MSNBC:

Hank Paulson this week suffered his first setback as US Treasury secretary after it emerged that the person he handpicked to run his new strategic economic dialogue with China would be quitting after less than a month in the job.

Deborah Lehr, a former White House official and trade negotiator who was Mr Paulson’s China adviser when he was chairman of Goldman Sachs, is returning to New York to spend more time with her family.

Her decision to step down – less than three weeks after she was appointed special envoy to the strategic economic dialogue and accompanied Mr Paulson to meetings with China’s president and prime minister – astonished China watchers in Washington.

Columbia’s Edmund Phelps: “for his analysis of intertemporal tradeoffs in macroeconomic policy”

If you haven’t seen it before, you should check out Alan Deardorff’s academic family tree of trade economists.

Another day, another Washington Post front page story on an economic topic without a quote from an economist. Alex Tabarrok isn’t happy.

[The story is about Wal-Mart’s generic drug prices, not trade or development, but this follows on the heels of Wednesday’s story about Wal-Mart’s vicious plot to lower tariff rates, so I couldn’t let it pass.]

Thomson Scientific suggests a Nobel for international trade theory might be due, shared by Bhagwati, Dixit, and Krugman. That’s one of three possibilities listed at their online poll.

A Tullock-Krueger award for work on rent-seeking wasn’t floated as an option. I’ve seen folks like Bryan Caplan and Barkley Rosser suggest that prize combination, but I don’t know the profession well enough to say if it’s a good prediction.

[HT: Mankiw]

George A. Pieler and Jens F. Laurson argue that we ought to “defeat terror with trade” in a Forbes commentary piece:

As Robert Klemmensen of the University of South Denmark demonstrated in a study, openness to trade is closely associated with national resistance to being a breeding-ground for, or indeed victim of, terrorism…

America must lead. President George W. Bush’s most controversial post-9/11 policies, especially the prolonged war in Iraq, have cost him much political capital at home and abroad. The Bush administration, short of diplomatic assets to marshal in favor of free trade, can reassume the mantle of economic leadership by pushing unilateral free trade, with its faster economic gains (especially in the developing nations)…

The United States, by challenging its trading partners to action, can burnish its credentials as “exemplar of freedom” in the world by explaining that economic freedom as exemplified by free trade is the first, possibly best “weapon” against terror. Understanding that will enable us truly to transcend the status quo in trade and drive terror back into the dark shadows whence it arose.

Possibly the best weapon against terror? Pieler & Laurson rest their argument on the basis of a single study. Gary Becker, Alberto Abadie, and Alan Krueger & Jitka Maleckova argue that there is little direct connection between poverty, income, and terrorism, once you control for other important variables (namely, political institutions). What does this new study suggest?

Here’s the relevant part pf the abstract of “The political economy of freedom, democracy and terrorism” by Peter Kurrild-Klitgaard, Mogens K. Justesen & Robert Klemmensen:

There seems to be no consistent association of government power with terrorism: economic freedom has little association with terrorism but some with lower levels of political violence, while political freedom associates negatively with political violence but exhibits a non-linear relationship with terrorism. Simultaneously, a number of alternative explanations are disconfirmed: terrorism is unrelated to inequality, economic growth, etc., while a society’s fractionalization has very mixed importance. However, more trade associates with less domestic political violence and occasionally with less probability of terrorism.

Greater freedom to trade (a measure from the Economic Freedom of the World report) is not “closely associated” with reduced terrorism. It is “ocassionally” correlated with a lower probability of terrorism. I spent under ten minutes glancing at the relevant regression results. In table one, the coefficient’s sign is negative in four out of six regressions, and never takes a p-value below 0.10. The case is the same in table two. The second table of regressions also includes trade openness ([M+X]/GDP), which only has the “correct” sign two-thirds of the time. The trade measure is sensitive to the choice of measure of democracy.

I’ve spent a very short time skimming the paper, but given the apparent fragility of the coefficient’s sign (as well as the relatively minor magnitude of the point estimates) and the consensus that growth and poverty have little to do with terrorism, I don’t think that we can “defeat terror with trade.”

[The copy I found online was “a very preliminary draft” presented at GMU in May 2005. Perhaps the published version (Public Choice, July 2006) contains different results. If that’s the case, I’d be curious what revisions were made.]

The FT‘s Martin Wolf is hosting online discussions amongst economists on Tuesdays at his blog. Last week, a number of influential economists commented on the politics and economics of compensating globalization’s losers.

[HT: DeLong]

New NBER paper on the J-curve:

The pattern of international trade adjustment is affected by the continuing international role of the dollar and related evidence on exchange rate pass-through into prices. This paper argues that a depreciation of the dollar would have asymmetric effects on flows between the United States and its trading partners. With low exchange rate pass-through to U.S. import prices and high exchange rate pass-through to the local prices of countries consuming U.S. exports, the effect of dollar depreciation on real trade flows is dominated by an adjustment in U.S. export quantities, which increase as U.S. goods become cheaper in the rest of the world. Real U.S. imports are affected less because U.S. prices are more insulated from exchange rate movements — pass-through is low and dollar invoicing is high. In relation to prices, the effects on the U.S. terms of trade are limited: U.S. exporters earn the same amount of dollars for each unit shipped abroad, and U.S. consumers do not encounter more expensive imports. Movements in dollar exchange rates also affect the international trade transactions of countries invoicing some of their trade in dollars, even when these countries are not transacting directly with the United States.

Hat tip to Tyler Cowen, who comments:

This asymmetry is no accident but rather stems, in large part, from the central role of the dollar as a reserve currency and a medium for invoice pricing. When an Asian export is priced in terms of dollars in the first place, exchange rate movements lead to less pass-through. In other words, to the extent we would see an improvement in our trade balance, from dollar depreciation, it would be vis-a-vis the countries with the highest propensity to consume more American exports. It would not be with the countries whose exports we are most likely to consume. This also means that we cannot in every way extrapolate European currency experience to the United States.

The paper’s claim has important implications for papers like this one, which claimed that a dollar devaluation had a one-for-one impact on import price inflation while minimally impacting overall US inflation. Is this effect strong enough to render calls for a Chinese revaluation of the renminbi irrelevant? Or does the lower pass through rate just mean that the RMB will have to rise even higher?

(I don’t have NBER access at the moment, so I don’t know if the phrase “depreciation of the dollar” implies across-the-board appreciation of other currencies. If so, conclusions about the RMB revaluation question may be different.)

The Economist wasn’t impressed by Stiglitz’s new book.

Though I was surprised to learn that William Easterly participated in the latest edition of the Economic Freedom of the World report, his chapter contains few surprises. In brief, he writes:

– Jeff Sachs and the poverty trap argument are a trip back to the 1950s and 60s.
– The Millennium Development Goals involve a lot of central planning.
– Poor countries have grown faster than rich ones.
– Economic freedom, GDP per capita, and manufacturing exports are all positively correlated. We can instrument for economic freedom to address reverse causality concerns.
– Foreign aid doesn’t boost growth. (Citation of Rajan & Subramanian)
– Meaningful accountability promotes success.

The report and the full dataset are available online. (Unfortunately, the data are only available at five year intervals prior to 2000, so you can’t go very far back if assembling annual panel data.)