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791. A Policy Matrix for Inclusive Prosperity

Author:
Dani Rodrik and Stefanie Stantcheva
Publication Date:
04-2021
Content Type:
Policy Brief
Institution:
Economics for Inclusive Prosperity (EfIP)
Abstract:
One of the biggest challenges that countries face today is the very unequal distributions of opportunities, resources, income and wealth across people. Inclusive prosperity – whereby many people from different backgrounds can benefit from economic growth, new technologies, and the fruits of globalization – remains elusive. To address these issues, societies face choices among many different policies and institutional arrangements to try to ensure a proper supply of productive jobs and activities, as well as access to education, financial means, and other endowments that prepare individuals for their participation in the economy. In this paper we offer a simple, organizing framework to think about policies for inclusive prosperity. We provide a comprehensive taxonomy of policies, distinguishing among the types of inequality they address and the stages of the economy where the intervention takes place. The taxonomy clarifies the differences among contending approaches to equity and inclusion and can help analysts assess the impacts and implications of different policies and identify potential gaps.
Topic:
Economics, Labor Issues, Economic Inequality, Macroeconomics, Job Creation, Polarization, Productivity, Inclusion, Workforce, and Production
Political Geography:
United States

792. Majoritarian versus Proportional Representation Voting

Author:
Ethan Kaplan
Publication Date:
06-2021
Content Type:
Policy Brief
Institution:
Economics for Inclusive Prosperity (EfIP)
Abstract:
What kind of voting system should countries have? This policy brief discusses the two main electoral systems in modern political democracies. It makes an argument that majoritarian systems such as what exists in the United States fail to properly represent voters. It suggests replacing the U.S. majoritarian political system with a proportional representation system and shows how this could be done within the context of current U.S. law. Both economists and political scientists have worked on the impact of electoral systems. Empirical methods from economics as well as economic analysis of the incentives created by different political systems have contributed to our understanding of the consequences of electoral systems on representation. Additionally, economists have estimated the impact of electoral system on fiscal expenditures, something we will discuss towards the end of the policy brief. There are two main voting systems in modern democratic societies: majoritarian systems and proportional representation systems. Federal voting in the United States is majoritarian though some states such as Maryland have proportional representation at the state level. In a majoritarian system, also known as a winner-take-all system or a first-past-the-post system, the country is divided up into districts. Politicians then compete for individual district seats. The candidate who receives the highest vote share wins the election and represents the district.
Topic:
Economics, Democracy, Representation, Macroeconomics, Voting, and Electoral Systems
Political Geography:
United States

793. EfIP Online Panel: A New Macroeconomics?

Author:
Jón Steinsson
Publication Date:
07-2021
Content Type:
Policy Brief
Institution:
Economics for Inclusive Prosperity (EfIP)
Abstract:
There is a narrative within our field that macroeconomics has lost its way. While I have some sympathy with this narrative, I think it is a better description of the field 10 years ago than of the field today. Today, macroeconomics is in the process of regaining its footing. Because of this, in my view, the state of macroeconomics is actually better than it has been for quite some time. The most important problem with macro over the past few decades has been that it has been too theoretical. When I say this, I don‘t at all mean to say that theory is useless. To the contrary, theory is an essential element of a healthy science. But a healthy science needs a balance between theory and empirical work. Macro lost this balance in the 1980s and is only regaining it now. Most narratives about the evolution of macro focus on the evolution of macroeconomic theory and the rational expectations revolution in particular. An under-appreciated part of this story is that the rational expectations revolution shifted the field away from empirical work. This was partly because building models that met the higher standards of rigor set by Lucas and his co-revolutionaries was a challenging and therefore highly absorbing task. But that isn’t the only reason. For reasons that are not entirely clear to me, a very substantial fraction of macroeconomists came to believe that the Lucas critique implied that quasi-experimental empirical methods could not be used in macro. The idea that changes in policy could radically alter empirical regularities (i.e., the Lucas critique) somehow came to be interpreted to mean that the only way to do empirical work in macro was to write down fully specified general equilibrium models of the whole economy and evaluate the entire model (either by full-information inference methods or moment matching). Sargent, for example, placed enormous emphasis on the idea of “cross-equation restrictions.“ It seems that this line of thinking led large numbers of macroeconomists astray in terms of how to think about empirical work in macro for several decades.
Topic:
Economics, Political Economy, and Macroeconomics
Political Geography:
United States

794. New Directions in Macroeconomics

Author:
Gillian Brunet
Publication Date:
07-2021
Content Type:
Policy Brief
Institution:
Economics for Inclusive Prosperity (EfIP)
Abstract:
Without being overly prescriptive, macro research must meet two standards to keep the field moving in a productive direction: models must be tested empirically and researchers must think carefully about how underlying assumptions restrict the set of questions that can be answered with a given model. Models move knowledge forward through rigorous empirical testing. Matching moments in model calibration is not enough—nor should it be considered true empirics. When economics is done well, theory and empirics are complements: empirical research disciplines models and theory disciplines empirical research. In recent decades, macro research has tilted very heavily towards theory, forgoing the feedback generated by rigorous empirical testing and, as a consequence, dramatically reducing the ratio of insight to effort. Macro as a field must value empirical contributions to flourish fully. There has been significant progress in the last decade, but the balance still tilts heavily towards theory. Macroeconomists must stop dismissing empirical contributions as trivial for macro theory to reach its potential. It’s not an accident that many of today’s best macroeconomists stand out for their work in both theory and empirics: empirical work disciplines their theoretical research. Over the past 40-50 years, research in short-run macroeconomics has focused on the goal of creating unified, internally consistent models of the macroeconomy. While this is a worthy goal, it has perhaps become too dominant—and imposes hidden costs on research. The emphasis on developing a central baseline model to which idiosyncratic features are added for addressing a specific problem discourages many researchers from considering the suitability of the underlying model to the specific question being asked. As economists we are taught that every model is a simplification, so that the relevant question is not whether a model is good or bad but whether it is good or bad for answering a specific question. Yet choosing a single baseline model of the macroeconomy tends to obscure the closeness of the relationship between the model and the question it is used to answer. Often macroeconomists think carefully about the relationship between their question and the idiosyncratic features they add to the baseline model, but many of the assumptions underlying the baseline model become invisible and thus unquestioned. This is understandable given the complexity of modern macro models, but it has high costs. More careful consideration of the assumptions underlying baseline models and their appropriateness to individual research questions can help move the field forward.
Topic:
Economics, Political Economy, Macroeconomics, and Models
Political Geography:
United States

795. China's Ties with Southeast Asia : From Green Shoots to Sustained Recovery

Author:
Kensuke Tanaka
Publication Date:
01-2021
Content Type:
Policy Brief
Institution:
Economic Research Institute for ASEAN and East Asia (ERIA)
Abstract:
China's rebound happened relatively quickly owing to a large extent to timely macroeconomic policy responses to the crisis. Lagging somewhat behind China, most Southeast Asian countries have now entered the transition from recession to recovery. Some export-dependent Southeast Asian countries shifted their export destination to China to benefit from its early recovery. This switch of export destination to China illustrates China's important role in leading the recovery of the region. Enhancing regional macroeconomic co-operation would help reduce vulnerability of the region and ensure a sustained recovery. Regional macroeconomic co-operation remains at an early stage in Southeast Asia, but possibilities for further co-operation should be explored.
Topic:
Development, Economics, International Cooperation, International Trade and Finance, and Economic Recovery
Political Geography:
China, Asia, and Southeast Asia

796. Better Two Eyes than One: A Synthesis Classification of Exchange Rate Regimes

Author:
Cécile Couharde and Carl Grekou
Publication Date:
10-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
This paper proposes a new de facto classification of exchange rate regimes, the synthesis classification. The proposed framework has several advantages over existing de facto classifications. First, it offers a unified framework based on the most divergent classifications, the RR and LYS classifications, leading not only to a broader coverage but also to encompass a broad spectrum of exchange systems. Second, it fits better with the known history of exchange rate regimes developments in the post-Bretton Woods era. Among others, it brings an interesting nuance to the so-called hollowing-out hypothesis by showing that the evolution of de facto regimes —especially in emerging economies since the late 1990s— has essentially involved movement toward more tightly “managed” intermediate regimes and not a shift away from such regimes. As an illustration of the insightfulness of our classification, we empirically revisit the nexus between currency crises and exchange rate regimes. In addition to associate a higher probability of currency crisis to both intermediate and floating regimes, our classification, also displays better statistical performances than other classifications in predicting currency crises.
Topic:
Economics, International Cooperation, International Trade and Finance, Exchange Rate Policy, and Currency
Political Geography:
Global Focus

797. Poor Substitutes? Counterfactual methods in IO and Trade compared

Author:
Keith Head and Thierry Mayer
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
Constant elasticity of substitution (CES) demand for monopolistically competitive firm-varieties is a standard tool for models in international trade and macroeconomics. Inter-variety substitution in this model follows a simple share proportionality rule. In contrast, the standard toolkit in industrial organization (IO) estimates a demand system in which cross-elasticities depend on similarity in observable attributes. The gain in realism from the IO approach comes at the expense of requiring richer data and greater computational challenges. This paper uses the dataset of Berry et al. 1995, who established the modern IO method, to simulate counterfactual trade policy experiments. We use the CES model as an approximation of the more complex underlying demand system and market structure. Although the CES model omits key elements of the data generating process, the errors are offsetting, leading to reasonably accurate counterfactual predictions. For aggregate outcomes, it turns out that incorporating non-unitary pass-through matters more than fixing over-simplified substitution patterns. We do so by extending the commonly used methods of Exact Hat Algebra and tariff elasticity estimation to take into account oligopoly.
Topic:
Economics, Business, Monopoly, Trade, and Models
Political Geography:
Global Focus

798. Long-Term Macroeconomic Projections of the World Economy

Author:
Lionel Fontagné, Erica Perego, and Gianluca Santoni
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Centre d'Etudes Prospectives et d'Informations Internationales (CEPII)
Abstract:
What will the global economy look like in a generation? The answer depends on the multiple forces driving long-term growth (demography, education, diffusion of technical progress, energy costs, investment and saving behaviour, international capital mobility) and requires a comprehensive framework to conceptualise them. We re-estimate the three-factor (capital, energy, labour) MAcro-econometric model of the Global Economy (MaGE), initially developed by Fouré et al. (2013), with a database covering 170 countries using state-of-the-art methods. We thus establish the long-term structural relationships that drive the dynamics of the World economy. The model projections to 2050 illustrate the expected changes in the World economy and their driving forces. In light of the projected volume of energy consumption, making these projections compatible with climate imperatives calls for increased technology sharing at the international level in order to decouple economic growth from energy use.
Topic:
Economics, Energy Policy, International Trade and Finance, and Macroeconomics
Political Geography:
Global Focus

799. Economic Sanctions as a Tool of China’s Hybrid Strategies

Author:
Rafal Wisniewski
Publication Date:
01-2021
Content Type:
Journal Article
Journal:
Polish Political Science Yearbook
Institution:
Polish Political Science Association (PPSA)
Abstract:
The article aims to analyze the role of economic sanctions in the People’s Republic of China’s overall approach to achieving its security objectives in the international arena. During the last two decades, Beijing used this instrument on numerous occasions to exert pressure on a varied group of actors. China’s current strategy toward a range of disputes and conflicts it is engaged in (the South China Sea territorial disputes most prominently stand out) is often described using the popular vocabulary of “hybrid warfare” or “grey zone conflicts”. Putting the conceptual complications aside, the author agrees that the PRC’s approach can be viewed as part of a growing trend for great powers to employ what can be called “hybrid strategies” toward its opponents. As part of a broader category of economic statecraft, economic sanctions form an important element of this approach. Considering current scholarship on both “hybrid” (or “grey area”) warfare and economic sanctions, the article answers the question of why the PRC increasingly resorts to hybrid strategies (including economic coercion) and identifies the main characteristics of Chinese economic sanctions. It also provides preliminary conclusions on their effectiveness.
Topic:
Diplomacy, Economics, Territorial Disputes, and Sanctions
Political Geography:
China, Asia, and South China Sea

800. The Impact of Conflicts on Natural Resources – The Case of Sudanese Darfur Region

Author:
Nagmeldin Karamalla-Gaiballa
Publication Date:
01-2021
Content Type:
Journal Article
Journal:
Polish Political Science Yearbook
Institution:
Polish Political Science Association (PPSA)
Abstract:
This research paper explores the impact of sociological perspectives on the relationship between natural resources and conflicts. From these theoretical perspectives, many fundamental sources of conflict over natural resources are identified and defined. This research takes the approach of a case study in which the researchers investigate and analyze the sources of conflict happening in the Darfur region of Sudan. This case study explores the demographic changes, economic development, and social inequality among some factors contributing to conflict over resources in this region. The research findings demonstrated that various factors play a vital role in the availability of natural resources, which is the main reason sides other reasons flaring conflict in the Darfur region in Sudan. These factors are related to climate change, destruction of ecosystems, immigration, demographic change, and political changes. Even though various factors could impact the conflict of resources in the Darfur region in Sudan, these researchers focused in this research paper on the sociological perspective only.
Topic:
Development, Economics, Natural Resources, Inequality, and Conflict
Political Geography:
Africa and Sudan