Wang: Will China Escape the Middle-income Trap? A Politico-economic Theory of Growth and State Capitalism

ABSTRACT:

Is China’s rapid growth sustainable if the labor and capital market distortions persist? Will democratization occur given that Chinese middle-class are supportive of the regime? To answer the above questions, this paper proposes a politico-economic theory, as follows. A political élite is able to extract surplus from the state sector and tax the private sector, but it also needs support from sufficiently many citizens to maintain the political power. “Divide-and-rule” strategy is implemented to guarantee such support: state workers receive high wages and  become supporters of the élite, while wages of private workers are reduced due to the policy distortion. In the short-run, the low wages in the private sector lead to rapid growth of the  private firms and total output. However, long-run growth is harmed by capital market distortions favoring the state firms. The theory suggests that the economy develops along a three-stage transition: “rapid growth”, “state capitalism”, and two cases in the third stage: “middle-income trap” or “sustained growth” , depending on whether democratization occurs endogenously. The theory is consistent with salient aspects of China’s recent development and gives predictions on China’s future development path.

 

Available for download here.

Kurtishi-Kastrati: The Effects of Foreign Direct Investments for Host Country’s Economy

ABSTRACT:

Foreign Direct Investment (FDI) is seen as the fundamental part for an open and successful international economic system and a major mechanism for development. In this circumstance, the paper examines the benefits of FDI as a key component for successful and sustainable economic growth and also as a part of a method to social improvement. The aim is to highlight the most important channels through which FDI makes a significant and exceptional impact on the economic development of the host countries. At the same instance, it is important to recognize that, like all things, FDI is not all good no bad. A separate discussion is devoted to the potential negative impacts of FDI flows on host economies.

 

Available for download here.

Humphery-Jenner, Shinkle & Suchard: Innovation in newly public firms: The influence of government grants, venture capital, and private equity

ABSTRACT:

We investigate the influence of government grants, venture capital (VC), and private equity (PE) on innovation. Grounded in the logic of information economics and the knowledge-based view, this study takes a fine-grained perspective by examining innovation inputs (R&D), and
innovation outputs (patents), and the quality of outputs (patent citations). We analyze a crosssectional sample of 436 Australian newly public companies. We find that grants are associated with innovation inputs, outputs, and the quality thereof. VCs increase innovation inputs whereas PEs increase innovation outputs and the quality thereof. Importantly, grants encourage VC investment but not PE investment. Grants and VC/PE backing are generally complements regarding innovation except grants substitute for VC backing on innovation inputs. We also investigate the attributes of VC/PEs that are associated with innovation.

 

Available for download here.

Committee On Foreign Investment in The U.S.: 2012 Annual Report

The 2012 CFIUS Annual Report is out (yes, the annual report for a preceding year appears in December of the following year).  I’m writing a paper that discusses the annual report in more detail, but for now here are three brief highlights:

  • 2012 saw a slight uptick in the number of covered transactions, an uptick in the number of investigations, and a large jump in the number of withdrawn deals:

cfius2012a

 

  • Deals from China are increasing:

Acquisitions by investors from the United Kingdom (“UK”) accounted for 21 percent of the notices, the largest by far, for the three-year period (68 notices, including one notice from an acquirer with UK and German owners), down from 26 percent of all notices for the 2009-2011 period. UK investors also represented the largest number of notices on a single-year basis in 2010 and 2011. Investors from Canada and France accounted for an additional 10 and nine percent respectively over the period (31 and 28 notices), similar to their percentage shares in the 2009-2011 period. Investors from China accounted for 12 percent of the notices for the period (39 notices), up from seven percent for 2009-2011. Chinese investors accounted for the largest number of notices on a single year basis in 2012. Investors from Japan and Israel accounted for seven and five percent respectively over the three-year period (23 and 17 notices).

  • Is there a coordinated strategy by foreign investors or foreign governments to acquire critical U.S. technologies?  Compare 2011 with 2012:
    • 2011: “Based on its assessment of transactions identified by CFIUS for purposes of this report, the U.S. Intelligence Community (“USIC”) judges with moderate confidence that there is likely a coordinated strategy among one or more foreign governments or companies to acquire U.S. companies involved in research, development, or production of critical technologies for which the United States is a leading producer.”
    • 2012: “Based on its assessment of 2012 activity, the U.S. Intelligence Community (USIC) judges it unlikely that there is a coordinated strategy among one or more foreign governments or companies to acquire United States companies involved in research, development, or production of critical technologies for which the United States is a leading producer.”

 

 

Rhee: Race and Retirement Insecurity in the United States

From the Introduction:

American workers and families face a retirement crisis in which a majority of households are at risk for downward mobility in retirement, and a significant share face not being able to meet basic expenses in old age. In July 2013, the National Institute on Retirement Security (NIRS) released “The Retirement Savings Crisis: Is It Worse Than We Think?” The study found that private sector retirement access is near its lowest point since 1979, with only 52 percent of employees in jobs that offer retirement benefits. A critical finding of that report is that while households face a growing retirement savings burden, the typical US working-age household has only $3,000 saved in retirement accounts, according to 2010 data. The typical household nearing retirement has only $12,000.

This report serves as a companion to the July 2013 study. We examine racial disparities in retirement readiness among workers and households that are working-age, defined in this report as age 25-64. Findings are based on analyses of data from the U.S. Bureau of Labor Statistics’ Current Population Survey Annual Social and Economic Supplement (CPS ASEC) and the U.S. Federal Reserve’s 2010 Survey of Consumer Finances (SCF). Specifically, this paper analyzes:

• Workplace retirement coverage among white, Black, Latino, and Asian wage and salary employees between the ages of 25 and 64 (Section I).

• Retirement account ownership among working-age households, by race of head of household: white and nonwhite and, where adequate data is available, Black and Latino households (Section II).

• Retirement account balances among white, Black, and Latino households; and ratios of account balances to income among white and nonwhite households (Section III).

A key finding is that people of color face particularly severe challenges in preparing for retirement. Every racial group faces significant risks when it comes to retirement income. People of color, however, are less likely than whites to have access to a pension or 401(k) at work. The racial disparity in retirement savings is even greater. In fact, nearly two-thirds of households of color do not have any savings in a 401(k) or IRA type account, compared to slightly over one-third of white households. Three out of four households of color have retirement savings less than $10,000. Among households of color with retirement account assets, the median balance is $30,000 for near-retirees—grossly insufficient as an income source. Finally, the wide racial gap in retirement assets holds even after accounting for age and income.

 

Available for download here.

Barroso: Does trade shrink the measure of domestic firms?

ABSTRACT:

Does international trade shrink the steady state measure of domestic firms? The most recent models with heterogeneous firms suggest it does (Melitz (2003), Chaney (2007) and Arkolakis (2008)). The main force at work in such models is the selection of the fittest, with the least efficient firms exiting the market. Within the same class of models with heterogeneous firm productivity and strong selection effects, both in the consumption goods and the intermediate goods sectors, this paper shows that the measure of domestic firms may actually expand. The result is robust to the particular production function used to bundle labor and intermediate goods.

 

Available for download here.

Al-Hassan, Papaioannou, Skancke & Sung: Sovereign Wealth Funds: Aspects of Governance Structures and Investment Management

ABSTRACT:

This paper presents in a systematic (normative) manner the salient features of a SWF‘s governance structure, in relation to its objectives and investment management that can ensure its efficient operation and enhance its financial performance. In this context, it distinguishes among the various governing bodies and analyzes key aspects of the investment policy and setting of the risk tolerance level in order to ensure consistent risk-bearing capacity and greater accountability. Further, it discusses the important role of SWFs in macroeconomic management and the need for close coordination with other macroeconomic and financial policies as well as their role in global financial stability.
Available for download here.

 

Chen: Corporate Governance of State-Owned Enterprises – An Empirical Survey of the Model of Temasek Holdings in Singapore

ABSTRACT:

This paper explores the effect of Temasek Holdings Pte Ltd, one of Singapore’s two prominent sovereign wealth funds, on the corporate governance of its target companies in Singapore. It compares companies associated with Temasek with the other listed companies on the Singapore Exchange that form the components of the Straits Times Index. Based on these companies’ 2012 annual reports, this paper finds that the companies in which Temasek has direct stakes have a higher proportion of independent directors and are more likely to have an independent director serving as chairman, indicating a higher quality of corporate governance. However, Temasek’s success is not necessarily a result of law, but may have more to do with its self-disciplinary nature and the hands-off approach of the Singaporean government. This means that the Temasek model may not easily be copied by state-owned enterprises in other countries. However, the fact that Temasek plays like an active investor and complies with corporate law may prove that state-owned enterprises may still enjoy a higher quality of corporate governance, and that sovereign wealth funds may behave akin to responsible investors.

 

Available for download here.

Whiteman: Measuring the Capacity and Capability of Public Financial Management Systems

ABSTRACT:

The objective of this paper is to measure the capacity and capability of public financial management (PFM) systems and to identify the resulting implications for PFM reform. Data envelopment analysis (DEA) is applied to the Public Expenditure and Financial Accountability (PEFA) framework and database of 69 country PFM systems to obtain estimates of PFM capacity and PFM capability. The results suggest that capacity and capability are negatively correlated. Econometric analyses of the resulting estimates of capacity and capability against PEFA core input dimensions indicate that popular interventions; such as improving budget classification schemes, introducing a multiyear perspective in budgeting, internal auditing, and other PFM reforms promoted by multilateral, bilateral and other agencies; could have differential and conflicting impacts on the capacity and capability of PFM systems. Accordingly, in order to achieve improved PFM performance, agencies may need to take account of the existing PFM capacity/capability configuration of respective PFM systems when designing programs for PFM reform.

 

Available for download here.

Gustafson: Defined Contribution Pensions and Retirement During the Financial Crisis – A Natural Experiment

ABSTRACT:

I investigate how DC pensions affect retirement using a 1984 federal retirement system change that quasi-randomly assigns DC pensions. I find no evidence that DC pensions affect retirement before the financial crisis. During and after the crisis, employees with DC pensions retire less. This effect is largest for high-income employees. The average high-income employee with a DC pension delays retirement 1.4 to 3 months longer than a comparable non-DC employee does. I argue that this increased retirement delay is caused by a decline in DC pension value, which I estimate is equivalent to three months’ worth of income.

 

Available for download here.