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2721. Thresholds in the Process of International Financial Integration

Author:
Eswar Prasad, M. Ayhan Kose, and Ashley D. Taylor
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
The financial crisis has re-ignited the fierce debate about the merits of financial globalization and its implications for growth, especially for developing countries. The empirical literature has not been able to conclusively establish the presumed growth benefits of financial integration. Indeed, a new literature proposes that the indirect benefits of financial integration may be more important than the traditional financing channel emphasized in previous analyses. A major complication, however, is that there seem to be certain “threshold” levels of financial and institutional development that an economy needs to attain before it can derive the indirect benefits and reduce the risks of financial openness. In this paper, we develop a unified empirical framework for characterizing such threshold conditions. We find that there are clearly identifiable thresholds in variables such as financial depth and institutional quality—the cost-benefit trade- off from financial openness improves significantly once these threshold conditions are satisfied. We also find that the thresholds are lower for foreign direct investment and portfolio equity liabilities compared to those for debt liabilities.
Topic:
Development, Economics, Globalization, International Political Economy, and International Trade and Finance

2722. The G20 Meetings: No Common Framework, No Consensus

Author:
Michael Pettis
Publication Date:
05-2009
Content Type:
Policy Brief
Institution:
Carnegie Endowment for International Peace
Abstract:
Participants in the recently completed G20 meeting in London agreed on a number of measures, some substantial and some merely symbolic, but they sidestepped the real issues dividing the major economic powers and, in so doing, failed to address the root causes of the global trade and investment imbalances. This was almost inevitable. China, Europe, and the United States have incompatible conceptual frameworks for understanding the causes of the global financial crisis; furthermore, their conflicting domestic political constraints make agreement on solutions hard to reach. Europeans believe that the root cause of the crisis was excessively deregulated financial systems, and they are skeptical about U.S. and Chinese calls for fiscal expansion, worrying that excessive spending would prolong the imbalances and make the ultimate adjustment more difficult. China also believes that the roots of the crisis lie within the structure of the global financial system, although Beijing insists that it was mainly the reserve status of the U.S. dollar that permitted imbalances to develop to unsustainable levels. China is particularly vulnerable to trade protection and seeks to maintain open markets for its continued export of domestic overcapacity. Like the United States, it is pushing for more aggressive, globally coordinated fiscal expansion. However, because of rigidities in its financial system and development model, its fiscal response to the crisis may exacerbate the difficult global adjustment and may, ironically, increase the chances of trade friction. In a time of contracting demand, the United States controls two-thirds of the most valuable resource in the world: net demand. Consequently, it is U.S. policies that will determine the pace and direction of the global recovery, along with the institutional framework that will govern trade and investment relationships for decades to come. The crisis puts the United States more firmly at the center of the emerging world order than ever. So far, the United States has not understood the need to consider the global outcomes of its recovery policies. Until the major powers can reach consensus about the roots of the imbalance and cooperate on policies to promote recovery, it is likely that the world economy will get worse before it gets better. The United States will drive the recovery process, but in order to do so effectively it will need to recognize its position of strength and negotiate the appropriate agreements with other major powers, especially China, on the pace and nature of the adjustment.
Topic:
Economics, Globalization, International Trade and Finance, and Monetary Policy
Political Geography:
United States, China, Europe, and London

2723. Managing Arab Sovereign Wealth in Turbulent Times—and Beyond

Author:
Sven Behrendt and Bassma Kodmani
Publication Date:
04-2009
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
The debate about the role that sovereign wealth funds (SWFs) from Arab and other emerging economies play in international financial markets has been a highly cyclical one. Only twelve months ago, the Western public questioned the deeper rationales for sovereign investments in what were perceived to be strategic assets of Western economies. Commentators argued that these investments could harm the long-term competitiveness and national security of Western economies.
Topic:
Economics, International Trade and Finance, Political Economy, and Foreign Direct Investment
Political Geography:
Arabia

2724. Tectonic Shifts and Systemic Faultlines: A Global Perspective to Understand the 2008-2009 World Economic Crisis

Author:
Bülent GÖKAY
Publication Date:
04-2009
Content Type:
Journal Article
Journal:
Alternatives: Turkish Journal of International Relations
Institution:
Center for International Conflict Resolution at Yalova University
Abstract:
The last months of 2008 witnessed what is being called the worst financial crisis since the Great Depression of 1929-30. The first indications of a serious crisis appeared in January 2008. On 15 January, news of a sharp drop in the profits of the Citigroup banking led to a sharp fall on the New York Stock Exchange. On 21 January a spectacular fall in share prices occurred in all major world markets, followed by a series of collapses. A number of American and European banks declared massive losses in their 2007 end of the year results.
Topic:
Economics and Financial Crisis
Political Geography:
New York, America, and Europe

2725. Persistent primacy and the future of the American era

Author:
Robert J Lieber
Publication Date:
03-2009
Content Type:
Journal Article
Journal:
International Politics
Institution:
Palgrave Macmillan
Abstract:
Arguments are widely expressed that America is in decline, both at home and abroad. These admonitions extend not only to economic, diplomatic and geopolitical realms, but even to the cultural arena. The United States does face real and even serious problems, but there is an unmistakable echo of the past in current arguments. Antecedents of these views were evident in the 1970s, '80s and '90s, and on occasion even in identical language. Indeed, declinist proclamations have appeared on and off not only throughout the 20th Century, but also during the 18th and 19th Centuries. Moreover, periodic crises in US history have included challenges more daunting than those of today. It can thus be instructive to compare the arguments and prescriptions of the new declinism with those of earlier eras. The evidence suggests a pattern of over-reaction, a historicism, and a lack of appreciation for the robustness, adaptability and staying power of the United States.
Topic:
Economics
Political Geography:
United States and America

2726. Peace as governance? Critical challenges to power-sharing peace deals

Author:
Chandra Lekha Sriram
Publication Date:
06-2009
Content Type:
Working Paper
Institution:
Centre on Human Rights in Conflict
Abstract:
Power-sharing may involve not only political power-sharing, but shared governance over economic resources or the security sector, and in some cases territorial autonomy arrangements. There are at least five critical challenges to negotiating a peace agreement involving power-sharing: Mistrust may outweigh the influence of the power- sharing incentives offered. The third-party guarantee needed to overcome mistrust is not available. The incentives that are offered may not be the right ones. If there are no measures to address the original causes of conflict, incentives may not be enough. Incentives cannot induce so-called spoilers to participate in a peace process. There are far more potential challenges to implementing power-sharing agreements in practice: Agreements may be violated because incentives were insufficient or can be obtained more easily outside the agreement. Agreement fails because a group was less interested in, or unable to reap the benefits of, specific incentives. Old patterns of mistrust and cheating are imported into governance processes and state institutions. Instead of creating a grand coalition, power-sharing may create incentives for extremism and ethnic or hardliner outbidding. Incentives such as territorial autonomy may encourage secessionist tendencies. Parties may have committed to agreement out of short-term pragmatism rather than long term interest or policy. Exclusion of groups from benefits may encourage new grievances and even conflicts. Competition may turn violent amongst former allies. Violent regions or the interference of neighbouring states may undermine agreements.
Topic:
Security, Economics, Peace Studies, Treaties and Agreements, and Governance
Political Geography:
Sudan and Sri Lanka

2727. US Taxation of Multinational Corporations: What Makes Sense, What Doesn't

Author:
Gary Clyde Hufbauer and Jisun Kim
Publication Date:
03-2009
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
As the administration and Congress catch their breath from rescuing the economy, their thoughts are quickly turning to other issues—including the structure of the US tax system. Everyone agrees that the US tax system inflicts enormous complexity on the American public. But reform is never easy. Who pays the tax burden ranks among the most contentious issues that Congress has historically faced, and this time around will be no different.
Topic:
Economics, International Trade and Finance, and Financial Crisis
Political Geography:
United States

2728. Pressing the "Reset Button" on US-Russia Relations

Author:
Anders Åslund and Andrew Kuchins
Publication Date:
03-2009
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics
Abstract:
Whither Russia? Russia's economic circumstances as well as its articulated goals hold the answer to this eternal question. Drawing on our analysis in the forthcoming book The Russia Balance Sheet, we outline here a policy approach for the Barack Obama administration. We believe our views reflect to some degree an emerging consensus for the new administration's Russia policy. Russia is important for US foreign policy in many ways. The United States needs a more constructive relationship with Russia to address many core global security issues including nuclear security and nonproliferation, terrorism, energy, and climate change.
Topic:
International Relations, Foreign Policy, and Economics
Political Geography:
Russia and United States

2729. Are financial markets embedded in economics rather than society? A critical review of the performativity thesis

Author:
Lasse Folke Henriksen
Publication Date:
06-2009
Content Type:
Working Paper
Institution:
Danish Institute for International Studies
Abstract:
DIIS Working Paper reviews a recent influential branch within the Social Studies of Finance literature which asserts that financial markets are embedded in economics rather than in society (as scholars of the New Economic Sociology would have it). Coming from actor-network theory, the literature contributes conceptually to an extended ontology of markets and agency and empirically to an improved understanding of the importance of economist's role in constructing markets and assembling economic agency. It also draws attention to the staggering effects that material devices and technical 'details' can potentially have on the macrodynamics of financial markets. In some cases financial markets can even be performed by economics, that is, materialized in very close accordance with the economic models that describe them. From this insight they conclude that economics is a performative science and that the social sciences should consequently break down the Great (analytical) Divide between finance the- ory and financial markets.
Topic:
Economics, International Trade and Finance, Markets, and Political Theory
Political Geography:
Greece

2730. China's $1.5 Trillion Bet: Understanding China's External Portfolio

Author:
Brad W. Setser and Arpana Pandey
Publication Date:
05-2009
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
This paper was originally published in January 2009. The May update incorporates quarter one 2009 data on China's foreign reserves, the Treasury International Capital (TIC) capital flows data for December, January, and February, and the results of the June 2008 survey of foreign portfolio investment in the United States. The June 2008 survey indicated that China bought fewer Treasury bonds and more equities than the authors estimated in the January paper.
Topic:
Economics, International Political Economy, and International Trade and Finance
Political Geography:
United States and China