Japan's Persistent Trade Surplus: Policies for Adjustment

While part of the recent increase in the Japanese trade surplus can be attributed to the Japanese recession, the surplus has widened despite the appreciation of the yen and enactment of policies to open Japanese markets. We review the trade surplus issue in the light of theories of trade and current account adjustment. We evaluate the potential for exchange appreciation and Japanese fiscal policy to reduce the imbalance, estimating their effects using simulations of the NIRA-LINK model of the US-Japan-world economy. The simulations show that moderate use of macropolicies would not be sufficient to eliminate the trade imbalance.Japanese trade surplus, econometric simulations

Why Hasn’t the US Economic Stimulus Been More Effective? The Debate on Tax and Expenditure Multipliers

Recent dissatisfaction with the impact of expenditure stimulus on economic activity in the United States, along with the results of academic research, have once again raised questions about the effectiveness of fiscal stimulus policies and about whether stimulus to a recessionary economy should be in the form of tax cuts or expenditure increases. This paper considers alternative methods for evaluating the impacts of stimulus policy strategies. We discuss conceptual challenges involved in effectiveness measurement, and we review alternative empirical approaches applied in recent studies. We then present our own estimates of policy multipliers based on simulations of the IHS Global Insight model of the US economy. Based on this review and analysis, we address the question of why recent US stimulus programs have not been more effective.United States (US) recession and recovery; fiscal and monetary policy; tax and expenditure multipliers; econometric model forecast simulation.

Will Japan's Current Account Turn to Deficit?

The Japanese current account has been in surplus since 1981, ranging from 1% to more than 4% of GDP. In this paper, we review the macroeconomic forces that have driven the surplus and describe likely changes in the first part of the next century. In coming years, structural change in Japan's economy-population aging, the globalization of production, and financial market reforms-will alter the underlying determinants of the surplus. While the net effect of these forces is difficult to predict, the most likely outcome is a gradual closing of the current account gap. We use large-model simulation analysis to evaluate the potential for specific developments to alter the current account, and we assess their likely impact on the Japanese economy.Japanese current account, forecast

"A Theory of Production" The Estimation of the Cobb-Douglas Function: A Retrospective View

The Cobb-Douglas production function is still today the most ubiquitous form in theoretical and empirical analyses of growth and productivity. The estimation of the parameters of aggregate production functions is central to much of today's work on growth, technological change, productivity, and labor. This paper has taken up Samuelson's [1979] invitation to verify empirically his claim that all the regression of the Cobb-Douglas [1928] production function does is to reproduce the income accounting identity according to which value added equals the sum of the wage bill plus total profits. This paper concludes that Samuelson was right, and believes that this argument has very serious implications for today's work in macroeconomics.

Why Is China So Competitive? Measuring and Explaining China’s Competitiveness

This paper evaluates factors responsible for the competitiveness of China in the world economy and relative to its East Asian rivals. China has been highly successful in capturing world export markets. Chinese competitiveness is not just a matter of an undervalued exchange and extremely low labor costs. It reflects primarily the coincidence of favorable cost conditions with improvements in China’s ability to produce products that meet world market specifications. These improvements are closely related to foreign participation in China’s economy through foreign direct investment and joint venture enterprises.China exports, comparative advantage, competitiveness, purchasing power parity, exchange rate, undervaluation, international comparisons, foreign direct investment, joint ventures

Why Is China So Competitive? Measuring and Explaining China’s Competitiveness

This paper evaluates factors responsible for the competitiveness of China in the world economy and relative to its East Asian rivals. China has been highly successful in capturing world export markets. Chinese competitiveness is not just a matter of an undervalued exchange and extremely low labor costs. It reflects primarily the coincidence of favorable cost conditions with improvements in China’s ability to produce products that meet world market specifications. These improvements are closely related to foreign participation in China’s economy through foreign direct investment and joint venture enterprises.China exports, comparative advantage, competitiveness, purchasing power parity, exchange rate, undervaluation, international comparisons, foreign direct investment, joint ventures.

How the Dragon Captured the World Export Markets: Outsourcing and Foreign Investment Lead the Way

This paper explores several theories regarding how China has become highly successful in capturing world export markets. The paper concludes that increased competitiveness is dependant on, but not limited to several factors discussed in detail including, exchange rate undervaluation, low wage rates and excess labor resources. Direct foreign investment which enabled China to produce products that meet world market specifications, brought new technology and foreign management, played a key factor. Reasons for China’s advantage over other East Asian countries are explored. The merits and methods of various measures of China’s competitiveness and comparative competitiveness are also discussed.China exports, comparative advantage, competitiveness, purchasing power parity, exchange rate, undervaluation, devaluation, international comparisons, foreign direct investment, technology

The Employment Effects of Fiscal Policy: How Costly Are ARRA Jobs?

The American Recovery and Reinvestment Act was intended to stimulate the U.S.economy and to create jobs. But at what cost? In this paper, we discuss the range of potential benefits and costs associated with counter-cyclical fiscal policy. Benefits and costs may be social, macroeconomic, systemic, and budgetary. They may depend importantly on timing and implementation. There may be very different implications over the business cycle horizon and in the medium to long term. We use simulations of the IHS Global Insight macro-econometric model to evaluate some of these costs and benefits in the U.S. economy, looking specifically at the impact of the ARRA program and potential alternative policies.fiscal policy; employment; American Recovery and Reinvestment Act (ARRA); econometric model simulation.

The Impact of Japanese Auto VER's on the US and Japanese Economies

The voluntary export restraint agreement (VER) limiting Japanese exports of cars to the US is evaluated. Extending a previous article dealing with Japanese transplant auto factories in the US, the authors examine impacts of alternative responses to the VER on the micro and macro level. The VER will result in a modest improvement in the bilateral trade balance. It will provide a small macroeconomic stimulus to the US economy, but will affect output in Japan adversely.