Publications

By Rebecca Ray, Kevin P. Gallagher, Andrés López and Cinthya Sanborn
(January 2017)

Over the last decade, Latin American countries have enacted some of the most ambitious environmental and social protections in the world. But these hard-won protections faced their first serious test in the recent China-led commodities boom, as growth exploded in intrinsically-risky sectors like mining and oil. China and Sustainable Development in Latin America  documents the social and environmental impact of the China-led commodity boom in the region. It finds that overall, Latin American governments and Chinese investors largely fell short of mitigating the social and environmental impact of commodity-led growth.

By Rebecca Ray, Kevin P. Gallagher, Andrés López and Cynthia A. Sanborn
(September 2016)

En América Latina, el reciente boom de las inversiones chinas es visto por algunos como una bendición, por permitirnos un mayor crecimiento económico, y por otros como una maldición, porque presenta una alta concentración en sectores primarios y extractivos. ¿Cuál es el balance de esta experiencia? ¿Las inversiones chinas han sido un motor de cambio positivo? ¿Las empresas chinas en nuestra región tienen un desempeño diferente del de otras empresas?En este libro, investigadores en ocho países –Argentina, Bolivia, Brasil, Colombia, Chile, Ecuador, México y Perú– se unen para responder estas preguntas. Sus estudios enfatizan el lado socioambiental de la relación con China, y el desempeño tanto de las empresas chinas en relación con otras transnacionales, como de los gobiernos nacionales al establecer altos estándares regulatorios. Se trata de una lectura analítica e informativa, y de un llamado a forjar relaciones internacionales basadas en la cooperación y el respeto mutuo.

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By Cornel Ban (August 2016)

Ruling Ideas covers an extended historical period, starting with the Franco period in Spain and the Ceausescu period in Romania, discusses the economic integration of these countries into the EU, and continues through Europe’s Great Recession and the European debt crisis. The broad historical coverage enables a careful analysis of how neoliberalism rules in times of stability and crisis and under different political systems.

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By Kevin P. Gallagher (March 2016)

In The China Triangle, Kevin P. Gallagher traces the development of the China-Latin America trade over time and covers how it has affected the centuries-old (and highly unequal) US-Latin American relationship. He argues that despite these opportunities Latin American nations have little to show for riding the coattails of the ‘China Boom’ and now face significant challenges in the next decades as China’s economy slows down and shifts more toward consumption and services. While the Latin American region saw significant economic growth due to China’s rise over the past decades, Latin Americans saved very little of the windfall profits it earned even as the region saw a significant hollowing of its industrial base. What is more, commodity-led growth during the China boom reignited social and environmental conflicts across the region.

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By Kevin Gallagher (February 2015)

In Ruling Capital, Kevin P. Gallagher demonstrates how several emerging market and developing countries (EMDs) managed to reregulate cross-border financial flows in the wake of the global financial crisis, despite the political and economic difficulty of doing so at the national level. Gallagher also shows that some EMDs, particularly the BRICS coalition, were able to maintain or expand their sovereignty to regulate cross-border finance under global economic governance institutions. Gallagher combines econometric analysis with in-depth interviews with officials and interest groups in select emerging markets and policymakers at the International Monetary Fund, the World Trade Organization, and the G-20 to explain key characteristics of the global economy.

Gallagher develops a theory of countervailing monetary power that shows how emerging markets can counter domestic and international opposition to the regulation of cross-border finance. Although many countries were able to exert countervailing monetary power in the wake of the crisis, such power was not sufficient to stem the magnitude of unstable financial flows that continue to plague the world economy. Drawing on this theory, Gallagher outlines the significant opportunities and obstacles to regulating cross-border finance in the twenty-first century.

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By Kevin Gallagher (July 2013)

Collecting and synthesizing a series of essays on the political economy of trade and development policy, this book explores the following research questions: to what extent is the global trading regime reducing the ability of nation-states to pursue policies for financial stability and economic growth; and what political factors explain such changes in policy space over time, across different types of trade treaties and across nations? Gallagher presents intriguing findings on the policy constraints on the Uruguay Round, as well as the significant restrictions that the USA places upon the ability of developing nations to deploy a range of development strategies for stability and growth.

Analyzing the factors that have led to twenty-first century trade politics being characterized by a “clash of globalizations,” this volume explores the role of economic power, institutional structure, domestic politics, currency fluctuations and ideas about globalization in effecting changes to global trade policies.

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By Kevin Gallagher and Roberto Porzecanski (October 2010)

In the eyes of many, China’s unprecedented economic rise has brought nothing but good news to the countries of Latin America and the Caribbean. Indeed, China’s growing appetite for primary products, and the ability of Latin America to supply that demand, has played a role in restoring growth in Latin America, both in the run-up to the global financial crisis and in its aftermath.

The dragon in the room that few are talking about is the fact that China is simultaneously out-competing Latin American manufacturers in world markets—so much so that it may threaten the ability of the region to generate long-term economic growth. One of the authors’ key claims is that China is rapidly building the technological capabilities necessary for industrial development, whereas Latin American tech innovation and sophistication lags considerably. At a deeper level, the findings in this volume imply that China’s road to globalization, one that emphasizes gradualism and coordinated macro-economic and industrial policies, is far superior to the “Washington Consensus” route taken by most Latin American nations, particularly Mexico.

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By Kevin P. Gallagher (August 2010)

In this comprehensive reference work, Kevin Gallagher has compiled a fresh and broad-ranging collection of expert voices commenting on the interdisciplinary field of trade and the environment. For over two decades policymakers and scholars have been struggling to understand the relationship between international trade in a globalizing world and its effects on the natural environment. The authors in this handbook provide the tools to do just that.

The editor’s well-worked introduction synthesizes the emerging themes of the collection, which is divided into three sections: trade and environmental quality, trade and environmental politics, and trade and environmental policy. Topics include the extent to which trade liberalization creates `pollution havens’ where dirty industries flock to poorer countries with lax environmental standards, and conversely, how multinational corporations bring `cleaner’ environmental technologies to developing countries when they choose to move abroad. The volume also addresses the extent to which national environmental policy and/or global environmental agreements clash with the emerging rules of the World Trade Organization and whether such environmental policies hinder export competitiveness. Finally, numerous political economy analyses of the complex political coalitions that arise to adapt to and mitigate changes in trade and environmental policy are provided. In addition to broader overviews of the field, in-depth case studies of nations and regions are offered, including the United States, the European Union, China, India and Mexico as well East Asia, Latin America, and Africa.

The volume will serve as a guide for scholars new to the field as well as students and policy-makers needing a quick reference to the research on the interface between trade and the environment.

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Edited by Kevin P. Gallagher and Daniel Chudnovsky (August 2010)

After almost twenty-five years of experimenting with the neo-liberal economic reforms collectively known as “Washington Consensus” policies, Latin Americans are starting to re-assess the merits of these policies – at the voting booth. Many newly elected governments are beginning to scrutinize the role of foreign direct investment (FDI) in particular, and some nations have gone so far as to nationalize foreign firms. Without endorsing or condoning the actions taken by these governments, this volume demonstrates that it is quite rational for governments in the region to re-evaluate the role of FDI for their development paths. The great promise of FDI by multinational corporations is that capital will flow into your country and be a source of dynamic growth. Beyond boosting income and employment, the hope was that manufacturing FDI would bring knowledge spillovers that would build the skill and technological capacities of local firms, catalyzing broad-based economic growth; and environmental spillovers that would mitigate the domestic ecological impacts of industrial transformation. Consisting of country case studies and comparative analyses from Latin American and U.S.-based political economists, this volume finds that when FDI did materialize if often fell far short of generating the necessary linkages required to make FDI work for sustainable economic development.

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By Kevin P. Gallagher and Lyuba Zarsky (July 2007)

Foreign investment has been widely perceived as a panacea for developing countries—as a way to reduce poverty and kick-start sustainable modern industries. The Enclave Economy calls this prescription into question, showing that Mexico’s post-NAFTA experience of foreign direct investment in its information technology sector, particularly in the Guadalajara region, did not result in the expected benefits. Charting the rise and fall of Mexico’s “Silicon Valley,” the authors explore issues that resonate through much of Latin America and the developing world: the social, economic, and environmental effects of market-driven globalization.

In the 1990s, Mexico was a poster child for globalization, throwing open its borders to trade and foreign investment, embracing NAFTA, and ending the government’s role in strengthening domestic industry. But The Enclave Economy shows that although Mexico was initially successful in attracting multinational corporations, foreign investments waned in the absence of active government support and as China became increasingly competitive. Moreover, the authors find that foreign investment created an “enclave economy” the benefits of which were confined to an international sector not connected to the wider Mexican economy. In fact, foreign investment put many local IT firms out of business and transferred only limited amounts of environmentally sound technology. The authors suggest policies and strategies that will enable Mexico and other developing countries to foster foreign investment for sustainable development in the future.

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By Kevin Gallagher (September 2005)

This book examines how far the economic forces and rules that govern the global economy are shrinking the “policy space” available to developing countries in constructing policies to raise living standards. The contributors analyze what room for movement developing countries still have, despite global macro-economic realities, IMF/World Bank policies, and the trade rules regime of the World Trade Organization. They suggest the policies that could be put in place to strengthen developing countries.

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By Kevin P. Gallagher (September 2004)

Free Trade and the Environment examines the impact economic integration has on the environment, using Mexico, which transformed itself from one of the most closed economies to one of the world’s most open, as a case study. As new nations join the Free Trade Area of the Americas or the World Trade Organization, they are considering the path taken by Mexico nearly 20 years ago.

The author investigates two commonly held and opposing beliefs in the policy community about the impact of free trade on the environment. While some believe that free trade will raise incomes in developing countries, thus encouraging governments to protect the environment, others argue that free trade simply provides an incentive for heavily polluting industries to move to developing countries with lax environmental regulations. The author shows that for Mexico in fact neither position is correct, and concludes with suggestions for free trade policies that couple environmental benefits with economic integration.

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Journal Issue of “Review of Development Finance” (June 2017)
By Kevin P. Gallagher and Yuan Tian

Abstract

In the wake of the financial crisis the International Monetary Fund (IMF) began to publicly express support for what have traditionally been referred to as ‘capital controls’. This paper empirically examines the extent to which the change in IMF discourse on these matters has resulted in significant changes in actual IMF policy advice. By creating and analyzing a database of IMF Article IV reports, we examine whether the financial crisis had an independent impact on IMF support for capital controls. We find that the IMF’s level of support for capital controls has increased as a result of the crisis and as the vulnerabilities associated with capital flows accentuate.

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By Guillermo Lagarda, Jennifer Linares and Kevin P. Gallagher (April, 2017)

The 2008 Financial Crisis and subsequent  financial turbulence have triggered economists and policymakers to revisit the extent to which capital account liberalization is optimal for all countries at all levels of development. While that literature has largely concluded that capital account liberalization may have detrimental effects on growth and accentuate financial instability in emerging markets, relatively little literature has examined the impacts of capital account liberalization on inequality—a subject that has also been under intense study over the past decade as well.

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By Rebecca Ray and Kevin Gallagher
(March 2017)

This China-Latin America Economic Bulletin is the fourth annual note summarizing and synthesizing trends in the burgeoning China-Latin America economic relationship. The goal of the bulletin is to provide analysts and observers a handy reference to the ever-changing landscape of China-Latin America economic relations, a landscape where data is not always as readily accessible.

In 2016, LAC’s economic relationship with China did not move much in total quantity: exports were flat while investment and finance fell slightly. However, one sector in particularly reinforced its centrality in all three major channels: extraction. China’s interest in LAC as a source of extractive raw materials has remained, even as other economic partners have shied away during the commodities price slump of the last several years.

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By Rebecca Ray
(February 2017)

In the last 10 years, China has grown into a major trade and investment partner for Latin America and the Caribbean (LAC). It is now South America’s top export destination and the second-largest source of foreign direct investment (FDI) inflows for the LAC region. However, this new relationship has also come to symbolize the trend of “reprimarization” in LAC: the shift away from state-led industrialization back toward LAC’s traditionally competitive production of raw commodities. While much has been written about how this new relationship fits into the history of industrial policy in LAC, less has been written about its environmental impacts in LAC, one of the world’s most biodiverse regions and home to most of the world’s annual tropical deforestation. This paper finds that – contrary to theoretical expectation – the most environmentally intensive products in LAC are not high-technology manufactured goods but primary products, measured through net greenhouse gas emissions and water use. Furthermore, LAC exports to China are significantly more environmentally intense than other LAC exports.

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Review of International Political Economy
By Cornel Ban and Leonard Seabrooke & Sarah Freitas
(December 2016)

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By Cornel Ban and Leonard Seabrooke
(November 2016)

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By Herik Selin
(November 2016)

The working paper by Henrik Selin analyzes the global climate finance regime set up to support mitigation and adaptation measures in developing projects with the goal of developed countries jointly mobilizing at least USD 100 billion a year from public and private sources by 2020. To institutionally strengthen this important regime, the paper proposes that the parties to the Paris Agreement in collaboration with other actors take three sets of steps: i) promote greater system-wide coherence and cooperation among actors and funding sources to ensure that all parts of the climate finance regime work together as efficiently as possible; ii) establish a central and independent clearinghouse that is tasked to collect finance and project data into a single database that is open to all; and iii) develop more shared climate finance definitions and standards among all regime participants.

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By Miquel Muñoz Cabre and Mohamed Youba Sokona
(November 2016)

The working paper by Miquel Muñoz Cabre identifies up to USD 241 billion and 101 GW of likely renewable energy investments in Africa based on an analysis of Nationally Determined Contributions (NDCs) and renewables plans. These include plans for 34 GW of solar PV, 26.4 GW of hydro,  25.7 GW of wind power and 7.4 GW of geothermal energy. The paper identifies 50 multilateral finance institutions and mechanisms active in financing renewable energy investments in Africa, and discusses the inclusion of energy access measures in NDCs. Moving forward, the paper considers the future role of NDCs regarding renewable energy.

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Working Group on Trade, Investment and Climate Policy report
(November 2016)

This report provides timely insights about the alignment of climate and trade policy as the Paris Agreement enters into force and the next round of UN climate talks take place in Marrakech from November 7-18. The authors explore opportunities and barriers for alignment of the Paris Agreement’s global climate commitments with trade agreements under negotiation in 2016, such as the Trans-Atlantic Trade and Investment Partnership (TTIP), the Trans-Pacific Partnership (TPP), and bilateral investment treaties (BITs) between the U.S. and China, and between the U.S. and India.

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By Rebecca Ray
(October 2016)

ABSTRACT

China’s meteoric rise as an economic partner for LAC economies is well documented: it is now the largest export market for South American goods and the second-largest market for LAC overall. But China’s demand for LAC exports and Chinese investments in LAC are concentrated in primary commodities, driving LAC away from industrial production and spurring “re-primarization.” This creates a conundrum for environmental economists, as the traditional “pollution haven” literature cannot adequately describe a situation of south-south investment relationships. In contrast “environmental Kuznets curve” literature anticipates that for middle-income countries such as those in Latin America, primary production is environmentally less sensitive than manufacturing; these hypotheses suggest that re-primarization would be environmentally beneficial for LAC. This paper tests these hypotheses against the evidence from the last ten years of LAC exports. It finds that primary production is more environmentally intensive than manufacturing in LAC, measured through net greenhouse gas emissions and water footprints.

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Journal NACLA Report on the Americas. Volume 48, 2016 – Issue 3
By Kevin P. Gallagher (September 2016)

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GEGI Working Paper
By Nagesh Kumar, in collaboration with Pradeep K. Keshari and Rohan Ray (July 2016)

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GEGI Working Paper
By Yongzhong Wang (July 2016)

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GEGI Working Paper
By Rogério Studart and Luma Ramos (July 2016)

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GEGI Working Paper
By Stephany Griffith Jones (July 2016)

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GEGI Working Paper
By Danny Bradlow and Chris Humphrey (July 2016)

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By Bo Kong and Kevin P. Gallagher
June 2016

In the new report, The Globalization of Chinese Energy Companies: The Role of State Finance, Kong and Gallagher trace how China’s financial system and state policy facilitates the globalization of Chinese energy companies in terms of trade and investment.  The key drivers of these efforts are the China Development Bank and the Export-Import Bank of China, China’s policy banks.  As China positions a second push in its globalization strategy with the Belt Road Initiative and other projects, we expect to see more of these dynamics play out across the world.  And if the patterns  and structures Kong and Gallagher identify hold into the future, China is poised to lead on the globalization of climate-friendly renewable energy technologies as well-as has already been the case in the globalization of photovoltaics from China.

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by Kevin Gallagher, Rohini Kamal, Yongzhong Wang and Yanning Chen
(May 2016)

According to new GEGI research in collaboration with Yongzhong Wang of the Chinese Academy of Social Science’s Institute for World Economics and Politics, in just over a decade Chinese policy banks have emerged as global leaders in development finance in general and in finance for energy projects in developing country governments in particular.

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By Rachel Thrasher and Kevin Gallagher
May 2016

Abstract

The global community still lacks a regime for sovereign debt restructuring (SDR). However, the recent financial crisis has spawned numerous efforts to fill this glaring gap in global economic governance. At the same time however, there is increasing concern that international investment agreements (IIAs) have already begun to expand their reach into the realm of SDR. Indeed, private investors have attempted to use IIAs to recoup the full value of their bonds in order to circumvent debt restructurings in Argentina and Greece. In this paper we examine the extent to which IIAs are becoming tools for creditors to circumvent debt restructurings and whether new IIAs such as the Trans-Pacific Partnership and the Trans-Atlantic Trade and Investment Partnership will further advance the ability of creditors to do so. We find that contemporary IIAs are increasingly interpreting sovereign bonds as being under their jurisdiction. Thus, debt restructurings may be increasingly subject to claims filed by holdout creditors wishing to recoup the full value of their bonds through private tribunals under IIAs. That said, we also find that some treaties have begun to provide exceptions for certain types of debt restructurings. While such safeguards are a step in the right direction, they will need to become broader in scope and more widespread in application in order to not interfere with the orderly workout of debt problems in the world economy.

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by Kevin Gallagher, Rohini Kamal and Yongzhong Wang
(May 2016)

According to new GEGI research in collaboration with Yongzhong Wang of the Chinese Academy of Social Science’s Institute for World Economics and Politics, in just over a decade Chinese policy banks have emerged as global leaders in development finance in general and in finance for energy projects in developing country governments in particular.

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By William Grimes
(April 2016)

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By Frank Ackerman (April 2016)

One Step Forward, One Step Back: Trade Treaties vs. Climate Protection

On Friday, April 22, President Barack Obama is joining other world leaders in signing the Paris climate accord. Although much less than what is needed, the Paris accord is an important step toward stabilizing the world’s climate and preventing the worst of future damages.

But on the following Monday, April 25, Obama will meet with European leaders in Hannover, Germany to promote the Transatlantic Trade and Investment Partnership (TTIP) – a proposed US-EU trade treaty that could amount to an enormous step backward on climate, clean energy, and other environmental issues.

As explained in a new GEGI report by the economist Frank Ackerman, “Europe’s Regulations at Risk: The Environmental Costs of the TTIP”, there is almost no remaining scope for traditional trade liberalization between the US and the EU. Tariffs are close to zero, and the flow of goods is already enormous in both directions.

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This China-Latin America Economic Bulletin is the third in the series summarizing and synthesizing trends in the burgeoning China-Latin America economic relationship.

The goal of the bulletin is to provide analysts and observers handy reference to the ever-changing landscape of China-Latin America economic relations, a landscape where data is not always as readily accessible.

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By Cornel Ban, Leonard Seabrooke, and Sarah Freitas (February 2016)

Who controls global policy debates on shadow banking regulation? By looking at the policy recommendations of the Bank of International Settlements, the International Monetary Fund and the Financial Stability Board, we show how experts tied to these institutions secured control over how shadow banking is treated. In so doing, these technocrats reinforced each other’s expertise and excluded some potential competitors (legal scholars), coopted others (select Fed and elite academic economists). The findings have important implications for studying the relationship between IOs technocrats and experts from other professional fields.

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by Fei Yuan and Kevin P. Gallagher (December 2015)

Development banks operating in Latin America and the Caribbean (LAC) are falling far short of playing the key role they need to in spurring economic recovery and sustainable development.
Development banks are essential to filling a $260 billion dollar annual infrastructure gap and a $110 billion dollar annual gap in financing for climate change—especially as the region faces a significant economic downturn. According to GEGI’s estimates for this study however, development banks provide just $8.7 billion per year in terms of green finance in general, and climate finance in particular is just $5.9 billion per year to LAC countries.
The authors, GEGI co-director Kevin P. Gallagher and research fellow Fei Yuan, argue that green financial flows from development banks need to be scaled up significantly, and alongside proper governance structures to ensure that green financial flows translate into sustainable development outcomes.

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By Cornel Ban and Daniela Gabor (October 2015)

This article examines a neglected structural transformation in European finance: the growing importance of government debt as collateral for Europe’s repo markets, where banks borrow cash against collateral. Seduced by the promises of repo market-driven financial integration, the EU institutions and Member States encouraged private finance to generate its own architecture for the European repo market in the early years of the euro, sidelining known problems about systemic fragilities. These fragilities materialized after Lehman Brothers’ collapse and were exacerbated by the ECB’s collateral policies. The European sovereign debt crisis shows that governments, just like private asset issuers, can rapidly become vulnerable to repo pro-cyclicality and collateral crises.

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By Cornel Ban (August 2015)

Abstract

The debate about socio-economic inequalities and class has become increasingly important in mainstream academic and political debates. This article shows that during the late 2000s class analysis was rediscovered in Romania both as an analytical category and as category of practice. The evidence suggests that this was the result of two converging processes: the deepening crisis of Western capitalism after 2008 and the country’s increasingly transnational networks of young scholars, journalists, and civil society actors. Although a steady and focused interest in class analysis is a novelty in Romania’s academia, media, and political life and has the potential to change the political conversation in the future, so far the social fields where this analysis is practiced have remained relatively marginal.

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GEGI Working Paper
By Yuan Tian and Kevin Gallagher (July 2015)

Abstract

China experienced significant volatility in its housing market from 2005-2013. Economists analyzing the determinants of volatility in these markets find that the bubble was largely been driven by factors specific to the Chinese economy and Chinese economic policy. In this paper, we examine the extent to which a) shortterm capital flows may have further impacted the prices and volatility in the Chinese housing market and b) whether China’s 2006 Capital Account Regulations (CARs) on foreign purchases of Chinese real estate were effective in reducing the level and volatility of prices in China’s housing markets. According to our OLS baseline model, we find that short-term capital flows from abroad had a modest impact on price increases in the Chinese housing market, but a more significant impact on increasing market volatility. In terms of Chinese 2006 CAR, the measures did not appear to have impact on reducing housing prices, but had a strong impact on reducing volatility in Chinese housing market. The results from a supplementary quantile regression analysis show that hot money magnified the impacts of capital flows on housing prices during upward surges in the housing price. In terms of market volatility, our quantile regressions suggest that the more volatile the housing market became, the larger the impact short-term capital flows had on accentuating such volatility. Furthermore, we find that the 2006 CARs continued to have a strong impact on reducing volatility in the Chinese housing market during the period under study.

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This China-Latin America Economic Bulletin is the second annual note summarizing and synthesizing trends in the burgeoning China-Latin America economic relationship.

The goal of the bulletin is to provide analysts and observers handy reference to the ever-changing landscape of China-Latin America economic relations, a landscape where data is not always as readily accessible.

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Working Group Report
(April 2015)

Announcing the launch of a new report by the Working Group on Development and Environment in the Americas, a multi-university effort coordinated by the Center for Transformation Research (CENIT) in Argentina, the Research Center of the University of the Pacific (CIUP) in Peru, Boston University’s Global Economic Governance Initiative (GEGI), and Tufts University’s Global Development and Environment Institute(GDAE). This project is comprised of eight country studies, including Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, and Peru. This work has been supported by the John D. and Catherine T. MacArthur Foundation, and the Charles Stewart Mott Foundation.

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GEGI Working Paper
By Edward Cunningham (March 2015)

Abstract

This paper focuses primarily on the evolution of China’s domestic energy governance, the waves of centralization and decentralization that have characterized the relationship between industry and government in this sector, and the resulting structure of China’s energy industries. It is important to understand both the fragmentation of the governance structure and mechanisms available to the Chinese state, and the twin processes of ownership and investment diversification that have shaped the bulk of China’s natural energy market. This domestic context provides a useful framework for further analysis of China’s energy and natural resource investments abroad.

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GEGI-edited Special Journal Issue of “Review of International Political Economy”
(Winter 2015)

GEGI-co-director Kevin P. Gallagher teamed up with economist Ilene Grabel to co-edit a special issue of the acclaimed Review of International Political Economy on capital controls and the global financial crisis. It has been well documented by economists and the International Monetary Fund that many countries were able to avoid the worst of the crisis by regulating the inflow or outflow of cross-border financial flows in their countries.  What is less well understood are the political factors that enabled some countries to regulate capital flows and others to not.  In addition to articles by Gallagher and Grabel, in this special mini-symposium Silla Sigurgeirsdóttir & Robert H. Wade, Manuella Moschella, and Jeffrey Chwieroth draw on case studies of the IMF, Iceland, Brazil, South Korea, and other emerging markets.  This peer reviewed collection highlights the importance of political dimensions that need to overcome in order for countries to successfully prevent and mitigate financial crises.

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By Kevin Gallagher
November 2014

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GEGI-edited Special Journal Issue of “Governance”
By Cornel Ban and Kevin Gallagher (Fall 2014)

In the years since the Great Recession, global financial institutions have been forced to reexamine and reevaluate the thinking that informs their policy prescriptions towards nations undergoing financial crises. In this special journal issue, the contributors review patterns of policy stability and change at the IMF, and work to explain the causes behind these policy recalibrations.

The contributors show that the crisis ignited a reassessment regarding how the IMF would position itself as a pivotal player in global economic governance. While some new ideas and evidence definitively emerged within IMF decision-making, this process was often tempered by the nature of the institution and the powerful interests that control its governing structure.

Where change did occur, its causal generators could be found in some combination involving IMF staff politics, innovations coming from academic and IMF economists and, perhaps most notably, the emerging economic powers’ creative leveraging of institutional fora both within and outside the Fund.

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GEGI Working Paper Series
By Cornel Ban (November 2014)

Executive Summary

During the 1980s the IMF emerged as a global “bad cop,” demanding harsh austerity measures in countries faced with debt problems. Has the Great Recession changed all that? Is there more room to negotiate with the Fund on fiscal policy?

The answer is yes. If we take a close look at what the IMF researchers say and what its most influential official reports proclaim, then we can see that there has been a more “Keynesian” turn at the Fund. This means that today one can find arguments for less austerity, more growth measures and a fairer social distribution of the burden of fiscal sustainability. The IMF has experienced a major thaw of its fiscal policy doctrine and well-informed member states can use this to their advantage.

These changes do not amount to a paradigm shift, a la Paul Krugman’s ideas. Yet crisis-ridden countries that are keen to avoid punishing austerity packages can exploit this doctrinal shift by exploring the policy implications of the IMF’s own official fiscal doctrine and staff research. They can cut less spending, shelter the most disadvantaged, tax more at the top of income distribution and think twice before rushing into a fast austerity package.

This much is clear in all of the Fund’s World Economic Outlooks and Global Fiscal Monitors published between 2009 and 2013 with regard to four themes: the main goals of fiscal policy, the basic options for countries with fiscal/without fiscal space, the pace of fiscal consolidation, and the composition of fiscal stimulus and consolidation.

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Pardee Center Task Force Report (October 2014)

This report is the collective work of experts examining the benefits and risks of accelerated capital account liberalization in China. The contributing authors – all leading scholars and practitioners from around the world (listed below) – met at Boston University in February 2014 to discuss the experiences of other emerging market countries that liberalized the capital account to glean lessons for China as it considers this delicate task. This volume is an outcome from that meeting, presenting the authors’ perspectives on important aspects of capital account liberalization that China should pay special attention to, not only for its own sake, but also in consideration of the potential impacts that China’s actions may have on other emerging markets and the global economy overall.

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GEGI Working Paper Series
By Kevin P. Gallagher and Daniela Magalhães Prates (September 2014)

Abstract

A stable and competitive exchange rate is imperative for efforts to diversify an economy in an open economy setting. However, there are an increasing number of exogenous economic and political factors in Brazil and other emerging market economies that accentuate the difficulties of shifting toward a more developmentalist economic policy. Nevertheless, over the past decade or more Brazil has developed a broad array of tools that enable the country to address the exogenously determined factors related to exchange rate instability. These tools have been a modest success at best, but lay the groundwork for what may be the necessary economic policies and political conditions for a more comprehensive program to achieve stability-led diversified growth in Brazil.

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GEGI Working Paper Series
By Marta Marello and Ann Helwege (September 2014)

Introduction

Somewhere between 500,000 and 4 million people scavenge through trash for a living in Latin America. Most are poor, socially marginalized and politically disenfranchised. Recently, however, waste pickers have organized collectively and pressed municipalities to respect their rights and to meet their basic needs. Where sorting through trash was once condemned and even illegal, it is now more commonly seen as useful in a green trend toward building sustainable cities. In fact, many cities have employed waste pickers to extend household collection and to promote recycling. Cooperation between waste pickers and municipalities offers the hope of achieving better waste management as well as the ‘social inclusion’ of these marginalized citizens.

In this paper we explore the opportunities and challenges inherent in the model of cooperation between municipal solid waste systems (MWSs) and waste picker cooperatives (WPCs). There is growing enthusiasm about waste picker inclusion, often as part of ‘integrated solid waste management.’ The World Bank and the InterAmerican Development Bank, for example, have both funded projects to support waste picker integration into formal sector recycling. Advocacy organizations such as WIEGO have called for an intensification of such efforts through access to credit and technology, as well as through partnerships to collect recyclables in underserved communities. These measures have given many waste pickers higher standards of living, economic security and a sense of inclusion in society.

Yet closer inspection reveals problems that emerge as cities move up an envisioned process of inclusion from supporting independent, informal wastepicking to subcontracting municipal services to competitive waste picker cooperatives. Among the poorest recyclers, a lack of waste picker skills limits what can be accomplished without a significant effort to address a broader set of poverty-related needs. In wealthier cities, where waste picker cooperatives have sophisticated business operations, inclusion becomes less ‘inclusive’ as mechanized processing generate too few jobs to accommodate the vast numbers of waste pickers. While integration of waste pickers into formal sector systems is hardly quixotic and in fact yields real benefits for many people, inclusion faces significant hurdles in providing most waste pickers with sustainable livelihoods. At its worst, ‘inclusion’ can be no more than tokenism in a process of dump closure and waste picker displacement. To truly address the needs of waste pickers, waste management modernization must be coupled with broader social policies.

Using three cases (Luz del Futuro in Bluefields, Nicaragua, the recycling cooperatives in the outskirts of São Paulo, Brazil, and the process of biofuel conversion at Mexico City’s Bordo Poniente dump), we identify opportunities and challenges presented by inclusion of waste pickers at each stage of development.

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Global Policy
By Deborah Bräutigam and Kevin Gallagher (June 2014)

Abstract

In just over a decade, China has become a source of finance for emerging market and developing country governments. Recipient governments and the Chinese have been less than transparent with respect to the scale, terms and composition of this finance, engendering a great deal of speculation about its nature. This article provides preliminary estimates of Chinese finance to both Africa and Latin America since the turn of the century, with a specific focus on ‘commodity-backed’ or ‘resource-secured’ loans. We estimate that Chinese banks have provided approximately $132 billion in financing to African and Latin American governments and state-owned firms since 2003. Just over half of these, or $75 billion, are in the form of resource-secured finance. Contrary to many of the claims in the popular press, we found that Chinese finance is generally not out of line with interest rates found in global capital markets, does not bring windfall commodity profits to China, and does not mandate the use of Chinese workers.

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GEGI Working Paper Series
By Amos Irwin and Kevin Gallagher (June 2014)

Abstract

Scholars have compared China’s liberalization, inward FDI attraction, and export promotion policies to those of its “Asian Miracle” predecessors to assess China as a ‘developmental state.’ We build on that literature by drawing a new but similar comparison: the extent to which Chinese development banks have financed the globalization of China’s ‘national champion’ firms. We focus on the role of state finance in promoting China’s outward foreign direct investment (OFDI) in comparative perspective. In order to answer this research question, we created a database of Chinese finance for OFDI and compared our results to the existing literature on previous developmental states. We estimate the total value of China’s OFDI finance from 2002-2012 at $140 billion. As a percentage of total OFDI, China’s lending is roughly three times 55% higher than Japan, the previous global leader in OFDI finance. Like Japan and South Korea at earlier developmental stages, China’s lending also goes overwhelmingly toward natural resource acquisition, though to a much greater degree. Unlike Japan or Korea, we find that China’s market entry has more to do with developing project expertise and supporting exports than it does with tariff-hopping or outsourcing industries that are fading on the mainland. We identify two major reasons for China’s high (31%) ratio of OFDI lending to total OFDI. First, China has a greater incentive to give OFDI loans than Japan or Korea ever did because its borrowers are state-owned so it can more easily dictate how they use the money. Second, China has a greater capacity to give OFDI loans because it has significantly higher savings and foreign exchange reserves than Japan and Korea, both today and especially during equivalent developmental stages.

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GEGI Working Paper Series
By Kevin P. Gallagher and Yuan Tian (May 2014)

Abstract

In the wake of the financial crisis the International Monetary Fund (IMF) began to publicly express support for what have traditionally been referred to as ‘capital controls’. In addition to public statements, the IMF underwent a systematic re-evaluation of Fund policy on the matter, and published an official view on the economics of capital flows. In this view the IMF concluded that capital account liberalization is not always the most optimal policy and that there are situations where capital controls—rebranded as ‘capital flow management measures’—are appropriate. This paper empirically examines the extent to which the change in IMF discourse on these matters has resulted in significant changes in IMF policy advice. To answer this question we create a database of IMF Article IV reports and examine whether the financial crisis had an independent impact on IMF support for capital controls. We find that the IMF’s level of support for capital controls has increased as a result of the crisis and as the vulnerabilities associated with capital flows accentuate.

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GEGI Working Paper Series
By Rachel Thrasher (May 2014)

Abstract

Although the concepts of fair trade and free trade have little to do with one another, in the context of public procurement, the two come head to head. Proponents of free trade argue that governments should act like private market actors when purchasing; others hold that governments are obligated to promote justice and equality by way of procurement “linkages” to social policy like fair trade. An increased awareness of the importance of sustainability has re-opened the debate over whether governments should link their spending to social concerns. In Europe a sustainable approach to public procurement is commonplace and EU enthusiasm has reached the WTO. A Revised GPA seeks to encourage broader acceptance of the agreement by including exceptions for environmental and social policy linkages. The exceptions include a general exception in cases where derogation is “necessary to protect human, animal or plant life or health”, excludes public procurement in international development assistance from the scope of the agreement, and explicitly permits governments to apply technical specifications for environmental protection. A recent case against sustainable public procurement in the Netherlands demonstrates the space given countries in Europe to select and implement their own procurement practices. Countries vary widely in their government procurement. Although the EU maintains a region-wide consensus toward encouraging ethical sourcing and consumption, other regions have not created the same supportive structure. Within the WTO, it is even clearer that policies creating obstacles to liberalized trade would be less favorable than other policies, regardless of the reason for those obstacles. We conclude that while the Revised GPA has made more policy space for governments to prioritize development and environmental goals, it does not go far enough. Future revisions of the GPA should provide policy space for horizontal linkages, including those aimed at long-term sustainability.

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GEGI Working Paper Series
By Amos Irwin (May 2014)

Abstract

Although China began to sign bilateral investment treaties (BITs) in the 1970s, it refused to grant foreign investors the right to sue their host government in international arbitration tribunals. Few realize that China’s treaty negotiators have in fact abandoned this restriction in almost every Chinese BIT signed since 1998, including those with Latin America. Scholars have suggested that China reversed its policy in order to support Chinese overseas investors or to fit its general economic liberalization strategy. However, China’s BITs with Mexico, Peru, and Colombia as well as its arbitration case with Peru contradict these theories. I argue that China began signing open BITs to test the risks of granting open access to European countries and the United States, for whom open access is a key condition. China experimented gradually with open arbitration, just as it has experimented gradually with many economic changes since Reform and Opening began in 1978. This theory has interesting implications for China’s future BITs—as international arbitration tribunals threaten to make this experiment permanent, China has added new restrictions that bring China’s BITs closer to the US model and make a US-China BIT more likely. However, the US avoids BITs with capital-exporting countries, and China is now a large capital-exporter. The main obstacle to US-China BIT negotiations may no longer be the two nations’ differences, but rather their similarities.

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GEGI Working Paper Series
By Cornel Ban (March 2014)

Abstract

Since 2008 the IMF has become more open to the use of discretionary fiscal stimulus packages to deal with recessions, while changing its doctrine on the timing and content of fiscal consolidation. Rather than constitute a paradigm shift, these changes amounted only to a careful recalibration of its pre-crisis fiscal orthodoxy. The paper traces this evolution of the Fund’s doctrine to staff politics, more diverse thinking in mainstream economics and a careful framing of the message through the use of mainstream macroeconomic models. The findings contribute to the emerging debate on the internal sources of intellectual and policy change in international economic organizations.

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GEGI Working Paper Series
By Bryan N. Patenaude (February 2014)

Executive Summary

Since its accession into the European Union in 2007, Romania has consistently fallen short of its development objectives for the 2007-2013 period. Of particular concern is Romania’s repeated failure to obtain sufficient and sustainable fiscal and financial resources for domestic development. While discussion and analysis of underlying problems has been prolific, the obscurity, generality, and uncoordinated nature of proposed solutions continue to hinder progress. With these shortcomings in mind, this paper uses case studies, personal interviews, and policy analysis to examine two key aspects of development finance: EU funds absorption, and development banking. Following the examination are specific recommendations on how Romania should address the issues at hand in order to improve development financing over the 2014 – 2020 period.

Regarding EU funds, steps to mimic the successful absorption models of Poland and Czech Republic through regionalization of fund management have failed due to insufficient inter-party dialogue, political deadlock, barriers to skills diffusion, and inadequate resources for monitoring. The evidence suggests that instead of regionalization, a centralized and coordinated approach to EU fund management should be taken via management authority consolidation. Additionally, clear priorities for EU fund use and a set of best practices regarding risk assessment should be implemented so that banks, applicants, and government ministries are on the same page in terms of project acceptability.

To facilitate transparent, coordinated, and successful EU funds use, management should be consolidated into two development banks. While capitalizing a new bank would be difficult, if not infeasible, the existing capital and financial infrastructure vested in the two public banks, ExIm Bank and CEC Bank, is sufficient to meet current needs. Specifically, ExIm Bank should expand operations and take on the role of managing authority for funds allocated to long-term infrastructure development, export-oriented SMEs, and long-term agricultural investment. CEC Bank should take on the role of managing authority for funds allocated to human capital development, agriculture, and domestic SMEs. The transition should begin with ExIm Bank as a two-year trial and be expanded to CEC Bank, which presently faces greater volatility in terms of stakeholder view of future operations.

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By Rebecca Ray and Kevin Gallagher (January 2014)

The China-Latin America Economic Bulletin is an annual note that summarizes and synthesizes trends in the burgeoning China-Latin America economic relationship. Research for the Bulletin is conducted by the Global Economic Governance Initiative (GEGI) at Boston University. GEGI partners with the Global Development and Environment Institute (GDAE) at Tufts University USA to translate and disseminate the bulletin in Latin America, China, and beyond.

In fifteen years China has gone from being a relatively insignificant economic partner in Latin America to the number one trading partner of some of the largest economies in the region. That said, there is a lack of reliable data on many aspects of the China-Latin America economic relationship—especially in the areas of investment and finance. The goal for this annual bulletin is to help fill this gap so that policy-makers, journalists, analysts, advocates, and others can have a more evidence-based understanding of this burgeoning economic relationship.

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CEPAL Review
By Kevin Gallagher and Enrique Dussel Peters (January 2014)

This paper examines the extent to which China’s entry into the World Trade Organization (WTO) in 2001 and subsequent surge in global exports affected the composition of trade between the United States and Mexico through 2009. The authors found that China’s entry had a significant impact on the trade relations between these two North American countries, replacing and displacing many of the export strongholds in place before China joined the WTO and after the first stage of the North American Free Trade Agreement (NAFTA) (1994-2000). Based on this research, the authors offer a variety of policy options for reinvigorating United States-Mexico trade and cooperating with China in the global economy.

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GEGI Working Paper Series
By Cornel Ban (December 2013)

Abstract

Recent contributions to the comparative political economy of East European capitalisms have found that a distinctive variety of capitalism emerged in some new EU member states. The new variety has been dubbed “dependent market economy” (DME). This paper makes several contributions to this literature. First, it marshals evidence to show that this institutional variety now includes the political economy of Romania, a case previously excluded from it. More importantly, this analysis also finds that earlier scholarship on dependent capitalism has failed to capture crucial mechanisms of dependence created by transnationalized finance. Third, the paper suggests that some of the arguments made in the existing scholarship on the interests of foreign capital with regard to domestic innovation and labor training need to be qualified. Finally, by showing reflexivity towards select critiques of the dependent market economy framework, the analysis proposes by this paper is a self-limited attempt to bridge the differences between the varieties of capitalism and Polanyian analyses of capitalist diversity in semi- peripheral middle-income states.

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GEGI Working Paper Series
By Kevin Gallagher, Ricardo Ffrench-Davis, Mah-Hui Lim, Katherine Soverel (October 2013)

Abstract

There is growing recognition that nations may need to deploy cross-border financial regulations to prevent and mitigate financial crises. Indeed, in December of 2012 the International Monetary Fund (IMF) agreed on a new ‘institutional view’ that notes how the IMF will begin to recommend that nations deploy cross-border financial regulations going forward. However, many nations have become party to global, regional, and bi-lateral trade and investment treaties that may restrict their ability to effectively deploy such regulations.

This paper examines the cases of two countries currently in negotiations for a Trans-Pacific Partnership Agreement (TPP): Chile and Malaysia. The paper examines the extent to which each nation has deployed cross-border financial regulations in the past, and the extent to which they have negotiated the policy space for such regulations in its previous trade and investment treaties. Finally, it analyzes the extent to which such measures would be permitted if the TPP’s investment provisions looked like the model bi-lateral investment treaty of the United States.

We find that, with some important exceptions, both countries have successfully deployed cross-border financial regulations and have carved out the ability to do so under their trading commitments. However, such policy space would be jeopardized if the TPP conformed to the US model rather than arrangements that each country has been able to broker in other arenas.

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GEGI Working Paper Series
By Cornel Ban (August 2013)

Abstract

Using insights from the sociology of knowledge and findings from preliminary empirical probes into IMF research since the Great Recession, this paper aims to propose a new analytical framework for the study of the teaching activities of the IMF’s teaching infrastructure: the Institute in Washington DC and in two regional centers: the Brazil-based Joint Regional Training Center for Latin America (BTC) and the Joint Vienna Institute (JVI). How have these institutes negotiated the “productive incoherence” that marks the Fund’s new stances on fiscal and financial economics? How have the students in these institutes internalized the conflicts between the research of IMF staff on these policy areas and the Fund’s official positions in a time of uncertainty and aperture? If indeed IMF teaching is reflexive, has the BTC teaching incorporated more dissenting views than the IMF Institute or the JVI, given the more systematic embrace of heterodox ideas by the policy mainstream of Brazil, BTC’s co-sponsor? To address these questions this working paper suggests a few recalibrations of the existing literature on the diffusion of economic ideas via IFIs. To this end, it extracts several new analytical propositions from the sociology of knowledge.

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GEGI Working Paper Series
By Kevin Gallagher (July 2013)

“Profiting from Precaution: How China’s Policy Banks Can Enhance Social and Environmental Standards” is the latest in a series of “Paulson Policy Memoranda,” published by The Paulson Institute, located at the University of Chicago.

Author Kevin P. Gallagher argues that China’s policy banks are ahead of the historical norm in that they have already established a series of environmental and social guidelines for their overseas operations. But, he notes, upgrading such guidelines would serve two goals simultaneously: (1) it would enable them to incorporate sustainability and environmental goals into their lending practices, and (2) it could be an important tool for China’s policy banks to continue to gain market access and mitigate risk as they seek to expand their overseas operations.

Established in 2011 by Henry M. Paulson, Jr., former U.S. Secretary of the Treasury and chairman and chief executive of Goldman Sachs, the Paulson Institute’s initial focus is the United States and China—the world’s largest economies, energy consumers, and carbon emitters. Institute programs foster engagement among government policymakers, corporate executives, and leading international experts on economics, business, energy, and the environment. The Institute is both a think and “do” tank that facilitates the sharing of real-world experiences and the implementation of practical solutions.

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GEGI Working Paper Series
By Cornel Ban (May 2013)

Abstract

Soon after the Lehman crisis, the International Monetary Fund surprised its critics with a recalibration of its research and advice on fiscal policy. But the selective incorporation of Keynesian ideas and rejection of some elements of neoclassical economics that this paper uncovers are very limited and could be seen as part of an effort to reprogram the instruments and settings of neoliberalism for the context of the Great Recession. This paper argues that this limited change was facilitated by the convergence of two factors: growing divisions in mainstream macroeconomics and internal entrepreneurship at the Fund, with the latter process bringing to the fore the importance of staff reshuffles, conceptual layering and methodological framing in both the success and the limits of this revisionist thinking. These findings contribute to the emerging debate on the internal sources of intellectual and policy change in international economic organizations.

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By Kevin P. Gallagher and Enrique Dussel Peters (May 2013)

Introduction

China’s engagement with the world over the last three decades has been both rapid and profound. There is not a single socioeconomic issue on which China has not had a significant impact, from trade, investment, and the overall economic climate to military and security concerns, as well as energy, culture, the push to learn Mandarin, and many others. The effects of China’s burgeoning relationship with the United States and Mexico have been profound, and have triggered significant debate and discussions in the respective countries. China has been particularly
interested in developing a holistic and long-term strategy with the United States and Mexico. The debate over China in the U.S. has centered primarily on trade, investment, and national security, while Mexico’s concerns have been largely economic in nature.

This paper analyzes the extent to which China’s rise has posed a threat to U.S.-Mexico trade relations, as well as to NAFTA (North American Free Trade Agreement). Considering, then, the long and profound economic and trade integration between Mexico and the U.S., has Chinese intervention enhanced North American integration, or has it become a threat to NAFTA in both Mexico and the United States? How does trade with the United States and Mexico shape China’s interactions with these nations? Can this be considered a “triangular relationship” –i.e.
one between China, Mexico, and the United States?

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By Brittany Baumann and Kevin P. Gallagher (April 2013)

Abstract

In the immediate aftermath of the global financial crisis, the world economy was characterized as experiencing a ‘two-speed’ recovery. Industrialized nations, where the crisis occurred, saw slow growth whereas many emerging market and developing countries grew significantly. These growth differentials, coupled with significant interest rate differentials across the globe, triggered significant flows of financial capital to the emerging market and developing countries. As a result, many countries experienced sharp appreciations of their currencies and associated concerns about the development of asset bubbles.

This paper examines measures taken to mitigate the harmful effects of excessive capital flows in South Korea and South Africa. Each of these nations experienced similar surges in inflows with associated exchange rate and asset bubble woes, but each took quite different approaches in an attempt to mitigate those effects. South Korea devised a series of capital account regulations on the inflow of capital whereas South Africa liberalized their existing regulations on capital outflows. We econometrically analyze the effectiveness of these measures and find some limited evidence that both countries’ measures were successful in lessening the appreciation and volatility of their exchanges rates. These nations were less successful in stemming asset bubbles.

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Review of International Political Economy
Edited by Cornel Ban (April 2013)

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Review of International Political Economy
By Cornel Ban and Mark Blyth (April 2013)

Over the past two decades, the spread of ideas and policies associated with the Washington Consensus has captured the attention of political
economists. As a systemic feature of the global economy, this process of diffusion has merited such scholarly attention. However, the systemic
shock of the Great Recession has called into question the oft-noted convergence of rising economic powers such as Brazil, Russia, India and China (BRICs), along with their supposed relationship to the Washington Consensus policy paradigm. Indeed, the crisis has brought to the fore the question of whether the BRICs have ‘grown apart’ from both the ideas and the policies prepared for them by Washington-based institutions. To date, there has been no systematic scholarly effort aimed at analysing the spread of Washington Consensus ideas and policies in relation to the rise of the BRICs.

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Pardee Center Task Force Report (March 2013)

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By Cornel Ban (March 2013)

Economists and political economists emphasize the importance of exogenous shocks, international economic competition, policy conditionality and partisan politics as the main drivers of literature on economic policy change. This paper evaluates the explanatory robustness of these factors and stresses the importance of incorporating economic ideas as a fruitful new direction in research on this topic.

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Centro de Estudios China-México de la Facultad de Economía de la UNAM
By Kevin P. Gallagher, Amos Irwin, y Katherine Koleski (January 2013)

En este informe se estima que, desde 2005, China ha concedido aproximadamente USD 86 mil millones en compromisos de préstamos a países latinoamericanos. El monto de préstamos chinos en el año 2010 es superior a la suma de los préstamos concedidos por el Banco Mundial (BM), el Banco Interamericano de Desarrollo (BID) y el Banco de Exportación e Importación de Estados Unidos (Banco Ex-Im de EEUU) en el mismo periodo.

Luego de presentar estimaciones del financiamiento chino, examinamos también la afirmación generalizada de que los préstamos chinos a América Latina tienen términos más favorables, no imponen condiciones políticas y tienen pautas medioambientales menos estrictas que los préstamos de las Instituciones Financieras Internacionales (IFIs) y los gobiernos occidentales.

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By Daniela Gabor; Cornel Ban (January 2013)

Abstract

This paper argues that scholarship on the varieties of capitalism could provide a more complete understanding of fiscal policy convergence in the Eurozone after 2010 if it better examined the interdependencies between banks and sovereigns. Recently, this scholarship has explained fiscal convergence through a global imbalances framework. While the interaction between coordinated and liberal capitalisms, and their distinctive macroeconomic policy preferences, generates global imbalances, rebalancing can only occur if the incentives governing national polities change dramatically. In Europe’s case, sudden stops in capital inflows from coordinated capitalisms triggered an asymmetric response, forcing deficit (liberal and mixed) economies to address such imbalances. As wage-setting institutions could not restore exchange rate competitiveness a la Germany, governments were compelled to adopt the conservative macroeconomics of the coordinated economies in an institutional setting ill adapted to such policies. In contrast, our account highlights the constraints that financial actors in sovereign bond markets place on the conduct of fiscal policy. Drawing on recent contributions in the literature on financialization, we introduce the concept of the ‘collateral motive’ – investors’ demand for government bonds to meet their funding needs – and link it to the shift to transnational, market-based, collateral-intensive banking models. We show how this becomes a pivotal mechanism for fiscal consolidations as the singular response to the ongoing Eurozone crisis. The implication of our argument is that recent fiscal policy in the Eurozone cannot be adequately understood without analyzing the process through which the collateral motive ignited a run on peripheral sovereign bond markets which in turn compelled states to stabilize these markets through austerity.

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Working Group Discussion Paper DP34
By Amos Irwin and Kevin P. Gallagher (December 2012)

Chinese investment in Latin America has exploded in recent years, leading observers to worry that Chinese companies may transplant poor labor and environmental practices to the region. In this Discussion Paper, GDAE’s Amos Irwin and Kevin P. Gallagher evaluate the economic, environmental and social impacts of Chinese mining in Latin America and compare that performance to other major foreign and domestic firms in the same sector. Based on new quantitative inspection data from Peru, the researchers find that the Chinese company Shougang Hierro Peru has not performed significantly worse than its foreign or domestic counterparts. In fact, a US-based firm has been among the most egregious violators of Peruvian and global standards as of late.

Chinese investment in the region is so recent that only one mining company has been operating long enough to assess its impact. Shougang Hierro Peru has been widely denounced for its environmental and social record, which has been decried in the literature as far worse than that of comparable foreign-owned companies. Much of this literature blames a “culture clash,” concluding that Chinese companies operate irresponsibly in Latin America because they are predisposed to poor labor and environmental standards.

Using new government data and historical archives, Irwin and Gallagher find that while Shougang performed poorly on many indicators, when compared to other foreign and domestic mining companies its poor performance has not stood out in recent years. Rather, the Peruvian government has continually failed to force mining companies to comply with their investment commitments, respect government and global standards, or negotiate with their unions.

They conclude that the Shougang case study does not necessarily determine that future Chinese mining companies will be more likely to bring poor environmental or labor practices to Latin America than other foreign and domestic competitors. High social and environmental costs are endemic to mining in Latin America. Consistent with the broader literature on the subject, this study shows that nation-states like Peru cannot count on foreign or domestic firms to self-regulate. To truly maximize the benefits from natural resource extraction, and to mitigate the risks, nations need to stiffly regulate, monitor and discipline firms operating in the sector—regardless of the firm’s origin.

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By Cornel Ban (December 2012)

Abstract

Taking the case of migratory flows between Romania and Italy as a case study, this article investigates the ways in which spaces of economic transnationalism emerge and are reproduced over time. While the article finds that the role of the state in regulating the flow of money, people and goods across borders remains significant, it nevertheless provides evidence that state authority is systematically challenged by private actors even in the case of migration phenomena with a remarkably short history such as that of Romanians in Italy. Particularly interesting in this respect are labor recruiting networks in which informal headhunter operations, public officials and mobile manufacturing firms interact in surprising ways. While economic forms of transnationalism are the main focus of this investigation, the ways in which transnational capital and labor flows facilitated the symbolic reaffirmation of social institutions in the sending locality are also investigated.

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By Cornel Ban (November 2012)

Abstract

Historically, high sovereign debt and austerity policies have coincided with regime-changing popular uprisings. Nicolae Ceausescu’s Romania was no exception. Why, when faced with a sovereign debt crisis in the 1980s, did his regime choose to pay its foreign debt as early as possible, at the cost of economic recession and dramatically compressed consumption? How did these choices relate to the regime’s failure to survive the end of the decade? The article argues that while exogenous shocks shattered the economic bases of the regime, it was the ideas with which the regime understood development and interpreted the crisis that shaped government policy responses in the 1980s. When the price of oil and development finance went up abruptly in 1979, the low energy efficiency of Romanian industry pushed the country into a situation where debt levels became unsustainable. Committed to a view of development that blended nationalist and Stalinist ideas, but with a focus on policy sovereignty, Ceausescu diagnosed the crisis as evidence that debt-financed development and policy independence were incompatible. Consequently the regime decided to pay off foreign debt through a mix of austerity, import substitution, and export-led accumulation of dollar reserves. By the time all debt was paid off in 1989, the regime’s economic sources of legitimacy were exhausted. In the external environment of 1989, this policy regime change contributed to political regime change even in the absence of an organized civil society. In addition to casting a new light on the causal mechanisms of the Romanian revolution of December 1989, the findings of this article contribute to emerging scholarship that stresses the nexus between debt-induced economic crisis and popular uprisings.

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Review of International Political Economy
By Cornel Ban (October 2012)

Abstract

Is Brazil’s economic policy regime a mere tinkering of the Washington Consensus? The evidence suggests that Brazilian governments institutionalized a hybrid policy regime that layers economically liberal priorities originating in the Washington Consensus and more interventionist ones associated with neo-developmentalist thinking. To capture this hybridity, the study calls this regime ‘liberal neo-developmentalism’. While defending the goal of macroeconomic stability and sidelining full employment, Brazilian governments also reduced reliance on foreign savings and employed a largely off-the-books stimulus package during the crisis. Brazil experienced important privatization, liberalization and deregulation reforms, but at the same time the state consolidated its role as owner and investor in industry and banking while using an open economy industrial policy and a cautious approach to the free movement of capital. Finally, while conditional cash transfers fit the Washington Consensus, Brazil’s steady increases in the minimum wage, industrial policies targeted at high employment sectors and the use of state-owned firms to expand welfare and employment programs better fit a neo-developmentalist policy regime. In sum, while the main goals of the Washington Consensus were not replaced with neo-developmentalist ones, Brazil’s policy regime saw an extensive transformation of policy orthodoxy that reflects Brazil’s status as an emerging power.

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Issues in Brief No. 24
By Kevin P. Gallagher and Leonardo E. Stanley (September 2012)

In the wake of the global financial crisis, many economists and policymakers are advocating the use of regulations to control the cross-border flows of capital. However, such capital account regulations (known as CARs) often are limited or prohibited by commonly-used provisions in trade and investment treaties. This policy brief describes the outcomes of a “compatibility review” between the ability to implement capital account regulations and standard provisions of the global trading system. It argues that changes should be made so that the two systems are more compatible, providing countries – especially developing countries – with the policy space to employ CARs to stabilize their economies and stave off boom-and-bust cycles and still participate in bi-lateral and multi-lateral trade and investment treaties.

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By Kevin P. Gallagher (September 2012)

Abstract

The global community still lacks a regime for sovereign debt restructuring. There is increasing concern that international investment agreements may become a ‘court’ for sovereign workouts. Are international investment agreements the appropriate place for the global community to resolve sovereign debt restructuring in the event of a financial crisis? It has been often overlooked that the definition of a covered investment within international trade and investment agreements often includes sovereign debt. In lieu of this, this article analyses the extent to which investment provisions in various treaties may hinder the ability of nations and private creditors to comprehensively negotiate sovereign debt restructurings when a debtor nation has defaulted or is close to default on its government debt. It is found that the treatment of sovereign debt varies considerably in terms of strength and applicability across the spectrum of now thousands of trade and investment treaties in the world economy. It is also found that most treaties may restrict the ability to restructure debt in the wake of a financial crisis. These findings could undermine the ability of nations to recover from financial crises and could thus broaden the impact of such crises.

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The Future and the WTO: Confronting the Challenges A Collection of Short Essays
By Kevin P. Gallagher (July 2012)

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PERI, UMass Amherst
By Kevin Gallagher (April 2012)

Abstract

International capital mobility has long been associated with financial and banking crises. The Articles of Agreement of the International Monetary Fund contain multi-lateral rules to govern global capital flows. For some countries, especially those in the developing world, the IMF Articles of Agreement remain the core framework under which they have autonomy to regulate cross-border capital flows. For others, these rules have been partly superseded by more recent trade and other economic integration agreements. Thus what used to be a regime of ‘cooperative decentralization’ has become a patchwork of overlapping and inconsistent governance structures that pose significant challenges to nations attempting to regulate global capital flows for stability and growth. This paper traces the history of governing global capital flows and presents a framework for understanding three distinct eras in the modern governance of global capital. The framework emphasizes how power, interests, ideas, and institutions interact to shape each era in different combinations to yield different outcomes. From this perspective, there are many challenges ahead for effectively governing global capital flows.

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Pardee Center Task Force Report (March 2012)

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Inter-American Dialogue Report
By Kevin P. Gallagher, Amos Irwin, and Katherine Koleski (February 2012)

In this report we estimate that since 2005 China has provided loan commitments upwards of $75 billion to Latin American countries. These figures have now been updated through 2012, showing $87 billion in loans, as part of the China-Latin America Finance Database, a collaboration between GDAE, Boston University’s Global Economic Governance Initiative, and the Inter-American Dialogue. China’s loan commitments of $37 billion in 2010 was more than the World Bank, Inter-American Development Bank, and the United States Export-Import Bank combined for that year.

After providing estimates of Chinese finance we also examine the common claims that Chinese loans to Latin America have more favorable terms, impose no policy conditions, and have less stringent environmental guidelines than the loans of International Financial Institutions (IFIs) and Western governments.

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PERI, UMass Amherst
By Kevin P. Gallagher (January 2012)

Abstract

Unstable global capital flows to developing countries have been characteristic of the world economy in the wake of the global financial crisis. Such flows have triggered asset bubbles and exchange rate appreciation in a number of emerging and developing country markets, especially from 2009 until the Eurozone jitters in the fourth quarter of 2011. In response, some individual nations have deployed capital controls. Resorting to these measures has met a mixed response. On the one hand, institutions such as the International Monetary Fund have supported the use of controls in limited circumstances. On the other hand, there has been a vociferous response by leading politicians, distinguished economists, and in the blogosphere claiming that the use of capital controls amounts to financial protectionism.

This paper argues that such claims are unfounded. Specifically, the paper shows that:

1. There is a longstanding strand of modern economic theory that dates back to Keynes and Prebisch and continues to this day that sees the use of capital controls as essential to financial stability, the ability to deploy an independent monetary policy, and to maintain exchange rate stability.

2. The empirical record has shown that capital market liberalization was not associated with growth in developing countries.

3. In a most recent development, economists have developed a “new welfare economics” of capital controls that sees controls as measures to correct for market failures due to imperfect information, contagion, uncertainty and beyond.

Taken as a whole, rather than the “new protectionism,” capital controls should be seen as the “new correctionism” that re-justifies a tool that has long been recognized to promote stability and growth in developing countries.

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Berkeley Review, University of California, Berkeley Center for Latin American Studies
By Kevin P. Gallagher (Fall/Winter 2011)

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Issues in Brief No. 22
By Kevin P. Gallagher, Stephany Griffith-Jones and José Antonio Ocampo (November 2011)

In the wake of the financial crisis numerous emerging market and developing countries have been deploying what have traditionally been referred to as ‘capital controls’ to curb excessive speculation on their currencies and domestic assets. In response to those efforts, French President Nicolas Sarkozy called on the International Monetary Fund to develop a set of guidelines for the use of capital controls. The goal is for the President to present such guidelines at the G-20 Summit in Cannes this year. The IMF has published a preliminary set of guidelines to that end. This policy brief provides a critical review of those guidelines and offers an alternative protocol for a development friendly-approach to capital account regulation.

In this policy brief, the co-conveners of the Pardee Center Task Force on Managing Capital Flows for Long-Run Development argue that capital account regulations (CARs) should be viewed as an essential tool in the macroeconomic policy toolkit. Based on discussions that occurred at the Task Force meeting in September 2011, the authors present an alternative set of guidelines for how and when CARs should be employed, and call for international financial institutions and international trade agreements to ensure that policy space remains available to allow developing countries to employ CARs when deemed necessary for financial stability and economic development.

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Latin America 2060: Consolidation or Crisis?, Pardee Center Task Force Report
By Kevin P. Gallagher (September 2011)

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UNCTAD
By Kevin P. Gallagher (July 2011)

This note examines the extent to which international investment agreements (IIAs) may affect the ability of States to implement sovereign debt restructurings when a debtor nation has defaulted or is close to default on its debt. Numerous defaults and restructurings of the 1990s, Argentina’s debt restructuring after its crisis in 2001, as well as the recent global financial and economic crisis have all emphasized that governments may need some freedom to maneuver in this area. While thus far, Argentina is the only nation to be subject to IIA claims related to the nations’ sovereign debt default and subsequent restructuring, today’s situation where numerous countries face the risk of debt
crises, suggests that the prospect of holdouts (i.e. investors who refuse to negotiate and demand that the debt instruments be honored in full) bringing additional investor-State dispute settlement (ISDS) claims cannot be ruled out. It is therefore important to ensure that IIAs do not prevent debtor nations from negotiating debt restructurings in a manner that facilitates economic recovery and development.

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GDAE, Tufts University
By Kevin Gallagher (February 2011)

The global financial crisis has triggered a transformation in thinking and practice regarding the role of government in managing international capital flows. This paper traces and evaluates the re-emergence of capital controls as legitimate tools to promote financial stability. Whereas capital controls were seen as “orthodox” by the framers of the Bretton Woods system, they were shunned during the neo-liberal era that began in the late 1970s.

There is now an emerging consensus that capital controls can play a legitimate role in promoting financial stability. From 2009 to early 2011 a number of developing nations resorted to capital controls to halt the appreciation of their currencies, and to pursue independent monetary policies to cool asset bubbles and inflation.

GDAE senior research associate Kevin P. Gallagher conducts a preliminary analysis of the effectiveness of capital controls in Brazil, South Korea, and Taiwan. Gallagher finds supporting evidence that Brazil and Taiwan have been relatively successful in deploying controls, though South Korea’s success has been more modest.

The fact that capital controls continue to yield positive results is truly remarkable, given the fact that there has been little (or contrary) support for global coordination, and that many nations lack the necessary institutions for effective policies. The paper concludes by pointing to the need for more concerted global and national efforts to manage global capital flows for stability and growth.

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Issues in Brief, No. 18
By Kevin Gallagher (October 2010)

The rise of China has created an unprecedented demand for Latin American and Caribbean exports, which has helped boost the region’s growth for almost a decade. But ultimately, such export growth may not be sustainable. Perhaps even worse, Chinese manufactured goods are more competitive than those from Latin America in both home and world markets. These twin trends may jeopardize prospects for long-term growth in the region. Based on research for his most recent book, economist and trade expert Kevin Gallagher discusses how China’s rise to prominence on the world trade scene has affected Latin America and what Latin America might learn from China’s ascendency to improve the long-term outlook for its own economic future.

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Pardee Task Force Report (November 2009)

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Political Economy Research Institute, Working Paper Number 192
By Kevin P. Gallagher and Roberto Porzecanski (February 2009)

Abstract

This Working Paper analyzes the extent to which Chinese demand enhanced the performance of Latin American economies in economic boom that took place from the turn of the century until the run up to the financial and economic crisis of 2008-2009. It has been argued that China’s rise was been a blessing for the region, because Chinese demand boosted exports and in part caused a hike in commodities prices worldwide. The author finds that the direct impact on the Latin American exports was much smaller than what was touted. He goes on to address concerns over a Chinese-demand-led ‘resource curse’ and deindustrialization in Latin America.

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RIS Discussion Paper #150,
By Kevin P. Gallagher and Mehdi Shafaeddin (February 2009)

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Pardee Paper No. 2
By Rachel Thrasher and Kevin Gallagher (September 2008)

This paper examines the extent to which the emerging world trading regime leaves nations the “policy space” to deploy effective policy for long-run diversification and development and the extent to which there is a convergence of such policy space under global and regional trade regimes. We examine the economic theory of trade and long-run growth and underscore the fact that traditional theories lose luster in the presence of the need for long-run dynamic comparative advantages and when market failures are rife. We then review a “toolbox” of policies that have been deployed by developed and developing countries past and present to kick-start diversity and development with the hope of achieving longrun growth. Next, we examine the extent to which rules under the World Trade Organization (WTO), trade agreements between the European Union (EU) and developing countries, trade agreements between the United States (US) and developing countries, and those among developing countries (South-South, or S-S, agreements) allow for the use of such policies. We demonstrate that there is a great divergence among trade regimes over this question. While S-S agreements provide ample policy space for industrial development, the WTO and EU agreements largely represent the middle of the spectrum in terms of constraining policy space choices. On the far end, opposite S-S agreements, US agreements place considerably more constraints by binding parties both broadly and deeply in their trade commitments.

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Issues in Brief, No. 1
By Kevin Gallagher (April 2008)

This policy brief – the first in the Pardee Center Series titled “Issues in Brief” – reviews the current debates about the future of the World Trade Organization (WTO) and looks at why current discussions on international trade and development are stalled and also on what the implication of this stalemate might be on the longer-term future of the WTO, and of trade and development in general.

The paper concludes that: “One hopes the WTO will survive this crisis and that five years from now — and 35 years from now — there will be a WTO. Its work is not finished and there is much that it can contribute to global development. To do so, however, it will need to realign itself to its stated development goals. To survive — indeed, to thrive — it needs to redefine itself as a development institution. That will be good for the WTO, good for the future of global development, good for developing countries, and indeed good for industrialized countries.”

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By Rogèrio Studart and Kevin P. Gallagher
October 2016

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By Fei Yuan and Kevin P. Gallagher
August 2016

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By Kevin P Gallagher and Rohini Kamal
April 2016

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By Kevin P Gallagher and Matthew C. Porterfield
December 2015

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By Gus Van Harten, Matthew C. Porterfield and Kevin P. Gallagher
September 2015

Nations of the world are currently negotiating a variety of significant trade and investment treaties that cover upwards of eighty percent of the world economy. The Trans-Pacific Partnership (TPP) would further integrate a number of Pacific-Rim nations; the Trans-Atlantic Trade and Investment Partnership (TTIP) would be a treaty between the United States and European countries. The United States and others are also negotiating major bilateral investment treaties (BITs) with China and India. As the negotiations have progressed, the investment provisions of these treaties have become increasingly controversial—though they are not well understood. This short policy brief highlights three core concerns about the investment provisions in contemporary treaties that have received significant scrutiny in scholarly and policy circles.

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By Kevin P. Gallagher, Sarah Anderson, Annamaria Viterbo (April 2015)

The text of the Trans-Pacific Partnership (TPP) Agreement’s investment chapter has recently been leaked to the public.  The leaked text reveals that negotiators are giving serious consideration to a safeguard intended to allow nations to regulate capital flows. This is an extremely important objective and it’s critical that the safeguard be drafted in such a way that governments have sufficient policy flexibility to prevent and mitigate financial instability.

The leaked text includes an original proposal to allow for the regulation of capital flows, and an ‘alternative’ text.  While the original proposal in the leaked text is far stronger than the alternative, both have limitations and neither would sufficiently safeguard a range of appropriate measures enacted to prevent or mitigate financial instability.

Rather than trying to water down the original proposal, TPP negotiators should work to improve upon it. This policy brief—written by GEGI’s Kevin P. Gallagher along with Sarah Anderson of the Institute for Policy Studies, and Annamaria Viterbo, a professor of International Law at the University of Turin, Italy–outlines some of the shortcomings in both safeguard proposals under negotiation and offers an alternative proposal.

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By Rachel Denae Thrasher (August 2014)

News of the leaked draft text of the financial services annex of the Trade in Services Agreement (TISA) has enlivened critics and given them opportunity to discuss the substantive shortcomings of the agreement. This brief addresses how the leaked text could impact host state regulation of foreign direct investment (FDI). The TISA negotiations are attempting to make progress in services liberalization outside of the stalled WTO proceedings. Proponents recognize potential importance of such an agreement in today’s services-driven economy. However, services liberalization has not resulted in the same consistent growth as liberalizing goods trade did in the mid-20th century.

Here I discuss four key provisions in the leaked draft text that threaten to destabilize the global economy by exceeding the scope and coverage of the existing services liberalization as applied to FDI. First, by extending the “right of establishment” to foreign financial service providers, they would be granted almost automatic entry into any host state that is a party to the agreement. Second, by establishing automatic coverage of any “new financial service, host states may not protect themselves from new, untested financial services in the future. Third, by prohibiting even non-discriminatory measures, foreign financial services providers receive special protection from any regulatory measures that may affect them, even if they affect national providers similarly. Finally, under the guise of “transparency”, this new draft text gives foreign providers political power in the host state to shape future financial services regulation.

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By Kevin P. Gallagher, José Antonio Ocampo, Ming Zhang, Yu Yongding (July 2014)

Leaders from the United States and China are meeting in mid July for another round of the Strategic and Economic Dialogue (SED) between the two countries. High on the agenda will be the health of each country’s economy and the fragility of the global financial system. In this policy brief, “Capital Account Liberalization in China: A Cautionary Tale,” the authors argue that the leaders of the two countries should put great care into the sequencing of reform in each country. Based on the economic evidence and the numerous countries that became plagued after prematurely opening their capital accounts, the authors stress that China should prioritize other financial reforms before opening its economy to the whims of global finance.

The authors also urge the participants of the SED that are negotiating a bi-lateral investment treaty between the two nations to be cautious as well. While China has been prudent to ensure that its trade and investment treaties leave flexibility for China to maintain its regulation of cross-border financial flows, US treaties commonly require the deregulation of such flows. The two nations should put stability and productive growth ahead of the short term benefits of select interest groups.

The brief is authored by GEGI’s Kevin Gallagher, along with Jose Antonio Ocampo from Initiative for Policy Dialogue at Columbia University and Ming Zhang and Yu Yongding from the Institute for World Economics and Politics at the Chinese Academy of Social Sciences. The brief will serve as an introduction to a larger report of the Task Force on Regulating Capital Flows for Long-Run Development to be released in the fall that includes contributions from scholars and policy makers across the world.

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By Kevin P. Gallagher, Sarah Anderson, Annamaria Viterbo (January 2014)

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November 2013

Since the global financial crisis, a consensus has emerged around the need to regulate capital flows in order to reduce the chances of future crises and to mitigate their damage if they do occur. Many emerging economies have already introduced measures to reregulate cross-border finance. However, these economies are concerned that some of the global and regional agreements they have negotiated over the last two decades may unduly constrain their room to deploy effective measures. There is thus a need for more policy space so that developing countries can adopt effective capital account regulation (CAR) to deal with both excessive capital inflows and sudden outflows. At the global level, there is a need for comprehensive reform of the entire financial architecture and more coordination on macroeconomic policy whereby both source and recipient countries are targeted.

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By Kevin P. Gallagher (August 2013)

Abstract

This policy brief discusses new evidence in the economics profession showing that capital controls are important macro-prudential measures that nations should have in their toolkit to prevent and mitigate financial crises. United States trade and investment treaties do not reflect this emerging consensus on capital controls. It is essential to rectify this problem as the United States finalizes its new moves forward on negotiations for a Trans-Pacific Partnership Agreement (TPP) and a bi-lateral investment treaty (BIT) with China.

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Inter-American Dialogue Policy Brief
By Kevin P. Gallagher (December 2012)

This policy brief reviews the prospects for economic growth in Latin America in the event of a slowdown in Chinese demand for primary commodities. The brief argues that in the long run China’s appetite for Latin American commodities will decline, as will prices. Yet, we are still in a China “super-cycle” that should benefit Latin America for the foreseeable future. The challenge will be for Latin America to seize this opportunity while it can and use the benefits from China trade to generate long-run sustainable development.

In Latin America and the Caribbean (LAC), as in many other parts of the world, there is much concern about changes in the Chinese economy. The China Boom from 2000 to 2011 was very good to the world in terms of trade and growth, and Latin America was no exception. China registered impressive growth at 9.2 percent in 2011 but that growth has slipped to the 7 percent range, where it will remain for the foreseeable future. This slowdown is causing anxiety throughout the world, including in LAC.

Indeed, sluggish Chinese demand will put a drag on LAC growth in the short term. But the medium- and longer-run prospects depend on public policy in both China and Latin America. If China manages to re-balance its economy, there is potential for steady imports from LAC. However, it will be up to LAC to put in place appropriate institutions to channel the benefits of Chinese trade and investment toward longer-range development.

In June of 2012, Chinese Premier Wen Jiabao proposed a multi-billion-dollar collaboration with the region in manufacturing and agriculture—a major, positive step for both China and LAC. The question now is whether LAC will rise to the challenge. The region’s ability to implement much-needed economic and institutional reform may be of far graver concern than China’s ability to post high rates of growth.

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Initiative for Policy Dialogue, Columbia University
By Brittany Baumann and Kevin P. Gallagher (June 2012)

In the wake of the global financial crisis, many emerging market countries have been the recipients of unstable capital flows. Indeed, Brazilian President Dilma Rousseff has gone so far as to refer to post-crisis capital flows as a ‘tsunami’ that is a cause of great concern in the developing world. Different nations have responded to this challenge with different tools. Some nations have deployed capital account regulations, others have intervened in currency markets, and others have refrained from any activity at all. This paper analyzes the actions of Brazil and Chile between 2009 and the third quarter of 2011. During this period Brazil deployed capital account regulations and Chile intervened in its currency markets. We examine the effectiveness of each of these actions and the extent to which the actions of Brazil caused capital flow spillovers in the Chilean market. Consistent with the peer-reviewed literature on the subject, we find that capital account regulations had small but significant impacts on the shifting the composition of capital inflows toward longer-term investment, on the level and volatility of the exchange rate, on asset prices, and on the ability of Brazil to have independence in monetary policy. Brazil’s regulations did also temporarily cause an increase in capital flows into Chile. Chile’s interventions did not have a lasting impact on the Chilean exchange rate or on asset prices beyond the initial announcements of the policies. In Brazil’s case we thus conclude that Brazil’s regulations helped the nation ‘lean against the wind,’ but were not enough to tame the tsunami.

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G-24 Policy Brief
By Kevin P. Gallagher (April 2012)

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