The impact of the Asian Crisis on Australia's primary exports: why it wasn't so bad

This article explores the modest impact of the Asian Crisis on Australia’s primary commodity exports. Simulations using a global general equilibrium model show: (i) as capital flees Asia, investment in Australia increases and the trade deficit grows; (ii) while terms of trade deteriorate in the short run, they improve in the medium run as import demand increases in the crisis countries; (iii) exports of primary commodities expand as the crisis countries try to export more; (iv) more income‐elastic primary commodities fare less well than the income‐inelastic foodstuffs as incomes decline in the crisis countries; (v) Australia’s relatively low dependence on manufactured exports was a buffer as manufactured exports came under heavy pressure from exports from the crisis countries.International Relations/Trade,

Are China's clothing and textile exports demand of supply constrained?

By being a relative latecomer to the exports of clothing and textiles, China initially benefited from the Multifibre Arrangement (MFA). It was able to supply markets that had artificially high prices but in which its competitors were restricted. By the 1980s industrial country clothing and textile markets were growing slowly because market saturation was high. As the MFA (and other) restrictions were increasingly applied to China's clothing and textile exports the benefits of the MF A were replaced by costs, though these were modest until the mid-1980s. The cost that the MF A imposes on the world clothing and textile market has been increasing at more than 10 per cent a year during the past decade. Because China was a latecomer its quotas are relatively small, the costs of the MF A to China have been growing at some 18 per cent a year. China has increased its sales to the non-MFA, unrestricted markets, but here prices are depressed by the inflated prices in MF A markets. Because of its supply constraints, China is less able than other developing countries to avoid MFA restrictions by improving the quality of its exports. There is little doubt that China could benefit more than most developing country clothing and textile exporters from the abolition of the MFA. But if the MFA is abolished, the need for reform will paradoxically become more urgent. Competition will be intensified in a slowly growing world market with an increasing number of low-cost competitors. China's trade strategy with regard to the MFA and trade generally is therefore of considerable importance. China needs to become a GA TT member as quickly as possible. Economic reforms in the last decade have improved the supply conditions for China's exports. Clothing and textiles have received priority in the modernization program in contrast to the emphasis on heavy industry in the pre-reform era. The burgeoning of township enterprises and foreign investment reflect this favourable environment. Mandatory export plans led to a low growth of expons until the 1970s. The increased use of economic levers as reforms took hold in the 1980s led to the sustained growth of clothing and textile exports. Foreign exchange retention, exchange rate devaluations, tariff exemptions and drawbacks for exports have been among the most important policy instruments in the expansion of exports. But fundamental problems in the economy remain. They include the highly regulated foreign trade system (including physical planning of trade); unstable macroeconomic policies; an over-valued exchange rate; and severe price distortions in both commodity and factor markets. If sustained export growth with high economic efficiency is to be achieved, funher reforms will be necessary

China's WTO accession: how close is it now?

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Food embargoes against China: their likelihood and potential consequences

China’s concern over its food security has increased in recent years as it opens up its domestic food market to the rest of the world. Chinese policymakers often regard food embargoes by the West as a major potential threat to food security. This paper examines the likelihood and consequences of food embargoes against China. The paper concludes that food embargoes are unlikely to occur, and even if they did, the damage that they could inflict on China is probably small. As a deterrent to such actions, however, international rules governing food embargoes should be strengthened. This will give food-importing countries greater confidence in liberalising trade and will weaken the argument for agricultural protection on the grounds of national security

Capital-Skill Complimentarity and Wage Outcomes following Technical Change in a Global Model

We estimate the extent of factor bias in technical changes consistent with observed changes in skill premia. To control for the effects of expanded trade on wages we use a structural model with multiple regions and comparative static analysis. Two alternative biased technical change stories emerge: skill enhancement when capital and skill are substitutes and capital enhancement when capital and skill are complements. These imply different underlying technical change processes and macroeconomic behaviour in response to technical change shocks. Capital enhancement offers the more credible process, however, and is consistent with observed rises in the “equipment content” of the capital stock

Global Effects of US “New Economy” Shocks: the Role of Capital-Skill Complementarity

Long run technical change since the 1970s can be characterised alternatively as capital enhancement when capital and skill are complementary, or skill enhancement when capital and skill are substitutes. These characterisations are not equivalent in the short run, however, particularly in the capital-mobile late 1990s, because the implications of the shocks for the return to installed physical capital, and hence the global distribution of investment, depend on which of the two is chosen. The extent of this non-equivalence is demonstrated in this paper, which examines the short run effects of the acceleration of technology shocks in the US during the late 1990s. Two comparative static multi-product macroeconomic models are constructed around the alternative characterisations and technology shocks are introduced in the US alone. A US economic expansion and gains to US factor owners are common to both but the sectoral and distributional effects within the US economy differ substantially between them. The effects on other regions follow primarily from changes in the distribution of global investment and the associated changes in real exchange rates and hence they are also sensitive to the technology characterisation chosen

China’s post-crisis policy dilemma: multi-sectoral comparative static macroeconomics

Although the “country runs” of the Asian crisis stopped at the Chinese border, their effects nonetheless included a realignment of real exchange rates and a rise in the risk premium demanded of investments in China. To examine alternative Chinese policy responses, this paper introduces a multi-country, multi-commodity comparative static macroeconomic model. Simulations suggest that, although the maintenance of fixed parity with the US dollar may have been necessary during the crisis, its contractionary effects were not fully offset by fiscal expansion and they were subsequently compounded by a 1999 nominal wage rise. A case emerges for increased exchange rate flexibility in the post-crisis period

Economic Inequality and Prosocial Behavior: A Multidimensional Analysis

Indiana University-Purdue University Indianapolis (IUPUI)Rising economic inequality has become a widespread trend and concern in recent decades. Economic inequality is often associated with pernicious consequences such as a decrease in individual health and social cohesion and an increase in political conflicts. Does economic inequality have a negative association with prosocial behavior, like many other aspects of inequality? To answer this question, this dissertation investigates the relationship between economic inequality and prosocial behavior, particularly charitable giving, by conducting three empirical studies. The first study is a meta-analysis on the overall relationship between economic inequality and prosocial behavior. Results from 192 effect sizes in 100 studies show that there is a general small, negative relationship between economic inequality and different forms of prosocial behavior. Moderator tests demonstrate that social context, the operationalization of prosocial behavior, the operationalization of economic inequality, and average age of participants significantly moderate the relationship between economic inequality and prosocial behavior. The second study differentiates between redistributive and non-redistributive charitable causes and examines how income inequality is associated with charitable giving to these two causes in China. Using synthesized data from the China Labor-force Dynamics Survey (CLDS) and official data, this study shows that income inequality has no significant relationship with charitable giving to redistributive causes, but it has a negative association with charitable giving to non-redistributive causes. Of the four moderators, only education significantly moderates the relationship between income inequality and redistributive giving. The third study tests whether and how government social spending mediates the relationship between income inequality and charitable giving. Using the US county level panel data, this study finds there is no significant relationship between income inequality and government social spending as well as between government social spending and charitable giving. Thus, government social spending does not significantly mediate the relationship between income inequality and charitable giving. However, income inequality has a robustly and significantly negative relationship with charitable giving. In sum, this dissertation furthers our understanding of the relationship between economic inequality and prosocial behavior, especially charitable giving. Given the higher economic inequality facing many countries, it is a timely dissertation and has important practical implications

Fiscal Incentives and Local Tax Competition: Evidence from China

This paper explores how fiscal incentives affect capital tax decisions by local governments in the Chinese context. We develop a model in which local governments, facing different fiscal incentives, compete for mobile capital over corporate taxes. The key prediction of the model, borne out in data from Chinese cities over the years 2004-2013, is that an increase in the local corporate income tax-sharing ratio, proxying local fiscal incentives, makes city governments’ horizontal tax reactions stronger. Our results contribute to the fiscal federalism literature by providing evidence in support of the argument that fiscal incentives faced by local governments significantly shape their policy choices. Additionally, we provide explicit evidence on local tax competition within provinces in China, which has long been regarded as one of the driving forces of China’s rapid economic growth