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5501. Rapid Economic Growth in China: Implications for the World Economy

Author:
Warwick McKibbin and Yiping Huang
Publication Date:
12-1999
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
Rapid growth of the Chinese economy in the past decade and its potential for strong growth into the foreseeable future have caused anxieties in the rest of the world. Some commentators see Chinese growth wholly in terms of competition for trade and investment opportunities with other developing economies and a major cause of structural adjustments in the advanced industrialized economies. In particular there have been warnings of severe consequences for international agricultural markets. In this paper we use a dynamic general equilibrium model called the G-CUBED model (developed by McKibbin and Wilcoxen) to explore possible future paths of the Chinese economy based on projections of population growth, sectoral productivity growth, energy efficiency and technical change in the Chinese economy. This model captures not only the composition of the direct trade impacts of developments in the Chinese economy but also the implications of the endogenous flows of financial capital on macroeconomic adjustment in the world economy. The study focuses on the period from 1990 to 2020. Rather than being a problem for the world economy, we find strong growth in China is beneficial for the world economy directly through raising world incomes.
Topic:
Economics, Emerging Markets, and Globalization
Political Geography:
China, Israel, East Asia, and Asia

5502. The Transmission of Productivity and Investment Shocks in the Asia Pacific Region

Author:
Warwick McKibbin
Publication Date:
12-1999
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
An important aspect of macroeconomic interdependence in the Asia Pacific region is the adjustment of trade and current account balances in response to changes in saving and investment rates in individual economies. Greater trade flows, reliance on imported intermediate goods as well as more integrated capital markets imply that shifts in private or public saving and investment rates in an economy in the region can potentially have large impacts on other economies. This paper explores the quantitative nature of these linkages by focusing on a number of shocks within the context of a new dynamic multi-sector global model called the Asia-Pacific G-Cubed Model (AP-GCUBED). This model integrates sectoral adjustment with macroeconomic interdependence including explicit treatment of capital flows to explore the implications of a variety of productivity and investment shocks in the Asia Pacific Region. The first shock considered is a permanent decline in private investment in Japan. The second shock is a temporary rise in total factor productivity growth in China. The fall in Japanese investment is found to have a significant effect on trade flows and financial flows in the region whereas the rise in Chinese productivity has a quite different effect on the region.
Topic:
Economics, Emerging Markets, and Globalization
Political Geography:
China, Israel, East Asia, and Asia

5503. North Korea: How Much Reform and Whose Characteristics?

Author:
Heather Smith
Publication Date:
12-1999
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
This paper is the first of a three part project on economic reform on the Korean Peninsula. In this first paper, I focus on the question which has been subject to considerable recent debate, namely whether collapse of North Korea is imminent. In accessing this question the paper discusses the three structural bottlenecks now thought to be severely constraining the North Korean economy following a series of external shocks in the late 1980s, food shortages, energy constraints and a limited capacity to earn foreign exchange. Much speculation has focused on the deterioration in the food economy and that a prolongation of current food shortages will see North Korea collapse. One contribution of this paper lies in its attempt to analyze North Korean agricultural production and food consumption patterns using data made available by North Korea to the United Nations Food and Agricultural Organization. Several anomalies are found between this data and recent World Food Program assessments of food conditions and estimates of nutritional requirements which suggest caution in drawing a too deterministic link between current food shortages and collapse. The paper then discusses the role of international and regional players in prolonging North Korea's economic survival. In particular, the terms under which North Korea signed onto the 1994 Agreed Framework, a return to favorable trading terms with China, and North Korea's attempts aimed at expanding economic ties with the international community, could sustain North Korea at subsistence levels for the next 5 years at least. If collapse is not imminent in the short to medium term, then the policy implications that emerge from such a scenario are clear: that the international community will need to continue to pursue a policy approach of managing tension reduction and the integration of North Korea into the international community. Whether the North Korea regime will embrace fundamental reforms needed to ensure longer term survival remains difficult to judge. In the final section of the paper, several reasons are advanced as to why the window of opportunity for North Korea to embrace reform is now greater than at any time in the past.
Topic:
International Relations and Economics
Political Geography:
Israel and East Asia

5504. The Macroeconomic Experience of Japan Since 1990: An Empirical Investigation

Author:
Warwick McKibbin
Publication Date:
12-1999
Content Type:
Working Paper
Institution:
The Brookings Institution
Abstract:
This paper outlines the macroeconomic experience of the Japanese economy since 1990. The MSG2 multi-country model is used to determine the extent to which the strong yen and growth experience of Japan over this period was due to underlying trends in the Japanese economy and to what extent shocks such as changes in the settings of monetary and fiscal policies in Japan and overseas, as well as the Kobe earthquake, played a role. It is shown that many of the key features of the Japanese economy over this period can be attributed to inappropriate macroeconomic policy settings in Japan as well as reflecting long term trends due to population changes and a maturing of the Japanese economy. In particular, it is shown that announcing expansionary fiscal policy in advance of implementation and exaggerating the extent of actual stimulus, tended to appreciate the yen and raise long term real interest rates which further reduced real GDP growth over the period. The extent to which macroeconomic policy rather than entrenched structural problems can explain the experience suggests that future prospects for the Japanese economy are not as bleak as sometimes predicted. Growth is unlikely to return to the high levels experienced in previous decades because of the maturing of the Japanese economy and low future population growth in Japan. This paper projects growth to be sustainable at around 2.5% per year over the next decade and a continual appreciation of the yen in both real and nominal terms.
Topic:
Economics and Political Economy
Political Geography:
Japan, Israel, and East Asia

5505. The International Financial Architecture

Author:
Jeffrey A. Frankel
Publication Date:
06-1999
Content Type:
Policy Brief
Institution:
The Brookings Institution
Abstract:
The recent financial crises in many emerging market economies have raised anew questions about the appropriate exchange-rate regime and the use of capital controls as policy instruments. The use of both mechanisms should be tailored to each country's unique circumstances. Fixed exchange-rate mechanisms, such as dollarization (adopting the dollar as legal tender in place of the national currency), are suited to small open economies or those desperate to import monetary stability. Larger economies, such as the European Union (EU) and the United States, should allow their currencies to float. Intermediate regimes that fall between fixed- and floating-rate regimes—such as bands, baskets, and crawls (See Figure 1 for definitions)—are still appropriate for some countries. Certain well-targeted restrictions on the composition of capital flows might be appropriate for some emerging-market countries as temporary measures when inflows are particularly high.
Topic:
Economics and International Trade and Finance
Political Geography:
United States and Europe

5506. A Dollarization Blueprint for Argentina

Author:
Steve H. Hanke and Kurt Schuler
Publication Date:
03-1999
Content Type:
Policy Brief
Institution:
The Cato Institute
Abstract:
President Carlos Menem of Argentina has advocated replacing the Argentine peso with the dollar. Dollarization would benefit Argentina because it would eliminate the peso-dollar exchange-rate risk, lower interest rates, and stimulate economic growth.
Topic:
Economics and International Political Economy
Political Geography:
Argentina, South America, and Latin America

5507. Replacing Potemkin Capitalism: Russia's Need for a Free-Market Financial System

Author:
Kurt Schuler and George A. Selgin
Publication Date:
06-1999
Content Type:
Working Paper
Institution:
The Cato Institute
Abstract:
On August 17, 1998, Russia devalued the ruble and stopped payment on its government debt, creating a financial crisis that continues today. Some observers have blamed the financial crisis, and the poor performance of the Russian economy generally, on government policies that they claim are rigidly laissez faire. However, a closer look at the Russian financial system reveals that it remains fundamentally socialist, though it has superficial capitalist features.
Topic:
Debt, Economics, Government, and Financial Crisis
Political Geography:
Russia, Europe, and Asia

5508. The Asian Economic Crisis

Author:
Linda Y.C. Lim, Frank Ching, and Bernardo M. Villegas
Publication Date:
02-1999
Content Type:
Working Paper
Institution:
Asia Society
Abstract:
The ongoing Asian economic crisis that began in mid-1997 ranks as Asia's second biggest event in since world war ii. the crisis abruptly halted the region's unprecedented three decades of rapid economic growth. It has also had wider global repercussions-not only in terms of its effects on non-Asian economies but also its implications for established canons of Western economic theory and policy-making, particularly with respect to exchange rate management and open capital markets. Many noted American economists and international capital market actors now publicly disagree on these matters.
Topic:
Economics
Political Geography:
America and Asia

5509. Asia's Choice

Author:
Stanley Fischer, Joseph E. Estrada, Fidel Valdez Ramos, Mei-Wei Cheng, Jaime Augusto Zobel de Ayala II, Linda Y. C. Lim, Jose Trinidad Pardo, H.E. Gloria Macapagal-Aroyo, Tadao Chino, and Jose L. Cuisia
Publication Date:
02-1999
Content Type:
Working Paper
Institution:
Asia Society
Abstract:
I am pleased to welcome all of you to the Philippines on the occasion of the tenth Asia Society's Annual Corporate Conference, which is being held for the first time in Manila. I am also glad that this event marks the official launching of the Society's office in our country.
Topic:
Economics
Political Geography:
Asia and Philippines

5510. Economic Stability and the World Economy

Author:
Gordon Brown
Publication Date:
09-1999
Content Type:
Working Paper
Institution:
Council on Foreign Relations
Abstract:
Only a year ago, an increasingly turbulent and inadequately supervised financial system threatened global instability.Since the height of the financial instability last september, the world has taken rapid and decisive action and the world has started to put in place new long term disciplines to promote greater stability.
Topic:
Economics, International Cooperation, and International Political Economy
Political Geography:
United Kingdom, America, and Europe