The discussion of the decline in US manufacturing during the 2016 presidential election campaign largely focused on job losses. This column examines the effects of Chinese import competition on another metric for the health of the US manufacturing sector – innovation. Firms whose industries were exposed to a greater surge of Chinese import competition from 1991 to 2007 experienced a significant decline in their patent output as well as their R&D expenditures. While politicians’ ‘obsession’ with manufacturing is primarily due to job losses, an accompanying reduction in innovation may well affect economic growth in the longer term.
David Autor, David Dorn, Gordon Hanson, Gary P. Pisano, Pian Shu, 20 March 2017
Ravi Kanbur, Yue Wang, Xiaobo Zhang, 15 March 2017
Sharply increasing inequality became an integral part of the narrative on Chinese development since the beginning of the reform process in 1978. Over the past decade, however, many studies have argued that inequality has been plateauing, or even declining. This column uses several datasets, including household surveys and regional-level government statistics, to show evidence of a mitigation of inequality in the early 21st century, and indeed, declining rates over recent years. Possible drivers of this turnaround are urbanisation, transfer and regulation regimes, and tightening rural labour markets.
Pol Antràs, Teresa Fort, Felix Tintelnot, 12 March 2017
A growing body of economic research documents the potential negative effects of increased trade integration, often with a focus on increased Chinese import penetration. This column argues that some US firms benefit significantly from increased import opportunities as they lower their costs and expand. Protectionism in the form of higher domestic tariffs would decrease these domestic firms’ competitiveness both at home and abroad.
Emine Boz, Luis Cubeddu, Maurice Obstfeld, 09 March 2017
After intensifying through the 2000s until the Global Crisis, the ‘uphill’ flow of capital from poor to rich countries decelerated and has recently reversed. This column documents that saving shifts by China, commodity-exporting emerging and developing economies, and advanced economies played key roles in accounting for the apparently puzzling pattern in the pre-crisis decade. Ongoing policy uncertainties in advanced economies mean large and persistent downhill flows of capital are unlikely in the near term. Going forward, capital flows to emerging and developing economies will need to be supported by policies that enhance the benefits of inflows, temper capital flow volatility, and improve the resilience and depth of domestic financial markets.
Italo Colantone, Piero Stanig, 20 February 2017
The revival of nationalism in western Europe, which began in the 1990s, has been associated with increasing support for radical right parties. This column uses trade and election data to show that the radical right gets its biggest electoral boost in regions most exposed to Chinese exports. Within these regions communities vote homogenously, whether individuals work in affected industries or not.
Meredith Crowley, Huasheng Song, Ning Meng, 10 February 2017
The Trump administration’s announcement of its intention to impose a 20% tax on goods imported from Mexico and its calls for a 45% import tariff on goods from China have alarmed businesses and consumers alike. This column uses data on the foreign market entry decisions of Chinese firms to assess the impact that tariff scares and trade policy uncertainty have on trade flows. The evidence suggests that Trump's threats to raise tariffs can reduce US imports even if the administration doesn't follow through with the threatened tax increases.
Italo Colantone, Piero Stanig, 23 November 2016
The vote for Brexit was a watershed moment in European politics. This column investigates the causal drivers of differences in support for the Leave campaign across UK regions. Globalisation in the form of the ‘Chinese import shock’ is found to be a key driver of regional support for Brexit. The results suggest that policies are needed that help to redistribute the benefits of globalisation across society.
Yi Huang, Jianjun Miao, Pengfei Wang, 08 November 2016
The Chinese Shanghai Stock Exchange Composite Index dropped by a third in mid-2015, wiping out billions in share value. One of the responses of the Chinese government was to directly participate in the stock market. This column assesses the costs and benefits of this intervention, finding that the resulting gains amounted to about 5% of Chinese GDP. The value was created not just from increased equity and investor confidence, but also from increased liquidity and reduced probability of default for listed firms.
Yi Huang, Marco Pagano, Ugo Panizza, 03 November 2016
High levels of public debt are correlated with lower economic growth across countries, but questions remain about whether this relationship is causal. Using Chinese data, this column explores whether increasing public debt crowds out private investment. City-level investment ratios are found to be negatively correlated with local government debt for private manufacturing firms, but not for state-owned or foreign-owned manufacturers. This suggests that as well as the short-term benefits of fiscal stimulus, there might also be negative longer-term effects, such as the crowding out of more efficient firms.
Kozo Kiyota, Keita Oikawa, Katsuhiro Yoshioka, 09 October 2016
The international competitiveness of industries has received much scholarly attention, but this research has tended to focus on Europe and North America. This column examines the competitiveness of industries in six Asian countries. Global value chain income is increasing in China, India, and Indonesia. And unlike workers in EU countries, workers in the Asian countries have benefited from this increased competitiveness.
Gary Hufbauer, Euijin Jung, 29 September 2016
Donald Trump has consistently made headlines with unusual and potentially dangerous economic policy proposals, including threatening to pull out of the WTO, renegotiating trade agreements, and imposing tariffs on imports from Mexico and China. This column explores the legal and economic dimensions of these proposals. Old and modern legal statutes could allow a US president to implement such policies, and the repercussions for the US economy could be severely negative.
Edoardo Campanella, Daniel Vernazza, 27 September 2016
China’s debt – in particular its corporate debt – is large by historical and international standards. This column argues that of greater concern is the sharp increase in recent years, and that the vulnerability is heightened by the concentration of this debt in old industries that suffer from overcapacity and weak competitiveness. The authorities appear to be only now taking steps to halt the rise in corporate debt, but as prior episodes of banking crises show, this is unlikely to be enough to avert either a prolonged period of slowing growth or a financial crisis in the medium term.
Ralph De Haas, Steven Poelhekke, 22 September 2016
The extraordinary expansion in global mining activity over the last two decades, and its increasing concentration in emerging markets, has reignited the debate over the impact of mining on local economic activity. This column analyses how the presence of nearby mines influences firms in eight countries with large manufacturing and mining sectors. Mines are found to out-compete local manufacturing firms for inputs, labour, and infrastructure. However, mining activity is found to improve the business environment on a wider geographic scale.
Fabrizio Zilibotti, 21 September 2016
Can China shift to innovation-led growth after decades of investment-led growth? In this video, Fabrizio Zilibotti presents his research on what China could do and the implications for the rest of the world. This video was recorded during the European Economic Association's Congress held in Geneva at the end of August 2016.
Yin-Wong Cheung, Menzie Chinn, Xin Nong, 15 September 2016
As long as countries strive to reallocate aggregate demand in their own favour, disputes will arise regarding the degree to which currency values are 'fair'. This column argues that the Penn effect – the observation that the price level is higher in countries with higher per capita income – may not be a reliable method to discern the fair value of a currency. Different specifications and different datasets lead to different estimates of the degree of misalignment, for example for the Chinese renminbi.
Charles Yuji Horioka, Akiko Terada-Hagiwara, 06 September 2016
China’s one-child policy and a general preference for sons increased competition among grooms, whose families typically bear marriage expenses. This is believed to have increased household saving in the country. This column explores whether the same is observed in other countries with unbalanced sex ratios. Premarital sex ratios are found to have a significant impact on household saving rates in India and Korea, with the direction of the effect dependent on whether the bride’s (India) or groom’s (Korea) family is typically expected to bear the brunt of marriage-related expenses.
Wolfgang Keller, Javier Andres Santiago, Carol Shiue, 23 August 2016
In international trade theory, countries are often treated as homogenous regions, with no account taken of their internal geography. This column uses evidence from China’s Treaty Port Era to show how domestic trade frictions shape welfare gains from trade. Gains from new technologies that lower trade costs are shared, but the gains are not evenly distributed. Lower trade costs can also mean lower welfare for productivity leaders, who may be replaced by low-cost suppliers from less productive regions as the costs of transport decline.
Tom Chang, Tal Gross, Joshua Graff Zivin, Matthew Neidell, 15 July 2016
The health effects of pollution in terms of hospitalisations, mortality and morbidity are well researched, but not so much is known about the less severe effects of pollution on workers’ health. This column uses evidence from China to analyse the impact of pollution on productivity, finding that high levels of pollution reduce the productivity even of indoor workers. Reducing pollution is not just welfare-improving for society, it is also of financial benefit to the economy.
Joshua Aizenman, Hiro Ito, 23 June 2016
In the aftermath of the Asian financial crises in the late 1990s and the early 2000s, many Asian emerging market economies started rapidly increasing their international reserve holdings. This column assesses the East Asian economies’ openness to cross-border capital flows and exchange rate arrangements over the past decades. Financial globalisation has made asset prices and interest rates in these economies more vulnerable to global movements of capital, and to US monetary policy. If China succeeds in efforts to internationalise its currency, the dynamics between the US and Asia will most likely change. For now, however, the Asian region’s international finance continues to be dollar-centric.
Daniel Bernhofen, Markus Eberhardt, Jianan Li , Morgan Stephen, 22 June 2016
Despite being credited with many of the defining inventions of the early modern era, China failed to develop in line with Western Europe at the start of the 19th century. This column suggests that one reason for this was that China’s economy was more fragmented than that of Europe. Using Chinese monthly grain prices from 1740-1820 and grain price panels from Western Europe, it shows that in terms of market integration, the Great Divergence was well under way decades before the start of the 19th century.