The Causes of China’s Export-Led Growth

There is consensus among economists, international organizations and the Chinese government that China’s export- and investment-led growth model is unsustainable. Exchange rate manipulation is often named as the major cause of China’s massive trade surpluses. But there is no agreement about the extent to which the Renminbi is actually undervalued, and if an exchange rate appreciation would significantly reduce China’s current account surplus. In this working paper, Simon Sturn finds that the central policy challenge for correcting China’s trade imbalances is not simply to appreciate the Renminbi, but to increase reduce inequality and increase average household incomes.  This will increase China’s domestic consumption level relative to exports.

>> Read "From Internal Imbalances to Global Imbalances: A Survey on the Causes of China’s Export-Led Growth"

Asset-Based Reserve Requirements: A More Effective Exit Strategy for the Fed

The Federal Reserve’s current policy of quantitative easing—buying financial assets from commercial banks and other financial institutions, thereby increasing the monetary base in order to stimulate the economy—has resulted in effectively giving banks a tax cut at the public’s expense, and risks domestic and financial market turmoil. This paper by Thomas Palley argues that an alternative strategy based on asset based reserve requirements would be less expensive, more effective, and could help shrink the outsized financial sector.

>>Read "Monetary Policy After Quantitative Easing: The Case for Asset Based Reserve Requirements"

Shadow Banking and Systemic Risk in China

Systemic risk occurs when many financial institutions fail due to a common shock. The US and Europe faced both liquidity and solvency risk in the recent crisis, but China did not. Since China has not faced a system-wide meltdown, it is not obvious where the weaknesses within China’s shadow banking sector may lie. This paper by Sara Hsu, Jianjun Li, and Ying Xue uses a Markov analysis to find that some systemic risk is presented by trust companies, and that banks absorb most of this risk in the financial system.

>> Read Shadow Banking and Systemic Risk in China

Is There a Progressive Way Out of the Eurozone Crisis?

In this New Labor Forum guest column, PERI Co-Director Gerald Epstein argues that the euro crisis is being used to dismantle labor and social protections integral to post-war reconstruction and development. Austerity measures have resulted in stark economic hardship and unemployment, and have led to disillusionment among European citizens with the political establishment, and with the idea of Europe itself. Epstein explores how to advance a progressive alternative that can end the crisis for the mass of Europeans, while saving the continent from dangerous right-wing political destabilization.

>> Read "The Eurozone Crisis: Shredding the Post-War Bargain"

Sustaining Growth in African Countries

African countries have experienced accelerated growth this century—a welcome turnaround from the past decades of stagnation.  To sustain a strong positive growth trajectory, African countries need to maintain high levels of domestic spending on productive investment projects.  But these countries, in turn, need to develop effective policies for stemming the leakage of domestic resources that occurs now through  capital flight and often illicit financial flows. In early May, PERI collaborated with the African Development Institute of the African Development Bank to conduct a workshop in Nairobi, Kenya on these topics for regional policy makers. 

>>Read more on the course

Evidence to Solve the Calorie Consumption Puzzle

Why is it that in India, average calorie intake has declined, even as consumption expenditures have increased? This so-called “calorie consumption puzzle” is a fundamental problem in India, given that the average body mass index rate is among the worst in the world. In this paper, Deepankar Basu and Amit Basole provide household-level evidence for one explanation: a food-budget squeeze. Using an instrumental variable empirical strategy, Basu and Basole show that rising costs of cooking fuel are causing poor Indians to have less of their overall food budget to spend on purchasing food itself.

>> Read Fueling Calorie Intake Decline: Household Level Evidence from Rural India