Fiscal Policy over the Business Cycle in Emerging Markets

Carlos Vegh

World Bank Chief Economist for Latin America and the Caribbean

Fiscal Policy over the Business Cycle in Emerging Markets

Monday, April 30, 2018

5:30 to 7:00pm – Reception to Follow

 

Elliott School of International Affairs
Lindner Commons, 6th floor
1957 E Street NW
Washington, DC 20052

Carlos Vegh is the World Bank Chief Economist for Latin America and the Caribbean. Prior to this, Vegh was the Fred H. Sanderson Professor of International Economics at the Johns Hopkins School of Advanced International Studies (SAIS) and a Research Associate at the National Bureau of Economic Research (NBER).
He received his doctorate degree in economics from the University of Chicago and a bachelor’s degree in economics from American University and Universidad de la República.

This event is the fifth in a series celebrating IIEP’s 10th Anniversary. Louise Fox, Chief Economist at USAID, joined us in November for the series’ inaugural event. Bob Koopman, Chief Economist at WTO, visited on March 5th for the series’ second installment. On April 9th Martin Fleming, Chief Economist of IBM, presented his research on Artificial Intelligence and the future of work for the series’ third installment. Lastly, for the fourth installment, Santiago Levy of the Inter-American Development Bank, presented on April 23rd.

Carlos Vegh

Data Minefield: How AI is Prodding Governments to Rethink Trade in Data

April 2018

Susan Ariel Aaronson

IIEP Working Paper 2018-11

Key Points: No nation alone can regulate artificial intelligence (AI) because it is built on crossborder data flows; countries are just beginning to figure out how best to use and to protect various types of data that are used in AI, whether proprietary, personal, public or metadata; countries could alter comparative advantage in data through various approaches to regulating data — for example, requiring companies to pay for personal data; and Canada should carefully monitor and integrate its domestic regulatory and trade strategies related to data utilized in AI.

Opening Up Argentina to the World: Some Strategic Observations

May 2018

Danny Leipziger

IIEP Working Paper 2018-4

Introduction: Argentina is at a decisive point with respect to economic policy, and nowhere is this more apparent than in its external outlook. Exports have never been the main economic driver for economic growth, although, at times, due to domestic issues, they have played an incredibly important role. The Macri Administration has rightly identified trade and investment policies as crucial stepping-stones in the rebuilding of the economy and the repositioning of Argentina to be a competitive international player. Major domestic reforms in the areas of tax and pensions, as well as prudent macro-policies to both gradually reduce fiscal deficits and inflation, will be prerequisites for sustained positive results. These efforts need to be complemented by microeconomic reforms to improve the productivity and efficiency of the economy. This note aims to examine how Argentina, as a late mover into the global economy and as an economy that has experienced serious prior setbacks, can now position itself in a world that that requires the utmost in efficiency and innovation, and in which distance is an increasingly less important constraint to economic activity. We take as given the fact that Argentina has been somewhat isolated from global value chains, that it has not benefited as much as it should have from regional trade agreements, and that it now faces an international economy that is both less robust in terms of commercial trade and also more open to disruptive forces. In other words, Argentina faces internal as well as external obstacles in its announced desire to better integrate into the world economy

Migration and Online Job Search: A Gravity Model Approach

April 2018

Tara Sinclair and Mariano Mamertino

IIEP Working Paper 2018-3

Abstract: Most studies of migration focus on realized migration. Data on realized migration take substantial time to collect and are available to researchers and policymakers only at a significant delay. In this study we consider a new potential data source in the form of tracking the patterns of online job seekers actively searching for a job in a country other than their current home. The advance of internet job search allows job seekers to explore international employment options before making a decision to move. We characterize job seeker interest across national borders by looking at user behavior on a major job search website. We investigate the determinants of cross-border job search using a standard gravity model and find that both the determinants and the relative importance of the determinants for job search are strikingly similar to those for past realized migration. This suggests both that job seekers are likely to act on their international job search and that these data may be useful for predicting future migration patterns. We use our results to explore the labor market mobility implications of a country, such as the UK, leaving the EU and find that leaving the EU may have international immigration impacts similar to increasing the distance between the leaver and the other EU countries by over one third.

JEL Codes: J6, J4, F22, O15

Keywords: international migration, labor mobility, online labor markets, European Union, Brexit

8th Annual Washington Area International Trade Symposium (WAITS) Conference

Friday, April 27, 2018

Inter-American Development Bank CR-200
1330 New York Avenue NW
Washington DC 20577

The Washington Area International Trade Symposium (WAITS) is a forum that highlights trade research at institutions in the Washington D.C. area. Its primary activity is sponsoring an annual research conference where scholars present their latest academic work. Researchers from George Washington University, American University, the Census Bureau, the Federal Reserve Board, Georgetown University, the Inter-American Development Bank, Johns Hopkins University (SAIS), the U.S. International Trade Commission, the University of Maryland, and the World Bank have all participated in the symposium.

Contact iiep@gwu.edu with any questions. Please note that WAITS conferences are open to the public but participants are asked to register here.

View the Schedule
8:15 – 8:50 AM: Continental Breakfast and Registration
8:50 – 9:00 AM: Opening Remarks
Antoni Estevadeordal, Manager, Integration and Trade Sector, Inter-American Development Bank
Mike Moore, George Washington University
9:00 – 9:45 AM: Policy Credibility and Firm Growth in the Global Economy
Nuno Limao, University of Maryland
Discussant: Luciana Juvenal, IMF
9:45 – 10:30 AM: Uncertainty and Trade Elasticities
Olga Timoshenko, George Washington University
Discussant: Ina Simonovska, University of Maryland
10:30 – 10:45 AM: Coffee Break
10:45 – 11:30 AM: Information and Exports: Firm-Level Evidence From an Online Platform
Christian Volpe Martincus, Inter-American Development Bank
Discussant: Maggie Chen, George Washington University
11:30 – 12:15 PM: The Impact of Trade on Managerial Incentives and Productivity
Cristina Tello-Trillo, U.S. Census Bureau
Discussant: Anna Maria Mayda, Georgetown University
12:15 – 1:00 PM: Investment Responses to Trade Liberalization: Evidence from U.S. Industries and Establishments
Justin Pierce, Federal Reserve Board
Discussant: Fariha Kamal, U.S. Census Bureau
1:00 – 2:00 PM: Lunch (Provided)
2:00 – 2:45 PM: Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement
Fernando Parro, SAIS– Johns Hopkins University
Discussant: Mariano Somale, Federal Reserve Board
2:45 – 3:30 PM: Assessing Market (Dis) Integration in Pre-Modern China and Europe Dan Bernhofen, American University
Discussant: Paulo Bastos, World Bank
3:30 – 3:45 PM: Coffee Break
3:45 – 4:30 PM: The Trade Effects of the New Silk Road
Michele Ruta, World Bank
Discussant: Mauricio Mesquita Moreira, Inter-American Development Bank
4:30 – 5:15 PM: How Does Industry Comparative Advantage Affect Establishments?
Serge Shikher, USITC
Discussant: Kara Reynolds, American University
5:15 – 6:00 PM: Endogenous Trade Policy in a Global Value Chain: Evidence from Chinese Micro-level Processing Trade
Rod Ludema, Georgetown University
Discussant: Paul Piveteau, SAIS– Johns Hopkins University
6:00 – 6:15 PM: Closing Remarks
Aaron Flaaen, Federal Reserve Board
Christian Volpe Martincus, Inter-American Development Bank

George Washington University’s Institute for International Economic Policy, housed at the Elliott School of International Affairs, is dedicated to producing and disseminating high-quality non-partisan academic and policy relevant research on international economic policy. Areas of focus include international trade, international finance, and development economics.

The Rise of Patient Capital: The Political Economy of Chinese Global Finance

July 2018

Stephen Kaplan

IIEP Working Paper 2018-2

Abstract: As the United States has retreated from its lead role in globalization – first because of the 2008 financial crisis, and now under President Donald Trump’s leadership – China has become a major global financial player. China, as the world’s largest saver, has rapidly expanded its cross-border lending since the crisis, more than doubling its overseas banking presence. What are the implications? I contend that China’s state-led capitalism is an important form of patient capital, characterized by a longerterm horizon. While technically classified as mobile capital, its higher risk tolerance and geopolitical shrewdness make state-owned capital less likely to swiftly exit debtor countries. Compared to traditional mobile capital, debtor governments thus gain more policy freedom, particularly during hard times when Western creditors might otherwise impose austerity and other onerous policy conditions. Employing an originally constructed dataset, the China Global Financial Index, I conduct an econometric test across 15 Latin American countries from 1990-2015. I find that left governments are more likely to borrow from China. However, notwithstanding this initial creditor choice, Chinese state-to-state lending then uniformly leads to higher budget deficits. It endows governments with more fiscal space to intervene in their economies by reducing their reliance on conditionality-linked Western financing. These results suggest that Chinese financing could be a development opportunity, but only if governments invest wisely. Otherwise, by lending without policy conditions, China may be encouraging developing country governments to spend without bounds, sowing the seeds for future debt problems.

Misallocation, Informality, and Firm Dynamics in Mexico

Santiago Levy

Vice President for Sectors and Knowledge, Inter-American Development Bank

Misallocation, Informality, and Firm Dynamics in Mexico

Monday, April 23, 2018

5:30 to 7:00pm – Reception to Follow

 

Elliott School of International Affairs
Lindner Commons, 6th floor
1957 E Street NW
Washington, DC 20052

Santiago Levy  is the Vice President for Sectors and Knowledge for the Inter-American Development Bank. Previously, he was General Manager and Chief Economist for the IDB Research Department.

Prior to joining the IDB he was General Director at the Mexican Social Security Institute (IMSS) from December 2000 to October 2005. Under his tenure, he promoted changes to the Social Security Act to increase transparency and accountability in IMSS finances and create long-term reserves.

From 1994 to 2000, Levy served as the Deputy Minister at the Ministry of Finance and Public Credit of Mexico, becoming the main architect of the renowned social program Progresa-Oportunidades that benefits the poor. He managed budgetary adjustments during the 1994-95 economic crisis and the 1998 fall in oil prices. Previous positions include President of the Federal Competition Commission and Director of the Economic Deregulation Program at the Ministry of Trade and Industrial Promotion.

Levy holds a Ph.D. in economics from Boston University and a Masters in political economy from the same university. He was a post-doctoral fellow at Cambridge University.

Santiago Levy

6th Annual Conference Washington Area Development Economics Symposium (WADES)

Friday, April 20, 2017

Elliott School of International Affairs
Room 212
1957 E St. NW
Washington D.C. 20052

The Washington Area Development Economics Symposium (WADES) is an annual research conference which highlights academic work from researchers at leading economics institutions in development economics in the Washington DC area. Researchers from George Washington University, University of Maryland, Georgetown University, Johns Hopkins University, University of Virginia, the World Bank, the International Food Policy Research Institute (IFPRI), American University, George Mason University, and the Center for Global Development are all participants in the symposium.

Contact iiep@gwu.edu with any questions.

View the Schedule

Day:  Friday 20 April, 8.50-5.00.

8.30 Light breakfast

8.50 Welcome remarks by Maggie Chen (GWU)

9.00-9.50 Adriana Kugler (Georgetown). – “Do CCTs improve employment and earnings in the very long term? Evidence from Mexico”

9.50-10.20 Paper by PhD student: Kodjo Aflagah (Maryland) “Internal migrants’ ethnic capital and labor market outcomes in South Africa”

10.20-10.35 Discussion by Andrew Zeitlin (Georgetown) and additional questions from faculty

10.35-10.50 Coffee break

10.50-11.40 Isaac Mbiti (UVA). The Returns to Apprenticeships: Experimental Evidence from Ghana

11.40-12.10 Paper by PhD student: Amjad Khan (GWU). “Islam, Institutions and Child Investment: Evidence from Gender Discrimination in Pakistan”

12.10-12.25 Discussion by Sandip Sukhtankar (UVA) and additional questions from faculty

12.25-1.30 Lunch

1.30-2.20 Sarah Baird. (GWU). “Building Businesses among the Vulnerable: Experimental Evidence from Tanzania”

2.20-2.50 Paper by PhD student: Dario Sansone (Georgetown). “Man vs. machine in predicting successful entrepreneurs:  Evidence from a business plan competition in Nigeria”

2.50-3.05 Discussion by Kenneth Leonard (Maryland) and additional questions from faculty

3.05-3.20 Coffee break

3.20-4.10 Jessica Goldberg (Maryland). ​Leveraging Patients’ Social Networks to Overcome Tuberculosis Under-detection in India: A Field Experiment

4.10-4.40 Paper by PhD student Ramiro Burga (UVA). “Fixing an Instructional Mismatch: The Case of Bilingual Education among Indigenous Students in Peru”

4.40-4.55 Discussion by Jennifer Muz (GWU) and additional questions from faculty

5.00 Reception

George Washington University’s Institute for International Economic Policy, housed at the Elliott School of International Affairs, is dedicated to producing and disseminating high-quality non-partisan academic and policy relevant research on international economic policy. Areas of focus include international trade, international finance, and development economics.

Can Differences Deceive? The Case of “Foreclosure Externalities”

July 2017

Anthony Yezer and Yishen Liu

IIEP Working Paper 2017-29

Abstract: Foreclosure externalities, in which recent foreclosures proximate to a housing unit depress its sales price, are well accepted in the literature. These papers use a geographic differencing strategy to eliminate the problem of selection into treatment. They also assume that the partial and total derivatives of the outcome (house value) with respect to the treatment (foreclosure) are constant and equal. This paper relaxes these assumptions producing very different results. These findings likely generalize to a larger body of research where differencing often in the form of regression discontinuity, propensity score matching, or synthetic controls is used to achieve identification while assuming total and partial derivatives of the outcome with respect to the treatment are constant and equal.

JEL: R23, R30, R31.

Keywords: Foreclosure; Specification error; Loan-to-value ratio; Externalities.

Unilateral and Multilateral Sanctions: A Network Approach

November 2017

Sumit Joshi and Ahmed Saber Mahmud 

IIEP Working Paper 2017-28 

Abstract: The extensive literature on efficacy of sanctions has been mainly focused on a dyadic interaction between sender and target. In contrast, this paper examines sanctions when the sender and target are embedded in a network of linkages to other agents and each agent’s utility is a function of the size of the agent’s component. Efficacy of sanctions is then a function of two factors: the network structure binding the sender and target, and the concavity/convexity of utility in the component size. We consider both unilateral sanctions and multilateral sanctions. We demonstrate how the network architecture, together with the specification of utility, qualifies and sometimes reverses the main tenets of the dyadic approach. We add to the recent work on identifying network architectures that sustain cooperation via the threat of exclusion by showing that the utility specification matters. Thus the same network can be efficacious for sanctions if utility is convex in component size but not if it is concave.

JEL: C72, D74, D85

Keywords: Unilateral sanctions, Multilateral sanction,  Sender, Target, Networks, Spanning trees, Cutsets

Network Formation with Multigraphs and Strategic Complementarities

November 2017

Sumit Joshi, Ahmed Saber Mahmud and Sudipta Sarangi

IIEP Working Paper 2017-27

Abstract: Economic agents are typically connected to others in multiple network relationships, and the architecture of one network could be shaped by connections in other networks. This paper examines the formation of one network when connections in a second network are inherited under two scenarios: (i) the inherited network is asymmetric allowing for a wide range of graphs called nested split graphs, and (ii) the inherited network is a symmetric type of network belonging to a subclass of regular graphs. Both the inherited and endogenously formed networks are interdependent because the respective actions in each are (weak) strategic complements. This property is su¢ cient to show that those who inherit high centrality will continue to have high centrality. Additionally, the network formed by the agents induces a coarser partition than the inherited network, suggesting the possibility of being able to improve network centrality, but only in a limited manner. Thus, our analysis explains preferential attachment and why inequality is often entrenched in society, how asymmetries in one network may be magnified or diminished in another, and what determines the identity of players occupying the various vertices of asymmetric equilibrium networks.

JEL: C72, D85

Keywords: Network formation, multigraphs, strategic complementarities, Katz-Bonacich centrality, nested split graphs.

Migration Networks and Location Decisions: Evidence from U.S. Mass Migration

September 2017

Bryan Stuart and Evan Taylor 

IIEP Working Paper 2017-26

Abstract: This paper examines the effects of birth town migration networks on location decisions. We study over one million long-run location decisions made during two landmark migration episodes by African Americans from the U.S. South and whites from the Great Plains. We develop a new method to estimate the strength of migration networks for each receiving and sending location. Our estimates imply that when one randomly chosen African American moves from a birth town to a destination county, then 1.9 additional black migrants make the same move on average. For white migrants from the Great Plains, the average is only 0.4. Networks were particularly important in connecting black migrants with attractive employment opportunities and played a larger role in less costly moves.

JEL: J61, N32, O15, R23, Z13

Keywords: migration networks, location decisions, social interactions, Great Migration

The Long-Run Effects of Recessions on Education and Income

August 2017

Bryan Stuart

IIEP Working Paper 2017-25

Abstract: This paper examines the long-run effects of the 1980-1982 recession on education and income. Using confidential Census data, I estimate difference-in-differences regressions that exploit variation across counties in recession severity and across cohorts in age at the time of the recession. For individuals age 0-10 in 1979, a 10 percent decrease in earnings per capita in their county of birth reduces four-year college degree attainment by 9 percent and income in adulthood by 3 percent. Simple calculations suggest that, in aggregate, the 1980-1982 recession led to 1-3 million fewer college graduates and $64-$145 billion less earned income per year.

JEL Classification Codes: E32, I20, I30, J13, J24

Keywords: human capital, education, income, recessions

The Effect of Social Connectedness on Crime: Evidence from the Great Migration

August 2017

Bryan Stuart and Evan Taylor

IIEP Working Paper 2017-24

Abstract: This paper estimates the effect of social connectedness on crime across U.S. cities from 1960- 2009. Migration networks among African Americans from the South generated variation across destinations in the concentration of migrants from the same birth town. Using this novel source of variation, we find that social connectedness considerably reduces murders, robberies, assaults, burglaries, larcenies, and motor vehicle thefts, with a one standard deviation increase in social connectedness reducing murders by 13 percent and motor vehicle thefts by 9 percent. Our results appear to be driven by stronger relationships among older generations reducing crime committed by youth.

JEL Classification Codes: K42, N32, R23, Z13

Keywords: crime, social connectedness, Great Migration

Governance Spillovers of Labour Provisions in Free Trade Agreements

by Susan Ariel Aaronson (George Washington University)

IIEP Working Paper 2017-2

Most people know that governments such as the US, EU, and Canada use labour rights provisions in trade agreements to improve labour rights. They believe that policymakers in the developing world will be willing to improve labour rights governance with the incentive of the trade agreement. But in this paper, Aaronson argues that these provisions have broader and equally important spillover effects upon governance. These provisions:

  • empower workers and other citizens;
  • facilitate a feedback loop between the developing country government and its citizens on a broad range of issues affecting trade;
  • promote wage and income equality, which is conducive to development, social stability and democracy;
  • help policy-makers to better integrate labour rights with other public policies (such as fiscal policy, anti-corruption policies, or criminal laws); and
  • can help citizens and policy-makers gradually improve governance, increase productivity and advance social cohesion in the community.

Aaronson used a comparative case study approach, examining both the language and studies of the effects of the provisions. For example, she finds that since 2005, U.S. agreements have included provisions in the labour rights chapter related to procedural guarantees and public awareness. The provisions require parties to encourage public participation in the development of labour rights policies. They also require that all persons have “appropriate access to tribunals”, that the “proceedings are fair, equitable, and transparent … open to the public”, give all parties the right to seek review, and educate their public about the law. Taken in sum, these provisions could empower workers (on the demand side of labour rights) through rules on public awareness, public participation, and due process rights. The EU and Canada have begun to adopt similar policies.

Aaronson provides several examples of improved governance. In Guatemala, policymakers learned to coordinate labour rights and fiscal policy so that companies could not get subsidies or avoid taxes if they were found to violate labor rights. Mexican officials learned to protect the rights of Mexican guest workers in the U.S. In 2013, with help from U.S. and Mexican civil society groups, guest workers came together to form the Sinaloa Temporary Workers’ Coalition to defend the rights of guest workers in Mexico and abroad. In 2014, the group complained to the Mexican Ministry of Labor regarding recruitment fees. The Ministry investigated and found 27 violations of the law, resulting in fines. In this example, Mexicans held their government accountable for violations of the law at home.

Aaronson notes that no one has yet done a study as to whether these provisions and consultative bodies actually empower workers. Nonetheless, in a 2016 study of trade and labour rights, the ILO noted that “the impact of labor provisions depends crucially on, first, the extent to which they involve stakeholders, notably social partners such as unions and NGOs.” Workers who are aware of their rights and able to challenge executives and government officials’ decisions are empowered. Over time, empowered workers can promote greater income equality through improved productivity and better share in profits through wage increases. Some analysts argue that this process can advance development, social cohesion and democracy, and can ensure that more people meet their potential. Moreover, these provisions may help to legitimize trade agreements and help them to gain a base of public support.