ 116 bill ion by 2009, a growth stronger than that of most other OECD member countries. The development of Norwegian IFDI has been rather uneven, with stable periods punctuated by boom years. IFDI in 2008 was lower than in 2007, partly reflecting the cooling down of the world economy as a result of the international financial and economic crisis. The latest available data indicate that IFDI remained in a slump in 2009. The composition of Norwegian IFDI largely follows the structure of Norway's private-sector economy, with a clear dominance of the oil and gas sector. The manufacturing sector is gradually losing its appeal to foreign investors, although more slowly than one would expect considering the reduced importance of this sector in the Norwegian economy.
Topic:
Economics, Industrial Policy, and Foreign Direct Investment
Political Geography:
United States

427. Good News and Bad News from the Korean Peninsula

Author:
Donald P. Gregg
Publication Date:
04-2011
Content Type:
Journal Article
Institution:
Council of American Ambassadors
Abstract:
The good news out of the Koreas is that President Barack Obama, as no other president before him, has recognized that South Korea is America's most reliable and active ally in Asia. The President mentioned South Korea in his January 25 State of the Union speech far more than any other country, praising its teachers, its technical prowess, its growing economic status, and urging quick ratification of the Korea-US Free Trade Agreement. If any further proof of Seoul's current status was needed, David Sanger in The New York Times of February 20, 2011, said flatly, “South Korea…is now Washington's favorite ally in Asia.”
Topic:
Economics and Treaties and Agreements
Political Geography:
United States, New York, Washington, Asia, South Korea, and Sinai Peninsula

428. Puncturing the 4 Myths about Latin America

Author:
Raul Rivera
Publication Date:
06-2011
Content Type:
Journal Article
Journal:
Americas Quarterly
Institution:
Council of the Americas
Abstract:
Most people have grown used to thinking about Latin America as a region of marginal global importance: painfully poor, violent, politically and economically unstable and, to top it all, fragmented into some 20-odd countries, each one different from the other. So when Jerry Wind, founding editor of Wharton School Publishing, invited me to speak on Latin America at a Wharton conference aimed at senior U.S. executives, I wondered what a group of U.S. businesspeople would be interested to hear about the region. Who, after all, would want to do business in a place like that? But how accurate are those perceptions? As I prepared for my talk, my conclusion was: not much. Let's address the four principal myths about the region one by one. Myth 1: Latin America Really Does not Matter Economically To start, the territory of continental Latin America is larger than the U.S. and China combined, four times larger than the European Union, and seven times larger than India—a country roughly the size of Argentina. With almost every ecosystem represented, it is in fact the world's most biodiverse region, containing five of the world's ten most biodiverse countries. The region's bio-capacity (the biological productivity of the land measured in hectares per capita) is also larger than any other's. Witness the region's role in the global food chain: it is the largest producer of soybeans, coffee, sugar, bananas, orange juice, a leading fishmeal producer, and a major grain and meat exporter. Its mineral riches keep world industry running: silver, gold, copper, zinc, lead, tin, bismuth, molybdenum, rhenium, telurium, borium, strontium—you name it. And it produces one out of every six barrels of oil. In fact, much of the global community depends on Latin America's vast riches for its prosperity—indeed, for its survival. To that point: the Amazon basin plays a crucial role in the recycling of atmospheric carbon, absorbing one fourth of all global emissions. Latin America's population, now approaching 600 million, is twice that of the U.S. and significantly larger than the combined population of the European Union. Those numbers do not include some 50 million U.S. permanent residents and citizens who trace their origins back to the region (and keep close ties with it). By 2050, the region's population will have risen to an estimated 800 million. Latin America is not poor either. It boasts a per-capita GDP similar to the global average: $10,000. It is no richer or poorer than the rest of the world. In fact, 400 million people, or two-thirds of all Latin Americans, already belong to the global middle class, with their purchasing power fueling much of Latin America's growth. With some 200 million people still living in poverty, Latin America's poor are still numerous. But their ranks are declining fast, at a rate of 5 million a year over the past decade. As a result, its Gini coefficient improved by 10 percent between 2002 and 2008. In brief: the world's poor are now elsewhere—mainly in Asia and Africa. A population this large combined with average income levels have turned Latin America into the fourth largest economy in the world, with a regional GDP of some $6 trillion (purchasing power parity). That is larger than that of Russia and India's combined—larger, in fact, than that of any country or region other than the U.S., the EU and China. Not bad for a “region of marginal importance.” You could argue that Latin America's fragmentation into small, separate markets makes all the difference. But you would be wrong. As a result of the free-market reforms of the past decades, Latin America's economy is now the most open to trade in the developing world, with average tariffs down to 10 percent or less. Intraregional trade is booming. Most significantly, Chile, Colombia, Mexico, and Peru have signed bilateral free-trade agreements (with both the EU and the U.S., though Colombia's is waiting for the U.S. Congress' approval). These agreements are giving rise to a free-trade zone of some 200 million consumers, larger than Brazil and fully open to global trade. Surprisingly, it does not yet have a name—or a space among the BRICs. It will, though. Let's name these four countries the L-4 for now...
Topic:
Economics and Poverty
Political Geography:
United States, Europe, India, Brazil, Colombia, Latin America, Mexico, Chile, and Peru

429. What Happened to the North American Idea?

Author:
Robert A. Pastor
Publication Date:
06-2011
Content Type:
Journal Article
Journal:
Americas Quarterly
Institution:
Council of the Americas
Abstract:
Two decades ago, the leaders of Canada, Mexico and the United States forged an agreement that transformed North America from just a geographical expression to the world's most formidable economic entity. The North American Free Trade Agreement (NAFTA) eliminated most of the trade and investment barriers that had segmented the continent. Within a decade, trade among the three countries tripled and foreign direct investment (FDI) quintupled. By 2001, the three nations of North America accounted for 36 percent of the world product—up from 30 percent in 1994. And while many economists have waxed enthusiastic about the growing power of Brazil, U.S. trade with Mexico today is more than six times larger than its trade with Brazil. Unfortunately, since 2001 regional cooperation has stagnated. NAFTA, designed to expand trade and investment, has proven too limited in addressing the current issues facing the three countries. The time has come for the leaders of North America to recommit to regional integration if they want to effectively address the policy issues facing the region. For example, in the wake of the 2008 financial crisis, NAFTA can play a major role in job creation. A revamped agreement can potentially double exports and allow North America to once again compete with integrated markets in Asia and Europe. Beyond jobs, enhanced coordination and information sharing among NAFTA partners will allow for better control of immigration and the flow of illicit drugs across our borders. Finally, strengthening ties will begin to close the development gap between Mexico and its two neighbors, fortifying the economic and political bloc. The Rise and Fall of North America Though NAFTA has long faded from the headlines, the agreement's first years showed much promise. When the North American market was created in 1992, the impact was almost immediate. Contrary to the claim by U.S. presidential candidate Ross Perot that American jobs would be “sucked” into Mexico, the dramatic increase in North American trade coincided with the largest wave of job creation in U.S. history. Between 1992 and 2000, roughly 22 million jobs were added in the U.S., while trade with and FDI in Canada and Mexico grew more than 17 percent each year. The combination of expanded trade and investment meant that the three countries were actually making products together rather than just trading them. By combining U.S. capital and technology with Mexico's cheaper labor and Canada's abundant resources, the enlarged North American market experienced rapid growth, while Europe stagnated. From the onset of the U.S.-Canadian Free Trade Agreement in 1988 to 2001, trade among Mexico, Canada and the U.S., as a percentage of their trade with the world, leapt from 36 percent to 46 percent. The decline of the integration idea could be dated to the spring of 2001, when Presidents Vicente Fox of Mexico and George W. Bush of the U.S. met Canadian Prime Minister Jean Chrétien in Québec. Fox and his Foreign Minister Jorge Castañeda arrived with a suitcase filled with proposals, such as a North American Commission, a “cohesion” fund to reduce the development gap, a customs union and an immigration agreement. But Chrétien was not interested in including Mexico in Canada's talks with the U.S., and Bush rejected any new multilateral institution or fund. The opportunity for progress was lost. The share of trade among the three countries as a percentage of their trade with the rest of the world dropped from 46 percent in 2001 to 40 percent in 2009—almost to pre-NAFTA levels. The average annual growth of trade among the three countries declined by two-thirds, while growth of foreign direct investment decreased by one-half…
Topic:
Development and Economics
Political Geography:
United States, Canada, Brazil, North America, and Mexico

430. The Americas Go Glocal

Author:
Saskia Sassen
Publication Date:
06-2011
Content Type:
Journal Article
Journal:
Americas Quarterly
Institution:
Council of the Americas
Abstract:
There is little doubt that the North-South axis remains dominant for Latin America's geopolitical positioning. But new relations are emerging and deepening at subnational levels, in turn creating new intercity geographies and challenging that geopolitical notion. These relations are a direct product of economic and cultural globalization. Some examples are the shift of migration from Ecuador and Colombia toward Spain rather than the U.S., the growing economic relations between Chinese businesses and organizations and São Paulo and Rio de Janeiro, and the emergent relations between these cities and Johannesburg, South Africa. The Internet has allowed a rapidly growing number of people to become a part of diverse networks that crisscross the world. And nongovernmental organizations (NGOs) from various parts of the world are establishing active connections over social struggles in Latin America. In other words, beneath the still-dominant North-South geopolitics, transversal geographies are growing in bits and pieces. One trend is the formation of intercity geographies as the number of global cities has expanded since the 1990s. These subnational circuits cut across the world in many directions. A second trend is the growth of civil society organizations and individuals who are connecting around the world in ways that, again, often do not follow the patterns of traditional geopolitics. The New, Multiple Circuits There is no such entity as the global economy. It is more correct to say there are global formations, such as electronic financial markets and firms that operate globally. But what defines the current era is the creation of numerous, highly particular, global circuits—some specialized and some not—interlacing across the world and connecting specific areas, most of which are cities. While many of these global circuits have long existed, they began to proliferate and establish increasingly complex organizational and financial foundations in the 1980s. These emergent intercity geographies function as an infrastructure for globalization, and have led to the increased urbanization of global networks. Different circuits contain different groups of countries and cities. For instance, Mumbai today is part of a global circuit for real estate development that includes investors from cities as diverse as London and Bogotá. Coffee is mostly produced in Brazil, Kenya and Indonesia, but the main place for trading its future is on Wall Street. The specialized circuits in gold, coffee, oil and other commodities each involve particular countries and cities, which will vary depending on whether they are production, trading or financial circuits. If, for example, we track the global circuits of gold as a financial instrument, it is London, New York, Chicago, and Zurich that dominate. But the wholesale trade in the metal brings São Paulo, Johannesburg and Sydney into the circuit, while trade in the commodity, much of it aimed at the retail level, adds Mumbai and Dubai. And then there are the types of circuits a firm such as Wal-Mart needs to outsource the production of vast amounts of goods—circuits that include manufacturing, trading, and financial and insurance services. The 250,000 multinationals in the world, together with their over 1 million affiliates and partnership arrangements worldwide, have created a new pattern of relations that combine global dispersal with the spatial concentration of certain functions often while retaining headquarters in their home countries. The same is true of the 100 top global advanced-services firms that together have operations in 350 cities outside their home base. While financial services can be bought everywhere electronically, the headquarters of leading global financial services firms tend to be concentrated in a limited number of cities. Each of these financial centers specializes in specific segments of global finance, even as they engage in routine types of transactions executed by all financial centers. It's not just global economic forces that feed this proliferation of circuits. Forces such as migration and cultural exchange, along with civil society struggles to protect human rights, preserve the environment and promote social justice, which also contribute to circuit formation and development. NGOs fighting for the protection of the rainforest function in circuits that include Brazil and Indonesia as homes of the major rainforests, the global media centers of New York and London, and the places where the key forestry companies selling and buying wood are headquartered—notably Oslo, London and Tokyo. There are even music circuits that connect specific areas of India with London, New York, Chicago, and Johannesburg. Adopting the perspective of one of these cities reveals the diversity and specificity of its location on some or many of these circuits, which is determined by its unique capabilities. Ultimately, being a global firm or market means entering the specificities and particularities of national economies. This explains why global firms and markets need more and more global cities as they expand their operations across the world. While there is competition among cities, there is far less of it than is usually assumed. A global firm does not want one global city, but many. Moreover, given the variable level of specialization of globalized firms, their preferred cities will vary. Firms thrive on the specialized differences of cities, and it is those differences that give a city its particular advantage in the global economy. Thus, the economic history of a place matters for the type of knowledge economy that a city or city-region ends up developing. This goes against the common view that globalization homogenizes economies. Globalization homogenizes standards—for managing, accounting, building state-of-the-art office districts, and so on. But it needs diverse specialized economic capabilities. Latin America on the Circuit This allows many of Latin America's cities to become part of global circuits. Some, such as São Paulo and Buenos Aires, are located on hundreds of such circuits, others just on a few. Regardless of the case, these cities are not necessarily competing with one other. The growing number of global cities, each specialized, signals a shift to a multipolar world. Clearly, the major Latin American cities have circuits that connect them directly to destinations across the world. What is perhaps most surprising is the intensity of connections with Asia and Europe. Traditional geopolitics would lead one to think that Latin America connects, above all, with North America. There is a strong tendency for global money flows to generate partial geographies. This becomes clear, for example, when we consider foreign direct investment (FDI) in Latin America, a disproportionate share of which goes to a handful of countries. In 2008, for example (a relative peak of FDI), FDI flows into Latin America were topped by Brazil at $45.1 billion, followed at a distance by Mexico at $23.7 billion, Chile at $15.2 billion, and Argentina with $9.7 billion. On average, between 1991–1996 and 2003–2008, FDI in Brazil increased more than five-fold while tripling in Chile and Mexico. Among the countries in the Latin American and Caribbean region receiving the lowest levels of foreign investment in 2008 were Haiti, at $30 million; Guyana, at $178 million; and Paraguay, at $109 million. Globalization and the new information and communication technologies have enabled a variety of local activists and organizations to enter international arenas that were once the exclusive domain of national states. Going global has also been partly facilitated and conditioned by the infrastructure of the global economy…
Topic:
Economics, Government, and Non-Governmental Organization
Political Geography:
United States, New York, America, South Africa, London, Colombia, Latin America, Mumbai, Sydney, Ecuador, Dubai, and Chicago