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August 2008 Archives


Let the Beef Protests End the Era of FTAs Far Eastern Economic Review Subscription Required
Bernard Gordon (FEER) Jul/Aug 2008
The Korean anti-U.S. beef protests are just one more indication that the U.S. shift toward FTAs was a bad idea.

How Inflation Hits Asia’s Traders Far Eastern Economic Review Subscription Required
Charles De Trenck (FEER) Jul/Aug 2008
The impact of rising fuel and commodity prices as well as falling demand on Asia’s shipping industry.

Handling the Economic Challenge From China
C. Fred Bergsten (Foreign Affairs) Jul/Aug 2008
Beijing is shirking its responsibilities to the global economy. To encourage better behavior, Washington should offer to share global economic leadership.

The Future of NAFTA
Robert A. Pastor (Foreign Affairs) Jul/Aug 2008
It's time to integrate further with Canada and Mexico, not separate from them.

The End of Financial Triumphalism?
Kenneth Rogoff (Project Syndicate) Aug 2008
Will today’s ever widening global financial crisis mark the end of the era of financial triumphalism? Ask a lay person to list the ten great innovations that drive our world today and you probably won’t find too many who mention the Black-Scholes formula for pricing options. But for the financial community, pioneering formulas that paved the way for modern hedging strategies should get just as much credit for the passing period of rapid global growth as cell phones, computers, and the Internet.

The Knife’s-Edge Economy
J. Bradford DeLong (Project Syndicate) Aug 2008
Since 2003, I have been saying that the global economy is badly unbalanced and vulnerable to a macroeconomic catastrophe that would yield one of the worst episodes of economic distress of modern times. Since 2004, I have been saying that the situation, once it started, would probably become clear within a year: we would know whether the global economy would right itself or begin a downward spiral. In 2004-2007, I considered that I might be wrong about a relatively rapid resolution to the world’s economic distress: as the late Rudi Dornbusch put it, unsustainable macroeconomic imbalances can sustain themselves longer than economists (with their touching faith in rational human decision making) believe is possible.

Don’t Cry for Doha
Dani Rodrik (Project Syndicate) Aug 2008
Will they or won’t they? Will the world’s trade ministers eventually sign a new multilateral trade agreement that reduces agricultural subsidies and industrial tariffs, or will they walk away empty-handed? The saga has been ongoing since November 2001, when the current round of negotiations was launched in Doha, Qatar, with numerous subsequent ups and downs, near-collapses, and extensions.

Free Trade Breakdown
Bjørn Lomborg (Project Syndicate) Aug 2008
Last month, the Doha negotiations, promising freer trade, broke down, ostensibly over a small technicality in safeguard rules. In reality, the talks collapsed because nobody – not Europe, not the United States, China, India, or the other main developing countries – was willing to take the political short-term hit by offending inefficient farmers and coddled domestic industries in order to create greater long-term benefits for virtually everyone.

Speculators at the Pumps
Thomas Palley (Project Syndicate) Aug 2008
Until a few weeks ago, while oil prices were surging, debate raged about the relative roles of economic fundamentals and speculation in boosting oil prices. Although oil prices have now fallen back from their peak, that debate must not be forgotten, for it has profound policy implications that government officials would be derelict to ignore.

The Digital War on Poverty
Jeffrey D. Sachs (Project Syndicate) Aug 2008
The digital divide is beginning to close. The flow of digital information – through mobile phones, text messaging, and the Internet – is now reaching the world’s masses, even in the poorest countries, bringing with it a revolution in economics, politics, and society.

The Global Economy's Gathering Storm
Hans-Werner Sinn (Project Syndicate) Aug 2008
From 2004 to 2007, the world economy experienced an unusually long and strong boom, with growth rates of nearly 5% and with many countries participating. The European Union (EU15) recorded 2.4% growth on average during these years. In Germany, where growth averaged 1.8% during this period, some journalists proclaimed a new economic miracle. Now, however, increasingly bad news is giving rise to serious doubts; dark clouds are hovering over the United States, in particular. Is the world economy on the brink of recession?

Doha Round next steps: hibernate or deliberate?
Simon J Evenett (VoxEU) Aug 1, 2008
The breakdown of the Doha Round this week makes a deal implausible for another year or two. This column argues that this is an opportunity for world trade powers to identify ways to adapt the WTO to the needs of the 21st Century. Although difficult, the outcome of such talks could hardly be worse than the fear-driven, adrenalin rush that the WTO membership embarked upon seven years ago in Doha.

Doha Round failure: This is the way the round ends
Joseph Francois (VoxEU) Aug 1, 2008
The WTO talks were as much a distraction as an opportunity. The agenda was aimed at a world that no longer exists. Negotiations of some form should and will resume: the questions are "where?" and "between whom?" Success will require a different game, with different rules and different players. This column considers the options.

Hank Paulson's Fannie Gamble
Lawrence B. Lindsey (WSJ) Aug 1, 2008
The world would dump the currency of any other country that announced an open-ended bank bailout.

Currencies: Why Is the World Slowing in Super Slow-Motion?
Stephen Jen & Luca Bindelli (MSDW) Aug 1, 2008
(1) The world is starting to re-couple and slow with the US. This has taken place much more slowly than many expected because of trade regionalisation. (2) The world’s distribution of imbalances has become far more pronounced than five years ago. This should, in theory, lead to greater currency volatility.

Currencies: The Dollar to Rally by Default, Not by Merit
Stephen Jen & Luca Bindelli (MSDW) Aug 1, 2008
For the first time since the financial crisis began a year ago, much of the world is converging to the path of the US economy. This will make it more difficult for the under-valued USD to sell off further. In fact, there are many currencies that look even more vulnerable than the dollar.

Governance and growth: Why does Georgia lag behind Estonia?
Thorvaldur Gylfason & Eduard Hochreiter (VoxEU) Aug 2, 2008
The development gap between former Soviet states is striking – top performers like Estonia have joined the European Union while others, such as Georgia, lag far behind. What accounts for these differences? In the case of Estonia, this column attributes them to successful institutional reforms, good governance, and investments in education.

The Next Step for World Trade
NYT Aug 2, 2008
The failure of the Doha round of trade negotiations could undermine faith in the rule-based multilateral trading system.

Shipping costs start to crimp globalization
IHT Aug 2, 2008
Cheap oil, the lubricant of inexpensive transportation links, may not return soon, upsetting the logic of diffuse global supply chains.

Obama, the optimist on trade
Susan Ariel Aaronson (VoxEU) Aug 3, 2008
Many in the press and economics profession have portrayed John McCain as the free trade candidate in the upcoming US election. This column defends Barack Obama’s trade policies and criticises those labelling him a protectionist. It argues that Mr Obama is pro-trade and aims to maximise welfare rather than economic growth.

Is Geography Destiny?
Edward Glaeser (NY Sun) Aug 3, 2008
A trip to India once meant a saffron-scented experience of the exotic. Today, going to Bangalore means a trip to a First World city built on modern technology. Business travelers can fly from Chicago to Shanghai and experience a pretty homogenous world of identically furnished high-rise offices and business hotels and frequent flyer clubs. And you can always get your preferred breakfast beverage: The sun never sets on the Starbucks mermaid.

Oil falls as fears for growth intensify
FT Aug 4, 2008
Crude oil prices fell below $120 a barrel for the first time in three months amid mounting worries about slowing economic growth and signs of rising supplies from Opec, the oil exporting countries cartel.

Don't Cry for Me, Doha Trade Round
Bernard Wasow (Globalist) Aug 4, 2008
Is the Doha Round dead — or is it enduring yet another near-death experience?

The Dawn of Global Trade — Part I
Stewart Gordon (Globalist) Aug 5, 2008
How did Asia shape international trade more than a millennium ago?

Booming China Suddenly Worries That a Slowdown Is Taking Hold
NYT Aug 5, 2008
Growth in China is expected to slip a couple of percentage points below the double digit threshold over the coming year, relieving inflationary pressure but undermining global growth.

Euro Marks Milestone As Currency Union Faces Slowdown
IMF Survey Aug 5, 2008
Although the euro area economy has held up well, it now faces a combination of uncomfortably high inflation and decelerating activity.

Only free trade can guarantee food security
Christopher Haskins (FT) Aug 5, 2008
The world's population will rise by 40 per cent and because of affluence it will want to eat more.

Doha Debacle: What's Next for Global Commerce
K@W Aug 6, 2008
Progress toward unfettered international commerce stumbled last week with the collapse of the World Trade Organization's Doha talks, a seven-year effort to establish new global trade rules. The lengthy talks were complicated by the rapid emergence of China and India as major economic powers with commercial and strategic interests to protect, and the clout to do so. Many observers say the talks' collapse is a setback for poorer nations, which need access to larger markets in order for their economies to grow. Wharton professors Stephen Kobrin, whose research interests include globalization, and Marshall Meyer, an authority on China's economy, recently spoke to Knowledge@Wharton about the talks' collapse, global commerce and China's interest in the rules governing trade.

The Dawn of Global Trade — Part II
Stewart Gordon (Globalist) Aug 6, 2008
In what ways did Asia dominate the world 1,000 years ago?

How much further should the dollar fall?
William R. Cline & John Williamson (VoxEU) Aug 7, 2008

Has the dollar fallen far enough? How large are unsustainable international imbalances? This column presents new estimates of fundamental equilibrium exchange rates, concluding that the US dollar has fallen enough with respect to the euro and pound but is overvalued against Asian currencies.

Doha: Close, but Not Enough
BRIDGES Weekly Trade News Digest Vol. 12, Number 27 Aug 7, 2008
For the third summer in a row, a push for breakthrough WTO accords on agriculture and manufacturing trade has ended in failure.

Agricultural Safeguard Controversy Triggers Breakdown in Doha Round Talks
BRIDGES Weekly Trade News Digest Vol. 12, Number 27 Aug 7, 2008
A seemingly technical agricultural safeguard clause led to the collapse of an end-July WTO mini-ministerial that was meant to establish a blueprint 'modalities' deal for the faltering Doha Round of trade talks. Given the progress achieved on more controversial questions, such as cuts in countries' overall trade-distorting subsidies or top-level tariffs, negotiators expressed surprise that the round had stumbled on the special safeguard mechanism (SSM), a tool intended to allow developing countries to raise tariffs temporarily when import volumes increase or prices fall suddenly.

Where Does TRIPS Go from Here?
BRIDGES Weekly Trade News Digest Vol. 12, Number 27 Aug 7, 2008
Disagreement over intellectual property issues did not cause the collapse of July's mini-ministerial summit at the WTO. Because the talks foundered for other reasons, we do not know what might have happened on the IP front had delegates successfully agreed package deals on liberalising trade in the agricultural and industrial sectors. Continuing strong disagreement on substance channeled mini-ministerial talks on IP-related issues toward the "process" through which an agreement might be reached.

Strong Signals Sent on Services
BRIDGES Weekly Trade News Digest Vol. 12, Number 27 Aug 7, 2008
Surprising, encouraging, positive and constructive were among the terms used by participants after the half-day 'signalling conference' on services held during the Geneva mini-ministerial in July.

Win some, lose some
Economist Aug 7, 2008
The battle against AIDS is becoming a war of attrition. Which side is on top is not yet clear.

The microeconomic impacts of the euro: Evidence from French firms
Antoine Berthou & Lionel Fontagné (VoxEU) Aug 7, 2008
How did the adoption of the euro boost international trade? This column analyses microeconomic evidence from France, showing that fewer firms now export, but those that do export more products to more destinations in Europe.

Euro falls to 6-month low against dollar
IHT Aug 8, 2008
New data showing the Italian economy unexpectedly shrank in the second quarter only added to prevailing sentiment that the European Central Bank now is more likely to cut than raise interest rates.

What share of Chinese exports is really made in China?
Robert B. Koopman, Zhi Wang & Shang-Jin Wei (VoxEU) Aug 8, 2008
Many policy assessments, such as the effect of a currency revaluation on trade balances, are sensitive to the share of domestic content in a country’s exports. The current method might be problematic for countries with a high share of processing exports, such as China, Mexico and Vietnam. This column introduces a new method for calculating domestic content shares and presents some striking estimates for China. The share of domestic content in China’s exports is about 50%, much lower than most other countries: this implies that an exchange rate appreciation is likely to have a smaller effect on China’s trade surplus than for other countries.

Shares Rally as Oil Continues to Fall
NYT Aug 8, 2008
A day after Wall Street shares dropped sharply, the Dow gained more than 300 points, and the impetus appeared to be a big drop in commodity prices.

'Sovereignty' That Risks Global Health
Richard Holbrooke and Laurie Garrett (WP) Aug 10, 2008
Here's a concept you've probably never heard of: "viral sovereignty." This extremely dangerous idea comes to us courtesy of Indonesia's minister of health, Siti Fadilah Supari, who asserts that deadly viruses are the sovereign property of individual nations -- even though they cross borders and could pose a pandemic threat to all the peoples of the world. So far "viral sovereignty" has been noted almost exclusively by health experts. Political leaders around the world should take note -- and take very strong action.

Capital account liberalisation: New thoughts on an old topic
Eswar Prasad and Raghuram Rajan (VoxEU) Aug 11, 2008
A decade after the Asian financial crisis, this column summarises the lessons learned about capital account liberalisation. Many developing countries are likely to move towards greater financial openness, which is desirable – if done right.

Byrd's Bad Idea Is Back
WSJ Aug 11, 2008
'Byrd Amendment' would again do damage to American trade.

Policy is a matter for the world, not just a rich club
Jean Pisani-Ferry (FT) Aug 12, 2008
The justification for keeping the Group of Seven as a separate structure – that it is the appropriate forum for macro-financial matters – is now gone. A frank policy dialogue between emerging and developed countries requires an appropriate venue.

The WTO - Faltering on Its Way to Success?
Edward Gresser (YaleGlobal) Aug 12, 2008
Broadening consensus by 153 member nations is an achievement in itself

IMF Clarifies How It Will Monitor Economic Policies
IMF Survey Aug 12, 2008
The International Monetary Fund publishes new procedures on how it will monitor member countries' economic policies, clarifying in particular how it will discuss with countries exchange rate issues and their impact on the global economy.

Development aid duplication, rivalry, and mission creep
Helmut Reisen (VoxEU) Aug 13, 2008
Many development organisations are working on the Millennium Development Goals, but will any of them be held accountable when the targets are not met? This column introduces the importance of mapping the “global development finance non-system” in order to identify agencies’ overlap, activity duplication, and mission creep. International reform will be mammoth task.

The Great Illusion
Paul Krugman (NYT) Aug 14, 2008
So far, the international economic consequences of the war in the Caucasus have been fairly minor, despite Georgia’s role as a major corridor for oil shipments. But as I was reading the latest bad news, I found myself wondering whether this war is an omen — a sign that the second great age of globalization may share the fate of the first.

Operating profit
Economist Aug 14, 2008
Why put up with expensive, run-of-the-mill health care at home when you can be treated just as well abroad?

A problem shared
Economist Aug 14, 2008
Economies across the rich world are flirting with recession. Good news for the dollar.

Global: Of Disasters, Recessions, Crunches and Busts
Joachim Fels (MSDW) Aug 14, 2008
A fully fledged recession is not our main case, but recession risks in the G7 are clearly on the rise. If a recession is coming, how long and how deep could it be? We summarise the results of two recent academic studies that look at the historical evidence from a wide range of countries, some of it going back centuries.

Sovereign wealth funds: Debunking four popular myths
Edwin M. Truman (VoxEU) Aug 14, 2008
Sovereign wealth funds are a hot topic, but they’re poorly understood. Four popular myths are that sovereign wealth funds are (1) about “them” not “us”, (2) all the same in their opacity, (3) a net benefit to the international financial system, and (4) not like hedge funds. This column explodes those myths and outlines a framework of reciprocal responsibility for sovereign investors and their investment recipients.

Europe succumbing to global economic woes
IHT Aug 14, 2008
The economy of the 15-nation euro area contracted 0.2 percent in the three months end in June, data released Thursday showed.

Is China driving up prices everywhere?
Economist Aug 14, 2008
Why China is not to blame for the surge in global inflation

Free Trade Can Fight Terror
Edward Gresser & Marc Dunkelman (WSJ) (2008)
Why the U.S. should drop tariffs against the Muslim world.

Dollar rally triggers rout in commodities
IHT/Bloomberg Aug 15, 2008
A rebound in the dollar Friday pushed gold prices below $800 an ounce, while silver dropped as much as 12 percent and corn and copper slumped.

Globalisation and trade costs: 1870 to the present
David Jacks, Christopher M. Meissner & Dennis Novy (VoxEU) Aug 15, 2008
Analysts suggest that rising oil prices will sharply reduce international trade. This column argues to the contrary, noting that transport costs constitute a limited share of trade costs. Moreover, evidence from the first wave of globalisation suggests that higher shipping costs are unlikely to significantly dampen international commerce – only protectionism would seriously threaten trade.

A Better Way to Free Trade
L. Gordon Crovitz (WSJ) Aug 18, 2008
Let's lower more barriers unilaterally.

Doubts on global economy undermine shares
IHT Aug 19, 2008
Investment banks have been trimming their forecasts for European growth after a report last week showed that gross domestic product in the euro zone fell 0.2 percent in the second quarter.

The selfish hegemon must offer a New Deal on trade
Jagdish Bhagwati (FT) Aug 19, 2008
What is doubly offensive about this exercise of political muscle is that it is advanced in the language of altruism. An altruistic hegemon would not be playing these games; a selfish hegemon will do little else.

Shooting Ourselves in the Food
Ernesto Zedillo (Forbes/YaleGlobal) Aug 19, 2008
Subsidies for agriculture lead to distorted markets, higher prices, poverty and other dangers.

The good news about growing current account volatility
Rebecca Hellerstein & Cédric Tille (VoxEU) Aug 21, 2008
Financial globalisation has made current account balances more sensitive to volatile variables like asset prices and interest rates. This column says that greater current account volatility may be good news if it comes in the form of countercyclical risk sharing.

The falling oil price is a lull in the storm
Nick Butler (FT) Aug 20, 2008
Carbon emissions are still rising and dependence on Saudi Arabia, Russia and a few other producers remains high.

A Global Approach Is Needed to Beat Inflation
Adam S. Posen & Arvind Subramanian (PIIE/FT) Aug 21, 2008
The world's top central bankers meeting in Jackson Hole this weekend should do more than bemoan their respective financial risks. They should hammer out a joint approach to reducing global inflation, centred on a common public commitment to tighter monetary policies. Moreover, with the European Central Bank and a few emerging market central banks (such as those of Brazil and India) having taken the lead, the spotlight should be on the US Federal Reserve and People's Bank of China. They must participate in this effort, rather than try to free-ride—which would only delay and increase the cost of their own inevitable tightening.

The outlook for commodities
Economist Aug 21, 2008
Why prices may not go on falling.

The subprime turmoil: What’s old, what’s new, and what’s next
Charles W. Calomiris (VoxEU) Aug 22, 2008
The subprime crisis is the joint product of perverse incentives and historical flukes. This column explains why market actors made unrealistic assumptions about mortgage-backed securities and how various regulatory policies exacerbated the problem. The crisis will necessitate changes in monetary policy, regulation, and the structure of financial intermediation.

Global: Rates Roundup: Less than Meets the Eye
Joachim Fels (MSDW) Aug 22, 2008
Stagflation still rules, but market participants now hope that central banks will shift from fighting ‘flation’ to easing policy in order to fight ‘stag’. Rate hikers are still likely to outnumber rate cutters around the globe by 16 to two in the remainder of this year, on our forecasts. Even next year, there will still be more hikers than cutters.

What does this authoritarian moment mean for developing countries?
Pranab Bardhan (FT) Aug 22, 2008
As the petro-authoritarianism of Russia flexes its muscles and the economic prowess of China struts in Olympic glory, developing countries in the world might start rethinking about the lectures on democracy and development they have heard all these years from the West. This is at a time when advanced capitalist democracies are reeling under the shock of unregulated financial overreach and years of living beyond their means, a far cry from the end-of-history triumphalism of capitalist democracy of less than two decades back.

The failure of history’s most celebrated bilateral trade agreement
Marc Flandreau (VoxEU) Aug 23, 2008
As WTO negotiations have failed, pragmatists have embraced preferential trade agreements. This column presents new evidence on the Anglo-French treaty of 1860 and argues that, contrary to all conventional wisdom, history’s most celebrated bilateral deal did not stimulate trade. That lesson should give pause to modern advocates of preferential trade agreements.

U.S. and Global Economies Slipping in Unison
NYT Aug 24, 2008
The integrated global market spreads prosperity, but it also spreads hurt when times go bad.

The global consensus on trade is unravelling
Lawrence Summers (FT) Aug 24, 2008
The success of the next administration could depend on its ability to engage with a wider range of global economic stakeholders.

Currencies: On the Link between the Dollar and Oil
Stephen Jen & Spyros Andreopoulos (MSDW) Aug 25, 2008
The USD and oil will likely remain negatively correlated for some time with the USD’s performance to stay partly decided by oil price evolution. For the global economy, a strong USD/low oil price combination is far better than a cheap USD/high oil price. Calmer commodity prices should temper the hawkish bias of some inflation-targeting central banks.

Currencies: Post-Olympics China and the AXJ Currencies
Stephen Jen & Spyros Andreopoulos (MSDW) Aug 25, 2008
Since May, we have been bearish on AXJ currencies, and see the USD rallying further against most AXJ currencies in the near future. A post-Olympics growth scare in China is now more likely than we had thought. A regional growth scare would further support our call on USD/AXJ.

A practical approach to the regulation of risk
John Eatwell and Avinash Persaud (FT) Aug 25, 2008
Counter-cyclical charges should be based on systemic phenomena, not on the characteristics of individual firms.

What must happen to fully rebalance the US current account?
Steven B. Kamin (VoxEU) Aug 26, 2008
It has become conventional wisdom that international investors’ unusual fondness for US assets helps explain the persistence of the US current account deficit. This column argues that US financial assets have not been demonstrably more attractive than those of other industrial economies.

Are US assets special in the eyes of global investors?
Robert Dekle, Jonathan Eaton & Samuel S. Kortum (VoxEU) Aug 27, 2008
A correction of international imbalances seems inevitable. What will that entail? This column presents estimates of the changes in trade flows required to rebalance the world’s current accounts and analyses which countries will bear the burdens of adjustment.

Markets continue to weaken worldwide
Economist Aug 28, 2008
Why the credit crunch has lasted so long.

Recounting the world's poor
Economist Aug 28, 2008
The world is poorer than we thought, the World Bank discovers.

Currencies: Moving Up the Left Side of the Dollar Smile
Stephen Jen & Spyros Andreopoulos (MSDW) Aug 29, 2008
We believe that the world is moving up on the left side of the Dollar Smile, which should be USD-supportive. Going forward, we expect to see a more hesitant and asynchronous USD recovery than that witnessed in the past month.

When exchange rate appreciations are good news for exporters
Karolina Ekholm, Andreas Moxnes & Karen-Helene Ulltveit-Moe Aug 30, 2008
Exporting industries loathe real exchange rate appreciations that hurt their ability to sell abroad. But this column says that such shocks are also good news, as they may trigger industry restructuring and spur productivity growth.

Zimbabwe Lifts Ban on Aid Groups, but Its Effects Linger
NYT Aug 30, 2008
The suspension of the groups' field operations deprived more than a million Zimbabweans of basic assistance, according to the nations that donated the aid.

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