Peterson Institute for International Economics Update Newsletter
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PIIE Update Newsletter
September 27, 2012

"Washington's premier think tank on the global economy"
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  Congressional Testimony
Opportunities for US Exports of Business Services

J. Bradford Jensen
  J. Bradfrod Jensen The United States is missing out on a significant opportunity for increased growth through exporting business services because of trade barriers in countries like India, China, and Brazil. The US business service sector is large (accounting for 25 percent of the labor force), growing rapidly (employment in business services increased roughly 30 percent in the decade prior to the financial crisis), and pays relatively high wages (on average more than 20 percent higher wages than the manufacturing sector). Many business services are traded within the United States and thus could be traded internationally. Approximately 14 percent of the workforce is in tradable business service industries, compared to only about 10 percent in all of manufacturing. The United States should be working aggressively to open large, fast-growing economies to services trade. The International Services Agreement and the Trans-Pacific Partnership both offer opportunities for pursuing services liberalization. The United States should pursue these opportunities and look to create others to engage the large, fast-growing economies in services liberalization discussions.

>> Read full testimony
>> See also: Global Trade in Services: Fear, Facts, and Offshoring

  Working Paper 12-15
Choice and Coercion in East Asian Exchange Rate Regimes

C. Randall Henning
  C. Randall Henning This paper examines the exchange rate regimes of East Asian countries since the initial shift by China to a controlled appreciation in July 2005, testing econometrically the weights of key currencies in the implicit baskets that appear to be targeted by East Asian monetary authorities. It finds, first, that Malaysia, Singapore, Thailand, and the Philippines have formed a loose but effective "renminbi bloc" with China, and that South Korea has participated tentatively since the global financial crisis. Second, the emergence of the renminbi bloc in terms of the exchange rate has been facilitated by the continued dominance of the US dollar as a trade, investment, and reserve currency. Third, exchange rate stabilization is explained by the economic strategies of these countries, which rely heavily on export development and financial repression, and the economic rise of China. Fourth, analysts should specify the exchange rate preferences of these emerging market countries carefully before drawing inferences about Chinese influence within the region.

>> Read full working paper [pdf]

Paul Krugman's Baltic Problem

Anders Åslund
  Anders Aslund Amid the carnage of the European financial crisis, the Baltic countries, by and large, are doing quite well. Estonia, Latvia, and Lithuania are booming. Last year, their growth rates reached 7.6 percent, 5.5 percent, and 5.9 percent, respectively. The turnaround, driven largely by manufacturing exports, has been one of the most remarkable and promising stories of the crisis. The Balts' rebound stands in stark contrast to the fate of eight mainly southern EU countries—Hungary, Romania, Greece, Ireland, Portugal, Cyprus, Spain, and Slovenia—which either already have or probably will require stabilization programs with external financial support. The simple explanation is that the Baltic countries have pursued the opposite policy of the southern Europeans. Throughout the crisis, Paul Krugman has argued that more fiscal stimulus is always needed as long as a significant output gap exists. In 2009, the Baltic governments each carried out strict austerity, with a fiscal adjustment of about 9.5 percent of GDP, mainly though expenditure cuts and substantial structural reforms. The southern Europeans, by contrast, delivered substantial fiscal stimulus in 2009. These countries have been trapped with large budget deficits and are now being overwhelmed by their public debt, a problem exacerbated by the banking crises. Krugman's advice would only aggravate the crises, while the opposite policies resolve them.

>> Read full op-ed

Peterson Perspectives Interviews

audio  Elusive Economic Reforms in North Korea: Part I
Marcus Noland assesses the latest confusing reports that North Korea may be pondering market incentives in food and industrial production.

audio  Elusive Economic Reforms in North Korea: Part II
Marcus Noland explains why the North Korean leadership needs to introduce market incentives but inevitably hates the result when it empowers people against the state.

audio  India's Latest Reforms Provoke a Backlash
Arvind Subramanian says that India's steps to lift some subsidies and welcome more foreign investment have broad popular support and will go through despite some politically inspired opposition.

Recent Blog Posts

RealTime Economic Issues Watch   China Economic Watch    North Korea:  Witness to Transformation
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The US Case Against Chinese Autos and Auto Parts Is Not Likely to Curb Imports Dramatically

Why a Spanish Approach to the ESM Will Help

Why Spain Will Seek Help—and Why the ECB Retains Its Leverage

Excessive Reserve Accumulation and International Trade Balances

India Wows with Its Latest Economic Steps
  The Change in Renminbi Expectations

Christmas Time for Local Infrastructure in China

Urbanization and Economic Growth in China

What China Can Learn from Germany

Is China Becoming More Expensive?
  Noland interview on "Elusive Economic Reforms in North Korea: Part II."

The 6th Session of the 12th Supreme People's Assembly (SPA)

Noland interview on "Elusive Economic Reforms in North Korea: Part I."

The Mine Theory Lives! More Cheonan

South Korean Lemons Withering in North Korea

PIIE Noted in the News and on the Web

CNN | The Situation Room
Fact Check: Obama, Romney China Ads
Speaking with CNN, Nicholas R. Lardy, PIIE's China expert, sets the facts straight about China in the latest Romney and Obama campaign ads.

Nightly Business Report
IMF Calls on International Leaders to Spark Global Economy
Speaking at the Peterson Institute, IMF Managing Director Christine Lagarde called for leaders in Europe and the United States to take action to boost global growth. Jacob Funk Kirkegaard says that Europe has the political will to implement a banking union, but it is unrealistic to expect Europe to put together a fully comprehensive banking union in less time that the United States has spent implementing the Dodd-Frank Act.

NPR's Morning Edition
IMF's Lagarde: Uncertainty Slows Global Recovery
In her speech at the Peterson Institute, IMF Managing Director Christine Lagarde praises the recent actions by the European Central Bank as having boosted investor confidence. Jacob Funk Kirkegaard agrees, and notes that for some investors, the US fiscal cliff has overtaken the euro crisis as the single most concerning issue.

New York Times
Fiscal Confrontation Undermines the U.S.
The New York Times Economix praises Arvind Subramanian's book, Eclipse: Living in the Shadow of China's Economic Dominance, and concludes that fiscal extremism, confrontation, and a refusal to consider tax increases over any time horizon will undermine the international role of the dollar and destabilize the world.
Poland Is Now Ready for Growth
Former Polish Prime Minister Jan Krzysztof Bielecki, guest interviewer on, Poland's largest internet TV channel, chooses Anders Åslund as his guest to discuss the European debt crisis and economic reforms in the Middle East from an East European perspective.
In This Issue

Christine Lagarde Promises to Keep: The Policy Actions Needed to Secure Global Recovery

IMF Managing Director Christine Lagarde discusses the state of the world economy.
José De Gregorio How Did Latin America Avoid the Global Financial Crisis? Lessons and Challenges

José De Gregorio, former governor of the Central Bank of Chile, delivers the initial lecture of PIIE's new Sunrise Foundation Lecture series, which features top economists in emerging markets.

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