Columbia University Press

Fifty years ago, in March 1973, the major industrial economies abandoned fixed exchange rates, conclusively ending the post–World War II Bretton Woods arrangements. Proponents believed their action would strengthen countries’ ability to reconcile domestic macroeconomic policies with the balance of payments. But opponents feared it would initiate a new era of instability and financial shocks. Since 1973, much of the world has moved away from fixed exchange rates to a variety of regimes based on considerable exchange rate flexibility. But international trade conflicts and unstable capital flows, along with a rise in financial crises around the world, have nonetheless accompanied the global shift away from exchange rate pegs.

How has the international monetary system performed over the past half century? What have we learned from the experience of more flexible exchange rates? What has been the impact on macroeconomic and financial stability in the years since? This book derives from papers delivered at a conference that brought together leading economists and policymakers to debate and discuss these questions, as well as to assess the evolution of the international monetary system, the dominance of the US dollar, and the role of exchange rate regimes in shaping the world economy.

Foreign direct investment (FDI) has grown dramatically and is now the largest and most stable source of private capital for developing countries and economies in transition, accounting for nearly 50 percent of all those flows. Meanwhile, the growing role of FDI in host countries has been accompanied by a change of attitude, from critical wariness toward multinational corporations to sometimes uncritical enthusiasm about their role in the development process. What are the most valuable benefits and opportunities that foreign firms have to offer? What risks and dangers do they pose? Beyond improving the micro and macroeconomic "fundamentals" in their own countries and building an investment-friendly environment, do authorities in host countries need a proactive (rather than passive) policy toward FDI?

In one of the most comprehensive studies on FDI in two decades, Theodore Moran synthesizes evidence drawn from a wealth of case literature to assess policies toward FDI in developing countries and economies in transition. His focus is on investment promotion, domestic content mandates, export-performance requirements, joint-venture requirements, and technology-licensing mandates. The study demonstrates that there is indeed a large, energetic, and vital role for host authorities to play in designing policies toward FDI but that the needed actions differ substantially from conventional wisdom on the topic. Dr. Moran offers a pathbreaking agenda for host governments, aimed at maximizing the benefits they can obtain from FDI while minimizing the dangers, and suggests how they might best pursue this agenda.

China’s extraordinarily rapid economic growth since 1978, driven by market-oriented reforms, has set world records and continued unabated, despite predictions of an inevitable slowdown. In The State Strikes Back: The End of Economic Reform in China?, the renowned China scholar Nicholas R. Lardy argues that China’s future growth prospects could be equally bright but are shadowed by the specter of resurgent state dominance, which has begun to diminish the vital role of the market and private firms in China’s economy.

Lardy’s book is a timely sequel to his path-breaking Markets Over Mao: The Rise of Private Business in China (Peterson Institute for International Economics, 2014). This book mobilizes new data to trace how President Xi Jinping has consistently championed state-owned or controlled enterprises, encouraging local political leaders and financial institutions to prop up ailing, underperforming companies that are a drag on China’s potential. As with his previous book, Lardy’s perspective departs from conventional wisdom, especially in its contention that China could achieve a high growth rate for the next two decades—if it reverses course and returns to the path of market-oriented reforms.

China is playing a growing role in the world economy. It is one of the world's fastest growing countries and is the tenth largest exporter. China is also a significant recipient of foreign aid and a major borrower on international capital markets. Even more significantly, it is attracting vast amounts of foreign direct investment.

China in the World Economy examines the implications of China's emergence as a major player in the world economy. Its integration into the international economic order poses major difficulties for the rest of the world. These problems including bringing China's mixed market/centrally planned economy into the GATT, adapting to competition from labor-intensive Chinese exports, encouraging further market-oriented reform, and accommodating its demand for international capital. But China's participation in the global economy also offers important opportunities for trade, investment and international cooperation to promote world peace and stability.

Nicholas Lardy anticipates that China will continue on a rapid growth path, thus magnifying the policy challenges and opportunities for its trading partners, including the U. S. He recommends a series of steps to facilitate China's full participation in the world economy.

The international debt crisis that erupted in 1982 threatened the world financial system and turned the 1980s into a lost decade for Latin America. But the crisis jolted governments throughout the region into adopting sweeping economic reforms. By the early 1990s inflation was lower, growth was reviving, the major debtors had reached "Brady Plan" workout agreements reducing bank debt in exchange for collateral, and capital was entering the region in unprecedented magnitudes.

This study tries to make sense of this historic financial episode and to derive lessons for future policy. Cline first returns to his 1983 projection models that figured importantly in the debate at that time, and reruns them with the benefit of hindsight to see what went wrong (e.g., capital flight) and what went right (e.g., revival of industrial country growth). He provides a critical survey of the voluminous economics literature that emerged from the debt crisis. The study evaluates performance of the evolving international debt strategy, which eventually succeeded brilliantly in preserving international financial stability and restoring debtor access to credit markets but failed to achieve debtor country growth in the 1980s.

The study reviews policy reform and Brady plan results for major Latin American countries; provides new analysis of today's debt problems in Russia and Africa; and analyzes the degree of vulnerability of Latin Americas capital market renaissance to such factors as overvalued exchange rates and a resurgence of US interest rates. It concludes with suggestions for institutional change and policy guidelines to help avoid future crises.

As border barriers have declined, private barriers to competition have grown more significant. More and more international trade disputes involve private business practices that allegedly block the market access of rival firms. Such disputes include high profile conflicts between Japan and the United States over semiconductors, auto parts, and photographic film, between the European Union and the United States over aerospace and defense mergers, and between Asian nations and others over access to telecommunications networks. More such disputes are inevitable, especially in sectors that have been traditionally state-controlled but that are now subject to privatization. The regulation of private business practices that restrict competition is called competition (or antitrust) policy.

In this book, the authors survey national competition policies and the issues they raise for international trade and investment. The book includes detailed recommendations for international agreement on minimum standards in those competition-policy measures that affect the ability of foreign firms to contest markets. These standards could be negotiated and implemented bilaterally, regionally, and globally at the World Trade Organization. At the international level, governments might agree on certain initial steps to accomplish greater contestability: "national treatment" for foreign-controlled firms, abolition of most international cartels (including those that are now sanctioned), and establishment of mandatory consultation procedures when one government believes that private business practices in another nation foreclose exports or direct investment. There should also be premerger notification requirements for transborder or other mergers having cross-border effects. Further steps might be implemented at a future time.

There is inherent tension between the increasingly global focus of foreign investors and the continuing national focus of governments. Countries, particularly developing ones, compete to attract investment from global corporations, and they attach performance requirements to tilt the impact of those investments in their favor. This is because the host nations expect investment to raise growth levels, efficiency, and living standards. At the same time, the home countries of such corporations worry that their firms are not accorded fair and reciprocal treatment abroad. These issues have become a source of conflict among nations, one that could escalate considerably if an agreement is not soon reached.

Graham's study analyzes the nature and depth of the international investment problem and its potential impact on the world economy and on economic relations among nations. He urges that current rules on foreign direct investment be enlarged and restructured via new international rules and institutional arrangements and offers two alternatives for doing so.

By the year 2000, world trade in merchandise goods and commercial services will probably exceed $8 trillion, or $2 trillion more than in 1995. By that date, the World Trade Organization (WTO) may well have more than 130 member countries that account for about 95 percent of world trade. The millennium also will mark an important milestone for the WTO: new WTO negotiations on agriculture and services will be under way with the goal of achieving the progressive liberalization of remaining barriers to trade.

This monograph explores how WTO members should prepare for these negotiations. It discusses the Singapore ministerial meeting and its importance in starting WTO deliberations, examines how the agenda of such talks should be crafted to meet these challenges to the trading system, proposes initiatives to achieve further trade reforms and to extend WTO obligations to other trade-related aspects of government policy, and explores whether such new initiatives are feasible—that is, whether there is sufficient political support for new trade reforms in the major trading nations. The text concludes with some recommendations on how the new WTO initiative could be launched and implemented over the next five years.

Trade experts from around the world discuss challenges confronting the World Trade Organization (WTO) as it charts its course for the years ahead. The authors offer recommendations to deal with important issues such as investment, competition and antidumping policy, environment and trade, labor standards, and Chinese accession to the WTO. Analysis of the implementation of the Uruguay Round accords, the breadth and scope of remaining barriers to trade that could be the subject of new liberalization efforts, the compatibility or inconsistency of regional and multilateral initiatives, and the political support in major trading countries for new WTO negotiations are also discussed. The overview and conclusions also appear in a separate monograph by Jeffrey J. Schott.
Jeffrey J. Schott joined the Peterson Institute for International Economics in 1983 and is a senior fellow working on international trade policy and economic sanctions. During his tenure at the Institute, Schott was also a visiting lecturer at Princeton University (1994) and an adjunct professor at Georgetown University (1986–88). He was a senior associate at the Carnegie Endowment for International Peace (1982–83) and an official of the US Treasury Department (1974–82) in international trade and energy policy. During the Tokyo Round of multilateral trade negotiations, he was a member of the US delegation that negotiated the GATT Subsidies Code. Since January 2003, he has been a member of the Trade and Environment Policy Advisory Committee of the US government. He is also a member of the State Department's Advisory Committee on International Economic Policy.

Globalization is exposing social fissures between those with the education, skills, and mobility to flourish in an unfettered world market—the apparent "winners"—and those without. These apparent "losers" are increasingly anxious about their standards of living and their precarious place in an integrated world economy. The result is severe tension between the market and broad sectors of society, with governments caught in the middle. Compounding the very real problems that need to be addressed by all involved, the knee-jerk rhetoric of both sides threatens to crowd out rational debate. From the United States to Europe to Asia, positions are hardening.

Dani Rodrik brings a clear and reasoned voice to these questions. Has Globalization Gone Too Far? takes an unblinking and objective look at the benefits—and risks—of international economic integration, and criticizes mainstream economists for downplaying its dangers. It also makes a unique and persuasive case that the "winners" have as much at stake from the possible consequences of social instability as the "losers." As Rodrik points out, "... social disintegration is not a spectator sport—those on the sidelines also get splashed with mud from the field. Ultimately, the deepening of social fissures can harm all."

President Clinton read the book and it provided the conceptual basis for the trade/IMF portions of his State of the Union message in January 1998.

This study presents the case for an international banking standard (IBS) to deal with the rash of banking crises in developing countries. Over the past 15 years, almost three-fourths of the IMF's member countries have experienced at least one serious bout of banking problems; there have been at least a dozen developing country episodes where the costs of these crises amounted to 10 percent or more of the country's GDP; and the total public sector resolution costs of developing-country banking crises have been estimated to be $250 billion. Not only are these banking crises extremely costly to developing countries, they also pose increased risk to industrial countries.

Morris Goldstein demonstrates that existing international agreements do not address the main sources of these crises, and the adoption of a voluntary IBS offers a more attractive route to banking reform than the relevant alternatives. The study recommends minimum standards in eight key areas of banking supervision and addresses the operational issues associated with the design and implementation of an IBS.

The recently-adopted OECD convention outlawing bribery of foreign public officials is welcome evidence of how much progress has been made in the battle against corruption. The financial crisis in East Asia is an indication of how much remains to be done. Corruption is by no means a new issue but it has only recently emerged as a global issue. With the end of the Cold War, the pace and breadth of the trends toward democratization and international economic integration accelerated and expanded globally. Yet corruption could slow or even reverse these trends, potentially threatening economic development and political stability in some countries.

As the global implications of corruption have grown, so has the impetus for international action to combat it. In addition to efforts in the OECD, the Organization of American States, the World Trade Organization, and the United Nations General Assembly, the World Bank and the International Monetary Fund have both begun to emphasize corruption as an impediment to economic development.

This book includes a chapter by the Chairman of the OECD Working Group on Bribery discussing the evolution of the OECD convention and what is needed to make it effective. Other chapters address the causes and consequences of corruption, including the impact on investment and growth and the role of multinational corporations in discouraging bribery. The final chapter summarizes and also discusses some of the other anticorruption initiatives that either have been or should be adopted by governments, multilateral development banks, and other international organizations.

For more than a decade, there have been two important trends in the American economy. The first trend has been toward increasing openness of the economy to the international flows of goods, money, people, and ideas. The second has been very slow or even negative growth in real wages and a widening disparity in the distribution of income, particularly between relatively skilled and unskilled workers. Many observers suspect that these two trends are connected: increasing competition from foreign producers, particularly in low-wage developing countries, may have contributed to stagnation in US real wages and a worsening income distribution. These concerns have led to proposals to slow or reverse the internationalization of the American economy in order to bolster real wages, preserve jobs, and prevent a worsening income distribution. The issue is hotly debated among analysts and policymakers.

This study will provide a fresh and comprehensive analysis of theory and empirical evidence on the relationships among trade, employment and wages, and income distribution. It will explore the full range of options available to policymakers, including slowing the pace of trade liberalization, providing adjustment assistance to trade-impacted workers, and encouraging investment in human and physical capital.

The Uruguay Round trade negotiations marked a historic turning point in the reform of agricultural trade. The Uruguay Round Agreement on Agriculture (URAA) replaced nontariff barriers with bound tariffs, curbed export subsidies, and codified domestic agricultural programs. Unfortunately, the URAA bound many of the tariffs that replaced nontariff barriers too high, it legitimized export subsidies, and it left the domestic farm policies of the major industrial countries largely untouched.

Fortunately, regional trade institutions have also begun to grapple with agricultural trade liberalization. Agriculture was featured in the Mercosur agreement, in recent agreements between the European Union and the countries of Central and Eastern Europe, and in the North American Free Trade Area (NAFTA). Plans for broad supraregional trade structures, such as the Asia Pacific Economic Cooperation (APEC) forum and the Free Trade Area of the Americas (FTAA), have also dealt with the inclusion of agricultural trade. Meanwhile, in developing and middle-income countries, unilateral agricultural policy reforms have been part of recent economic policy changes. However, in the industrial countries, agricultural policy reform has languished in the face of much domestic opposition. But the reform of the European Union's Common Agricultural Policy (CAP) in 1992 and the 1996 Farm Bill in the United States seems to have ushered in a new era of relations between government and agricultural groups. The author points out ways that multilateral, regional, and unilateral paths could be coordinated to liberalized agricultural trade. He proposes a set of multilateral talks that would benefit from agricultural reform at all levels and complete the job begun at the Uruguay Round.

The stakes were high in the financial services negotiations that were completed in December 1997 at the World Trade Organization (WTO). The developing countries were eager to strengthen and modernize their financial systems. The industrial countries sought access to important emerging markets in Latin America and Asia for their banking, insurance, brokerage, and other financial services firms. In the end, both sides agreed to bind unilateral and regional financial opening and reform that was already under way in many countries, industrial and developing alike.

The authors assess the agreement reached in the WTO, identifying its shortcomings and suggesting ways that it can be bolstered in future negotiations. They analyze the impact of the agreement, and of the Asian financial crisis, on the state of liberalization and market opening in several important emerging-market economies—including a summary of the remaining obstacles to establishing efficient and open financial sectors. This book estimates the benefits of opening the financial sector to foreign competition. It assesses the macroeconomic benefits that flow from an improved financial sector and discusses the risks and costs involved in liberalization. The authors conclude with a blueprint for future efforts to liberalize financial services and emphasize that the recent financial services agreement represented only a beginning step in that process.

The Asian financial crisis has precipitated significant changes in real exchange rates in the region that will substantially alter the volume and pattern of international trade. The crisis countries will increase their exports and, especially, reduce their imports. Japan, China, and the other non-crisis countries will experience more complex changes. The trade balances of the United States and Western Europe will deteriorate by about $40-50 billion as a result of the currency movements in Asia.

This study, newly updated in August 1999, quantifies the impact of the currency changes on the individual countries in Asia, on the United States, on Europe and on other regions on a sector-by-sector basis. It analyzes the additional impact that might occur if China, thus far a relative bystander in the crisis, were to devalue its currency as well. It then examines potential trade policy responses to these developments including the risk of an upsurge in protectionist pressure in the United States.

China was steeped in the concepts and ideology of a planned economy for 30 years until reforms began in 1978. Although the country is now well on its way to becoming a market economy, its trading system remains shackled by its centrally planned past. Measuring the Costs of Protection in China analyzes some of the costs of trade protection and the corresponding benefits of liberalization for 25 highly protected sectors in China.

The book begins with a description of the development of China's trade administration system, sketching the obstacles to and prospects for further liberalization. The authors analyze the structure of Chinese trade protection and present their estimates of its static costs. They then offer an in-depth analysis of the country's trade regime and of the administrative barriers to rationalization and liberalization.The final chapter presents the authors' recommendations for improving China's trade system. They conclude that the short-term costs of trade liberalization for goods examined in the study will be substantial in terms of lost domestic output and lost jobs. The long-term benefits, however, would provide some $35 billion worth of consumer benefits.

Five appendices provide greater technical detail on the modeling and methodology applied in this study, as well as a brief description of some peculiarities of the Chinese trade regime-including copious levels of smuggling and monopolistic market structures.

The study was conducted by a team of Chinese economists at the independent Unirule Institute in Beijing, whose president is the prominent reformer, Mao Yushi. It is part of the Institute's series on the costs of protection in several major countries, which has previously produced publications on the United States, Japan, and Korea.

The Exchange Stabilization Fund (ESF) holds more than $40 billion that is at the disposal of the US Secretary of the Treasury for use in foreign exchange intervention and international financial support operations. Its use in the Mexican rescue package of 1995 brought the ESF into the public spotlight for the first time in recent years, and it has been deployed in Brazil and several Asian crisis countries as well. Its availability for such packages and its total control by the Treasury secretary have therefore become very controversial.

Randall Henning's study maintains that the Fund is an important element of US foreign policy and economic policy and that it should remain under the exclusive control of the Treasury, but that Congress should exercise effective oversight. Henning also covers the legislative history of the ESF and outlines the principles by which the Fund should be administered.

Countries that entered the European Monetary Union had to do so at exchange rates that are close to equilibrium levels. So when are exchange rates at equilibrium levels? Real Exchange Rates for the Year 2000 discusses the fundamental equilibrium exchange rate (FEER) method and estimates FEERS for the G7 countries for 1995 and 2000. There have been large swings in all G7 currencies in the last five years, and in these circumstances, the markets and policymakers need better guides to the sustainable levels of these currencies.

The authors estimate equilibrium real exchange rates using a partial-equilibrium model based on econometric trade equations, assumptions of trend output, and estimates of the medium-run current account. They emphasize that the FEER is a medium-run construct and contrast it with the purchasing price parity (PPP) method of determining rates. The authors discuss the links between the FEER and fiscal policy and the extent to which the FEER is a normative concept. They conclude with sensitivity analysis for changes in current account and trend GDP assumptions.

This report contains the findings and recommendations of an independent blue-ribbon commission on the future international financial architecture. The commission was sponsored by the Council on Foreign Relations, and co-chaired by Peter G. Peterson and Carla A. Hills, with the Institute for International Economics' Morris Goldstein serving as project director. The membership is listed below. The report analyzes the main factors that give rise to banking, currency, and debt crises, and it proposes a set of interrelated recommendations for improving crisis prevention and resolution. It also explains why the United States, despite its impressive overall economic performance since the outbreak of the Asian crisis, has a large stake in the future international financial architecture. The commission's recommendations aim at altering the behavior of emerging-market borrowers and their private creditors in ways that would reduce vulnerabilities in the exchange rate systems of emerging economies; inducing private creditors to accept their fair share of the costs of crisis resolution; reforming the IMF's lending policies; and refocusing the mandates of the IMF and the World Bank on leaner agendas. Its recommendations range well beyond the decisions taken to date by the international financial community.

A series of dissenting opinions by individual members is included. Other members of the commission were Paul Allaire, C. Fred Bergsten, Kenneth Dam, George David, Jorge Dominguez, Kenneth Duberstein, Barry Eichengreen, Martin Feldstein, Maurice Greenberg, Lee Hamilton, John Heimann, Peter Kenen, Paul Krugman, Nicholas Lardy, David Lipton, Ray Marshall, Norman Ornstein, William Rhodes, Stephen Roach, Henry Schacht, James Schlesinger, George Soros, Laura Tyson, Ezra Vogel, Paul Volcker, and Vin Weber.

The end of the 20th century will mark the beginning of a new era for the world trading system. More than 130 member countries of the World Trade Organization (WTO) will begin negotiations in 1999 on a broad range of subjects, including agriculture, services, intellectual property, and trade and the environment. The authors in this volume analyze the key issues that should be on the agenda of new WTO negotiations to meet the challenges generated by the Asian financial crisis, concerns about the impact of globalization on firms and workers, and the proliferation of regional trading pacts. They present a compelling case for comprehensive trade talks that include new issues such as investment and competition policy, in addition to subjects already part of the WTO's built-in agenda.

The overview chapter by Jeffrey J. Schott examines the work of the WTO since its establishment in January 1995 (including its dispute settlement mechanism) and the key challenges facing new trade talks. In addition, Schott proposes a new negotiating strategy to produce concrete results without the lengthy delays of past trade talks. He recommends that governments commit to continuous negotiations in Geneva and use the regularly scheduled meetings of trade ministers to conclude a balanced "round-up" of agreements every two years. An appendix contains statements made by WTO Director General Renato Ruggiero and US Trade Representative Charlene Barshefsky on the importance of WTO negotiations and the key US objectives in pursuing those talks.

Imports pour into the United States, up by 79 percent in six years. The trade deficit more than doubles. The House of Representatives solidly rejects a bill that would liberalize global and regional trade and endorses import quotas for a major manufactured product by a two-to-one margin. Although at first glance these events of the 1990s might sound like past chapters of US trade politics, in fact the political dynamics have changed in significant ways. As the impact of globalization comes into focus, politically important constituencies have begun to resist trade liberalization. Labor and environmental groups in particular, demanding that their concerns be addressed, have succeeded in fracturing the long-standing, bipartisan, protrade coalition in Congress, and in the process have undercut US leadership in liberalizing global trade.

This new study reexamines the landscape of trade politics. It shows how trade advocates and labor and environmental skeptics differ significantly in both their substantive views and their political and organizational cultures. The authors demonstrate how this new challenge differs from that of traditional trade protectionism, likening it instead to the debate a century ago over whether and how to regulate American capitalism for social purposes. The analysis leads to a set of recommendations aimed at constructive compromise and a new political foundation for US trade policy leadership.

The failure of the Seattle trade ministerial in December 1999 to launch a new round of multilateral trade negotiations dealt a major blow to the World Trade Organization (WTO). The Seattle meetings exposed significant policy differences among the WTO member countries as well as shortcomings in the way the WTO conducts its business and interacts with other international and nongovernmental organizations. The WTO after Seattle analyzes the problems and challenges facing the trading system in the aftermath of the Seattle ministerial. Leading trade experts examine why it is in the interests of both developed and developing countries to reengage in new trade talks, and how such talks could promote world trade and economic development, reform WTO operations, and strengthen public support for the trading system.

The volume presents balanced perspectives on world trade problems by authors from the United States, Europe, Asia, and Latin America, with recommendations on what needs to be done in key areas to launch new talks. The authors address the WTO's existing mandate to negotiate on agriculture and services, as well as how to handle new issues such as investment, competition policy, e-commerce, and trade-related environmental and labor issues. The editor, Jeffrey J. Schott, provides a comprehensive overview of the issues facing the WTO and of what needs to be done to begin a new round.

Over the past 15 years, intellectual property rights (IPRs)-patents, copyrights, and trademarks-have moved from an arcane area of legal analysis and a policy backwater to the forefront of global economic policymaking. In the 1990s dozens of countries unilaterally strengthened their laws and regulations in this area, and many others are poised to do likewise. At the multilateral level, the successful conclusion of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) in the World Trade Organization elevates the protection and enforcement of IPRs to the level of solemn international commitment.

The new global IPR system comes with both benefits and costs. Stronger IPRs protection should increase incentives for innovation and raise returns to international technology transfer. However, it also could raise the costs of acquiring new technology and products, shifting the global terms of trade in favor of technology producers and against technology consumers. In this context, the new regime raises international economic policy questions that evoke impassioned and exaggerated claims from both advocates and opponents of IPRs, particularly concerning sensitive issues such as patent protection of pharmaceuticals and biotechnological inventions, and copyright protection for internet transactions.

In the first comprehensive economic assessment of the effects of stronger international IPRs, Keith E. Maskus examines these competing claims through an analysis of the economic effects of extended international protection and partial harmonization of IPRs. He presents findings on the potential effects of stronger global IPRs, including likely impacts on foreign direct investment, technology transfer, and pricing under enhanced market power. The results bear directly on several important policy questions, including the construction of complementary initiatives on market liberalization and competition rules, and Maskus discusses whether priority attention should be devoted to them in the upcoming next round of global trade talks.

Japan is only one of many industrialized economies to suffer a financial crisis in the past 15 years, but it has suffered the most from its crisis—as measured in lost output and investment opportunities, and in the direct costs of clean-up. Comparing the response of Japanese policy in the 1990s to that of US monetary and financial policy to the American Savings and Loan Crisis of the late 1980s sheds light on the reasons for this outcome.

This volume was created by bringing together several leading academics from the United States and Japan—plus former senior policymakers from both countries—to discuss the challenges to Japanese financial and monetary policy in the 1990s. The papers address in turn both the monetary and financial aspects of the crisis, and the discussants bring together broad themes across the two countries' experiences. As the papers in this Special Report demonstrate, while the Japanese government's policy response to its banking crisis in the 1990s was slow in comparison to that of the US government a decade earlier, the underlying dynamics were similar. A combination of mismanaged partial deregulation and regulatory forebearance gave rise to the crisis and allowed it to deepen, and only the closure of some banks and injection of new capital into others began the resolution. The Bank of Japan's monetary policy from the late 1980s onward, however, was increasingly out of step with US or other developed country norms. In particular, the Bank of Japan's limited response to deflation after being granted independence in 1998 stands out as a dangerous and unusual stance.

The global financial crisis of 1997-98 and the widening US trade deficit have precipitated fresh inquiry into a set of perennial questions about global integration and the US economy. How has global integration affected US producers and workers, and overall growth and inflation? Is a chronic and widening deficit sustainable, or will the dollar crash, perhaps taking the economy with it? If the problem was one of "twin deficits," as many thought, why has the trade deficit continued to grow even as the budget deficit narrowed to zero? If US companies are so competitive, why does the trade deficit persist? Is the trade deficit a result of protectionism abroad? Will it lead to protectionism at home? What role do international capital markets have?

Each chapter presents relevant data and a simple analytical framework as the basis for concise discussions of these major issues. The final section of the book provides an outlook for the deficit and suggests alternative policy courses for dealing with it. This book is designed for policymakers and others who are interested in the US role in the world economy. It is also suitable for courses in international economics, business, and international affairs.

Electronic commerce is changing the way businesses and consumers create, sell, and buy products, and the way they communicate and learn. How can policymakers position their countries to take advantage of this new environment? How should policymaking adjust to a more global, more networked, and more information-rich marketplace where relationships and jurisdictions between the governments, businesses, and citizens increasingly overlap? How can governments effectively harness rapidly changing technologies and partner with both domestic and foreign private sectors to reap the greatest benefits for their constituents?

This primer answers these questions using both general analysis and specific examples. It addresses in particular the needs of policymakers in emerging markets who must formulate and refine policies that affect e-commerce in areas such as telecommunications, finance, taxation, privacy, and international trade and domestic distribution. Companies considering doing business in these economies also will find that the examples offer insights into the issues that policymakers face, the different policy approaches they choose, and the market opportunities that arise as more and more economies around the world embrace global electronic commerce.

Air and water pollution blighted northern Mexican cities long before the North American Free Trade Agreement (NAFTA) was a glimmer on the political horizon. Not surprisingly, when NAFTA became a political reality, environmentalists argued that commercial competition would weaken environmental standards in Canada and the United States and industrial growth in Mexico would further damage its weak environmental infrastructure. NAFTA's huge success in expanding free trade has concentrated population and environmental abuse at the US-Mexico border where it is most visible to Americans. Many environmental groups blame NAFTA and, drawing on its experience, now oppose new trade initiatives.Does the NAFTA record on the environment since 1994 justify its criticism?

In this seven-year analysis, the authors review NAFTA's environmental provisions, including a side accord—the North American Agreement on Environmental Cooperation (NAAEC), the situation at the US-Mexican border, and the trends in North American environmental policy. They emphasize that the environmental problems of North America were not the result of NAFTA and the NAAEC was not devised to address all of them. The authors recommend ways to better NAFTA's environmental dimension in all three countries, and improve living conditions where economic growth is greatest—at the US-Mexican border. It makes more sense to tackle the shortcomings than to lament NAFTA and the economic growth it promotes.

Antiglobalist forces have been gaining greater momentum in recent years in their efforts to reverse what they view as the negative effects of an integrating global economy. Their influence was felt earlier when efforts to create a Multilateral Agreement on Investment (MAI) ended in failure in 1998 after France left the bargaining table at the Organization for Economic Cooperation and Development, effectively killing the initiative. In this book, through an evaluation of the MAI itself and the issues raised by its opponents, Edward M. Graham takes a fresh look at the growing backlash against globalization.

He first explores whether the MAI negotiations failed due to political maneuvering by antiglobalist nongovernmental organizations (supported by US organized labor) or because of irreconcilable differences among the negotiating parties over the substance of the issue of foreign direct investment. He then objectively and thoroughly assesses antiglobalist assertions that the activities of multinational firms have had negative effects on workers both in the home (investor) and host (recipient) nations, with a special focus on developing nations. An important finding is that multinational firms tend to pay workers in developing nations wages that are significantly above prevailing wages. Graham then examines the issue of globalized economic activity and the environment, finding that economic growth in developing nations can lead to increased environmental stress but also finding that foreign direct investment can lead to reductions in this stress. He finds that the worry of many environmentalists of a "race to the bottom" is not borne out by the evidence. The final chapters assess whether or not a negotiation to create a comprehensive agreement on investment should be included in a multilateral negotiating round at the World Trade Organization in the near future. The interests of developing nations in this agenda are given special attention. Graham indicates that, while many developing nations would accept such rules, it might nonetheless be premature to press for a comprehensive agreement at this time. Rather, a limited investment agenda might be both more feasible and more productive.

President Franklin Roosevelt created the Export-Import Bank of the United States (Ex-Im Bank) in 1934 to promote US trade in the midst of the Great Depression. At the outset, the Ex-Im Bank was instructed to supplement, not compete with, private sources of export finance. Historically, the Ex-Im Bank filled gaps when the private sector was reluctant to finance exports to politically uncertain areas—such as Latin America in the 1940s, Europe in the 1950s, and emerging markets more recently. Critics now ask whether—in the current era of vast private capital markets—significant financing gaps still exist that require government action. Put bluntly, should the Ex-Im Bank still be playing a role in financing US exports to emerging markets? Since the 1970s, the Ex-Im Bank has faced a new challenge: helping US exporters meet the financial competition from foreign export credit agencies (ECAs)—such as COFACE in France and the Export-Import Bank of Japan. The Ex-Im Bank has tried to cope with foreign ECAs in two different ways. One way is to negotiate common rules for export financing, under OECD auspices. The other is to match credit terms offered by foreign ECAs. A central question for the Ex-Im Bank in the 21st century is whether this dual strategy still provides a viable answer to an array of new forms of competition spawned by foreign ECAs.

The Institute for International Economics sponsored a conference in May 2000, both to honor the Bank's 65th anniversary and to look ahead at challenges facing the Ex-Im Bank. This volume—edited by former director of the Bank, Rita Rodriguez, and Institute Senior Fellow Gary Clyde Hufbauer—presents the papers from the conference. The papers both describe the Bank's current environment and identify new problems and opportunities in a global economy characterized by highly sophisticated private finance and intense competition for export markets. This volume provides an analytical basis for evaluating the Ex-Im Bank's future and suggests options that should be considered by President George W. Bush and Congress.

Contributors: Robert Rubin * James Harmon * Lorenz Schomerus * J. David Richardson * Renato Sucupira * Mauricio Moreira * William Cline * Peter Evans * Kenneth Oye * Allan Mendelowitz * William Niskanen * Robert Nardelli * John Lipsky * Daniel Zelikow *Robert Hormats * Hans Reich * A. Ian Gillespie * Fumio Hoshi * William Daley * James Leach * Lawrence Summers

The European currency crises of 1992-93, the Mexican crisis of 1994-95, and especially the Asian/global crisis of 1997-98, have all contributed to a heightened interest in the early warning signals of financial crises. This pathbreaking study presents a comprehensive battery of empirical tests on the performance of alternative early warning indicators for emerging-market economies that should prove useful in the construction of a more effective global warning system.

Not only are the authors able to draw conclusions about which specific indicators have sent the most reliable early warning signals of currency and banking crises in emerging economies, they also test the out-of-sample performance of the model during the Asian crisis and find that it does a good job of identifying the most vulnerable economies. In addition, they show how the early warning system can be used to construct a "composite" crisis indicator to weigh the importance of alternative channels of cross-country "contagion" of crises, and to generate information about the recovery path from crises.

This timely study comes on the eve of impending changes at the International Monetary Fund as that institution reexamines how it reacts to financial crises. Moreover, the study provides "... a wealth of valuable elements for anyone investigating and forecasting adverse developments in emerging markets as well as industrial countries," according to Ewoud Schuitemaker, vice president of the economics department at ABN AMRO Bank.

The Asian crisis has sparked a thoroughgoing reappraisal of current international financial norms, the policy prescriptions of the International Monetary Fund, and the adequacy of the existing financial architecture. To draw proper policy conclusions from the crisis, it is necessary to understand exactly what happened and why from both a political and an economic perspective.

In this study, renowned political scientist Stephan Haggard examines the political aspects of the crisis in the countries most affected—Korea, Thailand, Malaysia, and Indonesia. Haggard focuses on the political economy of the crisis, emphasizing the longer-run problems of moral hazard and corruption, as well as the politics of crisis management and the political fallout that ensued. He looks at the degree to which each government has rewoven the social safety net and discusses corporate and financial restructuring and greater transparency in business-government relations. Professor Haggard provides a counterpoint to the analysis by examining why Singapore, Taiwan, and the Philippines escaped financial calamity.
The volume... provides an excellent overview of both the theories and facts of the crisis. Strongly recommended for academic collections, lower-division undergraduate through research.

It is often pointed out that "for every bad borrower, and for every failed project, there is also a culpable lender or investor." This observation is particularly apt for the debate now raging in the capital markets: should private bankers and investment managers bear a greater share of the costs when financial crises erupt in emerging economies? Critics who have analyzed the "plumbing" of the world's financial architecture have thus far devoted enormous attention to the demand side—structural weaknesses in emerging markets. They have excoriated the IMF for ineptitude and policy mistakes. But the authors of this study argue that financial leaders of the G-10 nations (industrial nations that were hardly affected by the crises of 1997-98) owe a responsibility—both to their own citizens and the emerging markets—to take a far more vigilant stance.

Dobson and Hufbauer criticize the supply side of world capital markets and ask how G-10 capital suppliers can reform their own financial systems to make the world safe for large-scale international capital flows. They draw a comprehensive picture of international finance through an extensive review of capital flows, the major financial players behind these flows, and the balance between costs and benefits of international capital movements. The authors analyze the implications of changing the rules of the game and recommend specific policy measures.

A number of recent events in the United States attest to a "globalization backlash" in opposition to continued liberalization of trade, foreign direct investment, and immigration. This backlash has been commonly characterized as reflecting the interests of small groups whose diverse agendas have very little connection, if any, to the economic consequences of policy liberalization.The authors of this book argue that this characterization is wrong. The backlash reflects widespread skepticism among US citizens about globalization, and these perceptions seem to be closely connected to the labor-market pressures that globalization may be imparting on US workers.

The empirical case for the book's argument is based on three key findings. First, a wide range of public opinion surveys indicates that US citizens recognize both the costs and benefits of integration with the world economy, but they tend to weigh the costs more than the benefits. Second, these policy preferences cut most strongly across labor-market skills. Less-skilled workers are much more likely to oppose freer trade and immigration than their more-skilled counterparts. Third, this skills-preferences gap may reflect very different wage-growth levels across skill groups in the US labor market since the early 1970s. Less-skilled US workers—a group that still constitutes the majority of the US labor force—have had close to zero or even negative real wage growth and have also seen sharp declines in their wages relative to more-skilled workers.While concerns about the impact of globalization on the environment, human rights, and other issues are an important part of the politics of globalization, it is the link between policy liberalization, worker interests, and individual opinions that forms the foundation for the backlash against liberalization in the United States.

What are the choices the Asia-Pacific community will face if it proceeds further down the path of developing preferential regional trading arrangements? Fragmentation of the region into preferential trading arrangements on a bilateral or subregional basis promises relatively little economic gain and considerable risk of increased trade conflict. Larger preferential trading blocs, spanning the whole of East Asia, the Western Pacific, or the APEC membership, offer greater potential economic benefits but also face formidable political obstacles.

In this study, Scollay and Gilbert weigh the economic consequences of the increased use of preferential trading arrangements in the Asia-Pacific region, whether these develop on the basis of trans-Pacific cooperation or solely within the East Asian or Western Pacific sub-regions. They evaluate the economic effects of both the existing proposals for new bilateral and multilateral agreements and of more far-reaching developments involving the creation of a substantial trading bloc or blocs in the region. Comparisons between the economic effects of establishing such bloc(s) in the region and the effects of achieving APEC's Bogor goals on the basis of "open regionalism" suggest that the latter approach continues to offer a worthwhile alternative. The study demonstrates that the benefits of global free trade dominate those available from establishment of any combination of major blocs or from APEC's "open regionalism".

The Mexican peso crisis struck in late December 1994, coinciding with a new Mexican administration and the end of the first year of the North American Free Trade Agreement (NAFTA). The crisis poignantly highlighted the success and the inadequacy of the treaty—success in the expansion of trade and capital flows, and inadequacy in institutional capacity. The Canadian, Mexican, and US governments defined the agreement so narrowly that they failed to devise a mechanism that could monitor, anticipate, plan, or even respond to such a serious problem. The president of Mexico, Vicente Fox, has boldly proposed transforming the free trade area into a common market like Europe's.

In this visionary study, Robert A. Pastor seizes Fox's idea and maps out the paths toward making it a reality. He analyzes NAFTA's successes and shortcomings, extracts lessons from the European Union's 40 years of reducing disparities between rich and poor countries, and proposes ways that NAFTA can adapt and incorporate those lessons. The centerpiece of the book is a detailed proposal for new institutions and "North American plans" for infrastructure and transportation, immigration and customs, and projects aimed at lifting the poorer regions. This book is the first to propose a detailed approach to a North American Community—different from the European Common Market but drawing lessons from its experience. It will be of considerable interest to policymakers as well as researchers and students of international political economy, world trade, and foreign affairs.

There is an important question lost in the debate over the number of jobs created or destroyed by trade liberalization: as the dynamic American economy continues to change, with freer trade and technological advances, what kind of work will Americans do? In a dynamic economy jobs are created and lost, and workers are displaced. Moving beyond the recent public policy focus on how many workers will be affected, this study focuses on understanding how these workers will be affected.

Using worker-level data from the Displaced Worker Surveys, Lori G. Kletzer asks and answers a number of key questions about the cost of trade-related job loss. How do these workers compare to those displaced from other manufacturing industries? How sizeable are the earnings losses? What can we learn from the pattern of reemployment and earnings that will aid in the (re)design of adjustment services? The costs of import-competing job loss are high for some workers, but not starkly higher than the costs of other types of manufacturing job loss. For many manufacturing displaced workers, the best outcome, in terms of minimizing medium-term earnings losses, is to regain employment in the "old economy," back in manufacturing. New jobs in the service economy tend to result in larger earnings losses. This report reveals a narrow, but significant, group of workers for whom import-competing job loss is very costly. For other workers, realized costs are smaller. Understanding this range of outcomes should assist policymakers in targeting assistance to address the real costs of import-competing job loss.

Trade protection costs the European Community between 6 and 7 percent of its gross domestic product, or the equivalent of the annual economic output of Spain. Continuing the Institute's series on trade protection in major countries (which already includes the United States, Japan, Korea, and China), this study by Patrick A. Messerlin is the first attempt to measure the impact of all types of protection in the European Union.

Messerlin uses partial equilibrium methods to assess the costs to consumers and to evaluate the political economy of European protection. He also examines in detail the intricate relations between the major EC domestic policies—from the Common Agricultural Policy to the Single Market in services—and EC commercial policy. He aims to assess their dynamic evolution for the decade to come, which will be marked by the first accessions of Central European countries to the EC and by the debate on the European political union. The study provides a valuable agenda for the upcoming round of WTO negotiations and underlines their role as a support for domestic reforms that the EC should undertake for its own benefit.

In this study Howard Lewis III and J. David Richardson explore the gains that workers, companies, and communities achieve from choosing to engage with the global economy. Why Global Commitment Really Matters! follows two earlier Institute publications that explored the benefits of exporting. This study summarizes new research on American importing, international investment, and technology transfers that shows similar benefits.

All types of global commitment seem to generate greater productivity, higher pay, stronger growth, and better survival rates. These in turn rejuvenate entire industries and their workforces and communities as they allow better firms and jobs to supplant those with less desirable traits. Exports, imports, investment, and technology transfer form a family of global commitments that spawns a family of economic rewards. The study shows that exactly the same patterns are being discovered in similar new research abroad. Little of this new research has made its way into the mainstream of public debate over trade and economic policies.The authors supplement their research survey with profiles of real American exporters, importers, multinational companies, foreign affiliates, and technology partners. They also weigh criticisms and alternative interpretations of the research, and examine the problems of those left on the margins of the global economy.

Leadership selection in the major global economic organizations produced unprecedented levels of public conflict during the 1990s. The convention that awards the IMF managing directorship to a European and the World Bank presidency to an American sparked conflict between the United States and Europe as well as growing discontent on the part of Japan and the developing countries. At the WTO, successive conflicts demonstrate deeper shortcomings in governance as membership expands rapidly and consensus decision making fails. Protracted efforts to choose new heads of these increasingly important organizations have undermined their legitimacy and distracted members from their core agendas.

This selection process and its flaws provide a central theme for the analysis and prescriptions presented in this study, which focuses on the major international financial institutions (IFIs) and other global and regional multilaterals. Miles Kahler looks at the sources of conflict and presents recommendations for reform: in the short run, changes in the process, such as the use of search committees; in the long run, the dismantling of the US-European convention at the IFIs and changes in representation at the WTO. The author's diagnosis and policy recommendations have important implications for leadership selection in other regional and global organizations.

For more than three decades, the United States has conducted a unique Japan-specific economic policy. This policy was motivated by Japan's economic size and dynamism, fears that a unique "Japanese model of capitalism" enabled it to compete unfairly and threaten American prosperity during a period of prolonged US economic difficulties, and that the United States had unique capabilities to induce policy change in Japan due to its provision of security guarantees. No More Bashing argues that these assessments are mistaken and that the United States should abandon its Japan-specific policy. Japan's declining relative importance in the world economy, the waning distinctiveness of its economic institutions, the failure of most recent US initiatives toward Japan, and the emergence of strengthened international institutions such as the World Trade Organization, all underscore the advisability of formulating new approaches to bilateral relations rooted more firmly in multilateral institutions.

This volume analyzes the outlook for the Japanese and US economies; their trade and financial relationships, including their trade negotiations over the past decade; the implications of new regional developments, most notably the rise of China and proposals for East Asian economic cooperation; and the roles of the United States and Japan in the provision of international public goods such as development assistance, environmental protection, and international security. It emphasizes that their trade agenda is increasingly moving beyond traditional border impediments toward the more politically sensitive issues of internal regulation and deregulation, such as competition policy. The authors propose a series of new initiatives to address these challenges and strengthen the multilateral system.

Price divergence is readily apparent to anyone who shops. Travelers from Manchester to London, or from Chicago to Paris, are hit by sticker shock. Products ranging from London Fog raincoats to Viagra are available over the Internet at half their retail store prices. Common experience tells us that prices for identical products differ between countries, between cities, even between neighboring shops. On the other hand, common experience also tells us that open markets and greater competition will force a degree of price convergence, if not identical prices.

This monograph presents speculative calculations that illustrate potential benefits from price convergence between countries. The authors take a fresh look at global economic integration by examining existing price divergence, and possible price convergence, across a range of consumer goods and then calculate the potential benefits of price convergence on a country-by-country basis and for the world as a whole. This study examines the potential benefits from price convergence resulting from more competition and market integration, not perfect competition and market integration. The authors calculate these benefits assuming that the world economy can attain the same degree of competition and market integration—and hence price convergence—as exists within the United States.

Shortly after the Mexican crisis of 1994-95, the major industrial countries undertook to strengthen the international financial architecture. They sought to reduce the risk of future crises by increasing the availability of information about economic conditions in emerging-market countries and strengthening the financial systems of those countries. They sought better ways to manage future crises, including ways to involve private-sector creditors in crisis management.

In this book, Peter B. Kenen reviews the reform effort and assesses the results. He shows how the effort was influenced by the Asian, Russian, and Brazilian crises. He compares the results of the effort with the more radical recommendations of outside experts and of the Meltzer Report, and examines the implications of the reform effort for the role of the International Monetary Fund (IMF). Kenen finds that there have been useful innovations but calls for bolder efforts aimed at five objectives: (1) increasing the usefulness of IMF surveillance by focusing it sharply on the sustainability of national policies, exchange rates, and debt profiles; (2) narrowing the scope of IMF conditionality by ceasing to treat acute crises as opportunities to achieve fundamental reforms; (3) providing incentives to foster financial reform in emerging-market countries and, in the interim, encouraging them to limit short-term foreign borrowing by their banks and corporations; (4) using the IMF's resources more effectively by making less money available but disbursing it more rapidly; and (5) enlisting the private sector in crisis management by introducing roll-over clauses into short-term debt contracts and collective-action clauses into long-term debt contracts.

A new era of globalization, which began in the 1980s, brought about a significant decline in costs of transportation, communication, and production; considerably improved intercountry competitiveness; and broke down trade and cultural barriers among countries. The concept of a sovereign nation has been increasingly questioned in recent years. Some, indeed, have imagined a world without boundaries, without countries. Others who doubt the benefits of globalization have called for increased protectionism and greater regulation of economic activity. Has globalization made the world grow faster? Has poverty declined at a faster pace during globalization? If yes, why? If not, is it because the growth rate was lower, or because inequality worsened, or both? Who gained from globalization? Was it the elite in both the developed and developing world? What about the middle class? Who are they? How did they benefit from (or lose to) the forces of globalization?

This comprehensive study firmly debunks several popular myths such as the belief that globalization has resulted in lower overall growth rates for poor countries, increasing world inequality, and stagnating poverty levels. Through rigorous, integrated methodologies and an enhanced dataset, the author, Surjit Bhalla, answers some of the most pressing policy issues confronting us today.

This volume is a successor of sorts to the Institute's 1986 volume Toward Renewed Economic Growth in Latin America, which blazed the trail for the market-oriented economic reforms that were adopted in Latin America in the subsequent years. It again presents the work of a group of leading Latin American economists who were asked to think about the nature of the economic policy agenda that the region should be pursuing after a decade that was punctuated by crises, achieved disappointingly slow growth, and saw no improvement in the region's highly skewed income distribution. The study diagnoses the first-generation (liberalizing and stabilizing) reforms that are still lacking, the complementary second-generation (institutional) reforms that are necessary to provide the institutional infrastructure of a market economy with an egalitarian bias, and the new initiatives that are needed to crisis-proof the economies of the region to end its perpetual series of crises.

Contributors: Daniel Artana, Nancy Birdsall, Roberto Bouzas, Saúl Keifman, Pedro-Pablo Kuczynski, Ricardo López Murphy, Claudio de Moura Castro, Fernando Navajas, Patricio Navia, Liliana Rojas-Suarez, Jaime Saavedra, Miguel Székely, Andrés Velasco, John Williamson, and Laurence Wolff.

When what was to become the Asian financial crisis of 1997 broke out in Thailand, few analysts predicted that this crisis would spread to South Korea. Korea, after all, had risen from poverty to become one of the "Asian miracle economies". However, the crisis did not spare Korea, and the Korean government was forced to negotiate a bailout from the International Monetary Fund in late 1997. In 1998, the Korean economy went into the deepest recession recorded in that country since the Korean War. Many of the underlying problems were homegrown. Huge amounts of debt had been amassed by Korea's large industrial conglomerates (the chaebol), and often the funds had been invested in undertakings that were not earning satisfactory rates of return. By the end of 1998, a number of smaller conglomerates had failed and one of the top five (Daewoo) was in serious trouble and eventually would fail.

In this study, author Edward M. Graham examines how this situation arose, tracing its roots to the aggressive industrial policy begun by Korean strongman president Park Chung-hee during the late 1960s. Graham notes that a major failing of Korea during the "miracle-economy" years was that the financial sector in Korea remained underdeveloped and thus never was able to develop a counterweight to the economic and political power that, over time, the chaebol acquired. The crisis of 1997 can be seen as the culminating event of that asymmetry that was created by Korean industrial policy, i.e., very powerful industrial groups that operated without the countervailing power of financial institutions. Graham then looks at the efforts at reform since 1997, including reform of the financial sector and the chaebol themselves. He concludes that, while much progress has been made, the reform has been uneven and is far from complete.

Since the financial crisis in the late 1990s, Asian governments have been considering strengthening regional monetary and financial cooperation. Proposals have ranged from the Asian Monetary Fund to common currencies. During the past two years, China, Japan, Korea, and the member-states of ASEAN have established a set of financial facilities under an agreement made in Chiang Mai, Thailand. The Chiang Mai Initiative (CMI) mobilizes a portion of the very large reserve holdings of its members for financial stabilization in a crisis. Organized under the "ASEAN plus three" grouping, these arrangements do not include the United States or other countries outside the region.

The CMI thus raises several important questions: Under what terms will financing be extended on a regional basis? Is it likely to stabilize or destabilize international capital flows? What will CMI's relationship be to the International Monetary Fund and other official financial institutions? How should governments build on these arrangements in the future? Could they provide the basis for broader integration of the East Asian region?This study examines the case for and against regional financial arrangements in East Asia, describes the CMI, compares it to financial arrangements in other regions, and recommends how the Initiative can preserve its complementarity to multilateral institutions and be strengthened in the future. The study specifically addresses the concerns of Americans, Europeans, and multilateral organizations, assessing the pros and cons of such regional financial arrangements for the global system.

In March 2002, President George W. Bush proposed establishing the Millennium Challenge Account (MCA), a new foreign aid program designed to provide substantial assistance to a select group of low-income countries that are committed to sound development policies. The MCA could bring about the most fundamental changes to US foreign assistance policy in 40 years.

In this study, Steven Radelet examines the MCA's potential promise and possible pitfalls. He offers a rigorous analysis of the MCA's central challenge: making foreign aid more effective in supporting economic growth and poverty reduction in the poor countries. He systematically explores what makes the MCA different and pinpoints the critical issues that will determine its success or failure.The book concludes with important recommendations about how the MCA should be strengthened to solidify its innovation and independence and to ensure coordination with other US foreign aid programs. Written at a practical level, this book is an invaluable resource for anyone seriously interested in the MCA and US foreign assistance policy.

Koreans living in the United States have generated an increase of about 15 to 20 percent in trade between the United States and Korea. This is one of the surprising conclusions reached in this special report, which, upon the 100th anniversary of the migration of Koreans from their homeland, looks at the impact of the 6 to 7 million people who make up this diaspora on both South Korean and overseas economies. No country in history has ever succeeded in building a developed and high-income economy without participating in the global economy; globalization is imperative for economic success. And one of the largest elements of globalization, in addition to international trade and investment, is migration.

In The Korean Diaspora in the World Economy, experts hold up South Korea as one of the most dramatic examples of that experience, having gone from being a poor, underdeveloped country fewer than 40 years ago to becoming a postwar economic success story. This report also looks at South Korea's role as a regional trading partner and its present and future relations with North Korea.

After nearly five decades of insulation from world markets, state controls, and slow growth, India embarked in 1991 on a process of liberalization of controls and progressive integration with the global economy in an effort to put its economy on a path of rapid and sustained growth. Despite major changes in the government since then, the thrust on reforms has been maintained. According to the World Bank, only 10 out of 145 countries had more rapid growth than India at over 6 percent per year in the 1990s and two had the same as India's.

In this study, T. N. Srinivasan and Suresh D. Tendulkar analyze the economics and politics of India's recent and growing integration with the world economy. They argue that this process has to be nurtured and accelerated if India is to eradicate its poverty and take its rightful place in the global economic system.The study covers the historical roots and the political economy of India's late integration; domestic and external constraints on integration; external capital inflows including foreign direct investment; and India's emerging comparative advantage in the information technology industry and services, particularly computer software. The final chapter offers policy recommendations including proposals that India could make at the ongoing Doha Round of multilateral trade negotiations.

Between 1977 and 1997, there was a precipitous decline in the proportion of US workers with median education (12 years or less) who were represented by a labor union—from 29 to 14 percent; the unionization proportion declined much less among workers with above-median education (19 to 13 percent). The union wage premium also declined for workers with basic education, from 58 to 51 percent, whereas it rose slightly for better-educated unionists, from 18 to 19 percent. Thus, whatever safety net American unions provide was disproportionately lost by the less-educated workers who, arguably, need it the most.

In this study, Robert E. Baldwin investigates the role of changes in US imports and exports in explaining this dramatic decline. The main analysis (which includes workers in manufacturing as well as service sectors) relates changes in the number of union workers across industries to changes in domestic spending, imports, exports, and the intensity with which labor is used across these industries for both union and nonunion workers. Baldwin finds that although globalization (i.e., increased trade) seems to have contributed only modestly to the general decline in unionization, it has, more importantly, contributed to the decline in unionization among workers with less education. The study concludes with a discussion on the implication of this and the other findings for governmental policy and for the policy position of unions toward globalization.

Guarding the safety of a nation's food supply, ensuring quality, and providing information to consumers so that they can make informed food purchase choices are widely accepted as universal obligations of governments. But differences in the way that governments fulfill these obligations can lead to trade conflicts. The potential for such conflicts increases as more affluent and safety-conscious consumers demand additional regulations in the national food systems. Governments should handle these conflicts in a way that both upholds food safety standards—and public confidence in them—and preserves the framework for trade and the benefits of an open food system.

This book examines the current state of regulation of the increasingly global food system, analyzes the underlying causes of the trade conflicts (both those that are currently evident and those that are waiting in the wings), and outlines the steps that could be taken to ensure that food safety and open trade become, at the least, compatible and, at best, mutually supporting.

Within the next decade, 100,000 class action Chinese plaintiffs, organized by New York trial lawyers, could sue General Motors, Toyota, General Electric, Mitsubishi, and a host of other blue-chip corporations in a US federal court for abetting China's denial of political rights, for observing China's restrictions on trade unions, and for impairing the Chinese environment. These plaintiffs might claim actual damages of $6 billion and punitive damages of $20 billion. Similar blockbuster cases are already working their way through federal and state court systems.

This nightmare scenario could become a reality because of a little-known, one-sentence law enacted in 1789—the Alien Tort Statute (ATS): "The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." In this policy analysis, Gary Clyde Hufbauer and Nicholas K. Mitrokostas examine the chilling impact the ATS could have on trade and foreign direct investment. They trace its history from the original intent to recent court interpretations, including a look at class action suits over asbestos and apartheid. They provide an economic picture of the potential scope of ATS litigation, cite the possible collateral damage, and review the impact that ATS rulings could have on global relations. The authors recommend measures Congress should take to limit expansive court interpretations. The study is a must-read for policymakers, international lawyers, and students.