Peterson Institute Update

Working Paper 12-8: Networks, Trust, and Trade: The Microeconomics of China-North Korea Integration [pdf]

A central hope of engagement with North Korea is that increased cross-border exchange will encourage the strengthening of institutions, and eventually, a moderation of the country’s foreign policy. An unprecedented survey of Chinese enterprises operating in North Korea reveals that trade is largely dominated by state entities on the North Korean side, although we cannot rule out de facto privatization of exchange. Little trust is evident beyond the relationships among Chinese and North Korean state-owned enterprises. Formal networks and dispute settlement mechanisms are weak and do not appear to have consequences for relational contracting. Rather, firms rely on personal ties for identifying counterparties and resolving disputes. The weakness of formal institutions implies that the growth in exchange does not conform with the expectations of the engagement model and may prove self-limiting. The results also cast doubt that integration between China and North Korea, at least as it is currently proceeding, will foster reform and opening.

Working Paper 12-8 by Stephan Haggard and Marcus Noland.

Policy Brief 12-12 | Japan Post: Anti-Reform Law Clouds Japan's Entry to the Trans-Pacific Partnership [pdf]

In 2005, Prime Minister Junichiro Koizumi pushed his landmark bill through the Japanese Diet, aimed at reforming Japan Post, the giant state-owned enterprise that provides postal services and houses two huge financial arms, Japan Post Bank and Japan Post Insurance. The bill envisaged substantial privatization by 2017. Subsequent Japanese governments have toyed with the idea of reversing the Koizumi law, but in January 2012, it still seemed possible that Diet members would preserve essential features of the Koizumi reforms. As it turned out, the opposition Liberal Democratic Party (LDP)—putting current political advantage ahead of its past pro-reform stand—joined anti-reform forces in the ruling Democratic Party of Japan and the New Komeito Party. This alliance submitted the Bill to Partially Revise the Postal Privatization Law through the Diet on March 30, 2012. The anti-reform bill was passed by the Upper House on April 27, 2012, with only one absenting vote from the LDP, and became law. The revised law turns back the clock on the Koizumi reforms and will cloud Japan’s potential participation in the Trans-Pacific Partnership (TPP) talks.

Policy Brief 12-12 by Gary Clyde Hufbauer and Julia Muir.

Greece's Exit May Become the Euro's Envy

Default will be disastrous for Greece and the resulting contagion would be damaging for Europe. So goes the conventional wisdom. The only debate has been about the strength of contagion and the appropriate response of vulnerable countries and of the check-writing country. Might the debate be misguided because the premise is flawed? Expelled from the euro area, Greece might prove more dangerous to the system than it ever was inside it—by providing a model of successful recovery.

Op-ed by Arvind Subramanian.

US Power Sector Meets 2020 Climate Change Target--for a Month

At the United Nations climate change conference in Copenhagen in 2009, the United States committed to cut greenhouse gas emissions 17 percent below 2005 levels by 2020—a target included in cap-and-trade legislation that had passed the House of Representatives earlier that year. With the death of cap-and-trade in the Senate and the Republican takeover of the House, America's ability to meet this emission reduction goal has been in doubt. In January of this year, however, US emissions came in 13 percent below 2005 levels, and power sector emissions were down by more than 17 percent—achieving the 2020 target eight years early.

RealTime post by Trevor Houser.

Greece's Election: Tough Choices and a Sense of Deja vu

The Greek election on May 6 delivered a result that was only marginally surprising, defeating both "establishment parties," the center-right New Democracy and the Socialists, or PASOK. Together they fell short of a majority, with only 108 seats for New Democracy and 41 for the Socialists, out of 300 parliamentary seats. Because it is unlikely that any government can be formed among the seven parties in the parliament, new elections will have to be held soon. The outlook is more uncertain than ever, and the risk of a potential Greek exit from the euro area has increased.

RealTime post by Jacob Funk Kirkegaard.

Post-2000 Sanctions Episodes [pdf]

Since the third edition of Economic Sanctions Reconsidered was published in 2007, new developments have taken place in several cases, and 17 new sanctions episodes have been initiated. The following table updates table 1A.2 [pdf] from chapter 1, appendix 1A of Economic Sanctions Reconsidered. The table provides a consolidated summary of all post-2000 sanctions episodes by reporting developments in ongoing cases and providing information on new cases initiated since the 2007 publication. In cases involving Burma, Iran, Libya, North Korea, Sudan, and Syria, more detailed analyses can be found here.

Interview: Elections in Greece, Part II: Will Greeks Also Say 'No' to the Euro Area?

Jacob Funk Kirkegaard says that if Greeks confront the consequences of leaving the euro area, they will very likely balk and accept their bailout terms.

Interview: Elections in Greece, Part I: Greek Voters Say 'No' to Their Bailout

Jacob Funk Kirkegaard suggests that after the principal Greek parties fail to form a governing coalition, new elections will be needed to clear the air.

Interview: Elections in France: Major Shifts Unlikely

Nicolas Véron argues that François Hollande has no plans and no mandate to shift policies dramatically toward austerity, Germany, or Europe.

How to Save Corporate Tax Reform: Stop Exaggerating the Revenue Cost

Until recently, corporate tax reform was a bipartisan priority. Commissions with a Democratic slant and a Republican slant both argued for a cut in the statutory US corporate tax rate – the highest among advanced countries – from 35 percent to the neighborhood of 25 percent.

RealTime post by Gary Clyde Hufbauer and Martin Vieiro.

Interview: Toward a European Fiscal Union, Part II

C. Randall Henning explains why Spain illustrates the shortcomings and opportunities for resolving the European economic and financial crisis.

Interview: Toward a European Fiscal Union, Part I

C. Randall Henning illuminates the lessons that Europe can learn from the United States in forming a unified fiscal and banking governance.

Are Europeans Turning Against Austerity?

As Europe's growth prospects take a beating, critics of austerity seem to be riding high. In France, the Socialist Francois Hollande seems poised to be elected president on a wave of protest over record high unemployment in the euro area. Meanwhile, the fiscally hawkish Dutch government has fallen victim to its own rhetoric, after failing to gain the support of its parliamentary supporters for a new package aimed at adhering to the new European Union (EU) Fiscal Compact deficit rules. Even Mario Draghi, the beleaguered European Central Bank (ECB) president, has begun talking about the need for a "growth compact." It would seem that Europe's "reflationistas" are on a roll.

RealTime post by Jacob Funk Kirkegaard.

Interview: Ominous Job Trends in the US Economy

Howard F. Rosen discusses his latest research showing that jobs being added in the United States pay less on average than the jobs lost in the Great Recession.

Event: Why the Eurozone Crisis is Not Over

Martin Wolf, chief economics commentator of the inancial Times, spoke on the topic of "Why the Eurozone Crisis is Not Over" at the Peterson Institute on May 3, 2012. Wolf believes that the euro area crisis in fact has barely begun and requires a process of adjustment that could take a full decade and posed the question of whether the member countries have the political will to make that process work and resolve the crisis successfully. Wolf's speech was cosponsored by the Peterson Institute and the National Economists Club.

Interview: US-China II: Limited Progress

Nicholas R. Lardy says that with leadership changes in the offing in Beijing and Washington, the two sides will be satisfied with incremental gains.

Will the World Trade Organization Enjoy a Bright Future? [pdf]

The Doha Round is not the first multilateral negotiation to collapse under the weight of substantive disputes and tactical blunders, but revival this time requires a greater miracle than in the darkest days of the Tokyo or Uruguay Rounds. After near-death moments, those talks concluded with a big red bow tied around a comprehensive package. Ministers went home comforted that the next big negotiation would commence well after they left office. This time is different. There will be no red bow unless the Doha package is firmly joined to an immediate follow up round of talks—conducted under entirely different rules—both on old subjects that were badly neglected in the round and urgent new subjects that have surfaced since the round was launched in 2001.

Policy Brief 12-11 by Jeffery J. Schott and Gary Clyde Hufbauer.

Interview: US-China I: Will A Dissident's Escape Disrupt it?

Nicholas R. Lardy says that China and the Obama Administration seem successful in trying to prevent a blowup over Chen Guangcheng.