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361. Merry Sisterhood or Guarded Watchfulness? Cooperation Between the International Monetary Fund and the World Bank

Author:
Michael Fabricius
Publication Date:
12-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Since their inception at the end of the Second World War, the sister organizations of the World Bank and the International Monetary Fund (IMF) have aimed to consistently speak with one voice vis-à-vis their member governments. However, anecdotal evidence suggests that they often do not speak in one voice. Fabricius draws on field research conducted in Ghana, Pakistan, Peru, and Vietnam to identify the conditions that determine whether or not the organizations are indeed on the same page and to address whether their traditional plea for consistency is always desirable. He recommends which measures seem crucial to ensure Bank-Fund consistency. At the same time he argues that under certain conditions, this consistency may lead to policy choices that are only second-best. He proposes that the Bank and the Fund pursue a case-specific approach in deciding whether they should take the same stance. A more flexible approach may increase not only the ownership of borrowing countries but also the sustainability of policy choices.
Topic:
Development, Economics, International Organization, and International Trade and Finance
Political Geography:
Pakistan, Vietnam, Peru, and Ghana

362. Exit Polls: Refugee Assessments of North Korea's Transition

Author:
Stephan Haggard, Marcus Noland, and Yoonok Chang
Publication Date:
12-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Results from a survey of more than 1,300 North Korean refugees in China provide insight into changing economic conditions in North Korea. There is modest evidence of slightly more positive assessments among those who exited the country following the initiation of reforms in 2002. Education breeds skepticism; higher levels of education were associated with more negative perceptions of economic conditions and reform efforts. Other demographic markers such as gender or provincial origin are not robustly correlated with attitudes. Instead, personal experiences appear to be central: A significant number of the respondents were unaware of the humanitarian aid program and the ones who knew of it almost universally did not believe that they were beneficiaries. This group's evaluation of the regime, its intentions, and accomplishments is overwhelmingly negative—even more so than those of respondents who report having had experienced incarceration in political detention facilities—and attests to the powerful role that the famine experience continues to play in the political economy of the country.
Topic:
Development, Economics, and Politics
Political Geography:
China, North Korea, and Korea

363. Congress, Treasury, and the Accountability of Exchange Rate Policy: How the 1988 Trade Act Should Be Reformed

Author:
Randall Henning
Publication Date:
09-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The controversy within the United States over Chinese exchange rate policy has generated a series of legislative proposals to restrict the discretion of the Treasury Department in determining currency manipulation and to reform the department's accountability to Congress. This paper reviews Treasury's reports to Congress on exchange rate policy—introduced by the 1988 Trade Act—and Congress's treatment of them. It finds that the accountability process has often not worked well in practice: The reports provide only a partial basis for effective congressional oversight. For its part, Congress held hearings on less than half of the reports and overlooked some important substantive issues. Several recommendations can improve guidance to the Treasury, standards for assessment, and congressional oversight. These include (1) refining the criteria used to determine currency manipulation and writing them into law, (2) explicitly harnessing US decisions on manipulation to the International Monetary Fund's rules on exchange rates, (3) clarifying the general objectives of US exchange rate policy, (4) reaffirming the mandate to seek international macroeconomic and currency cooperation, (5) requiring Treasury to lead an executivewide policy review, and (6) institutionalizing multicommittee oversight of exchange rate policy by Congress. Legislators should strengthen reporting and oversight of broader exchange rate policy in addition to strengthening the provisions targeting manipulation.
Topic:
Economics, Foreign Exchange, and International Trade and Finance
Political Geography:
United States and China

364. North Korea's External Economic Relations

Author:
Stephan Haggard and Marcus Noland
Publication Date:
08-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
North Korea's international transactions have grown since the 1990s famine period. Illicit transactions appear to account for a declining share of trade. Direct investment is rising, but the county remains significantly dependent on aid to finance imports. Interdependence with South Korea and China is rising, but the nature of integration with these two partners is very different: China's interaction with North Korea appears to be increasingly on market-oriented terms, while South Korea's involvement has a growing noncommercial or aid component. These patterns have implications for North Korea's development, the effectiveness of UN sanctions, and its bargaining behavior in nuclear negotiations.
Topic:
Markets and United Nations
Political Geography:
China, Asia, and North Korea

365. Measurement and Inference in International Reserve Diversification

Author:
Anna Wong
Publication Date:
07-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper analyzes international reserve diversification by examining changes in quantity shares of currencies held in foreign exchange reserves. It discusses alternative methodologies for constructing quantity shares and applies the preferred methodology to three sets of data on the currency composition of foreign exchange reserves: quarterly aggregate International Monetary Fund's Composition of Foreign Exchange Reserves (IMF COFER) data, quarterly IMF COFER data for industrial- and developing-country groups, and annual data for 23 individual countries that disclose the currency composition of their foreign exchange reserve holdings. What can one infer from available data about the diversification of foreign exchange reserves since 1999? The analysis suggests four conclusions: (1) The behavior of the quantity shares of the US dollar and the euro in total reserves is consistent with net stabilizing intervention; their quantity shares tend to rise when these currencies are declining and vice versa. (2) The principal driver of this stabilizing diversification over the period 1999Q1–2005Q4 is Japan. (3) The industrial countries as a group but excluding Japan do not indicate stabilizing diversification. (4) The nonindustrial countries as a group display stabilizing diversification over short periods of only a few quarters. In summary, the aggregate data conceal much diversity in the practices of individual countries.
Topic:
Economics, Foreign Exchange, and International Trade and Finance
Political Geography:
United States, Japan, and Asia

366. A (Lack of) Progress Report on China's Exchange Rate Policies

Author:
Morris Goldstein
Publication Date:
06-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This working paper assesses the progress made in improving China's exchange rate policies over the past five years (that is, since 2002). I first discuss four indicators of progress on China's external imbalance and its exchange rate policies—namely, the change in (and level of) China's global current account position, movements in the real effective exchange rate of the renminbi (RMB), the role of market forces in the determination of the RMB, and China's compliance with its obligations on exchange rate policy as a member of the International Monetary Fund (IMF). I then discuss why the lack of progress in improving China's exchange rate policies matters for the economies of the China and the United States and for the international monetary and trading system. I also argue that several popular arguments and excuses for why more cannot be accomplished on removing the large undervaluation of the RMB are unpersuasive. Finally, I consider what can and should be done by China, the United States, and the IMF to accelerate progress over the next year or two.
Topic:
Development, Economics, and Foreign Exchange
Political Geography:
United States, China, and Asia

367. From Industrial Policy to Innovative Policy: Japan's Pursuit of Competitive Advantage

Author:
Marcus Noland
Publication Date:
05-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Japan faces significant challenges in encouraging innovation and entrepreneurship. Attempts to formally model past industrial policy interventions uniformly uncover little, if any, positive impact on productivity, growth, or welfare. The evidence indicates that most resource flows went to large, politically influential “backward” sectors, suggesting that political economy considerations may be central to the apparent ineffectiveness of Japanese industrial policy.
Topic:
Development, Foreign Exchange, and Industrial Policy
Political Geography:
Japan and Asia

368. Offshoring, Outsourcing, and Production Relocation-Labor—Market Effects in the OECD Countries and Developing Asia

Author:
Jacob Funk Kirkegaard
Publication Date:
04-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This working paper evaluates the validity of available data on and the extent of the impact of offshoring on service-sector labor markets in the United States, EU-15, and Japan. A three-tier data validity hierarchy is identified. The impact of offshoring on employment in the three regions is found to be limited. Correspondingly, developing Asia is unlikely to experience large employment gains as a destination region. The paper highlights the case of the Indian IT industry, where the majority of job creation has been in local Indian companies rather than foreign multinationals. Domestic entrepreneurs have played a crucial role in the growth of the Indian IT-related service industry. However, increased tradability of services and associated skill bias in favor of higher skilled workers could have an uneven employment impact on developing Asia. Some high-skilled groups are benefiting and will continue to benefit dramatically from new employment opportunities and rising wage levels. Meanwhile, the same skill bias may eliminate many employment opportunities for unskilled or low-skilled groups in the region. Developing Asian countries therefore face a double educational challenge in the coming years: the need to simultaneously improve both primary and higher education.
Topic:
International Relations, Development, Economics, and Industrial Policy
Political Geography:
United States, Japan, and Asia

369. Do Markets Care Who Chairs the Central Bank?

Author:
Adam S. Posen and Kenneth N. Kuttner
Publication Date:
05-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper assesses the effects of central bank governor appointments on financial market expectations of monetary policy. To measure these effects, we assemble a new dataset of appointment announcements from 15 countries, and conduct an event study analysis on exchange rates, bond yields, and stock prices. The analysis reveals a significant reaction of exchange rates and bond yields to unexpected appointments. The reactions are not unidirectional, and thus do not suggest new governors suffer from a generic credibility problem. Federal Reserve chairman appointments stand out in terms of their unusually pronounced effects on financial markets.
Topic:
Economics, International Trade and Finance, Markets, and Politics

370. The Trade Effects of Preferential Arrangements: New Evidence from the Australia Productivity Commission

Author:
Dean A. DeRosa
Publication Date:
01-2007
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper critically examines “new” evidence from the gravity model that indicates the majority of preferential trading arrangements (PTAs) today are predominantly trade diverting. This new evidence on trade diversion was presented in a recent Australia Productivity Commission (APC) working paper. Although no major faults are found in the methodology of the APC study, the present analysis finds the opposite conclusion—that the majority of current PTAs are predominantly trade creating—when a variant of the gravity model formulated by Andrew Rose is applied to up-to-date regression data using a variety of econometric methods, including the Tobit regression method employed by the APC study.
Topic:
Economics, Foreign Exchange, and Treaties and Agreements
Political Geography:
Australia/Pacific