Focusing the World Bank on public goods

Arvind Subramanian says we should reorient the World Bank towards public goods:

It is awfully hard to find evidence that traditional World Bank–type aid works. In a series of papers, Raghuram Rajan, former chief economist of the IMF, and I were unable to find any positive effects of aid on long-run growth but did find evidence consistent with some of the negative effects of aid in depressing manufacturing exports and worsening domestic institutions.

On the other hand, it is widely accepted that some of the biggest contributions to development have come from global public goods such as the green revolution and medical breakthroughs, especially related to the development of antibiotics and vaccines…

India should rather put forward a new vision for the World Bank, with a central focus on global public goods, a point also emphasized and elaborated by Devesh Kapur, the author of the definitive history of the Bank. Nancy Birdsall of the Center for Global Development and I have argued that the governance structure for global public good activities should be quite different from current arrangements. This could be the thin end of the wedge for perhaps eventually breaking up the World Bank into two institutions: first, an aid agency devoted to traditional lending activities that could continue to be dominated by the G-7; and second, a new institution that focuses more on the creation of global public goods, one in which middle income countries such as India, China, and Brazil could start making greater financial contributions and, in return, obtain commensurate power and influence.

"English football needs fewer English footballers"

I haven’t examined this issue at all, but Chris Cook tells a plausible story:

Britain’s Home Office operates a surprising policy: helping Manchester United, Arsenal, Chelsea and Liverpool to dominate football’s Premier League whilst also inflating footballers’ wages, so pushing up ticket prices. These all flow from its ill-considered immigration rules.

This would not be such a problem if the government were to confine its attention to the beautiful game. But, now, it is applying the principles that inform its immigration rules for footballers more widely. Under its newly-tightened system, companies can hire non-European staff only if they meet thresholds for skills and training to enter the country.

In football, the rules have long allowed non-Europeans to play professional football in the UK only if they have played internationally, representing a country whose national team is in the world top 70. Rich teams, such as Chelsea, can improve their midfields by hiring Brazilian World Cup winners.

But poorer teams near the bottom of the Premier League cannot shop in that market. For the most part, they are stuck with what they can scrape together from Europe. The result is that weaker teams suffer, particularly when trying to fill specialised positions – good left-backs are rare. In addition, since lousy European players do not face competition from similarly lousy non-Europeans, their wages are driven up. So, as well as making the league competition less intense, these restrictions on the supply of workers help to pump up ticket prices for ropey teams.

"Why Do Skilled Immigrants Struggle in the Labor Market? A Field Experiment with Six Thousand Resumes"

NBER Digest:

Ethnic discrimination may explain a significant part of why recent skilled immigrants have much poorer prospects than non-immigrants in the Canadian labor market. In Why Do Skilled Immigrants Struggle in the Labor Market? A Field Experiment with Six Thousand Resumes (NBER Working Paper No. 15036), Philip Oreopoulos estimates the effect of various individual attributes on the likelihood that a job applicant will receive an interview request. He finds that interview request rates for English-named applicants with Canadian education and experience were more than three times higher than for resumes with Chinese, Indian, or Pakistani names with foreign education and experience (5 percent versus 16 percent) — but they were no different than for foreign applicants from Britain. Employers also valued experience acquired in Canada much more than experience acquired in a foreign country. Changing foreign resumes to include only experience from Canada raised callback rates to 11 percent. And, among resumes listing four to six years of Canadian experience, whether an applicant’s degree was from Canada, or whether the applicant obtained additional Canadian education had no impact on the chances for an interview request.

Canadian applicants who differed only by name had substantially different callback rates: those with English-sounding names received interview requests 40 percent more often than applicants with Chinese, Indian, or Pakistani names (16 percent versus 11 percent). The “discrimination” was particularly pronounced in administrative, finance, and retail jobs.

Most immigrants come to Canada on a point system, which attempts to attract the most educated and experienced foreign employees, who are in demand by the industry. However, for a given level of education, the earnings gap between recent immigrants and natives is more than 50 percent. To try to understand this, Oreopoulos sent out over 6000 mock resumes to job postings in Toronto, all of which required an undergraduate degree and several years of work experience. The job postings came from a range of industries, and the mock resumes were carefully designed to reflect actual resumes supplied by recent immigrant and Canadian native job hunters. Oreopoulos randomly assigned each applicant a common Chinese, English, Indian, or Pakistani name, as well as either foreign or Canadian education and work experience and other applicant characteristics. By doing so, he was able to investigate the effect of particular attributes on an employer’s decision to call an applicant back for an interview.

Oreopoulos further finds that the evaluators’ gender and ethnicity were not driving the differences in callback rates: in fact, evaluators with Asian or Indian accents and names were slightly more likely to call back an applicant with an English name. He concludes that, for resumes listing more than five years of experience, “an applicant’s name matters considerably more than his additional education, multiple language skills, and extracurricular activities” in the Canadian labor market.

Free Trade Under Fire, third edition

The third edition of Doug Irwin’s Free Trade Under Fire came out this month. I haven’t seen a copy yet (Princeton University Press – feel free to get in touch), but it promises new updates covering “off-shoring services, the impact of trade on wages, and the implications of trade with China.” Here’s a comparison of the old and new tables of contents:

Second edition Third edition
Chapter 1: The United States in a New Global Economy?
Chapter 2: The Case for Free Trade: Old Theories, New Evidence		 Chapter 1: The United States in a New Global Economy?
Chapter 2: The Case for Free Trade: Old Theories, New Evidence
Chapter 3: The Employment Rationale for Trade Protection
Chapter 3: Protectionism: Economic Costs, Political Benefits?
Chapter 4: Trade, Jobs, and Income Distribution
Chapter 4: Relief from Foreign Competition: Antidumping
and the Escape Clause		 Chapter 5: Relief from Foreign Competition: Antidumping and the Escape Clause
Chapter 5: U.S. Trade Policy and the World Trading System
Chapter 6: Developing Countries and Open Markets
Chapter 6: The World Trade Organization and New Battlegrounds Chapter 7: The World Trading System: The WTO, Trade Disputes, and Regional Agreements

The case for preferential trade with Africa

Karol Boudreaux criticizes Jendayi Frazer for advocating preferential trade with Africa. She writes:

I’m only going to discuss one of her recommendations, which is this: do not extend AGOA trade preferences to a small subset of developing nations that includes some south Asian and some Islamic nations. Ms. Frazer argues: “extending the same trade preferences to hypercompetitive Cambodia and Bangladesh—each of which individually exports more apparel to the U.S. than all of sub-Saharan Africa combined—will undermine the program’s success in Africa.” Here’s a link to the proposed legislation that would expand the trade bill — it’s currently in committee.

But note that the success Ms. Frazer identifies is based on playing favorites. Maybe African producers should be favored over Bangladeshi producers, but on what grounds? A different version of this question would be: “why should African manufacturers be shielded from competition from other developing world producers?”

Boudreaux condemns such preferences as “favoritism” and “protectionism” and argues that more liberal, open trade (combined with better governance) offers the best path for African growth and development. Perhaps. But shouldn’t Boudreaux at least address the respectable economic arguments underpinning the idea that African economies need a foothold to establish nascent industries? Paul Collier and Tony Venables have argued the case for AGOA on such grounds, both in a VoxEU column and in an article in The World Economy.

Africa has lagged behind partly because its economic reforms lagged those of Asia. When export diversification started to boom in Asia in the 1980s, no mainland African country provided a comparable investment climate. Now a number of African cities — Accra, Dakar, Mombassa, Maputo and Dar-es-Salaam, etc. – offer reasonable investment climates, but they cannot compete with Asian cities that have comparable investment climates since the Asian cities have established clusters of firms in the new export sectors. Such clusters provide firms in the cluster with the advantages of shared knowledge, availability of specialist inputs and a developing pool of experienced labour. A classic chicken-and-the-egg problem.

Until African cities can establish such clusters, firms located in Africa face costs that will be above those of Asian competitors, but because costs are currently higher individual firms have no incentive to relocate. If Africa is to diversify its exports and create employment it must develop such efficient clusters of modern sector activity. Where it is feasible, this offers a more reliable development path than the commodity extraction model which Africa has followed to date.

Trade preferences offer a potential solution to the chicken-and-the-egg problem

Boudreaux may be right about the value of trade preferences, but her blog post solely discusses static comparative advantage and competitiveness, whereas industrialization and development is also about dynamic comparative advantage and export diversification.

US continues to lose cotton cases

The World Trade Organisation gave Brazil the green light on Monday to impose $295m (€206m, £181m) of sanctions on US goods over Washington’s failure to scrap illegal subsidies to its cotton farmers.
However, the trade retaliation granted by a WTO arbitrator was barely a tenth of the $2.7bn Brazil had asked for. Brazil will also not be able to carry out its threat to break US drug patents or retaliate in services unless subsidies rise substantially from 2006 levels.

FT:

The World Trade Organisation gave Brazil the green light on Monday to impose $295m (€206m, £181m) of sanctions on US goods over Washington’s failure to scrap illegal subsidies to its cotton farmers.

However, the trade retaliation granted by a WTO arbitrator was barely a tenth of the $2.7bn Brazil had asked for. Brazil will also not be able to carry out its threat to break US drug patents or retaliate in services unless subsidies rise substantially from 2006 levels.

Construction imports as a leading indicator of the business cycle

Michael J. Ferrantino and Aimee Larsen of the USITC write:

The collapse of US housing associated with the financial crisis shows up clearly in US construction imports, which began to decline much earlier than US imports in general and have fallen more deeply. US real imports of sawn or chipped wood, of the type used in construction, peaked in May 2005 and declined by 62.9% through May 2009. This peak is 29 months earlier than the general peak in US imports. The corresponding price series peaked earlier, in March 2005, and has declined by a cumulative 32.5% through May 2009. A simultaneous decline in prices and quantities is a clear indicator of a decline in import demand, induced by the declining demand for construction. Similarly, US real imports of equipment such as bulldozers, graders, and shovel loaders, which have multiple uses but are important for construction, peaked in May 2006, 19 months before the general peak, and declined by 81.5% in the subsequent three years.

Import prices and quantities for inputs related to housing turned down relatively early compared to more direct indicators of the state of the housing market, such as new housing starts (peaking in May 2005), housing units under construction (September 2005), the Case-Shiller Composite-20 home price index (July 2006), and prices of new one-family homes under construction (March 2007). Construction firms anticipated the bubble, restricting their purchases of imported wood inputs at least as early as their construction activity and well before the decline in housing prices. Since construction plays an important role in the business cycle (Leamer 2007), this suggests that import data on construction inputs may be an important tool in anticipating the business cycle.

The latest evidence on trade, offshoring, and wages

Ann Harrison:

What we find is that a one percentage point increase in occupation-specific import competition is associated with a 0.25 percentage point decline in real wages. While some occupations have experienced no increase in import competition (such as teachers), import competition in some occupations (such as shoe manufacturing) have increased by as much as 40 percentage points. The contrasting experiences of workers in textiles and apparel-related sectors compared to many service sector employees such as teachers helps to explain why some parts of the US economy have been deeply affected by globalisation while others have not.

We also examine the impact of increased offshoring by US multinational firms on wages of workers in the US. We find that when US companies increase their offshoring activities to low-income countries, this hurts US wages, but that more offshoring to high-income countries is associated with an increase in US wages.

Chinese tire safeguards and "the anti-trade mobs"

In the FT, Chad Bown warns that the Obama administration risks unleashing a global “crisis-driven mob mentality” that will impose numerous trade protections if the US imposes new import restrictions on Chinese tires under its “China safeguard” law. He highlights a number of concerns, but this one stood out:

[A] little-known loophole in the rules governing China’s 2001 WTO accession makes it easy for a global protectionist response to spread faster and further than that which took hold in 2002. Nowadays, once any one country imposes a China safeguard on imports, all other WTO members can immediately follow suit, without investigating whether their own industries have been injured.