Regional Papers on Americas
Trumponomics and Taxation
World Economics, March 2018
At the end of 2017 President Trump signed into law the Tax Cuts and Jobs Act which Republican supporters argue would transform the US economy and stimulate an enduring increase in the rate of economic growth. The motivation behind the legislation appears to be the belief that a reduction in corporate taxation will release a flood of entrepreneurial initiative that will increase investment and, as a consequence, lead to higher wages and sustained faster economic growth. The Reagan administration tried tax cuts before to stimulate growth; not in a conventional neo-Keynesian way aimed at raising aggregate demand, but as a means of strengthening the supply side of the economy. As an economic philosophy, Trumponomics is a rather high-risk strategy. Compared to the early 1980s there is a smaller output gap, a much higher level of national debt and less fiscal space.
Will ‘America First’ Trump International Cooperation and Coordination?
Stuart P.M. Mackintosh
, World Economics, December 2017
Seventy years of American leadership of the international system has ended abruptly shaking the foundations of the post-World War II international architecture. The International Monetary Fund and the World Bank, twin pillars of the post-World War II system, will be adversely impacted by an America First policy since the US has the largest share of votes, the loudest voice, and greatest influence in both institutions. The WTO dispute settlement system needs a minimum of four judges to function, but the U.S. Administration may opt to stymie the operation of this key pillar in global free trade with wilful neglect. It remains essential, therefore, that the Financial Stability Board created in 2009 is not impacted by the Trump Administration’s sceptical view of international regulatory coordination.
Offshoring and the Labour Share in Germany and US: The Role of Different Policy Regimes
& William Milberg
, World Economics, December 2015
Despite broad public concern with the effect of offshoring on inequality, there is scant research. The authors shift the focus to the effect of offshoring on the labour share in value added. Regression analysis for a sample of 14 OECD countries in 21 manufacturing sectors covering the period 1995 to 2008 reveals that the effects of offshoring on the labour share are negative. They also show that different policy regimes with regard to labour markets, education and innovation, and trade liberalisation mediate these effects whilst contrasting the experiences of Germany and the U.S. where the manufacturing labour share decline was particularly strong.
Latin America: From Recovery To Slowdown
José De Gregorio
, World Economics, December 2015
Economic performance in Latin America has been disappointing. After a successful recovery from the global financial crisis, growth in 2014 was in most countries, much below expectations and in 2015, growth would still be low. Among the largest seven economies of the region (LAC7), a contraction of output is expected in Argentina, Brazil and Venezuela, while in Chile, Colombia, Mexico and Peru, growth would be about 3 percent. This paper discusses the main factors that explain why growth has been declining. There are cyclical reasons, and, as should have been expected, after rapid recovery, a deceleration should follow. In addition, the evidence would support that potential output growth is below what was experienced at the beginning of this decade, whereas previous assessments were optimistic. The slowdown started before commodity prices started declining, and terms of trade were not significantly low. Therefore it is difficult to blame external factors on the slowdown. However, prospects of lower commodity prices will add to the drag of economic growth. The commodity price boom had a relevant effect on activity, but more than an income effect, it resulted in an investment boom. This has been particularly relevant in Chile and Peru, where that boom has come to an end, adding to the deceleration. Although monetary and fiscal policy may still have a role in supporting demand within inflation target regimes, the main problem in the region is not a lack of demand, but low productivity growth. Efforts must be made to foster productivity. More recently, the cost of institutional weakness and high degrees of inequality have highlighted areas of progress which should be actioned in order to resume high sustainable growth.
Measuring The Americas GDP
World Economics, March 2015
The Americas, comprising the USA and Canada, the Spanish speaking countries of South and Central America plus Brazil and the Caribbean, is a region displaying large differences in living standards. The availability of resources has an impact on the quality and reliability of economic statistics. Chile and Mexico, both OECD members, produce economic data that can be compared favourably with the USA, Canada and many European countries. In other countries out of date base years, outdated national income accounting standards and problems in recording the size of the informal economy mean that GDP figures are likely to be underestimated. The most insidious problem in the region arises from the political manipulation of economic data in Argentina which has led to a censure of the government by the IMF.
Measuring Latin America
, World Economics, March 2014
This paper reviews the quality of official national accounting data investigated for 17 Latin American countries. Chile, which became an OECD member in 2010, stands out as a producer of the most reliable economic data and can be compared favourably with the USA and many European countries. The most significant data problems are the use of old standards of national income accounting, the use of outdated base years and the degree to which the shadow economy is underrecorded. In Argentina there is the additional problem that official published economic data has been subject to much interference in order to downplay inflation while reporting higher real national income and lower poverty data. A simple exercise is undertaken to estimate what the size of Latin American GDP might be if most countries updated their base years to 2012.
The Argentine Productivity Slowdown: The challenges after global financial collapse
, World Economics, September 2011
The purpose of this working paper is to analyse the main causes of economic growth in Argentina during the 1990–2006 period. This research proposes a methodology in order to identify Total Factor Productivity (TFP) gains in the strict sense of positive shifts in the production function, independent of short-run cyclical fluctuations in the utilization of productive factors and relative prices effects; distinguishing it from residual or apparent TFP which expresses a phenomenon of real cost changes but not necessarily changes in long-run economic growth. The main results of this research are that strict TFP has a lower trend than apparent TFP. Similar conclusions are obtained in the case of labour productivity adjusted for labour intensity. Argentina sustained a prolonged period of economic growth over 1990–2004, biased to capital accumulation and utilization during the 1990s, and biased to labour input demand after the devaluation year of 2002. In the light of these findings and the data problems after 2007 there are doubts about the ability of the Argentine economy to generate the necessary productivity gains to support sustainable long-term economic growth.
It’s Time to Retire the US Military’s Retirement System
, World Economics, December 2010
The author outlines a retirement system for the most expensive government organisation in the world – the US military. The plan incorporates positive aspects of both defined benefit and defined contribution plans that cost less and are more valuable to service members than the current system, which was put into place in 1947. The paper uses previous studies that reflect service members’ ‘value’ of retirement pensions and US Department of Defense net present value assumptions to prove his case and demonstrate how the DoD can save tens of billions of US dollars, while increasing the value of the plan in the eyes of those who serve.
This paper builds on previous work done in 2006, when the author wrote a paper titled ‘Is It Time to Update the Army’s Retirement System?’. However, this paper focuses more broadly on the overall military retirement system and takes into account the changes that have occurred since 2006 regarding the general debate on retirement pensions, the macroeconomic conditions that have changed drastically in four years, the political reality of future government budget cuts (such as with the military retirement system), and the fact that anything related to military compensation being a target because US military benefits (primarily health care, pay, and bonuses) have increased steadily over the years since 2001.
Why Hasn’t the US Economic Stimulus Been More Effective?: The debate on tax and expenditure multipliers
F. Gerard Adams
& Byron Gangnes
, World Economics, December 2010
Recently questions have been raised about the effectiveness of fiscal stimulus policies, and about whether stimulus to a recessionary economy should be in the form of tax cuts or expenditure increases. This paper evaluates alternative empirical approaches to measuring the impact of fiscal policy and presents new results based on simulations of a large econometric model of the US economy.
The US economic stimulus has not been more effective because, large as it is, it has not been sufficient to offset the impact of a serious recession and because it has been phased in slowly. Multiplier simulations and other studies suggest that the recession would have been considerably more serious in the absence of the economic stimulus programme.
Economic Growth in Venezuela: Policies vs oil wealth
, World Economics, September 2010
This paper presents an empirical analysis of Venezuela’s economic growth in
the last several decades, providing possible explanations for the country’s weak
performance relative to its peers. First, a growth accounting exercise uncovers
a long, negative trend in total factor productivity from the late 1970s through
the early 2000s. This trend was also accompanied by a declining ratio of capital
stock per worker, attributable to an earlier period of misguided policies that
favoured excessive accumulation of physical capital to the detriment of human
capital and economic efficiency. Second, empirical tests suggest that Venezuela’s
economic growth has been highly and increasingly dependent on oil revenues.
Finally, econometric estimates indicate that lax fiscal policies and macroeconomic
instability have had a negative impact on growth.
The Temptation for Protectionism and American Trade Policy
& Tyler Prante
, World Economics, September 2010
The Great Recession of 2007–2009 originated in the United States and quickly spread throughout the economies of Canada and Europe. Soon these countries imported fewer goods produced by emerging countries and the crisis became global. International trade collapsed at a pace unseen since the Great Depression of the 1930s. As trade declined, countries increasingly faced the temptation to impose restrictions on imports so as to protect sales and jobs of domestic firms and workers. This paper examines the pressures for protectionism that have occurred during the Great Recession and its aftermath. It also examines the lessons from the escalation of protectionism during the 1930s and applies these to the current situation. Several cases of recent protectionist policies are examined to illustrate these points.
Finance, Technology and Multinationals from the Periphery: An analysis of the Latin American experience
& Werner Baer
, World Economics, March 2010
This article analyses the emergence of Latin American multinational corporations (MNCs), with a particular emphasis on the roles of finance and technology. It is established that the need to acquire foreign technology and finance has played a key role in the emergence of Latin MNCs. However, in respect to technology at least, the internationalisation process is also increasingly predicated upon the exploitation of domestically generated assets.
Keywords: Argentina, Brazil, Chile, Colombia, FDI, Finance, Globalisation, Globalization, Growth, Mexico, Panama, Paraguay, Peru, Technology, Uruguay, Venezuela
Chile: Foreign Shocks and Policy Responses
José De Gregorio
, World Economics, December 2009
In 2009, the world is facing the worst recession in more than six decades. Chile has been no exception. In spite of this outlook, the Chilean economy stands on solid ground, and recent figures show that the recovery has started. This article discusses the fundamentals of the Chilean economy and how economic policies have responded to the strong foreign shocks of the past few years. These range from the severe inflation outburst over part of 2007 and 2008, the consequences of the world’s financial crisis and the current risk of an extended period of low inflation.
The Secret of Canadian Banking: Common Sense?
, World Economics, September 2009
This article looks at the basic reasons why the Canadian banking system was recently judged by the World Economic Forum to be the soundest in the world. It does so by first examining the basic functions of a financial system and what Canadian banks are allowed to do as intermediaries within that system. It then considers the market structure of Canadian banking and the role of the Canadian government in regulating the financial system. It finishes with a discussion of the four basic management areas of any financial institution: liquidity management, asset management, liability management and capital management. On all dimensions the Canadian banks seem to be conservatively managed, well regulated and operating in a benign economic environment without obvious systemic risks, mainly due to the absence of a competing ‘parallel’ intermediation system as exists in the United States.
Understanding Crime, Political Uncertainty and Stock Market Returns: A case study of the Colombian stock market
Juan Carlos Franco Laverde
, Maria Estela Varua
& Arlene Garces-Ozanne
, World Economics, June 2009
Colombia’s economy has experienced positive growth over the past few years despite the incidence of serious armed conflict in the region. However, the Colombia of today still faces a significant degree of sociopolitical instability as a result of organised crime associated with drug trafficking, the leftist guerrilla attacks and the right-wing paramilitary group. This paper examines the significance of organised crime and political uncertainty for the amalgamated Colombian Stock Exchange. Empirical evidence indicates that organised crime and political uncertainty negatively affect stock market returns and volatility.
Keywords: Black markets, Colombia, Drugs cartels, Financial markets, Illegal, Illicit, Instability, Organised crime, Organized crime, Trafficking, Volatility
How Many US Jobs Might be Offshorable?
Alan S. Blinder
, World Economics, June 2009
Using detailed information on the nature of work done in over 800 US Bureau of Labor Statistics occupational codes, this paper ranks those occupations according to how easy/hard it is to offshore the work – either physically or electronically. Using this ranking, it is estimated that somewhere between 22% and 29% of all US jobs are or will be potentially offshorable within a decade or two. (No estimate is made of how many jobs will actually be offshored.) Since the rankings are subjective, two alternatives are presented – one is entirely objective, the other is an independent subjective ranking. In general, they corroborate the rankings, albeit not perfectly. It is found that there is little or no correlation between an occupation’s ‘offshorability’ and the skill level of its workers (as measured either by educational attainment or wages). However, it appears that, controlling for education, the most highly offshorable occupations were already paying significantly lower wages in 2004.
End of the ‘American Century’
Allan H. Meltzer
, World Economics, December 2008
The postwar era has ended. The institutional structures that the United States
sponsored are less relevant or less accepted now, and the US is unable to solve
its major domestic problems. In 1944–46, the US led the world toward new
international arrangements that promoted freer markets, freer trade and financial
stability. That system was very successful, but despite its success, it has lost
public support. Also, the US has been unable for thirty or forty years to reach
internal agreement about how to reduce oil imports, provide effective health care
and produce quality education. In this paper, the author argues that countries
which cannot solve main domestic problems are unlikely to lead others.
A Dynamic Theory of China–U.S. Trade: Making sense of the imbalances
& Edmund Phelps
, World Economics, September 2007
China's trade surplus with the U.S. is now more than a quarter of the U.S. trade deficit and, with China growing faster than the U.S., raises questions about its future course. Some media commentators term the chronic trade surplus "mercantilist" but offer no persuasive motive for it. Academics taking the classical static view regard the trade surpluses as a policy error. The authors offer a rudimentary model in which trade surplus in the early years is central for an optimal growth trajectory. The novelty derives from two features of underdevelopment shaping trade between backward economies like China and advanced economies like the U.S. First, the initial comparative disadvantages in China are an artifact of the uneven technical advances made by the U.S., so China may be able to erase those disadvantages through technological transfers bought with surpluses of exports over imports in goods and services. Reserves may be accumulated to pay for large lumps of know-how. Second, the diffusion of new products requires learning, which takes time, so the initial dearth of familiarity in China with a range of U.S. consumer goods operates as a drag on import demand for them, which may tip trade balances into surplus.
Economic, Neurobiological and Behavioral Perspectives on Building America’s Future Workforce
, James J. Heckman
, Judy Cameron
& Jack P. Shonkoff
, World Economics, September 2006
A growing proportion of the US workforce will have been raised in disadvantaged environments that are associated with relatively high proportions of individuals with diminished cognitive and social skills. A cross-disciplinary examination of research in economics, developmental psychology, and neurobiology reveals a striking convergence on a set of common principles that account for the potent effects of early environment on the capacity for human skill development. Central to these principles are the findings that early experiences have a uniquely powerful influence on the development of cognitive and social skills, as well as on brain architecture and neurochemistry; that both skill development and brain maturation are hierarchical processes in which higher level functions depend on, and build on, lower level functions; and that the capacity for change in the foundations of human skill development and neural circuitry is highest earlier in life and decreases over time. These findings lead to the conclusion that the most efficient strategy for strengthening the future workforce, both economically and neurobiologically, and for improving its quality of life is to invest in the environments of disadvantaged children during the early childhood years.
Are We Heading for a Dollar Crisis?
, World Economics, March 2006
The US balance of payments current account deficit is in excess of 5 per cent of GDP. Is this sustainable? A loss of confidence in the dollar could lead to foreign investors selling dollars and to a sharp dollar devaluation. In principle, there could be a dollar crisis. But how likely is it? This paper investigates the extent to which the situation in the mid 2000s mirrors that at the time of the last dollar crisis in 1971. It also examines the causes of the contemporary US current account deficit and the factors determining its sustainability. It goes on to discuss the need for policy action both within the US and in the rest of the world to minimize the risks of a dollar crisis that could have serious implications for the global economy.
Brazil’s Economy Under Lula: The dawn of a new era?
, World Economics, December 2005
In this article Edmund Amann analyses the recent performance of the Brazilian economy, the largest in South America. For a number of years it has been clear that Brazil, despite substantial natural resource endowments and a talented and entrepreneurial population, has failed to match the growth performance of other emerging market economies, notably those of East and South East Asia. This article examines the structural impediments to accelerated growth which will need to be overcome if Brazil’s economic performance is to improve significantly. While the government of President Lula is well aware of the need for structural reform, it is argued that progress in this field has been slower than desirable. As a result, growth remains constrained and the scope for reducing poverty and inequality restricted.
Dollarisation in Theory and Practice
John C. B. Cooper
, World Economics, December 2004
Dollarisation involves the replacement of a soft domestic currency with a hard
foreign alternative. This paper explains the different forms that dollarisation can
take, its consequences for an economy, and concludes by exploring the
experience of Panama, a country dollarised since 1904.
Pricing Cultural Heritage: A new approach to managing ancient resources
, Ece Ozdemiroglu
, Tannis Hett
& Giles Atkinson
, World Economics, September 2004
A growing determinant of leisure travel decisions has been the demand for
cultural destinations. This has presented complex challenges with regards to the
correct management of major cultural resources. Management options can be
assessed in terms of three criteria of performance: access, financial sustainability
and environmental sustainability. This paper shows that a promising means of
reconciling these desirable objectives is to harness the potential of economic
pricing strategies (such as entry charges), where data on willingness to pay for
visits are based on non-market valuation methods. A real-life illustration is
provided by examining the case of the Machu Picchu Historic Sanctuary in Peru.
It is shown that this approach can usefully inform expected changes in the entry
fee level and structure not just of Machu Picchu but cultural destinations and
resources more generally.
Leadership and Progress
, World Economics, September 2003
When World War II ended, the United States took the lead in providing political
stability, rules for freer trade, and international financial stability. The ‘Pax
Americana’ worked extremely well. During the postwar years, more people in
more countries increased their living standards by larger amounts than in any
period in recorded history. In order to continue the global growth, increased
liberty and human progress of the last 60 years, Allan Meltzer argues that new
arrangements are called for to provide the public goods that progress requires.
Developing these new arrangements is the major challenge to US leadership as
the engine of world progress in the new century.
Continuities and Discontinuities in Global Development: Lessons from new East/West comparisons
, World Economics, December 2002
Much literature normalises a ‘North Atlantic’ pattern of development, and sees a
regionally specific ‘East Asian’ path emerging relatively recently. However,
development patterns in core regions of Europe and East Asia were surprisingly
similar until almost 1800; Europe’s subsequent divergence was shaped by
exceptional resource bonanzas. East Asian growth has been less resourceintensive,
and more continuous with pre-1800 patterns. Since 1978, ‘East Asian’
patterns again characterise coastal China, but China’s interior poses greater
challenges; current interest in more resource-intensive, state-driven development
strategies for those regions is thus unsurprising, but environmentally and socially
Keywords: Canada, China, Development, Environment, France, Germany, Green, Growth, Japan, Poverty, Resources, South Korea, Sustainability, Taiwan, Technology, UK, US
The Growing US Fiscal Gap
, World Economics, December 2002
The United States has a huge long-term fiscal gap, perhaps with a present value
as great as $74 trillion. The US may thus be unable to continue meeting its
current spending commitments without eventually enacting huge tax increases.
The tax cut enacted in 2001 may have increased the fiscal gap by about $13 trillion,
but the main cause of the gap is increasing life expectancy, which raises the cost
of Social Security and Medicare. While the fiscal gap can in theory be eliminated
at the stroke of a pen by simply changing stated policy, in practice this could lead
to serious disruption of people’s expectations. In addition, the fiscal gap may
impair future generations’ opportunity to take full advantage of technological
advances (such as in treating cancer) that have the potential to make their lives
significantly better than ours.
Regulating Tobacco in the United States: The Government and the Courtroom
, World Economics, September 2002
There has been a dramatic turn of events against the tobacco industry in the past
few years, raising the question of the appropriate future path for smoking policy
in the US. This paper discusses the theory and evidence on regulation of
smoking. The author begins by reviewing the background on this industry. He
then turns to a discussion of the motivations for regulating smoking. He argues
that the available evidence suggests that we move from the traditional model,
which ties regulation to costs external to the smoker, to a new framework where
regulation is related to the internal costs of smoking (the damage the smoker
does to him- or herself). The paper reviews the evidence on the effects of
existing regulations. It concludes with a discussion of future policy directions.
A Hard Look at the Costs of Peace
& Michael D. Ward
, World Economics, June 2002
The United States has emerged as a hegemonic, dominant military power exactly
during the period when its military expenditures have grown least. The end of
the Cold War did indeed deliver a huge dividend to its largest beneficiary, the
United States. During this same period, the US economy has also doubled,
fueled by the rapid increases in productivity brought on by the information
economy. These two stylized facts stand in sharp relief to a 40-year period in
which there was a bipolar balance of power and much more modest economic
growth in industrial as well as developing societies. As beneficial as these changes
are, it must be recognized that they also undermine the political and economic
status quo ante. In this article the authors speculate about the importance of
legitimacy in a global political economy dominated by a single major power. New
organizational forms of conflict management may actually be fostered by such a
disequilibrating state of affairs.
Letter from Buenos Aires
, World Economics, March 2002
“IMF criminals!” cry the antiglobalists in the wake of Argentina’s descent into
chaos. But the real crime of Argentina’s last ten years was its own supineness in tying its fortunes for so long to the economy of an indifferent superpower, and allowing itself to become the plaything of international bondholders. There are two bogeymen here: a hubristic and arrogant political class which never felt the need to explain to the population the Faustian nature of the dollar peg; and the international credit rating agencies which called Argentina a basket case and sent the cost of its debt soaring, when both its fiscal deficit and its debt ratio were within the limits for entry into the eurozone.
Keywords: Argentina, Crises, Crisis, Dollarisation, Dollarization, Financial architecture, Global governance, Globalisation, Globalization, IMF, Sovereign debt, Sovereign default
Latin America: The Long and Winding Road to Growth
, World Economics, June 2001
This paper reviews recent economic reforms carried out in Latin America and
relates them to the long-run economic trends in the region. After a brief overview
of growth and income distribution patterns of Latin American countries in the
nineteenth and twentieth centuries, the paper addresses some of the reasons for
the region’s economic decline. Milestones such as the debt crisis of 1982, the
failure of heterodox stabilisation programmes in the 1980s and the consequences
of liberalisation in the 1990s are discussed at length, as also are the lessons drawn
from the financial crises of the 1990s for the current process of economic
Keywords: Argentina, Bolivia, Brazil, Chile, Colombia, Development, Growth, Inequality, Liberalisation, Mexico, Peru, Poverty, Venezuela
Is Dollarisation a Viable Option for Latin America?
, World Economics, March 2001
In the aftermath of the East Asian financial crisis there has been much discussion of exchange rate policy in developing countries. Some observers have suggested that they should opt either for flexible exchange rates or for firmly fixed rates. Adopting the US dollar as legal tender and abandoning the domestic currency is one possibility. In conditions of economic crisis Ecuador dollarised in early 2000. Will other Latin American economies follow or will Ecuador live to regret the decision? This article assesses the arguments.
The US “Underclass” in a Booming Economy
Richard B. Freeman
, World Economics, June 2000
The main failure in the US economy in the 1980s through the mid 1990s was its inability to distribute the gains of economic growth to the bulk of the population. The traditional “rising tide lifts all boats” link between economic growth and poverty seemed broken, creating a large seemingly permanent underclass. To the surprise of many, however, the late 1990s boom has substantially improved the well-being of the disadvantaged and reduced underclass behaviour. Full employment has been a successful anti-poverty policy. But the US is taking a huge risk in placing all of its social policy eggs in the single employment basket. When there are no nuts squirrelled away for winter, one can only hope that the
good times will keep rolling.