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2551. US Trade and Wages: The Misleading Implications of Conventional Trade Theory

Author:
Robert Z. Lawrence and Lawrence Edwards
Publication Date:
06-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Conventional trade theory, which combines the Heckscher-Ohlin theory and the Stolper-Samuelson theorem, implies that expanded trade between developed and developing countries will increase wage equality in the former. This theory is widely applied. It serves as the basis for estimating the impact of trade on wages using two-sector simulation models and the net factor content of trade. It leads naturally to the presumption that the rapid growth and declining relative prices of US manufactured imports from developing countries since the 1990s have been a powerful source of increased US wage inequality.
Topic:
Economics, Political Theory, and Labor Issues
Political Geography:
United States

2552. The Realities and Relevance of Japan's Great Recession: Neither Ran nor Rashomon

Author:
Adam S. Posen
Publication Date:
06-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Japan's Great Recession was the result of a series of macroeconomic and financial policy mistakes. Thus, it was largely avoidable once the initial shock from the bubble bursting had passed. The aberration in Japan's recession was not the behaviour of growth, which is best seen as a series of recoveries aborted by policy errors. Rather, the surprise was the persistent steadiness of limited deflation, even after recovery took place. This is a more fundamental challenge to our basic macroeconomic understanding than is commonly recognized. The UK and US economies are at low risk of having recurrent recessions through macroeconomic policy mistakes—but deflation itself cannot be ruled out. The United Kingdom worryingly combines a couple of financial parallels to Japan with far less room for fiscal action to compensate for them than Japan had. Also, Japan did not face poor prospects for external demand and the need to reallocate productive resources across export sectors during its Great Recession. Many economies do now face this challenge simultaneously, which may limit the pace of, and their share in, the global recovery.
Topic:
Economics, Markets, Monetary Policy, and Financial Crisis
Political Geography:
United States, Japan, and United Kingdom

2553. Excessive Volatility in Capital Flows: A Pigouvian Taxation Approach

Author:
Olivier Jeanne and Anton Korinek
Publication Date:
05-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper analyzes prudential controls on capital flows to emerging markets from the perspective of a Pigouvian tax that addresses externalities associated with the deleveraging cycle. It presents a model in which restricting capital inflows during boom times reduces the potential outflows during busts. This mitigates the feedback effects of deleveraging episodes, when tightening financial constraints on borrowers and collapsing prices for collateral assets have mutually reinforcing effects. In our model, capital controls reduce macroeconomic volatility and increase standard measures of consumer welfare.
Topic:
Economics, Emerging Markets, International Trade and Finance, Foreign Direct Investment, and Financial Crisis

2554. The Margins of US Trade

Author:
J. Bradford Jensen, Andrew B. Bernard, Peter K. Schott, and Stephen J. Redding
Publication Date:
05-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Recent research in international trade emphasizes the importance of firms' extensive margins for understanding overall patterns of trade as well as how firms respond to specific events such as trade liberalization. In this paper, we use detailed US trade statistics to provide a broad overview of how the margins of trade contribute to variation in US imports and exports across trading partners, types of trade (i.e., arm's length versus related party) and both short and long time horizons. Among other results, we highlight the differential behavior of related-party and arm's-length trade in response to the 1997 Asian financial crisis.
Topic:
Economics, International Trade and Finance, and Markets
Political Geography:
United States

2555. Intra-Firm Trade and Product Contractibility

Author:
J. Bradford Jensen, Andrew B. Bernard, Peter K. Schott, and Stephen J. Redding
Publication Date:
05-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper examines the determinants of intra-firm trade in US imports using detailed country-product data. We create a new measure of product contractibility based on the degree of intermediation in international trade for the product. We find important roles for the interaction of country and product characteristics in determining intra-firm trade shares. Intra-firm trade is high for products with low levels of contractibility sourced from countries with weak governance, for skill-intensive products from skill-scarce countries, and for capital-intensive products from capital-abundant countries.
Topic:
Economics, Industrial Policy, International Trade and Finance, and Markets
Political Geography:
United States

2556. Economic Crime and Punishment in North Korea

Author:
Stephan Haggard and Marcus Noland
Publication Date:
03-2010
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The penal system has played a central role in the North Korean government's response to the country's profound economic and social changes. As the informal market economy has expanded, so have the scope of economic crimes. Two refugee surveys—one conducted in China, one in South Korea—document that the regime disproportionately targets politically suspect groups, particularly those involved in market-oriented economic activities. Levels of violence and deprivation do not appear to differ substantially between the infamous political prison camps, penitentiaries for felons, and labor camps used to incarcerate individuals for a growing number of economic crimes. Such a system may also reflect ulterior motives. High levels of discretion with respect to arrest and sentencing and very high costs of detention, arrest, and incarceration encourage bribery; the more arbitrary and painful the experience with the penal system, the easier it is for officials to extort money for avoiding it. These characteristics not only promote regime maintenance through intimidation, but may facilitate predatory corruption as well.
Topic:
Crime, Economics, Markets, and Prisons/Penal Systems
Political Geography:
North Korea

2557. Revisiting the NAFTA Agenda on Climate Change

Author:
Jeffrey J. Schott and Meera Fickling
Publication Date:
07-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
A year ago, we wrote a policy brief titled Setting the NAFTA Agenda on Climate Change, which explored issues of energy and environmental cooperation among the three North American countries in light of the climate legislation that had recently passed the US House of Representatives. Similar legislation did not pass the Senate, and Congressional leaders are now considering much more modest measures aimed at reducing greenhouse gas (GHG) emissions and reforming US energy policy.
Topic:
Climate Change, Economics, International Trade and Finance, and Treaties and Agreements
Political Geography:
United States and North America

2558. Dealing with Volatile Capital Flows

Author:
Olivier Jeanne
Publication Date:
07-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
The set of tools and mechanisms with which emerging-market countries insure themselves against volatile capital flows is in a state of flux. Most emerging-market countries had accumulated an unprecedented level of international reserves before the global financial crisis that started in 2008. The crisis itself led to a large increase in International Monetary Fund (IMF) resources and the introduction of a new lending facility, the Flexible Credit Line (FCL). Meanwhile, some progress was made toward transforming the Chiang Mai Initiative into an Asian Monetary Fund, and the Greek debt crisis even prompted calls for the creation of a European Monetary Fund.
Topic:
Development, Economics, Emerging Markets, Markets, and Foreign Direct Investment

2559. The Big U-Turn: Japan Threatens to Reverse Postal Reforms

Author:
Gary Clyde Hufbauer and Julia Muir
Publication Date:
06-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
On May 31, 2010 a majority of the Lower House of the National Diet of Japan approved legislation that would reverse a decade's worth of effort to fully privatize key subsidiaries of Japan Post Holdings Co. Ltd. Besides postal services, the state-run postal system offers banking and insurance services, through Japan Post Bank (JPB) and Japan Post Insurance (JPI), respectively. These are the financial engines of Japan Post and were the units slated for privatization. Both subsidiaries have long received favorable government treatment, tilting the playing field against private banks and insurance firms, whether foreign or domestic. The government of Japan is in clear violation of its commitments under the World Trade Organization (WTO), and if the Upper House approves the legislation, Japan will reverse the efforts made by the United States and the European Union, as well as domestic private banks and insurance firms, to establish a level playing field. What's more, Japan risks having a formal WTO dispute brought against it.
Topic:
Economics, Government, and Privatization
Political Geography:
United States, Japan, and Europe

2560. Deepening China-Taiwan Relations through the Economic Cooperation Framework Agreement

Author:
Daniel H. Rosen
Publication Date:
06-2010
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
On Sunday, June 13, 2010 representatives from China and Taiwan held a third round of talks in Beijing on an Economic Cooperation Framework Agreement (ECFA) that would liberalize important aspects of cross-Strait economic relations. Details of what was agreed and what remains under negotiation are still trickling out, and in any case the nature of this framework is that various elements will be agreed upon on an ongoing basis rather than at once. But it is clear from available details that ECFA will be an ambitious accord that fundamentally changes the game between Taiwan and China and hence affects the regional economy and even the transpacific tempo for the United States.
Topic:
Economics, International Cooperation, International Trade and Finance, Treaties and Agreements, and Bilateral Relations
Political Geography:
United States, China, and Taiwan