26. United Nations Conference on Trade and Development (UNCTAD), Iron Ore Market 2009–2011, Geneva, June 2010.
27. Keith Bradsher, “After China's Rare Earth Embargo, a New Calculus,” The New York Times, October 29, 2010, http://www.nytimes.com/2010/10/30/business/global/30rare.html.
28. Olivia Lang, “Row Over Exotic Minerals That Make Modern Life Tick,” October 21, 2010, http://www.bbc.co.uk/news/world-asia-pacific-11584229.
29. “Dirty Business: China Is Squeezing the Supply of Vital Rare Earths. But Not for Long,” The Economist, September 30, 2010, http://www.economist.com/node/17155730?story_id=17155730.
30. Keith Bradsher, “After China's Rare Earth Embargo, a New Calculus,” The New York Times, October 29, 2010, http://www.nytimes.com/2010/10/30/business/global/30rare.html.
31. “Rare earths supply deal between Japan and Vietnam,” BBC News, October 31, 2010, http://www.bbc.co.uk/news/world-asia-pacific-11661330.
32. Yvan Decreux and Lionel Fontagné, “A Quantitative Assessment of the Outcome of the Doha Development Agenda,” Centre d'Etudes Prospectives et d'Informations Internationales (CEPII),” working paper 2006-10.
33. To some readers, price regulation may sound like an extreme intrusion of government into market functioning, but regulating prices of natural monopolies, like the utilities that distribute water and electricity to homes, is a long-standing practice. And it does not imply a broader requirement for price regulation in other types of markets.
Chapter Six
1. S. Kahn Ribeiro et al., “2007: Transport and Its Infrastructure,” in Climate Change 2007: Mitigation. Contribution of Working Group III to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, eds. B. Metz, O. R. Davidson, P. R. Bosch, R. Dave, and L. A. Meyer (Cambridge, UK, and New York: Cambridge University Press, 2007), 328.
2. R. K. Pachauri and A. Reisinger, eds., “Climate Change 2007: Synthesis Report,” Intergovernmental Panel on Climate Change (IPCC), November 2007, 36.
3. WTO, “The Impact of Trade Opening on Climate Change,” http://www.wto.org/english/tratop_e/envir_e/climate_impact_e.htm.
4. International Energy Agency, “CO2 Emissions from Fuel Combustion: Highlights,” http://www.iea.org/co2highlights/CO2highlights.pdf. Calculation is based on the following: according to sectoral approach, there were 28,962.4 Mt of CO2 emissions from fuel combustion in 2007. Of these, 6,632.5 Mt were from the transport sector, and 610.4 Mt and 411.6 Mt were from international marine bunkers and international aviation bunkers, respectively.
5. WTO, “The Impact of Trade Opening on Climate Change.”
6. International Maritime Organization, “Prevention of Air Pollution from Ships: Second IMO GHG Study 2009,” April 2009.
7. International Maritime Organization, “IMO and the Environment, 2009,” http://www5.imo.org/SharePoint/blastDataOnly.asp/data_id=26878/IMOandtheEnvironment 2009.pdf.
8. Ibid.
9. Air Transport Action Group, “Emissions,” http://www.atag.org/content/showissue.asp?pageid=1078&level1=3&level2=472&level3=1078.
10. Air Transport Action Group, “Environment,” http://www.atag.org/content/showis sue.asp?folderid=472&level1=3&level2=472&
11. Carol McAusland and Christopher Costello, “Avoiding Invasives: Trade Related Policies for Controlling Unintentional Exotic Species Introductions,” Journal of Environmental Economics and Management 48 (2004): 954–977. There are also analyses by D. Pimentel et al. indicating ongoing direct and indirect ecological costs at more than $100 billion annually: see David Pimentel, Rodolfo Zuniga, and Doug Morrison, “Update on the Environmental and Economic Costs Associated with Alien-Invasive Species in the United States,” Ecological Economics 52 (2005): 273–288. However, such estimates include tens of billions dollars apiece for the costs of alien species such as rats and cats and should be stacked against the ongoing benefits from all the alien species ever introduced to the U.S., which would dwarf them.
12. The analysis of trade's impacts on the environment according to scale, technique, and composition effects draws on Gene M. Grossman and Alan B. Krueger, “Environmental Effects of a North American Free Trade Agreement,” in Peter M. Garber, The U.S.–Mexico Free Trade Agreement (Cambridge, MA: MIT Press, 1993), 13–56.
13. W. Antweiler, B. R. Copeland, and M. S. Taylor, “Is Trade Good for the Environment?” American Economic Review 91 (2001): 878.
14. Jeffrey Frankel, “Environmental Effects of International Trade,” Kennedy School of Government, Harvard University, HKS faculty research working paper series RWP09-006, January 2009.
15. Ibid.
16. Ibid.
17. Stefan Theil, “No Country Is More ‘Green by Design,’” Newsweek, June 28, 2008.
18. Awudu Abdulai and Linda Ramcke, “The Impact of Trade and Economic Growth on the Environment,” Kiel Institute for the World Economy, working paper 1491, March 2009.
19. Roldan Muradian, Martin O'Connor, and Joan Martinez-Alier, “Embodied Pollution in Trade: Estimating the ‘Environmental Load Displacement’ of Industrialised Countries,” Fondazione Eni Enrico Mattei, July 2001.
20. Jeffrey Frankel, “Environmental Effects of International Trade.”
21. Keith Bradsher, “After China's Rare Earth Embargo, a New Calculus,” New York Times, October 29, 2010, http://www.nytimes.com/2010/10/30/business/global/30rare.html.
22. Jeffrey Frankel, “Environmental Effects of International Trade.”
23. Joseph Stiglitz, Making Globalization Work (New York: W. W. Norton, 2007), 164.
24. Concerns have also been raised about whether the WTO might get in the way of countries' abilities to regulate local pollutants—in the sense that countries applying high standards to domestic production might not be able to enforce the same standards on products imported into their countries. Actually, WTO rulings have supported countries' ability to enact such measures as long as they do not unnecessarily discriminate against foreign products.
25. Steven Hayward and Julie Majeres, Index of Leading Environmental Indicators 2001 (San Francisco, CA: Pacific Research Institute for Public Policy, 2001) 18.
26. European Commission, “Protection of the Ozone Layer,” http://ec.europa.eu/ environment/ozone/international_action.htm.
27. United Nations Development Programme, “20 Years of the Montreal Protocol,” http://www.undp.org/chemicals/20yearsmontrealprotocol/.
28. See “Shell Energy Scenarios to 2050,” p. 37, http://www-static.shell.com/static/public/downloads/brochures/corporate_pkg/scenarios/
shell_energy_scenarios_2050.pdf.
29. Ibid., 13.
30. Alison Benjamin, “Stern: Climate Change a ‘Market Failure,’” The Guardian, November 29, 2009, http://www.guardian.co.uk/environment/2007/nov/29/climatechange.carbonemissions.
31. David Anthoff and Richard S. J. Tol, “On International Equity Weights and National Decision Making on Climate Change,” Journal of Environmental Economics and Management 60, no. 1 (2010): 14–20.
32. Abdulai and Ramcke, “The Impact of Trade and Economic Growth on the Environment,” 5.
Chapter Seven
1. Food and Agricultural Organization (FAO) of the United Nations, “The State of Food Insecurity in the World: Economic Crises—Impacts and Lessons Learned,” 2009.
2. Ian Goldin, “Globalization and Risks for Business: Implications of an Increasingly Interconnected World,” Lloyd's 360 Risk Insight In Depth Report, 2010.
3. Robin Burgess and Dave Donaldson, “Can Openness Mitigate the Effects of Weather Shocks? Evidence from India's Famine Era,” American Economic Review: Papers and Proceedings 100 (2010): 449–453.
4. Estimates based on figure 9.7 of Bruno Solnik and Dennis McLeavey, Global Investments, 6th ed. (Boston: Pearson Prentice Hall, 2009), p. 400.
5. See, for instance, Vivek Bhargava, Daniel K. Konku, and D. K. Malhotra, “Does International Diversification Pay,” Financial Counseling and Planning 15, no. 1, (2004): 53–63.
6. Joost Dr
iessen and Luc Laeven, “International Portfolio Diversification Benefits: Cross-Country Evidence from a Local Perspective,” Journal of Banking and Finance 31, no. 6: 1693–1712.
7. Marianne Baxter and Urban J. Jermann, “The International Diversification Puzzle Is Worse Than You Think,” American Economic Review 87, no. 1 (March 1997): 170–180, went so far as to suggest that investors should short their home country markets to diversify their home country labor market exposure. Later studies challenged Baxter and Jermann's results and indicated that labor market exposure and correlations with domestic and foreign equity markets vary significantly by country and by industry, but the broad point is still worth noting. For a more recent treatment, see Carolina Fugazza, Maela Giofre, and Giovanna Nicodano, “International Diversification and Labor Income Risk,” Center for Research on Pensions and Welfare Policies, CeRP working papers no. 67, 2007.
8. John Cassidy, How Markets Fail: The Logic of Economic Calamities (New York: Farrar, Straus and Giroux, 2009), 171.
9. Ibid., 177.
10. Robert J. Shiller, “Stock Prices and Social Dynamics,” Brookings Papers on Economic Activity 2, 1984.
11. Joshua D. Coval and Tobias J. Moskowitz, “The Geography of Investment: Informed Trading and Asset Prices,” Journal of Political Economy 109, no. 4 (2001).
12. Bank for International Settlements, Monetary and Economic Department, “OTC Derivatives Market Activity in the Second Half of 2009,” May 2010.
13. Jonathan Spicer, “Globally, the Flash Crash Is No Flash in the Pan,” Reuters, October 15, 2010.
14. Irene Aldridge, “What Is High-Frequency Trading, After All?” Huffington Post, July 8, 2010.
15. Spicer, “Globally, the Flash Crash Is No Flash in the Pan.”
16. Karen E. Dynan, Douglas W. Elmendorf, and Daniel E. Sichel, “The Evolution of Household Income Volatility,” Brookings Institution, February 2008.
17. M. Ahyan Kose, Eswar Prasad, Kenneth Rogoff, and Shang-Jin Wei, “Financial Globalization: A Reappraisal,” IMF staff papers 56, no. 1 (2009): 8–62.
18. Bruno Solnik and Dennis McLeavey, Global Investments, 6th ed. (Boston: Pearson Prentice Hall, 2009).
19. William N.Goetzmann, Lingfeng Li, and K. Geert Rouwenhorst, “Long-Term Global Market Correlations,” DNB Staff Reports, no. 09/2003.
20. Between 1997 and 2007, the French stock market had a 91% monthly correlation with a European market average, a 70% correlation with the U.S. market, and a 35% correlation with the Japanese market. Over the same period, U.S. stock market had a 76% monthly correlation with Europe and a 43% correlation with Japan. These correlations are based on monthly returns in U.S. dollars. (Source: Bruno Solnik and Dennis McLeavey, Global Investments, p. 394.)
21. M. Ahyan Kose, Christopher Otrok, and Eswar S. Prasad, “Global Business Cycles: Convergence or Decoupling?” NBER working paper 14292, October 2008. Note: Based on a comparison of the period 1985 to 2005 with the period 1960 to 1984.
22. Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, NJ: Princeton University Press, 2009).
23. Laura Alfaro, Sebnem Kalemi-Ozcan, and Vadym Volosovych, “Capital Flows in a Globalized World: The Role of Policies and Institutions,” NBER chapters, in Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences (2007), 19–72.
24. UNCTAD, Trade and Development Report, 2008.
25. See footnote 4 on page 12 of Kose et al., “Financial Globalization.”
26. M. Ayhan Kose, Eswar S. Prasad, and Marco E. Terrones, “Does Financial Globalization Promote Risk Sharing?” Journal of Development Economics 80 (2009): 258–270.
27. Kose et al., “Financial Globalization: A Reappraisal.”
28. Manuel Agosin and Franklin Huaita, “Overreaction in Capital Flows to Emerging Markets: Booms and Sudden Stops,” Serie Documentos de Trabajo N. 295, April 2009.
29. Kose et al., “Financial Globalization: A Reappraisal.”
30. Defined typically as holding at least a 10% share in a foreign business, implying at least some degree of control over the foreign enterprise.
31. Kose et al., “Financial Globalization,” 2009, 37.
32. Gianni De Nicolo and Luciana Juvenal, “Financial Integration, Globalization, Growth, and Systemic Real Risk,” Federal Reserve Bank of St. Louis working paper 2010-012D, revised October 2010.
33. Kose et al., “Financial Globalization: A Reappraisal,” 38.
34. Ibid.
35. Ibid., 49.
36. Philippe Legrain, Open World: The Truth About Globalization (Chicago: Ivan R. Dee, 2004), 289.
37. For a compelling review of such phenomena across the centuries, see Charles P. Kindleberger and Robert Aliber, Manias, Panics, and Crashes: A History of Financial Crises, 5th ed. (New York: Wiley, 2005).
38. FAO, “The State of Food Insecurity in the World.”
39. FAO, “Food Outlook, Global Market Analysis,” June 2009.
40. FAO, “Staple Foods: What Do People Eat?” Corporate Document Repository, http://www.fao.org/docrep/u8480e/u8480e07.htm.
41. World Trade Organization, International Trade Statistics, 2000 and 2009.
42. United Nations Development Programme, Human Development Report 2003, 155.
43. Concepción Calpe, “International Trade in Rice, Recent Developments and Prospects,” (presentation to the World Rice Research Conference, November 5–7, 2004).
44. Derek D. Headley, Rethinking the Global Food Crisis: The Role of Trade Shocks,” International Food Policy Research Institute discussion paper 0958, March 2010.
45. Paul A. Dorosh, Simon Dradri, and Steven Haggblade, “Alternative Approaches for Moderating Food Insecurity and Price Volatility in Zambia,” Food Security Collaborative Policy Briefs 54630, Michigan State University, 2007.
46. Matt Ridley, The Rational Optimist: How Prosperity Evolves (New York: HarperCollins, 2010), 143–149.
47. Ibid., 337–340.
48. Legrain, Open World, 276.
49. Boris Groendahl and Albert Schmieder, “$60 bln Greek Debt Vanish and It's Not What You Think,” Reuters, April 29, 2010, http://uk.reuters.com/article/idUKLDE63R2GB20100429.
50. Joseph E. Stiglitz, “Risk and Global Economic Architecture: Why Full Financial Integration May Be Undesirable,” NBER working paper 15718, February 2010.
51. Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable, 2nd ed. (New York: Random House, 2010), 312.
Chapter Eight
1. This calculation is based on the total Chinese portion of “foreign official and private holdings of U.S. Treasury securities” of $1,036 billion at the end of 2009 as reported in the U.S. Bureau of Economic Analysis report, “The International Investment Position of the United States at Yearend 2009” by Elena L. Nguyen, July 2010. Population data are based on the United Nations Population Division's “World Population Prospects: The 2008 Revision,” May 2009. Figures in text were rounded to nearest hundred dollars.
2. The multicountry analysis of net foreign asset positions produced by Lane and Milesi-Ferreti based on which figure 8-2 was generated relied on the U.S. Bureau of Economic Analysis's July 2009 report on the U.S. Net International Investment Position, which showed a deterioration from –2.087 trillion to –2.140 trillion whereas the July 2010 revision of the same dataset indicated an improvement from –2.094 trillion to –1.916 trillion.
3. Nguyen, “The International Investment Position of the United States at Yearend 2009.” Percent of GDP calculation uses GDP as reported in IMF, World Economic Outlook, April 2010 revision.
4. Goldman Sachs, “Current Account and Demographics: The Road Ahead,” Global Economics Paper 202, August 12, 2010.
5. Niall Ferguson, “The Trillion Dollar Question: China or America?” Telegraph.co.uk, June 1, 2009, http://www.telegraph.co.uk/comment/5424112/The-trillion-dollar-question-China-or-America.html.
6. Jahangir Aziz and Steven Dunaway, “C
hina's Rebalancing Act,” Finance and Development, September 2007.
7. International Social Security Association, “China's Health Care Reforms Move Toward Universal Coverage,” September 23, 2009, http://www.issa.int/aiss/layout/set/print/content/view/full/68609.
8. Goldman Sachs, “China's Savings Rate and Its Long-term Outlook,” Global Economics 191, October 16, 2009.
9. Lawrence B. Lindsey, “Yuan Compromise?” Wall Street Journal, Thursday, April 6, 2006.
10. Two is the minimum number of countries required to make the basic point, but that restriction is inessential to the fundamental conclusions. Also note that countries can differ in terms of their populations, although this point is not highlighted in the analysis in the text since it is effectively conducted in per capita terms.
11. The maximization of welfare involves maximizing the present values of streams of profits and of consumer surplus. Work in the theory of growth as well as the theory of the firm indicates that the values chosen by a firm or an economy that is maximizing growth are not necessarily the same as the values chosen by an economy that is maximizing surplus or welfare.
12. Culture guru Geert Hofstede added a fifth cultural dimension, long-term orientation, to his well-known set of four—power distance, individualism versus collectivism, masculinity, and uncertainty avoidance—largely in response to work in China suggesting that the reported difference with the U.S. on this dimension dwarfs those on the other dimensions.
13. Horst Siebert, The World Economy (New York: Routledge, 2002), 82.
14. For some strategic discussion of the broader U.S.-Chinese relationship, see chapter 13.
15. Wolfgang Lutz and Warren C. Sanderson, introduction to The End of Population Growth in the 21st Century: New Challenges for Human Capital Formation and Sustainable Development, eds. Wolfgang Lutz, Warren C. Sanderson, and Sergei Scherbov (Sterling, VA: Earthscan, 2004), 1.
16. These calculations are based on GNP per capita adjusted for terms of trade effects. See D. Turner, C. Giorno, A. De Serres, A. Vourc'h, and P. Richardson, “The Macroeconomic Implications of Ageing in a Global Context,” OECD economics department working paper 193, 1998.
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