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841. Finance and Changing US-Japan Relations: Convergence Without Leverage—Until Now

Author:
Adam S. Posen
Publication Date:
08-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
In the postwar era, US-Japan economic relations have been characterized by substantial tensions, yet this has not damaged the underlying security relationship or critically harmed the multilateral economic framework. In fact, these two economies have become more integrated over time even as these tensions played out. These tensions, however, have required an enormous expenditure of political capital and officials' time on both sides of the Pacific and have led to foregone opportunities for institution building and policy coordination. They have deepened since Japan “caught up” with the United States around 1980, and Japanese and US firms began increasingly to compete for profits and market share in the same sectors. Moreover, as both the US and Japanese economies continue to mature – both in terms of the age of their populations and their industrial mix – they will likely face even greater tensions between them over allocating the management and costs of industrial adjustment.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
United States, Japan, Israel, and East Asia

842. Beyond Bipolar: A Three-Dimensional Assessment of Monetary Frameworks

Author:
Adam S. Posen and Kenneth N. Kuttner
Publication Date:
07-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
A great deal of attention has been focused recently on the impact of exchange rate regimes, just as previous empirical research examined central bank autonomy and announced targets for domestic monetary policy. To date, however, these three elements of monetary frameworks have been assessed in isolation from one another, and all have been viewed in terms of a unidimensional spectrum of fixity versus flexibility. Using a newly-constructed dataset, this paper jointly analyzes and compares all three elements' effects on inflation and exchange rate behavior. The results show that each of the three elements has independent and distinct effects on nominal outcomes. Key findings include: (1) although hard pegs do tend to reduce inflation and attenuate exchange rate fluctuations within some range, they are clearly characterized by large devaluations; (2) central bank autonomy is associated with a more stable exchange rate and lower inflation; and (3) explicit inflation targeting reduces both inflation and its persistence, consistent with the view that inflation targeting increases flexibility through transparency. These results raise the possibility that a combination of central bank autonomy, inflation targeting, and a free float might offer the same benefits as any intermediate exchange rate regime on its own, without the proclivity to occasional large depreciations.
Topic:
Economics, International Trade and Finance, and Political Economy

843. Rating Banks in Emerging Markets: What Credit Rating Agencies Should Learn From Financial Indicators

Author:
Liliana Rojas-Suarez
Publication Date:
05-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The rating agencies' and bank supervisors' records of prompt identification of banking problems in emerging markets has not been satisfactory. This paper suggests that such deficiencies could be explained by the use of financial indicators that, while appropriate for industrial countries, do not work in emerging markets. Among the conclusions, this paper shows that the most commonly used indicator of banking problems in industrial countries, the capital-to-asset ratio, has performed poorly as an indicator of banking problems in Latin America and East Asia. This is because of (a) severe deficiencies in the accounting and regulatory framework and (b) lack of liquid markets for bank shares, subordinated debt and other bank liabilities and assets needed to validate the “real” worth of a bank as opposed to its accounting value.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
East Asia and Latin America

844. Unchanging Innovation and Changing Economic Performance in Japan

Author:
Adam S. Posen
Publication Date:
05-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
The Toyota Commemorative Museum of Industry and Technology gives its visitors much to ponder. Established at the site in Nagoya where in 1911 Sakichi Toyoda founded his automatic loom factory (the basis of the family fortune, which later funded his son Kiichiro's development of automobile production), the museum was opened on June 11, 1994, the 100th anniversary of Toyoda's birth. It is a popular stop on field trips for Japanese schoolchildren, who are required to study in the 3rd grade the automobile industry. The messages, which Toyota wishes to instill in its young visitors, are the importance of “making things” and of “creativity and research.” And confronting all museum visitors upon entry, having central place in the vast and largely empty first room of the exhibits, is Sakichi Toyoda's one-of-a-kind vertical circular loom.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Japan, Israel, and East Asia

845. Foreign Direct Investment in China: Effects on Growth and Economic Performance

Author:
Edward M. Graham and Erika Wada
Publication Date:
04-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
By almost all accounts, foreign direct investment (FDI) in China has been one of the major success stories of the past 10 years. Starting from a base of less than $19 billion in 1990, the stock of FDI in China rose to over $300 billion at the end of 1999. Ranked by the stock of inward FDI, China thus has become the leader among all developing nations and second among the APEC nations (only the United States holds a larger stock of inward FDI). China's FDI consists largely of greenfield investment, while inward FDI in the United States by contrast has been generated more by takeover of existing enterprises than by new establishment, a point developed later in this paper. The majority of FDI in China has originated from elsewhere in developing Asia (i.e., not including Japan). Hong Kong, now a largely self-governing “special autonomous region” of China itself, has been the largest source of record. The dominance of Hong Kong, however, is somewhat illusory in that much FDI nominally from Hong Kong in reality is from elsewhere. Some of what is listed as Hong Kong-source FDI in China is, in fact, investment by domestic Chinese that is “round-tripped” through Hong Kong. Other FDI in China listed as Hong Kong in origin is in reality from various western nations and Taiwan that is placed into China via Hong Kong intermediaries. Alas, no published records exist to indicate exactly how much FDI in China that is nominally from Hong Kong is in fact attributable to other nations.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
United States, Japan, China, Israel, East Asia, Asia, and Hong Kong

846. Subsidies, Market Closure, Cross-Border Investment, and Effects on Competition: The Case of FDI in the Telecommunications Sector

Author:
Edward M. Graham
Publication Date:
02-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Telecommunications long was a sector where sellers of services operated in protected local markets, where law and government regulation created and enforced barriers to entry, especially by foreign firms. In many nations, in fact, the provision of telecommunications services was reserved for state-owned monopoly suppliers. During the late 1980s and through the 1990s, however, many of these barriers have been removed while formerly state-owned firms have been partially or wholly privatized. This has in turn engendered some cross entry by telecom service providers; firms that once were purely domestic in the scope of their operations thus have become multinational.
Topic:
Economics, Government, Political Economy, and Science and Technology

847. Price Level Convergence and Inflation in Europe

Author:
Gary Clyde Hufbauer, Erika Wada, and John H. Rogers
Publication Date:
01-2001
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
Consumer price inflation in the euro area declined steadily during most of the 1990s. However, in the last two years, both headline and core inflation have risen throughout the area, and sizable cross-country differences in inflation have re-emerged. This is illustrated by Figure 1, which shows the headline consumer price inflation rate for the euro area as a whole and for select member countries. As of October 2000, all euro area countries had headline inflation rates above the European Central Bank's 2 percent medium-term ceiling, with rates ranging from 2.1 percent in France and Austria to 6 percent in Ireland. In Greece, which will join the euro area on 1 January 2001, inflation was 3.8 percent.
Topic:
Economics and Political Economy
Political Geography:
Europe, Greece, France, and Austria

848. Globalization and Democracy

Author:
Michael Hardt
Publication Date:
10-2001
Content Type:
Working Paper
Institution:
Institute on Globalization and the Human Condition, McMaster University
Abstract:
The discourse of globalization has become dominant in recent years in an extraordinarily wide variety of contexts, equally on the left and on the right – from journalism to public policy discussions, from business strategy to labor organizing, and within the university across the social sciences and humanities. It is something like the discourse on postmodernism that blossomed about a decade earlier but seems to me even more extensive. This paper is an attempt to sort out some of the political positions taken within the discourse on globalization to help clarify the stakes in the globalization debates and the political consequences of the various theoretical and empirical claims. My assumption, in fact, is that political positions or desires dictate to a large extent the various analytical characterizations of globalization. What I will attempt, then, is to construct a typology of positions on globalization using the question of democracy as the first line of division. In other words, I will first divide theories in two groups: those who claim that globalization fosters democracy and those who maintain that globalization hinders or obstructs democracy. I will further divide these positions into arguments on the right and those on the left because this is a context in which I believe there remain very clear divisions between right and left, and it would be incoherent to group them together.
Topic:
Globalization, International Political Economy, and Political Economy

849. Global Markets, National Tax Systems, and Domestic Politics: Rebalancing Efficiency and Equity in Open States' Income Taxation

Author:
Steffen Ganghof
Publication Date:
09-2001
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
Competitive pressure on some capital income tax rates reinforces a generic "quadrilemma" or a four-way tradeoff in domestic income taxation. To maintain competitiveness, governments have to cut some tax rates on capital income down to "international standards." If these cuts lead to a de-alignment of different rates on capital income, domestic allocation becomes more inefficient, all else being equal. Cutting all tax rates on capital income to a uniform low level, while maintaining high and progressive tax rates on labor incomes, avoids this inefficiency, but sacrifices comprehensive income taxation, that is, joint and equal taxation of capital and labor incomes. Finally, reducing all income tax rates to international standards, including top rates on labor income, implies a strong significant reduction in the progressiveness of labor income taxation (and/or significant revenue losses). As a result, governments that aim at all four goals” competitiveness, allocative efficiency, horizontal equity (comprehensive income taxation) and progressivity – and want to maintain a given revenue level cannot avoid seriously compromising one of them. This paper analyzes how this income tax quadrilemma has played out in seven OECD countries: Australia, Denmark, Finland, Germany, New Zealand, Norway, and Sweden. Combining the results of this matched comparison with exploratory data analysis for all OECD countries, the paper discusses the general implications of the quadrilemma for the domestic political economy of tax competition and the future of "domestic compensation" in open states.
Topic:
Economics, International Trade and Finance, and Political Economy
Political Geography:
Finland, Norway, Denmark, Georgia, Australia, Sweden, and New Zealand

850. Minority Governments and Party Politics: The Political and Institutional Background to the "Danish Miracle"

Author:
Christoffer Green-Pedersen
Publication Date:
01-2001
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
The performance of the Danish economy in the 1990s has been successful to the extent that scholars are talking about a "Danish miracle". The importance of government policies to Denmark's economic success is taken as a point of departure in investigating why Danish governments have been able to govern the economy successfully in the 1990s. The paper argues that two factors have been important. First, the functioning of Danish parliamentarianism has been reshaped to strengthen the bargaining position of minority governments, which became the rule in Danish politics after the landslide election in 1973. Today, Danish minority governments can enter agreements with changing coalitions in the Danish parliament. The paper thus challenges the conventional wisdom about minority governments as weak in terms of governing capacity. Second, the changed socioeconomic strategy of the Social Democrats after returning to power in 1993 has been important because it has created a political consensus around a number of controversial reforms.
Topic:
Economics, Government, Political Economy, and Politics
Political Geography:
Europe and Denmark