Global value chains are not all born identical: Policymakers beware
Carlo Altomonte, Filippo di Mauro, Gianmarco I.P. Ottaviano, Vincent Vicard, Armando Rungi 04 January 2012
Trade in today’s global economy is not a simple game of exchange-rate muddling. The complex web of global value chains ensures that products marked “Made in China” are often in fact made all over the world. This column looks at firm-level data from French firms between 2007 and 2009 and explores how their structure affects their behaviour, with insights for policymakers the world over.
Global value chains are increasingly important in international trade. The breakup of goods and services production between different companies often operating in different parts of the world (creating a ‘global’ value chain) can be seen all around us. (Take, for instance, the omnipresent iPhone from Apple; see Xing (2011) on this site).
Global crisis International trade
US, China, exchange-rate policy, global value chains
The contribution of Chinese FDI to Africa’s pre-crisis growth surge
John Whalley, Aaron Weisbrod 21 December 2011
In the three years before the global crisis, the average GDP growth in sub-Saharan Africa was around 6%. This period also saw significant Chinese foreign direct investment flowing into the continent. This column uses growth-accounting methods to assess what portion of this growth can be attributed to Chinese FDI. Although for some countries and years the effects were negligible, some countries saw total GDP growth from 2002 to 2009 increase by 0.5 percentage points due to Chinese FDI alone.
In the three years before the 2008 financial crisis, GDP growth in sub-Saharan Africa (averaged over individual economies) was around 6%, 2 percentage points above the mean growth in the preceding ten years. This period also coincided with significant Chinese foreign direct investment (FDI) flows into these countries, accounting for as much as 10% of total inward FDI for some countries. In our research (Weisbrod and Whalley 2011) we use growth-accounting methods to assess what portion of this elevated growth can be attributed to Chinese inward FDI.
growth, China, Africa, FDI
China’s dominance hypothesis and the emergence of a tripolar global currency system
Marcel Fratzscher, Arnaud Mehl 15 December 2011
Is the international monetary system tripolar – with the US dollar, the euro, and the Chinese renminbi at each corner? This column presents empirical evidence to suggest that the renminbi is already well on its way to being the dominant currency in Asia.
The 2007–08 global financial crisis has brought the reform of the international monetary system back to the forefront of the international policy debate. Some G20 leaders, notably from emerging economies, are questioning the configuration of the current system based on a single currency, the US dollar, as global reference currency, and the euro, as a more regional currency.
International finance Monetary policy
China, exchange-rate policy
The renminbi and poor-country growth
Helmut Reisen 05 December 2011
China’s currency has appreciated substantially in recent years. While many in the west still argue that this is not sufficient and focus on the effects on their domestic industry, this column asks what the effects have been for the world’s poor countries.
China’s current-account surplus over the past two decades can be explained in large part by its savings rate. Song et al (2010) have stressed the role of rising corporate savings due to reallocation within the manufacturing sector from low- to high-productivity companies. Wei (2010), meanwhile, explains China’s rising household savings with gender imbalances. Still, large appreciations do impact the current account and – in developing countries – do depress growth (Keppler et al 2011), as evidenced by data over the past 50 years.
Development International trade
China, exchange-rate policy, poor countries
The price of children and fertility responses: Evidence from the Israeli Kibbutz
Avraham Ebenstein, Moshe Hazan, Avi Simhon 02 December 2011
For years, policymakers trying to influence the decisions of would-be parents have tried to change the ‘price’ of having children. In France they have made it cheaper; in China more expensive. This column looks at whether such policies are likely to have their desired effect. It examines unique evidence of a shock to the cost of having a child in Israeli communities between 1990 and 2000.
To what extent does economics affect fertility decisions? Ever since Gary Becker’s seminal work on the economics of the family in the 1960s (Becker 1960), economists have argued that money weighs heavily on the minds of would-be parents, and policymakers throughout the world have been heavily influenced by such research.
Frontiers of economic research Health economics
France, China, fertility, demographics, Israel, population
How to agree emissions targets at Durban
Valentina Bosetti, Jeffrey Frankel 28 November 2011
The signatories of the UN Convention on Climate Change will meet again this week in Durban, South Africa. But time is running out if they are to come up with a successor to the Kyoto Protocol, especially with the US at loggerheads with China and India. This column proposes a novel yet pragmatic solution.
The parties to the UN Framework Convention on Climate Change will meet once again in Durban, South Africa, from 28 November to 9 December. The clock is running out on negotiations for a successor agreement to the Kyoto Protocol. Despite optimism from some (see Tol 2010), progress at Copenhagen two years ago and Cancun one year ago was slow. Negotiations have been blocked by a seemingly insurmountable obstacle.
Environment International trade
US, China, Kyoto Protocol, India, UN Convention on Climate Change
Market-economy status for China is not automatic
Bernard O’Connor 27 November 2011
Is China a market economy? This legal question matters as antidumping and anti-subsidies laws apply differently to market economies. This column deconstructs the myth that China will automatically get market-economy status at the WTO in 2016 and argues that if China wants the EU to recognise it as a market economy it should comply with the explicit criteria in EU law.
In EU trade-defence law (antidumping and anti-subsidies), there is provision for different treatment between those exporting countries which are considered to have the status of being a market economy and those which are not. If a country does not have market-economy status it is easier to construct the normal value of the exported goods. The constructed normal value will normally be based on costs and prices from outside the exporting country and thus are likely to be higher.
Global governance International trade
China, WTO, antidumping
Are Chinese individuals prone to money illusion?
Heleen Mees, Philip Hans Franses 20 November 2011
Are the Chinese prone to money illusion? This column uses a unique Chinese dataset and finds that, unlike their American counterparts, Chinese people are more likely to base decisions on the real value and not be fooled by inflation.
China’s monetary policy and its inflation have got people talking – particularly about the effect on other countries (see for example the eBook edited by Evenett 2010). But what about its effect on China’s people? Are they fooled by money illusion?
Frontiers of economic research Monetary policy
US, inflation, China, money illusion
Does openness generate growth? Reconciling the experiences of Mexico and China
Timothy Kehoe, Kim Ruhl 19 November 2011
In 1985, Mexico opened itself to trade and investment. In recent years, China has followed the same path with much more impressive results. But this column argues that the slow growth and crises that Mexico experienced after the initial boom should act as a warning to those optimistic about China.
Does opening to international trade and foreign investment generate economic growth? A large empirical literature employs regressions with a country’s growth rate as the dependent variable and some measure of openness among the independent variables. Although some researchers find that growth is positively correlated with the share of trade in GDP, Rodríguez and Rodrik (2001) point out that the trade share is not a direct measure of policy. When the dependent variable is a measure of policy, the results are ambiguous and highly sensitive to the exact specification of the regression.
International finance International trade
China, free trade, financial globalisation, openness, Mexico
The financial trilemma in China and a comparative analysis with India
Rajeswari Sengupta, Joshua Aizenman 15 November 2011
Emerging markets face what some economists are calling a trilemma. They cannot simultaneously target exchange-rate stability, conduct an independent monetary policy, and have full financial integration. So what to do? This column looks at how Asia’s giants are responding – and in different ways.
Policymakers dealing with the Great Recession of 2008–09 are confronted with what we call the ‘financial trilemma’. This hypothesis, based on pioneering work by Mundell and Fleming in the 1960s, asserts that a country may not simultaneously target exchange-rate stability, conduct an independent monetary policy, and have full financial integration – it is a potent paradigm of open-economy macroeconomics (see Fleming 1962 and Mundell 1963).
Development International finance International trade
China, India, emerging markets, exchange-rate policy, financial trilemma