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3511. Labor Markets in Eastern Europe and Eurasia

Author:
Robyn Murphy, Ron Sprout, and Ayo Heinegg
Publication Date:
01-2007
Content Type:
Working Paper
Institution:
United States Agency for International Development
Abstract:
This research attempts to look systematically at the available data regarding labor market characteristics of the transition in Eastern Europe and Eurasia. A primary focus is the examination of the data in light of a World Bank working hypothesis that “there are signs of an emerging divide between labor markets in the transition economies of Eastern Europe and those of low-income Eurasian countries.” We find significant labor market gaps and differences between the CEE countries (particularly the Northern Tier CEE) and Eurasia but mixed evidence at best that these gaps are growing. We also find that there remain some key challenges and adverse trends in labor markets even among the Northern Tier CEE countries.
Topic:
Development, Economics, and Markets
Political Geography:
Eurasia and Eastern Europe

3512. India's Future: It's About Jobs

Author:
Geoffrey N. Keim and Beth Anne Wilson
Publication Date:
11-2007
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Projections of sustained strong growth in India depend importantly on the utilization of the huge increase in India's working-age population projected over the next two decades. To date, however, India's economic growth has been concentrated in high-skill and capital-intensive sectors, and has not generated strong employment growth. In this paper, we highlight the tension between India's performance in output and employment, describe the characteristics of India's demographic dividend, and discuss impediments to India's shift away from agriculture.
Topic:
Development, Economics, and Markets
Political Geography:
South Asia and India

3513. The Role of China in Asia: Engine, Conduit, or Steamroller?

Author:
Beth Anne Wilson, Jane T. Haltmaier, Shaghil Ahmed, Brahima Coulibaly, Ross Knippenberg, Sylvain Leduc, and Mario Marazzi
Publication Date:
09-2007
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper assesses China's role in Asia as an independent engine of growth, as a conduit of demand from the industrial countries, and as a competitor for export markets. We provide both macroeconomic and microeconomic evidence. The macroeconomic analysis focuses on the impact of U.S. and Chinese demand on the output of the Asian economies by estimating growth comovements and VARs. The results suggest an increasing role of China as an independent source of growth. The microeconomic analysis decomposes trade into basic products, parts and components, and finished goods. We find a large role for parts and components trade consistent with China playing an important and increasing role as a conduit. We also estimate some regressions that show that China's increasing presence in export markets has had a negative effect on exports of some products for some other Asian economies, but not for other products, including those of the important electronic high-technology industry.
Topic:
Development, Economics, International Trade and Finance, and Markets
Political Geography:
United States, China, and Asia

3514. Oil Shocks and External Adjustment

Author:
Luca Guerrieri, Martin Bodenstein, and Christopher J. Erceg
Publication Date:
06-2007
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper investigates how oil price shocks affect the trade balance and terms of trade in a two country DSGE model. We show that the response of the external sector depends critically on the structure of financial market risk-sharing. Under incomplete markets, higher oil prices reduce the relative wealth of an oil-importing country, and induce its nonoil terms of trade to deteriorate, and its nonoil trade balance to improve. The magnitude of the nonoil terms of trade response hinges on structural parameters that affect the divergence in wealth effects across oil importers and exporters, including the elasticity of substitution between oil and other inputs in production, and the discount factor. By contrast, cross-country wealth differences effectively disappear under complete markets, with the implication that oil shocks have essentially no effect on the nonoil terms of trade or the nonoil trade balance.
Topic:
Economics, Foreign Exchange, International Trade and Finance, Markets, and Oil

3515. Exchange Rate Pass-Through to Export Prices: Assessing Some Cross-Country Evidence

Author:
Robert Vigfusson, Nathan Sheets, and Joseph Gagnon
Publication Date:
09-2007
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
A growing body of empirical work has found evidence of a decline in exchange rate pass-through to import prices in a number of industrial countries. Our paper complements this work by examining pass-through from the other side of the transaction; that is, we assess the exchange rate sensitivity of export prices (denominated in the exporter's currency). We first sketch out a streamlined analytical model that highlights some key factors that determine pass-through. Using this model as reference, we find that the prices charged on exports to the United States are more responsive to the exchange rate than is the case for export prices to other destinations, which is consistent with results in the literature suggesting that import price pass-through in the U.S. market is relatively low. We also find that moves in the exchange rate sensitivity of export prices over time have been significantly affected by country and region-specific factors, including the Asian financial crisis (for emerging Asia), deepening integration with the United States (for Canada), and the effects of the 1992 ERM crisis (for the United Kingdom).
Topic:
Economics, Foreign Exchange, International Trade and Finance, and Markets
Political Geography:
United States, United Kingdom, Canada, and Asia

3516. U.S. External Adjustment: Is It Disorderly? Is It Unique? Will It Disrupt the Rest of the World?

Author:
Steven B. Kamin and Trevor A. Reeve
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
In recent years, a number of studies have analyzed the experiences of a broad range of industrial economies during periods when their current account deficits have narrowed. Such studies identified systematic aspects of external adjustment, but it is unclear how good a guide the experience of other countries may be to the effects of a future narrowing of the U.S. external imbalance. In contrast, this paper focuses in depth on the historical experience of external adjustment in the United States. Using data from the past thirty-five years, we compare economic performance in episodes during which the U.S. trade balance deteriorated and episodes during which it adjusted. We find trade balance adjustment to have been generally benign: U.S. real GDP growth tended to fall, but not to a statistically significant extent; housing construction slumped; inflation generally rose modestly; and although nominal interest rates tended to rise, real interest rates fell. The paper then compares these outcomes to those in foreign industrial economies. We find that the economic performance of the United States during periods of external adjustment is remarkably similar to the foreign experience. Finally, we also examine the performance of the foreign industrial economies during the periods of U.S. deterioration and adjustment. Contrary to concerns that U.S. adjustment will prove injurious to foreign economies, our analysis suggests that the foreign economies fared reasonably well during past periods when the U.S. trade deficit narrowed: the growth of domestic demand and real GDP abroad generally strengthened during such episodes, although inflation and interest rates tended to rise as well.
Topic:
Economics, Foreign Exchange, International Trade and Finance, and Markets
Political Geography:
United States

3517. Some Simple Tests of the Globalization and Inflation Hypothesis

Author:
Steven B. Kamin, Jaime Marquez, Jane Ihrig, and Deborah Lindner
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper evaluates the hypothesis that globalization has increased the role of international factors and decreased the role of domestic factors in the inflation process in industrial economies. Toward that end, we estimate standard Phillips curve inflation equations for 11 industrial countries and use these estimates to test several predictions of the globalization and inflation hypothesis. Our results provide little support for that hypothesis. First, the estimated effect of foreign output gaps on domestic consumer price inflation is generally insignificant and often of the wrong sign. Second, we find no evidence that the trend decline in the sensitivity of inflation to the domestic output gap observed in many countries owes to globalization. Finally, and most surprisingly, our econometric results indicate no increase over time in the responsiveness of inflation to import prices for most countries. However, even though we find no evidence that globalization is affecting the parameters of the inflation process, globalization may be helping to stabilize real GDP and hence inflation. Over time, the volatility of real GDP growth has declined by more than the volatility of domestic demand, suggesting that net exports increasingly are acting to buffer output from fluctuations in domestic demand.
Topic:
Economics, Emerging Markets, Globalization, International Trade and Finance, and Markets

3518. Innovation and Adaptability in a Digital Era: How Wealthy Nations Stay Wealthy

Author:
Tobias Schulze-Cleven, Bartholemew C. Watson, and John Zysman
Publication Date:
05-2007
Content Type:
Working Paper
Institution:
Berkeley Roundtable on the International Economy
Abstract:
The challenge for the advanced countries is to stay wealthy in a rapidly evolving and ever more competitive global economy. As a new digital era emerges and the mechanisms of value creation – i.e. the engines of productivity and growth – change in volatile marketplaces, wealthy nations have to find new ways to adapt. Particularly in Europe, successful adjustment has often been posed as a choice between social protection and market flexibility. In this paper, we recast this all too common framing and emphasize instead that competitive advantage for the advanced countries may be built through appropriate social policy. Upon clarifying the character of competition in the emerging digital era, we argue that the long-standing strong social protection systems particularly in many European countries could be leveraged to these countries' unique advantage in the emerging digital era. With such benefits as promoting social peace and assisting people in meeting new labour market demands, social protection systems have an important role to play in helping societies reorganize existing economic structures in support of successful adaptation to new competitive conditions.
Topic:
Economics, Globalization, International Political Economy, and Science and Technology
Political Geography:
Europe

3519. The Politics of Antitrust and Merger Review in the European Union: Institutional Change and Decisions from Messina to 2004

Author:
Gabriel T. Swank and Tim Büthe
Publication Date:
01-2007
Content Type:
Working Paper
Institution:
Minda de Gunzburg Center for European Studies, Harvard University
Abstract:
Antitrust regulation and the related merger review are essential for making a market economy work. Merger review is also among the most prominent powers of the European Commission in the Common Market of the EU. How did this supranational actor come to acquire such power? And what explains the variation in the Commission's decisions in some of the trans-atlantically most controversial merger review cases in recent years? In this paper, we develop a modified neofunctionalist theory as a historical institutionalist theory of institutional change that integrates elements of rational choice and social constructivism. We argue that it provides a superior explanation of (1) the institutional development of the European Commission's competence over antitrust matters and merger review from the 1950s negotiations over the Treaty of Rome through the changes of 2004 and (2) the Commission's decisions in some of the most prominent cases, where a high level of politicization makes a neofunctionalist explanation least likely.
Topic:
International Relations, Economics, and Markets
Political Geography:
Europe

3520. Poverty Reduction and the Poverty Reduction Facility at the IMF: Carving a New Path or Losing its Way?

Author:
Ramesh C. Kumar
Publication Date:
02-2007
Content Type:
Working Paper
Institution:
Centre for International Governance Innovation
Abstract:
Since 1999, all concessional lending by the International Monetary Fund (IMF) must be targeted at poverty reduction. The paper critically examines the design and implementation of the IMF's poverty reduction initiative by focusing on the operations of the Poverty Reduction and Growth Facility (PRGF). The data relating to the lending activity of the facility, coupled with an econometric explanation of the size of a PRGF arrangement in terms of key macro-economic variables, reveal some surprises. Not only does the lending activity of the new facility not appear to be much different-in frequency, size or total lending-than that under the Structural Adjustment Facility or Enhanced Structural Adjustment Facility (SAF/ESAF), but the average lending to individual countries over the period 2000-2004 is also inversely related to the human poverty index. At a time when IMF is quickly losing its traditional clientele, such findings raise doubts about the fund's efficacy in administering development finance.
Topic:
Development, Economics, International Cooperation, Poverty, and United Nations