Greg Mankiw reports on a proposed alternative to traditional foreign assistance: tax credits to encourage FDI in developing countries.
Author Archives: jdingel
Deploy the anti-dumping troops!
Trade is not combat, and military metaphors rarely aid economic understanding. It’s therefore frustrating to see Peter Mandelson, the EU’s trade commissioner, argue for greater use of “trade defense instruments” against the “Chinese juggernaut.”
Simon Johnson: Complete the Doha Round
IMF Chief Economist Simon Johnson says that globalization is a great oportunity for poor countries, but undereducated citizens may have difficulty enjoying the benefits. The result will be increasing income inequality. He recommends more trade liberalization, including the completion of the Doha Round, to spread the benefits more equally.
Beattie on Doha
As returns from the dead go, the fact that the so-called “Doha round” of global trade talks was revived in January of this year was a comeback to rival that of Lazarus.
But unless (a subject on which the New Testament is silent) Lazarus spent the year after his miraculous recovery standing on the spot, squabbling irritably and periodically threatening to relapse into unconsciousness, it seems unlikely that the analogy can be continued beyond the initial resurrection.
[HT: Erixon]
Brazil wins again
How many times have I reported this headline before? Reuters: “WTO rules against US cotton subsidies”
The cost of US protectionism: 1859-1961
Doug Irwin estimates the Anderson-Neary trade restrictiveness index for a century of US trade policy to calculate the costs of historic protectionism:
As Paul Krugman (1997, 127) has written: “Just how expensive is protectionism? The answer is a little embarrassing, because standard estimates of the costs of protection are actually very low. America is a case in point… The combined costs of these major restrictions to the U.S. economy, however, are usually estimated at less than half of 1 percent of U.S. national income.”
However, what has been true for the past few decades has not always been true. In the heyday of America’s high tariff policy in the late nineteenth century, the static welfare cost was closer to one percent of GDP, although the associated redistribution of income was much higher, about eight percent of GDP according to estimates by Irwin (2007). This large redistribution and associated deadweight loss may be one reason why the political debate over trade policy was much more intense a century ago than today. By the mid-twentieth century, the deadweight loss was only about one-tenth of one percent of GDP, which not only makes the historical figures of one percent of GDP seem much larger, but partly explains why, after the early 1930s, trade policy was no longer a leading political issue in the country as it had been in the late nineteenth century…
A fundamental reason for the relatively low cost of protection in the United States is that it has always had a large domestic economy that was not very dependent upon international trade. Another reason is that for most of its history the United States used import tariffs as opposed to more distortionary trade policy instruments, such as import quotas and import licenses. For example, the cost of U.S. trade restrictions was much higher in the 1970s and 1980s than decades before or after because quantitative restrictions and voluntary export restraints were used to limit imports of automobiles, textiles and apparel, iron and steel, semiconductors, and other products (de Melo and Tarr 1992, Feenstra 1992). Foregone quota rents are generally orders of magnitude larger than the tariff-induced distortions to domestic resource allocation.
In praise of the fall
Martin Feldstein applauds the dollar’s decline in the FT.
US FDI in China
Lee Branstetter & C. Fritz Foley on “Facts and Fallacies about U.S. FDI in China“:
Fallacy Number 1. U.S. FDI in China is large
FIE investment in fixed assets accounts for only about 10% of total fixed asset investment in China… American investment in China accounts for a relatively small portion of total U.S. multinational activity around the world…[Gravity model] results point out that levels of U.S. MNE activity in China are lower than would be predicted by a simple model in which levels of MNE activity vary with distance and country size…
Fallacy Number 2. U.S. FDI in China is Export-Oriented
The data illustrate that in 2004, about $39.7 billion of local affiliate sales were directed to the local market and only $3.7 billion were directed to the U.S. market. In that year, U.S. exports to affiliates and U.S. imports from affiliates comprised less than 5% of affiliate sales. These patterns are not consistent with the hypothesis that U.S. affiliates operating in China are contributing to the large U.S. trade deficit by producing there and selling back to the U.S… Wal-Mart and other large-scale U.S. retailers typically procure their goods from China-based export-oriented manufacturing plants that are not U.S.-owned to any significant degree…
Fallacy Number 3. U.S. multinational investment in China displaces investment elsewhere.
[F]irms that expand in China are almost as likely to expand employment domestically as they are to cut it. This evidence is not what one would expect if growth in China were strictly displacing activity in the U.S…
Fallacy Number 4: U.S. multinationals are aggressively exploiting China’s growing technological prowess
In the U.S., China is often perceived as being an emerging technological superpower. Industrialists, economists, and policy makers believe that China is becoming an attractive location to perform innovative activity… Several considerations suggest these views are overblown… Only $622 million was spent by U.S. MNEs on R&D in China, an amount that is about 3 tenths of one percent of the total R&D undertaken globally by U.S. MNEs… From the beginning of 2000 to the end of 2006, the U.S. PTO granted 3,447 patents to inventors based in China or teams of inventors that included at least one member with a Chinese address. Over the same period, inventors with ties to Japan received nearly 241,000 patents… Interestingly, the leading patent-generating firm in China, with more than four times Microsoft’s cumulated patent stock and a commanding lead over any indigenous mainland Chinese firm, is the Taiwanese contract manufacturing firm, Hon Hai, also known by its English trade name, Foxconn… it appears the Taiwanese firms are more aggressively exploiting the opportunities to conduct research in China, such as they are, than are their U.S. counterparts… Despite impressive progress and spectacular growth in human capital, China’s transition to status as a significant net exporter of innovative goods and services almost certainly lies many years in the future.
Great television: Oxfam on agricultural subsidies
Kudos to Oxfam America’s Advocacy Fund, which is paying for television advertisements of a kind rarely seen: those defending diffuse interests against rent-seekers.
While I haven’t always been happy with Oxfam’s work on this issue, I think that’s a pretty good ad. Will it be effective? I’m not sure, but they’re in heavy rotation in at least some markets:
A coalition of environmental, budget and social groups are urging Minnesota Sens. Norm Coleman and Amy Klobuchar to stop agriculture payments to millionaire farmers in a TV ad campaign that began Wednesday… The ad asks viewers to call Coleman, a Republican, and Klobuchar, a Democrat, to let them know that the crop payment program needs reform. Both are members of the Senate Agriculture, Nutrition and Forestry Committee. More than 100 spots will air this week on Minneapolis network affiliates NBC, CBS, Fox and ABC…
Oxfam says the $225,000 media buy will also run TV spots in New Hampshire and print ads in Washington, DC.
[HT: Richard Baldwin & Econoclaste]
Free trade in dentistry
The NYT has a nice piece reporting on the fact that we are paying than ever for dental care, yet the percentage of people who have untreated cavities is on the rise. At the center of the story is the fact that dentists restrict entry into the professional, driving up average compensation close to $200,000 a year.
For some reason, the piece never mentions the restrictions that prevent foreign dentists from practicing in the United States. If enough foreign dentists entered the country to lower average compensation to $150,000, this would save patients $7.5 billion a year. If enough foreign dentists entered the country to bring average compensation down to $100,000 a year, this would save patients $15 billion a year or $50 per person per year.
Why is protectionism only a problem when the immediate beneficiaries are auto workers or textile workers?
Bring on the foreign dentists!
Trade Diversion 