Howard J. Shatz

Trade and Jobs in U.S. Manufacturing

DURING THE PAST 15 years, the U.S. economy has become increasingly integrated with the rest of the world. Among other trends, imports and exports have risen significantly as a percentage of U.S. gross domestic product. Many manufacturing sectors have shrunk in the face of stiff international competition; others have grown in response to strong international demands for U.S. exports. One of the notable features of this internationalization is the growing importance of trade with the developing countries. In 1978, developing countries accounted for 29.0 percent of U.S. manufactured goods imports. By 1990, that ratio had risen to 36.4 percent. Seven countries in East Asia (China, Hong Kong, Korea, Malaysia, Singapore, Taiwan, and Thailand), together with Brazil and Mexico, accounted for 79 percent of the increase in U.S. trade with all developing countries between 1978 and 1990. Many observers have linked the growing internationalization of the U.S. economy to important rends in the U.S. labor market. Three labor

Agglomeration, Adjustment, and State Policies in the Location of Foreign Direct Investment in the United States

Using U.S. state-level data we show that agglomeration externalities influence the level of foreign-invested capital in a location. Our empirical model allows the separation of agglomeration effects from the rate of capital stock adjustment, two forces that previous research has conflated. We estimate an agglomeration elasticity of investment of 0.11 to 0.15 with respect to same-source-country investment, lower than previous estimates. We also investigate the influence of state policies and find that although general investment incentives do not affect the location of FDI, targeted policies such as unitary taxation and state foreign offices influence investment.

Exchange rate overvaluation and trade protection - lessons from experience

Despite a trend toward more flexible rates, more than half the worlds countries maintain fixed or managed exchange rates. In the 1980s and 1990s, developing countries as a group progressively liberalized their trade regimes, but some governments defend their exchange rate in actions that run counter to long-run plans for liberalization. Without discussing the relative merits of fixed and flexible exchange rate systems, the authors note that exchange rate management in many countries has resulted in overvaluation of the real exchange rate. Roughly twenty five percent of the countries for which data are available have overvalued exchange rates, with black market premiums from 10 percent to more than 100 percent. After surveying the literature, the authors present lessons from experience about what has worked (or not) in response to crises involving external shocks and external trade deficits - and why. Trying to defend an overvalued exchange rate with protectionist trade policies is a classic pattern, but experience shows such protection does significantly retard the countrys growth, and delay its integration into the world trading community. In fact, and overvalued exchange rate is often the root cause of protection, preventing the country from returning to more liberal trade policies that allow growth and integration into the world community without exchange rate adjustment. Most developing countries have downward price and wage rigidities and, with an external trade deficit, require some form of nominal exchange rate adjustment to restore external equilibrium. The authors present cross-country econometric and case study evidence - citing examples from Argentina, Chile, Ghana, The Republic of Korea, Malaysia, Turkey, Uruguay, and Sub-Saharan Africa (including the CFA zone) - that overvalued exchange rates reduce economic growth. Defending the exchange rate, they show, has nor no medium-term benefits, since falling reserves will eventually force devaluation. Better to have devaluation occur without further debilitating losses in reserves and lost productivity because of import controls. After devaluation the exchange rate will reach a new equilibrium, strongly influenced by government and central bank policies.

Gravity, education, and economic development in a multinational affiliate location

This paper investigates the relationship between education and the location of multinational affiliates. It finds that US multinationals seek production locations with high levels of education rather than with uneducated labour. Furthermore, the education effect can be separated from the effects of overall economic development. Based on these results, the paper suggests why previous results regarding education and multinational affiliate location have been mixed. Using a gravity equation framework, the analysis also introduces a methodological innovation by including numerous economies that receive no investment. The expanded data set reveals that about two-thirds of the variation in multinational location can be explained by the standard gravity variables of host country size, transport costs, distance from the investing country, and host country remoteness. Furthermore, the elasticities are higher than those resulting from the analysis of the more restricted country samples used in nearly all research on multinationals. This suggests that previous research might have missed or underestimated relationships and may not be useful in understanding why some countries receive little or no multinational investment.

Services Exports and the States: Measuring the Potential

States within the United States have long promoted goods exports to help their businesses and improve their economies. In contrast, promotion of services exports remains relatively unexplored, although the value of promoting services exports is potentially large. In 1995, services trade entered international discipline with the General Agreement on Trade in Services. In 2004, services trade made up more than one fifth of all U.S. trade. The United States routinely has a surplus in services trade. One barrier to state promotion of services exports has been the difficulty of measuring state services exports. This article discusses the potential of services trade for the states, reviews efforts to measure subnational services exports, and introduces a new method to estimate state-level services exports. This method can help state development officials better understand statewide economic trends, design programs, and approach federal policy makers about gaining advantages from future trade liberalization efforts.

Exchange Rate Overvaluation and Trade Protection

Despite a trend toward more flexible rates, more than half the worlds countries maintain fixed or managed exchange rates. In the 1980s and 1990s, developing countries as a group progressively liberalized their trade regimes, but some governments defend their exchange rate in actions that run counter to long-run plans for liberalization. Without discussing the relative merits of fixed and flexible exchange rate systems, the authors note that exchange rate management in many countries has resulted in overvaluation of the real exchange rate. Roughly twenty five percent of the countries for which data are available have overvalued exchange rates, with black market premiums from 10 percent to more than 100 percent. After surveying the literature, the authors present lessons from experience about what has worked (or not) in response to crises involving external shocks and external trade deficits - and why. Trying to defend an overvalued exchange rate with protectionist trade policies is a classic pattern, but experience shows such protection does significantly retard the countrys growth, and delay its integration into the world trading community. In fact, and overvalued exchange rate is often the root cause of protection, preventing the country from returning to more liberal trade policies that allow growth and integration into the world community without exchange rate adjustment. Most developing countries have downward price and wage rigidities and, with an external trade deficit, require some form of nominal exchange rate adjustment to restore external equilibrium. The authors present cross-country econometric and case study evidence - citing examples from Argentina, Chile, Ghana, The Republic of Korea, Malaysia, Turkey, Uruguay, and Sub-Saharan Africa (including the CFA zone) - that overvalued exchange rates reduce economic growth. Defending the exchange rate, they show, has nor no medium-term benefits, since falling reserves will eventually force devaluation. Better to have devaluation occur without further debilitating losses in reserves and lost productivity because of import controls. After devaluation the exchange rate will reach a new equilibrium, strongly influenced by government and central bank policies.

The Container Security Initiative and Ocean Container Threats

Following September 11, 2001, U.S. policymakers created programs to protect the maritime supply chain. This paper analyzes one program, the Container Security Initiative, which inspects high-risk U.S.-bound containers at foreign ports. Although covering a small proportion of all ports that ship imports to the United States, the CSI has expanded rapidly and as of early 2006 covered two-thirds of U.S. containerized imports. However, CSI coverage of imports from potential terrorism source countries was lower than the overall U.S. average. Security planners can strengthen container-related maritime security by focusing on dangerous source regions and likely terrorist shipping routes.

Financial Futures of the Islamic State of Iraq and the Levant: Findings from a RAND Corporation Workshop

Abstract : The Islamic State of Iraq and the Levant (ISIL) has been described as the wealthiest terrorist group in history. From seizing control of banks to extortion to trafficking oil and oil-related products, ISIL has developed diversified revenue streams. This report describes the likely evolution of ISIL finances under three specific scenarios that provide a range of conditions. These include (1) a continuation of the current campaign, (2) a negotiated settlement in Syria and political accommodation in Iraq, and (3) total territory loss through combat without a negotiated settlement or political accommodation. Conclusions stem from a workshop held at the RAND Corporations Arlington office in June 2016. Attendees included RAND and non-RAND employees, all of whom were included for their expertise in an area related to ISIL or Iraq. This project was sponsored by an interagency group within the U.S. government and conducted within the Intelligence Policy Center of the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

Developed-Country Trade Barriers and the LDCs: The Economic Results of Freeing Trade

In the work programme laid out by the Doha Ministerial Declaration of 20 November 2001 (WTO, 2001), the assembled trade representatives committed themselves ‘to the objective of duty-free, quota-free market access for products originating from LDCs [Least Developed Countries]’.1 Through a large number of programmes, the Triad economies of the European Union, Japan, and the United States already offer broad duty-free and preferential treatment to developing countries. Some, such as the Generalized System of Preferences programme (GSP), are decades-old. Others, such as the US African Growth and Opportunity Act (AGOA), the EU Everything But Arms (EBA) Initiative and Japan’s 99 Per Cent Initiative, are just getting started.

At the Dawn of Belt and Road: China in the Developing World

China has always viewed itself as a vulnerable underdeveloped country. In the 1990s, it began negotiating economic agreements and creating China-centric institutions, culminating in the 2000s in numerous institutions and ultimately the Belt and Road Initiative. The authors analyze China’s political and diplomatic, economic, and military engagement with the Developing World and discuss specific countries that are most important to China.