China, Asia, and the World Economy： The Implications of an Emerging Asian Core and Periphery

I. IntroductionThe effect of China’s rapid growth on other Asian economies is felt most directly through itsimpact on international trade and foreign investment. However, not only is the magnitude of this impact uncertain, even its direction is disputed. Some authors emphasize that China’s emergence as an economic power is applying intense competitive pressure to its neighbors. China’s immense reserves of cheap labor enable it to out-compete neighboring economies in the production of low-…     

The Landscape of Economic Growth: Do Middle-Income Countries Differ?

We review the growth experience of middle-income countries. Economic factors associated with growth appear to differ between middle-income and other countries. The efficiency of the financial system is importantly related to the growth rate in low- and middle-income countries, but appears to matter less as one moves up the income scale. Demographic variables also matter importantly in low-income countries. In middle-income countries, in contrast, measures of the financial system no longer appear to matter as importantly, as if inefficiencies in banking and financial systems are no longer as binding a constraint as at earlier stages of financial development; nor are demographic variables as important as before. At this point, other variables gain a growing role: these include whether the country experiences a banking or currency crisis, the extent of non-foreign direct investment capital inflows, and government debt as a share of gross domestic product.     

Lessons of the crisis for emerging markets

This paper analyzes the impact of the global financial crisis on emerging markets. It argues that the crisis will have enduring implications for policy toward the development and liberalization of financial markets. In particular, emerging markets will rely (even) less on external finance and adopt a less permissive approach to foreign bank presence. In contrast, the crisis will have a much more limited impact on other aspects of globalization. More controversially, the paper argues that the crisis is unlikely to have a major impact on the structure of the international monetary system.     

Reforming Budgetary Institutions in Latin America: The Case for a National Fiscal Council

Latin America's economies have made tremendous improvements in recent years. Following the lost decade of the 1980s, economic growth has resumed. But the fruits of this progress remain to be consolidated. The political consensus supporting reform is fragile, and the economies of the region are still susceptible to destabilizing shocks, as recent events have underscored. Even well-devised economic policy strategies can be thrown off course by disturbances. This article proposes an institutional reform—a National Fiscal Council—designed to allow Latin American countries to break out of this vicious circle.     

Institutions and economic performance: evidence from the labour market

We analyse the institutional determinants of economic performance,taking European labour-market institutions as a case in point.European economic growth after the Second World War was basedon Fordist technologies, a setting to which the continent'sinstitutions of solidaristic wage bargaining were ideally suited.They eased distributive conflicts and delivered wage moderation,which in turn supported high investment. The wage compressionthat was a corollary of their operation was of little consequenceso long as the dominant technologies were such that firms couldrely on a relatively homogeneous labour force. But as Fordismgave way to diversified quality production, which relied moreon highly skilled workers, the centralization of bargainingand the compression of wages became impediments rather thanaids to growth. Assuming that growth will rely even more inthe future on rapidly changing, science-based, skilled-labour-intensivetechnologies, countries with centralized labour-market institutionswill have to move still further in the direction of decentralization.Whether Europe in particular can accommodate these demands willhelp to determine whether it is able to re-establish a fullemployment economy in the twenty-first century.     

Transatlantic Trade-Offs in the Age of Balanced Budgets and European Monetary Union

We develop a model of monetary and fiscal policies appropriate for considering U.S.-European policy interactions in an era of near-balanced budgets and European monetary union. We study the determinants of policy trade-offs and incentives for central banks and governments across the Atlantic. Smaller, more open economies face more favorable trade-offs, since openness enhances policy effectiveness via the exchange-rate channel. Changes in Europe's monetary arrangements do not affect U.S. trade-offs, although they alter the trade-offs facing European policy-makers. Fiscal trade-offs depend crucially on the extent to which fiscal policy is distortionary. Changes in taxes and spending move both employment and inflation in the desired direction following a worldwide supply shock when spending is financed with distortionary taxes.     

Effective protection and exchange-rate determination

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Central bank cooperation under the interwar gold standard

The limits of cooperation and the failures of leadership are recurrent themes in historical accounts which seek to explain the instability of the interwar gold standard. Yet these themes are wholly incompatible with received models of the gold standard. In an attempt at reconciliation, this paper has presented a simple model of central bank interaction under the interwar gold standard, and used it to interpret Anglo-French financial relations following Britain's return to gold. The model is inspired by Keynes' and Norman's comment that the interwar system can be understood as a competitive struggle for gold. It shows that if two central banks play a noncooperative game in which they both seek to augment their gold reserves, they will tend to raise their discount rates above the level consistent with price stability, depressing incomes at home and abroad. While central bank policy was but one factor at work in the world economy in the 1920s, the model is suggestive when applied to a period marked by historically high discount rates, conflicts over the distribution of gold, and steady deflation culminating in a Great Depression.     

Settling Defaults in the Era of Bond Finance

Comparisons of the debt crises of the 1930s and 1980s emphasizethe greater incidence of default and the greater ease of restructuringhalf a century ago. The difficulty developing-country debtorshave had in putting the current crisis behind them, it is argued,is due to the more systematic involvement of creditor-countrygovernments and intergovernment agencies. This article reviewsthe negotiating strategies of the debtors and creditors of the1930s, the terms of settlement, and the realized rates of returnon U.S. and U.K. foreign bonds. It shows that rather than beingsharp and complete, default in the 1930s was often partial andintermittent. Uncertainty about debt, trade, and export creditslingered on. Often many years passed before final settlementswere achieved. Creditor-country governments were intimatelyinvolved in the settlement process, although their influencewas not always to the benefit of the bondholders.