Tuesday, May 4, 2010

Tuesday Quick Hits: Scholarship Edition

The nerdery has been busy over the last week cranking out great stuff:
  • Scholars further debunk currency hawks' assertions that China's currency causes the bilateral trade balance.  Over at VoxEU, Fudan University's Zheng Song, the Minneapolis Fed's Kjetil Storesletten and the University of Zurich's Fabrizio Zilibotti argue that "it is wrong, and even dangerous, to blame [China's holdings of US debt] on a manipulation of the exchange rate." Instead they propose a "structural theory emphasising that credit market imperfections require private firms to build up internal savings which have been channelled into foreign bonds."  The elaborate: "Due to legal and financial market imperfections, private firms are financing themselves out of internal savings. The rapid growth of these self-financed firms and corresponding down-sizing of bank-financed firms creates and artificial lack of domestic investment opportunities for Chinese banks. As a consequence, a growing share of domestic savings is invested abroad and this generates a capital account deficit and matching current account surplus."  These findings are consistent with some of the things I've been saying here for a while.  Be sure to read the whole thing here.
  • Cato scholar Dan Ikenson cranks out some scholarly China scholarship.  In a new briefing paper, Ikenson writes: "Although it may be fashionable to think of China as the country to which the U.S. manufacturing sector was offshored in exchange for tainted products and a mountain of mortgage debt, the fact is that the bilateral relationship has produced enormous benefits for people in both countries. Despite those benefits, Americans are more likely to be familiar with the sources of friction....
       This paper examines the economic relationship and some of its high-profile sources of friction, distills the substance from the hype, and concludes that although some policy tweaks would be beneficial, a more aggressive U.S. policy tack is unnecessary and unwanted. Much more can be done to cultivate our areas of agreement using carrots before seriously considering the use of sticks."
  • PIIE scholar: raising taxes on "companies that ship jobs overseas" is stupid.  The Peterson Institute's Gary Hufbauer podcasts: "Obama's proposal to punish firms that ship jobs overseas would hurt the very firms that export products made in America."  Sounds familiar, no?

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