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91. The Impact of Regional and Sectoral Productivity Changes on the U.S. Economy

Author:
Lorenzo Caliendo, Fernando Parro, Esteban Rossi-Hansberg, and Pierre-Daniel Sarte
Publication Date:
10-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We study the impact of regional and sectoral productivity changes on the U.S. economy. To that end, we consider an environment that captures the effects of interregional and intersectoral trade in propagating disaggregated productivity changes at the level of a sector in a given U.S. state to the rest of the economy. The quantitative model we develop features pairwise interregional trade across all 50 U.S. states, 26 traded and non-traded industries, labor as a mobile factor, and structures and land as an immobile factor. We allow for sectoral linkages in the form of an intermediate input structure that matches the U.S. input-output matrix. Using data on trade flows by industry between states, as well as other regional and industry data, we obtain the aggregate, regional and sectoral elasticities of measured TFP, GDP, and employment to regional and sectoral productivity changes. We find that such elasticities can vary significantly depending on the sectors and regions affected and are importantly determined by the spatial structure of the US economy. We highlight the role of these elasticities by tracing out the effects of productivity gains in California in the Computers and Electronics industry between 2002 and 2007 on all other U.S. sectors and regions.
Topic:
Economics, Science and Technology, GDP, Regionalism, and Productivity
Political Geography:
North America and United States of America

92. 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

93. Is Poverty a binding constraint on Agricultural Growth in Rural Malawi?

Author:
Mirriam Muhome‐Matita and Ephraim Wadonda Chirwa
Publication Date:
07-2013
Content Type:
Policy Brief
Institution:
African Economic Research Consortium (AERC)
Abstract:
Agriculture remains the most important sector in sub‐Saharan Africa and is a dominant form of livelihood for a majority of the population that resides in the rural areas. In Malawi, agriculture accounts for 35 percent of GDP and generates more than 80 percent of foreign exchange. In addition, agriculture is the most important occupation for 71 percent of the rural population in which crop production accounts for 74 percent of all rural incomes. However, agriculture has failed to get Africa out of poverty, and most countries are experiencing low agricultural growth, rapid population growth, weak foreign exchange earnings and high transaction costs (World Bank, 2008). In Malawi, for a long time, economic growth has been erratic (see figure 1) with huge swings and poverty has remained high. For instance, the annual growth rates in per capita gross domestic product averaged ‐2.1 percent in the 1980‐84 period, ‐2.7 percent in 1990‐94 period, 3.8 percent in 1995‐99 and ‐0.2 percent in the 2000‐05 period.
Topic:
Agriculture, Development, Economics, Political Economy, Poverty, GDP, Inequality, Economic Growth, and Macroeconomics
Political Geography:
Africa and Malawi

94. Challenges for the Future of Chinese Economic Growth

Author:
Jane T. Haltmaier
Publication Date:
01-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
The Chinese economy has been growing at a rapid pace for over thirty years. Most of this growth has come from higher labor productivity, while growth of employment has diminished along with a slower rate of increase in the working-age population. This paper looks at the challenges that China will face over the next two decades in maintaining its rapid pace of economic growth, especially as working-age population growth slows further and then begins to decline. Key questions include whether China will be able to continue to devote nearly half of its GDP to investment, whether such investment will become less productive as the capital-labor ratio continues to rise, whether labor participation and employment rates will fall as the population becomes less rural, and whether future shifts out of rural employment will go more toward the services rather than the manufacturing sector, where productivity is higher. In the baseline scenario economic growth falls gradually from its current pace of about 10 percent to near 6-1/2 percent by 2030. However, a combination of less optimistic, but still reasonable assumptions, results in a reduction in the growth rate to about 1-1/2 percent by 2030.
Topic:
International Trade and Finance, GDP, Employment, and Economic Growth
Political Geography:
China and Asia

95. India and the BRICS

Author:
Gateway House
Publication Date:
03-2012
Content Type:
Special Report
Institution:
Gateway House: Indian Council on Global Relations
Abstract:
Over the last decade, countries known under the emerging markets acronym of BRICS, have begun to seriously define their common interests and values. Brazil, Russia, India, China and South Africa have held three summits so far – in Russia, Brazil and China. On March 29, they will meet again, this time in New Delhi, with the goal of addressing the global economic condition, reforming financial and regulatory institutions and improving cooperation with each other on a host of international issues from starting a BRICS development bank to interchanging high tech skills. While these issues directly impact them, they also affect much of the developing world. Though different in size and resources, the BRICS nations as a group are massive: they account for 45% of the world population, 25% of global GDP and 50% of recent global growth. Together, they have the potential to create a future model for others. As an independent market-focused Indian think tank, Gateway House has been deeply invested in the future of India and its BRICS counterparts. What is the best way to develop affordable housing for large population nations? What is the best way to secure long term, manageable energy supplies? Can healthcare be delivered more efficiently, en masse, and to remote regions? How much sustained growth is required to making one of these large nations succeed? How can the inflation-growth trade-off be managed? Is there a better way to produce and deliver food than with only large scale enterprise? Can the BRICS be lenders of best resort for each other? How to best take advantage of the globalization of technology? The summaries of research papers in this booklet begin to offer some answers. In “India-Brazil: Pioneers of a new development agenda,” researcher Estefanía Marchán examines the possibilities for India to bring affordable housing technology to Brazil, while Brazil offers its experience with programmes to develop profitable small farms and deliver cash payments with modern networks to the poor. Marchan then looks at how the lessons from India-Brazil cooperation might be passed on with good results to Africa. In “India-Russia: Taking each other seriously,” Russia Studies research fellow Katherine Foshko looks at why a once-healthy India-Russia relationship has gone into quietude and suggests that a tech revival should be advanced. “Information technology in particular is an area where India should capitalize on the plethora of educated and talented Russian professionals and Russia can benefit from the size as well as the expertise of the Indian labor pool,” she writes. Similarly, K. N. Vaidyanathan, the former executive director of India’s Securities and Exchange Board and senior Geo-economics Fellow, makes a case that India’s careful, deliberate approach to permitting financial derivatives on its exchanges protected it from the ravages of the 2008 global crash. It has created a model for BRICS and other developing countries, which are seeking to grow while insulating their financial markets from global shocks. Renu Modi, an professor at the University of Mumbai who directed its African Studies Center, points out that while South Africa might have been inducted into the BRIC’s club as a “gift”, its greater as a gateway to the 1-billion-person African continent. There are also cautionary notes. The two largest nations, Indian and China, are both experiencing slower growth, but their outcomes couldn’t be more different, write Gateway House executive director Manjeet Kripalani and adviser Bob Dowling. China is engineering a slowdown to encourage a consumer economy but India is heading for a dangerous stall that must be reversed. Meanwhile, researcher Samir N. Kapadia explains that while China is a friendly banker to BRICS, its lending comes with strings attached.
Topic:
Development, GDP, Economy, and BRICS
Political Geography:
Russia, China, South Asia, India, South Africa, and Brazil

96. Do Oil Prices Help Forecast U.S. Real GDP? The Role of Nonlinearities and Asymmetries

Author:
Lutz Kilian and Robert J. Vigfusson
Publication Date:
06-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
There is a long tradition of using oil prices to forecast U.S. real GDP. It has been suggested that the predictive relationship between the price of oil and one-quarter ahead U.S. real GDP is nonlinear in that (1) oil price increases matter only to the extent that they exceed the maximum oil price in recent years and that (2) oil price decreases do not matter at all. We examine, first, whether the evidence of in-sample predictability in support of this view extends to out-of-sample forecasts. Second, we discuss how to extend this forecasting approach to higher horizons. Third, we compare the resulting class of nonlinear models to alternative economically plausible nonlinear specifications and examine which aspect of the model is most useful for forecasting. We show that the asymmetry embodied in commonly used nonlinear transformations of the price of oil is not helpful for out-of-sample forecasting; more robust and more accurate real GDP forecasts are obtained from symmetric nonlinear models based on the three-year net oil price change. Finally, we quantify the extent to which the 2008 recession could have been forecast using the latter class of time-varying threshold models.
Topic:
Energy Policy, Oil, Natural Resources, GDP, and Price
Political Geography:
North America and United States of America

97. From Preponderance of Power to Balance of Power? South Korea in Search of a New North Korea Policy

Author:
Jihwan Hwang
Publication Date:
12-2011
Content Type:
Working Paper
Institution:
East Asia Institute (EAI)
Abstract:
The global and East Asian orders of power are now represented by China's economic, military, and diplomatic rise and America's decline. The result is often called Chimerica or G2, leading to U.S.-China competition in every aspect of the international agenda. After the Bush administration's foreign policy in the first years of the millennium, when many scholars and policy makers focused on U.S. unipolarity or at least its preponderance of power after the collapse of the Soviet Union and the end of the Cold War, the current state of affairs is a great change. While U.S.-China relations represent a set of the most important variables in world politics, the meaning of China’s rise is much greater in the East Asian regional order. The Korean Peninsula, of course, cannot escape from the influence of its neighbors. Although the world order of the 1990s saw the unprecedented economic prosperity and overwhelming military power of the United States, the recent order has been characterized by the relative decline of the United States and the fast and strong rise of China. The Chinese economy has grown more than 10 percent per year for the last thirty years and is now the world's second-largest economy. Although the Chinese GDP is still only one-third that of the United States, as TABLE 1 shows, it is not at all unheard of to say that China may economically catch up with the superpower by 2030. Moreover, China's trade with Northeast Asian countries is much larger than that of the United States. As TABLE 2 shows, China's exports and imports with South Korea, Japan, and Taiwan are almost twice as large when compared with those of the United States. Given America's economic recession and China's incessant growth, the gap between the two is likely to get much larger. China's increasing economic interdependence with regional powers will have a great effect on the changing balance of power in the region, and will have a much greater effect on the Korean Peninsula. On the other hand, China has also made every effort to build up its military capability. Supported by its strong economic growth, Chinese military spending has been hugely increased, more than 10 percent per year on average. China spent 40 billion U.S. dollars in 2001, but it spent 119 billion in 2010, an increase of almost three times in ten years. TABLE 3 indicates that Chinese military spending is still less than one sixth compared to the American figure, but one must recognize that while the United States plans to cut its military spending in the next decade due to its budget deficit, China is certain to keep increasing its, unless its economy falls into deep trouble in the near future.
Topic:
Foreign Policy, Economics, Military Strategy, and GDP
Political Geography:
China, Asia, South Korea, and North Korea