# Research Library

2001

Malaysia recovered from the Asian financial crisis swiftly after the imposition of capital controls in September 1998. The fact that Korea and Thailand recovered in parallel has been interpreted as suggesting that capital controls did not play a significant role in facilitating Malaysia?s rebound. However, the financial crisis was deepening in Malaysia in the summer of 1998, while it had significantly eased up in Korea and Thailand. We employ a time–shifted differences–in–differences technique to exploit the differences in the timing of the crises. Compared to IMF programs, we find that the Malaysian policies produced faster economic recovery, smaller declines in employment and real wages, and more rapid turnaround in the stock market.

Rogoff, Kenneth S. 2001. “Risk and Exchange Rates”. Abstract

This paper develops an explicitly stochastic new open economy macroeconomics' model, which can potentially be used to explore the qualitative and quantitative welfare differences between alternative exchange rate regimes. A crucial feature is that we do not simplify by assuming certainty equivalence for producer price setting behavior. Our framework also provides a sticky–price alternative to Lucas's (1982) exchage rate risk premium model. We show that the level risk premium' in the exchage rate is potentially quite large and may be an important missing fundamental in empirical exchange rate equations. As a byproduct analysis also suggests an intriguing possible explanation of the forward premium puzzle.

It appears likely that the number of currencies in the world, having proliferated along with the number of countries over the past fifty years, will decline sharply over the next two decades. The question I plan to pose here is, where, from an economic point of view, should we aim for this process to stop? Should there be a single world currency, as Richard Cooper (1984) boldly envisioned? Should there remain multiple major currencies but with a much stricter arrangement among them for stabilizing exchange rates, as say Ronald McKinnon (1984) or John Williamson (1985) recommended? Building on Maurice Obstfeld and Kenneth Rogoff (2000b,d), I will argue here that the status quo arrangement among the dollar, yen and the euro (which I take to be benign neglect) is not far from optimal, not only for now but well into the new century. And it would remain a good system even if political obstacles to achieving greater monetary policy coordination – or even a common world currency — could be overcome. Again, this is not a paper on, say, the pros and cons of dollarization for small and medium–sized economies, but rather on arrangements among the core currencies.

This research examines how the expansion of education, and its changing role in labor markets, has shaped employment experiences of newly–arriving immigrants to American and Canadian cities over the period 1970 to 1990. Earlier expansion of education levels in the U.S., particularly in immigrant–intensive cities, lowered the relative employment success of its immigrants compared to those in Canada in the 1970s, while the more recent rapid expansion of education in Canada has reduced this cross–national difference and fostered convergence. Three potential aspects of these effects are examined: (i) higher native–born educational levels create or increase an immigrant skills gap, (ii) the impact on immigrants is magnified by the lower relevance (actual or perceived) of their credentials to employers? requirements, and (iii) associated shifts toward knowledge–based or professionalized occupations alters the credential validation processes in ways which disadvantage immigrants. These effects are conditional upon labor market institutions and processes. Data are drawn from U.S. and Canadian census microdata files for 1980/81 and 1990/91. The impact of educational change on immigrants is shown in inter–temporal decomposition analysis.

Western US agriculture is an industry that has shaped and been shaped by a peculiar labor policy: the most numerous seasonal workers were assumed to be outsiders who would not remain employed in the industry or live in the community in which they worked for more than 10 to 20 years. Instead of integration policy, the emphasis of farm employers was on how to find new workers willing to accommodate themselves to seasonal employment.

According to WHO, while 50 percent of global health research and development (R&D) in 1992 was undertaken by private industry, less than 5 percent of that was spent on diseases specific to less developed countries (LDCs).1,2 Despite this, private industry has produced major drug discoveries and developments for serious LDC disease threats, including malaria, TB, hepatitis B, river blindness, meningitis, leprosy, sleeping sickness and trachoma. Moreover, the development of globally–applicable drugs and vaccines has led to important advances in public health in developing countries. At the same time, the simple fact is that every company in the biopharmaceutical industry has a limited number of research and development programmes in their portfolio. These projects are regularly reviewed against each other using a variety of analytical tools. Fundamentally the process tends to favour those projects with a higher probability of success and which, if successful, would serve markets with a larger value. As a result, there is underinvestment in and comparative neglect of some diseases concentrated in LDCs, such as tuberculosis and malaria, despite their high global disease burden. It is therefore generally agreed that new mechanisms and incentives are needed to encourage industrial R&D in such diseases. In this paper, we summarize some recent thinking about ways to stimulate industrial R&D for neglected infectious diseases, and we argue that enlarging the value of the market for drugs and vaccines for these diseases is a critical step toward stimulating R&D.

This paper reports some preliminary cost–effectiveness estimates for vaccine purchase commitments. Besides assessing the merit of a purchase program, this analysis can be used to examine the cost–effectiveness of purchasing vaccines with different characteristics, and thus to help establish eligibility requirements and identify prices at which vaccines with different characteristics might be purchased.

Johnston, Alastair Iain. 2001. “Treating Institutions as Social Environments”. Abstract

This article starts from a very simple (and unoriginal) premise: actors who enter into a social interaction rarely emerge the same. For mainstream international relations theories this is at one and the same time an uncontroversial statement and a rather radical one. It is uncontroversial because mainstream IR accepts that social interaction can change behavior through the imposition of exogenous constraints created by this interaction. Thus, for instance, neorealists claim that the imperatives of maximizing security in anarchical environment tends to compel most states most of the time to balance against rising power. Contractual institutionalists also accept that social interaction inside institutions can change behavior (strategies) in cooperative directions by altering cost–benefit analyses as different institutional rules act on fixed preferences.

Helpman, Elhanan. 2001. “Special Interest Politics”. Abstract

This book reports the results of our research on the role of special interest groups in the process of trade policy formation. However, there is little that is unique about this particular type of policy. The methods that interest groups use to affect trade outcomes are the same as the ones they use to influence a myriad of other policy decisions, including both economic issues and issues outside of the economic realm.

In an initial attempt to fill the previous void in the economic literature, this paper summarizes a series of studies, undertaken as part of a larger project sponsored by the Inter–American Development Bank, on the role of political economy factors in the making of exchange rate policy. While these factors are, of course, examined in conjunction with economic and macroeconomic variables, they have previously received little attention in their own. These political economy factors most notably include the role of interest groups, electoral competition, and election timing. This paper presents some simple analytical arguments, then summarizes evidence contained in other papers in this project.

The structure of international monetary relations has gained increasing prominence over the past two decades. Both national exchange rate policy and the character of the international monetary system require explanation. At the national level, the choice of exchange rate regime and the desired level of the exchange rate involve distributionally relevant tradeoffs. Interest group and partisan pressures, the structure of political institutions, and the electoral incentives of politicians therefore influence exchange rate regime and level decisions. At the international level, the character of the international monetary system depends importantly on strategic interaction among governments, driven by their national concerns and constrained by the international environment. A global or regional fixed–rate currency regime, in particular, requires at least coordination and often explicit cooperation among national governments.

Cooper, Richard N. 2001. “The Kyoto Protocol: A Flawed Concept”.
We use data on imports of computer equipment for a large sample of countries between 1970 and 1990 to investigate the determinants of computer-technology adoption. We find strong evidence that computer adoption is associated with higher levels of human capital and with manufacturing trade openness vis-a-vis the OECD. We also find evidence that computer adoption is enhanced by high investment rates, good property rights protection, and a small share of agriculture in GDP. Finally, there is some evidence that adoption is reduced by a large share of government in GDP, and increased by a large share of manufacturing. After controlling for the above-mentioned variables, we do not find an independent role for the English- (or European-) language skills of the population.

Census data for 1990/91 indicate that Australian and Canadian female immigrants appear to have higher levels of English fluency, education, and income (relative to natives) than do U.S. female immigrants. This skill deficit for U.S. female immigrants arises in large part because the United States receives a much larger share of immigrants from Latin America than do the other two countries. However, even among women originating outside Latin America, the proportion of foreign–born women in the United States who are fluent in English is much lower than among foreign–born women in Australia. Furthermore, immigrant/native education gaps are reduced but not eliminated by the exclusion of Latin American women from the analysis. In contrast, other evidence for men suggests that the gap in observed skills among male immigrants to the United States is completely eliminated when Latin American immigrants are excluded from the estimation sample (Borjas, 1993; Antecol, et al., 2001). The importance of national origin and the general consistency in the results for men (who are routinely subjected to the selection criteria of various immigration programs) and women (who are not) suggests that many factors other than immigration policy per se are at work in producing skill variation among these three immigration streams.

Robinson, James A. 2001. “An African Success Story: Botswana”. Abstract

Despite some success stories in the 1960s and early 1970s, Africa is poor and getting poorer. There is also an almost universally pessimistic consensus about its economic prospects. This consensus started to emerge in recent empirical work on the determinants of growth with Barro's (1991) discovery of a negative "African Dummy" and was summed up by Easterly and Levine?s (1997) title, "Africa's Growth Tragedy." Table 4.1 collects some familiar comparative evidence on Africa?s economic performance. The average sub–Saharan African country is poorer than the average low–income country and getting poorer. Indeed, the average growth rate has been negative since 1965, and there is approximately a 35–fold difference between the per capital income level of the average sub–Saharan country and the United States.

Against this background of poor performance, one African country, Botswana, has not only performed well, but better than any other country in the world in the last 35 years. In table 4.2 we examine the facts about Botswana in both an African and more general context. Botswana had a PPP–adjusted income per capital of $5,796 in 1998, almost four times the African average, and between 1965 and 1998, it grew at an annual rate of 7.7 percent. This paper — a revision of an earlier draft that was entitled "When Do Special Interests Run Rampant? Disentangling the Role of Elections, Incomplete Information and Checks and Balances in Banking Crises" — develops and tests a model of the effect of political checks and balances on the incentives of elected veto players to cater to special interests. A larger number of veto players reduces political incentives to make deals with special interests, but the effect is declining in the rents available from such deals. Evidence from country responses to banking crises supports these conclusions: governments make smaller fiscal transfers to the financial sector and are less likely to exercise forbearance in dealing with insolvent financial institutions the larger the number of political veto players, conditional on the value of rents at stake. This simple explanation for special interest influence is robust to controls for more subtle institutional effects that are prominent in the literature, including the competitiveness of elections, regime type (presidential versus parliamentary) and electoral rules (majoritarian versus proportional). Working Paper, Social Science Research Network, Development Research Group, The World Bank, October 2001. Walt, Stephen M. 2001. “Beyond Bin Laden: Reshaping U.S. Foreign Policy.” International Seurity 26 (3): 56-78. Abstract The terrorist attacks that destroyed the World Trade Center and damaged the Pentagon triggered the most rapid and dramatic change in the history of U.S.foreign policy. On September 10, 2001, there was not the slightest hint that the United States was about to embark on an all–out campaign against "global terrorism." Indeed, apart from an explicit disdain for certain multilateral agreements and a fixation on missile defense, the foreign policy priorities of George W. Bush and his administration were not radically different from those of their predecessors. Bush had already endorsed continued NATO expansion, reluctantly agreed to keep U.S. troops in the Balkans, reaffirmed the existing policy of wary engagement with Russia and China, and called for further efforts to liberalize global markets. The administration's early attention focused primarily on domestic issues, and newinternational initiatives were notably absent. This business–as–usual approach to foreign policy vanished on September 11. Instead of education reform and tax cuts, the war on terrorism dominated the administration's agenda. The United States quickly traced the attacks to al–Qaeda — the network of Islamic extremists led by Saudi exile Osama bin Laden — whose leaders had been operating from Afghanistan since 1996. When the Taliban government in Afghanistan rejected a U.S. ultimatum to turn over bin Laden, the United States began military efforts to eradicate al–Qaeda and overthrow the Taliban itself. The United States also began a sustained diplomatic campaign to enlist foreign help in rooting out any remaining terrorist organizations "with global reach." U.S.officials emphasized that this campaign would be prolonged and warned that military action against suspected terrorist networks might continue after the initial assault on al–Qaeda and its Taliban hosts. This article analyzes how the campaign against global terrorism alters the broad agenda of U.S.foreign policy. I focus primarily on the diplomatic aspects of this campaign and do not address military strategy, homeland defense, or the need for improved intelligence in much detail. These issues are obviously important but lie outside the bounds this essay. I proceed in three stages. The first section considers what the events of September 11 tell us about the U.S. position in the world and identifies four lessons that should inform U.S. policy in the future. The second section explores how the campaign on terrorism should alter the foreign policy agenda in the near–to–medium term: What new policies should the United States pursue, and what prior goals should be downgraded or abandoned? The third section addresses the long–term implications, focusing on whether the United States will be willing to accept the increased costs of its current policy of global engagement. I argue that this decision will depend in part on the success of the current campaign, but also on whether the United States can make its dominant global position more palatable to other countries. Cooper, Richard N. 2001. “Chinese Economic and Budgetary Prospects”. Abstract Market exchange rates can move around a lot, particularly but not only around currency crises. For this reason, they can properly be averaged over several years for international comparisons. However, the Chinese yuan has been fixed at roughly 8.3/dollar since 1994. In my view it is modestly undervalued, as evidenced by the steady growth of China's foreign exchange reserves, the result of central bank market intervention to keep the yuan from appreciating. China has also had a significant trade surplus in recent years. However, it still maintains controls on outflows of domestic capital. And it is about the enter the WTO, following which under the access agreements China must reduce its import barriers much more than its trading partners do. Many Chinese are fearful of withering foreign competition. If these fears prove to be valid and widespread, the yuan might have to depreciate over the next five years, although my guess is the required depreciation will be modest, e.g. 10-15 percent. Moreover, WTO membership may result in more inbound foreign investment, thus mitigating the required depreciation or even eliminating it altogether. The bottom line is this: the market exchange rate provides a much better basis for converting Chinese GDP into dollars than does some artificially constructed ppp rate. Following the pattern of Japan and Korea, the real exchange rate of the rmb might appreciate over time, as China develops, but that process will occur at a modest rate, over decades. Paper presented at Congress public hearing "Chinese Budget Issues and the Role of the PLA in the Economy," December 7, 2001. Alford, William P. 2001. “Clean Air, Clear Processes? The Struggle over Air Pollution Law in the People's Republic of China.” Hastings Law Journal 52 (3): 703-738. Abstract As the People?s Republic of China (PRC or China) seeks to use law to address environmental problems, it faces daunting challenges, in terms both of the magnitude of environmental degradation it is experiencing and the capacity of its legal institutions. Pollution levels in the major cities in the PRC are among the highest on earth. Epidemiological studies indicate that the concentration of airborne particulates is two to five times the maximum level deemed acceptable by the World Health Organization. A noted World Bank study based on "conservative" assumptions estimates that as of the mid–1990s "urban air pollution costs the Chinese economy US$32.3 billion annually in premature deaths, morbidity, restricted activity, chronic bronchitis, and other heath effects." And new scholarly work suggests that the "health impacts fall disproportionately on women and children."

China?s lawmakers have not ignored these problems. The PRC has in recent years sought to enlist the law to address its environmental ills. In 1995 and then again in 2000, China undertook significant revisions of its principal air pollution law, while throughout the decade of the 1990s it promulgated discrete measures concerning coal production, acid rain, and associated matters. To date, these legal changes have at best had a minor impact on the Chinese environment, but as we know from Bruce Ackerman and William Hassler?s classic study of the making of air pollution law in the United States, "Clean Coal/Dirty Air," even in highly–developed legal systems, efforts through law to address such issues pose massive challenges.

This article examines the 1995 revision of the Air Pollution Prevention and Control Law (the 1995 APPCL). The struggles attending that revision warrant our attention not only because of the gravity of China?s air pollution, but for the revealing window they provide onto Chinese legislative development more generally. Through it, we can better understand the inner workings of what is, under the Chinese constitution, the supreme organ of state, the National People's Congress (NPC); the interface of the NPC with other organs of state, national and sub–national; and ultimately, the relationship of the Chinese state to its people. This has much to tell us about the particular limitations that prevented the 1995 APPCL from achieving more, the difficulties confronting overall efforts to deploy law to improve the Chinese environment, the growing politicization of environmental matters, and the challenges that the Chinese state faces as it attempts both to represent popular interest in more transparent governmental institutions and also to deepen its engagement in the international community as it prepares to accede to the World Trade Organization.

Domínguez, Jorge I. 2001. “Cuba en las Americas: Ancla y Viraje”. Abstract

EL PARTEAGUAS MUNDIAL DE FINES DE LOS OCHENTA y comienzos de los noventa no dejó de afectar a Cuba. El derrumbe de los regímenes comunistas europeos y, en particular, de la Unión Soviética puso fin también a una larga etapa de la historia de Cuba comenzada en 1960. En su sistema político, económico y social, Cuba había sido distinta del resto de América durante las últimas tres décadas de la Guerra Fría en Europa. Con la desaparición de su principal aliado internacional, el gobierno de Cuba, acorralado, se vio obligado a iniciar un viraje en la conducción de su política nacional e internacional. Ese viraje, sin embargo, fue un golpe de timón de un buque anclado, cuyo piloto reorienta el barco sin alterar su equilibrio a pesar de un fuerte oleaje.