Go East, Young Man

Kevin Lewis

November 14, 2009

The End of Chimerica

Niall Ferguson & Moritz Schularick
Harvard Working Paper, November 2009

For the better part of the past decade, the world economy has been dominated by a world economic order that combined Chinese export-led development with US over-consumption. The financial crisis of 2007-2009 likely marks the beginning of the end of the Chimerican relationship. In this paper we look at this era as economic historians, trying to set events in a longer-term perspective. In some ways China's economic model in the decade 1998-2007 was similar to the one adopted by West Germany and Japan after World War II. Trade surpluses with the U.S. played a major role in propelling growth. But there were two key differences. First, the scale of Chinese currency intervention was without precedent, as were the resulting distortions of the world economy. Second, the Chinese have so far resisted the kind of currency appreciation to which West Germany and Japan consented. We conclude that Chimerica cannot persist for much longer in its present form. As in the 1970s, sizeable changes in exchange rates are needed to rebalance the world economy. A continuation of Chimerica at a time of dollar devaluation would give rise to new and dangerous distortions in the global economy.


Has the world economy reached its globalization limit?

Janusz Miśkiewicz & Marcel Ausloos
Physica A: Statistical Mechanics and its Applications, forthcoming

The economy globalization measure problem is discussed. Four macroeconomic indices of twenty among the "richest" countries are examined. Four types of "distances" are calculated. Two types of networks are next constructed for each distance measure definition. It is shown that the globalization process can be best characterised by an entropy measure, based on entropy Manhattan distance. It is observed that a globalization maximum was reached during the interval 1970-2000. More recently a deglobalization process has been observed.


Bad Debts: Assessing China's Financial Influence in Great Power Politics

Daniel Drezner
International Security, Fall 2009, Pages 7-45

Commentators and policymakers have articulated growing concerns about U.S. dependence on China and other authoritarian capitalist states as a source of credit to fund the United States' trade and budget deficits. What are the security implications of China's creditor status? If Beijing or another sovereign creditor were to flex its financial muscles, would Washington buckle? The answer can be drawn from the existing literature on economic statecraft. An appraisal of the ability of creditor states to convert their financial power into political power suggests that the power of credit has been moderately exaggerated in policy circles. To use the argot of security studies, China's financial power increases its deterrent capabilities, but it has little effect on its compellence capabilities. China can use its financial power to resist U.S. entreaties, but it cannot coerce the United States into changing its policies. Financial power works best when a concert of creditors (or debtors) can be maintained. Two case studies-the contestation over regulating sovereign wealth funds and the protection of Chinese financial investments in the United States-demonstrate the constraints on China's financial power.


History education and historical remembrance in contemporary Russia: Sources of political attitudes of pro-Kremlin youth

Ekaterina Levintova & Jim Butterfield
Communist and Post-Communist Studies, forthcoming

Why during the last decade have many young Russians become politically active well beyond simply voting? Particularly striking among youth activists is their enthusiastic support for Putinism and a resounding rejection of the policies, symbols and political figures of the era of President Boris Yeltsin (1992-2000). The vast majority of youth activists are of college age (18-24), which means they were far too young to be aware of what was happening in the country in the 1990s, the period that while democratic and pro-Western, also represents a failure of the Russian state in their imagery. To what degree do the opinions and world views of politically active pro-Kremlin youth reflect the recently emerged, nearly ubiquitous interpretation of recent history as presented in the high school curriculum? To that end, we undertake a content analysis of 47 high school textbooks in Russian history, followed by open-ended interviews with 37 activists from the three most visible youth organizations, all of whom are pro-Kremlin in their orientation. Although demonstrating a causal relationship is methodologically unfeasible, we find a marked correlation between the views of both the Yeltsin and Putin eras presented in those textbooks and in the political beliefs of the youth groups.


The Effects of U.S.-China Trade on Employment and Wages in the U.S.-Mexico Border Region

Alyson Ma & Rossitza Wooster
Contemporary Economic Policy, July 2009, Pages 335-348

This article investigates the impact of foreign competition from China on employment and wages in four U.S.-Mexico Border counties: Santa Cruz, Arizona; San Diego, California; El Paso, Texas; and Webb, Texas. Using disaggregated industry-level data between 1992 and 2006, we find that increased trade with China is associated with significantly lower county-industry employment and wages. In contrast, and as expected, increased imports from Mexico are positively related to increased employment and wages in U.S.-Mexico border counties. The results indicate that the U.S.-Mexico supply-chain relationship related to the maquiladora industry is significantly affected by Chinese competition. Implications for policy include an increased focus on federal programs that are intended to diversify the border economy.


The Consequences of the "Missing Girls" of China

Avraham Ebenstein & Ethan Jennings Sharygin
World Bank Economic Review, forthcoming

In the wake of the one-child policy of 1979, China experienced an unprecedented rise in the sex ratio at birth (ratio of male to female births). In cohorts born between 1980 and 2000, there were 22 million more men than women. Some 10.4 percent of these additional men will fail to marry, based on simulations presented here that assess how different scenarios for the sex ratio at birth affect the probability of failure to marry in 21st century China. Three consequences of the high sex ratio and large numbers of unmarried men are discussed: the prevalence of prostitution and sexually transmitted infections, the economic and physical well-being of men who fail to marry, and China's ability to care for its elderly, with a particular focus on elderly males who fail to marry. Several policy options are suggested that could mitigate the negative consequences of the demographic squeeze.


Interest Group Influence in Authoritarian States: The Political Determinants of China's Undervalued Exchange Rate

David Steinberg
Northwestern University Working Paper, August 2009

Why has China kept its exchange rate weak and undervalued for most of the past fifteen years? A large literature in IPE argues that interest groups influence exchange rate policy, but many believe that Chinese policymakers are immune to interest group pressures due to high degree of state autonomy in China. This paper argues that interest group lobbying strongly influences exchange rate valuation policy - even in the "least-likely" case of China. I contend that exporters have various channels through which they can influence exchange rate policy in China, and Chinese leaders keep their exchange rate undervalued because export-oriented industries are more powerful than interest groups that support exchange rate appreciation. Although interest group theories (e.g. Frieden 1991) can explain why China typically undervalues its exchange rate, they cannot explain why China appreciated its exchange rate rapidly during several brief periods. My policy mix theory borrows from Frieden's model, but claims that tradable producers do not oppose exchange rate overvaluation when they are compensated with a stable nominal exchange rate and high government spending. The case-study of Chinese exchange rate politics over the period 1994-2009 demonstrates that Chinese exporters frequently lobbied for an undervalued exchange rate, and shows that Chinese policymakers chose to undervalue the exchange rate to satisfy the demands of this powerful interest group. Exporters were supportive of exchange rate appreciation during periods where they received other compensatory policies, and this explains why the government appreciated the exchange rate in 1997-99 and 2006-07. I conclude that interest group preferences provide a more convincing explanation for Chinese exchange rate valuation choices than the alternative theories.


Rule of Law, Regulation and Growth of Mobile Telecommunications

Adam Candeub, Brendan Michael Cunningham & Peter Alexander
Michigan State University Working Paper, December 2008

Motivated, in part, by the new "rule of law" paradigm in development economics, we examine the role of institutions, broadly defined, on the rate of mobile network build-out. We find that the "strict" rule of law (i.e., strong protection of private contract and property) does not exhibit a statistically significant relationship with mobile network growth. More macro-level regulatory policies, however, ranging from lower tariffs, modest import controls, and lower levels of foreign ownership restriction are significant positive correlates of network growth. These findings suggest that a non-democratic regime with a "correct" set of regulatory policies might experience substantial network growth, relative to the international average - without providing strong "classical" protections of private contract and property rights. In addition, we find that corruption and state capture correlate significantly and negatively with mobile network growth. Plausibly, state capture and corruption increase the cost of doing business and these higher costs may slow growth, or preclude it altogether. Finally, examining cultural determinants of network growth, we find that our coefficient on language fractionalization is negative and significant, which implies that nations with greater language diversity experience slower network growth. Plausibly then, network growth in a numerically large, but linguistically heterogeneous, population may be smaller than predicted absent this consideration. Finally, we observe that real GDP per capita is positive and significant, a finding shared with multiple studies exploring growth rates of mobile networks, and economic development more generally.


India Transformed? Insights from the Firm Level 1988-2005

Laura Alfaro & Anusha Chari
NBER Working Paper, October 2009

Using firm-level data this paper analyzes the transformation of India's economic structure following the implementation of economic reforms. The focus of the study is on publicly-listed and unlisted firms in manufacturing and services industries. Detailed balance sheet and ownership information permit an investigation of a range of variables. We analyze firm characteristics shown by industry before and after liberalization and investigate how industrial concentration, number, and size of firms evolved between 1988 and 2005. We find great dynamism displayed by foreign and private firms as reflected in the growth in their numbers, assets, sales and profits. Yet, closer scrutiny reveals no dramatic transformation in the wake of liberalization. The story rather is one of an economy still dominated by the incumbents (state-owned firms) and to a lesser extent, traditional private firms (firms incorporated before 1985). Sectors dominated by state-owned and traditional private firms before 1988-1990, with assets, sales and profits representing shares higher than 50%, generally remained so in 2005. The exception to this broad pattern is the growing importance of new private firms in the services sector. Rates of return also have remained stable over time and show low dispersion across sectors and across ownership groups within sectors.


Shadow Economies and Corruption All Over the World: Revised Estimates for 120 Countries

Andreas Buehn & Friedrich Schneider
Economics E-Journal, October 2009

Estimations of the shadow economies for 120 countries, including developing, Eastern Europe and Central Asian and high income OECD countries over 1999 to 2006 are presented. The average size of the shadow economy (as a percent of "official" GDP) in 2004/05 in 76 developing countries is 35.5%, in 19 Eastern and Central Asian countries 36.7% and in 25 high income OECD countries 15.5%. An increased burden of taxation and social security contributions, combined with labour market regulations are the driving forces of the shadow economy. Furthermore, the results show that the shadow economy reduces corruption in high income countries, but increases corruption in low income countries. Finally, the various estimation methods are discussed and critically evaluated.


From the Gold Standard to the Floating Dollar Standard: An Appraisal in the Light of Marx's Theory of Money

Ramaa Vasudevan
Review of Radical Political Economics, December 2009, Pages 473-491

The paper explores the insights offered by Marx's analysis of the emergence of "world money" into the workings of the international gold standard period and the post-Bretton Woods floating dollar standard. In a curious inversion of the traditional formulations drawing on Lenin, imperial hegemony in today's context would seem to be associated with net capital imports (rather than exports) by the dominant country. In particular, I argue that in a context where the role of "world money" rests on the monetary liabilities of a dominant state, in the form of credit money - "fictitious capital" - rather than bullion, there is an easing of the external constraint on the advanced countries in the core with the impact of the debt-deflationary spiral and financial fragility being borne disproportionately by the periphery. The theorization of world money needs to address the relation between the state and the financial system: the asymmetric manner in which countries outside the core were incorporated into the monetary system, and the role that financialization plays in preserving the hegemony of the dominant currency.


Effects of Japanese national identification on attitudes toward learning English and self-assessed English proficiency

Nancy Sullivan & Robert Schatz
International Journal of Intercultural Relations, November 2009, Pages 486-497

This research examined effects of Japanese national identification and attitude toward the United States on attitude toward learning English and self-assessed English proficiency among a sample of Japanese university students (N = 377). We assessed various components of Japanese national identification drawn from previous work by Kosterman and Feshbach [Kosterman, R., & Feshbach, S. (1989). Towards a measure of patriotic and nationalistic attitudes. Political Psychology, 10, 257-274] and Karasawa [Karasawa, M. (2002). Patriotism, nationalism, and internationalism among Japanese citizens: An etic-emic approach. Political Psychology, 23(4), 645-666], specifically: patriotism (positive identification with and affective attachment to country), nationalism (perceptions of national superiority and support for national dominance), internationalism (support for international goodwill and cooperation), and commitment to national heritage (devotion to national symbols and cultural heritage). Patriotism predicted less positive attitudes toward learning English, whereas nationalism, internationalism, and pro-U.S. attitudes predicted more positive attitudes toward learning English. Nationalism also predicted higher self-assessed English proficiency. These relationships remained after controlling for the instrumental value of English and demographic factors in multiple regression equations. Our findings highlight the need for closer examination of specific aspects of Japanese national identification, and their relationships with Japanese attitudes toward the English language.

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