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Independent research & practical ideas for global prosperity
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Independent research & practical ideas for global prosperity
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 Arvind Subramanian, an Indian national, is a senior fellow at the Center for Global Development with a joint appointment at the Peter G. Peterson Institute for International Economics and is also a senior research professor at Johns Hopkins University. Full Bio Follow @arvindsubraman
Mme. Lagarde: Where Are You When the World Needs You?November 11, 2011By Arvind Subramanian in Financial Crisis, International Monetary Fund Tags: Financial Crisis, IMF
This post originally appeared on the blog of the Peterson Institute for International Economics A letter to Christine Lagarde, Managing Director of the International Monetary Fund (IMF) Dear Madame Lagarde, Europe is in deep trouble, possibly on the verge of catastrophe, and as a consequence so might be the world. You represent that world and you need to act quickly and decisively, and I am afraid somewhat solitarily. You need to quickly mobilize international resources to help address the problem in Europe, which in turn would help minimize the risks to the rest of the world. Comment »Learning to Live With China’s Economic DominanceAugust 25, 2011By Arvind Subramanian in China, Global Development Tags: China
Arvind Subramanian is a joint senior fellow at the CGD and the Peterson Institute. This post appeared originally on the Peterson Institute’s China Economic Watch blog.
This is an essential question, and yet it has not yet been taken seriously enough in the United States, where, this central conceit still reigns: the United States’ economic preeminence cannot be seriously threatened because it is the United States’ to lose, and sooner or later, the United States will rise to the challenge of not losing it. China may be on its way to becoming an economic superpower, and the United States may have to share the global stage with it in the future. But, the argument goes, the threat from China is not so imminent, so great, or so multifaceted that it can push the United States out of the driver’s seat. Comment »The Lagarde SagaJune 28, 2011By Arvind Subramanian in International Monetary Fund Tags: Christine Lagarde, Dominique Strauss-Kahn, IMF, Managing Director
This post first appeared on the Peterson Institute’s Real Time Economic Issues Watch. With the United States throwing its support behind Christine Lagarde for the post of managing director of the International Monetary Fund (IMF), it seems that it is all over, except for the shouting (or rather the whim of the French magistrate investigating her role in the Bernard Tapie affair). This result is unfortunate in one respect. Any decision on the Lagarde appointment should have been deferred until she had been legally acquitted in France. Especially, in the aftermath of the Dominique Strauss-Kahn affair, it was imperative that the new candidate be, like Caesar’s wife, beyond reproach. So, we could still have a situation (admittedly a low probability one) where the world decides to appoint Ms. Lagarde while there is an ongoing investigation against her in her own country. Nothing would have been lost by delaying the appointment by a few weeks. Comment »Nicholas Kristof and AidMay 20, 2011By Arvind Subramanian in Global Development Tags: Aid Effectiveness, Deworming, Pakistan, RCTs
I am a big admirer of Nick Kristof, of the passion and concern that animate his books and columns, and of the must-do-can-do spirit that they embody. But sometimes his soft heart gets ahead of the hard head, leading to misleading and intellectually insupportable advocacy of foreign aid. A good example is today’s column. Kristof’s main thrust in today’s column is that randomized control trials (RCTs) are increasingly providing a good and effective way of making aid work. The old debate about whether aid is effective or not is sterile because we now have an intellectual apparatus for making better calls about how to target aid. Read More… 4 Comments »A Quick Guide to the Upcoming Contest for the Next MD of the IMFMay 18, 2011By Arvind Subramanian in Global Development Tags: IMF, World Bank
This is a joint post with Nicolas Véron that first appeared on the Peterson Institute’s Real Time Economic Issues Watch. This note provides a quick guide—in the form of a table—to the likely candidates to succeed Dominique Strauss-Kahn as next Managing Director (MD) of the IMF, assuming that he resigns shortly. It also highlights some key points that must guide the process of selecting the next MD. Need for urgent action. The IMF is at a critical juncture with lots of problems to solve, not least in Europe. A leadership vacuum and uncertainty must be avoided, which requires urgent initiatives by the larger players—the United States, Europe, China, Brazil, India, South Africa and others. 1 Comment »A Constitutional Moment: Oil2Cash in the Arab WorldFebruary 24, 2011By Arvind Subramanian in Global Development, Oil Tags: Oil
It is thrilling to watch the overthrow of despots and dynasties as people power erupts across the Arab world. But the headiness of the moment can only lead to durable political change and meaningful economic progress if the new governments that emerge find a better way to handle oil revenue and other easy money (rents, in econo-speak) that have corrupted the outgoing regimes. How can this be done? In a series of CGD papers and articles, Nancy Birdsall and I, Todd Moss, and Alan Gelb have argued that one way of preventing the oil curse is to give some or most of the oil revenues directly to the people through regular cash transfers, then tax back part of it to fund government operations. We call this proposal Fighting the Resource Curse Through Cash Transfers or, more simply, “Oil2Cash.” 10 Comments »President Obama’s India Visit: A Book and Movie ListNovember 8, 2010By Arvind Subramanian in Global Development, News Tags: India
This post originally appeared on PIIE.com. President Obama is heading to India today on a state visit that is fraught with expectations and hopes on both sides. His two predecessors, each in his own way, made a lasting impression on India. President Clinton’s reaching out to the Indian people nearly ten years ago erupted in a spontaneous dance with a group of illiterate rural women in Rajasthan, and the president etched himself in the Indian psyche as the modern day Lord Krishna—the legendary lover-god of Indian mythology. President Bush endeared himself to Indians by pushing through the civil nuclear deal, whose real import was the signal that: “You, India, are one of us.” Lacking the natural press-fleshing charms of Clinton, and the goodies that Bush had to offer, President Obama will have to find his own, cerebral, route to winning the hearts and minds of Indians. Here’s a book and movie list for President Obama that might help understand four dimensions of India: society and culture, history, religion, and cricket. Read More… Comment »America Cannot Win the Currency Wars AloneOctober 21, 2010By Arvind Subramanian in Global Development Tags: China, Currency Wars, Multilateralism, Tim Geithner, Unilateralism, US
This piece originally appeared in the Financial Times. How ironic that the world’s reserve currency issuer (the US) and its long-term rival to that status (China) are competing to nearly debauch their own currencies? America’s behaviour – more effect than intent – takes the form of quantitative easing. China’s takes the form of not letting its currency strengthen (which makes the recent monetary tightening deflationary for others). But unilateral American action against China cannot be the basis for resolving the currency wars. Effective and legitimate multilateral action to induce Chinese co-operation is necessary. Mobilising a broader coalition of the “affected but as yet unwilling” countries before the upcoming Group of 20 summit in Seoul should be America’s priority. Read More… Comment »Ethiopia’s ExperimentSeptember 3, 2010By Arvind Subramanian in Global Development Tags: Trade
The ever-vigilant Chris Blattman drew attention yesterday to Ethiopia’s currency devaluation. What was surprising and interesting about this move is that the devaluation was not undertaken under the usual duress of “macroeconomic adjustment.” Typically, in Africa, macroeconomic and foreign exchange crises have been the trigger for devaluation. A devaluation helps because it increases exports and reduces imports, thereby increasing the foreign exchange position of a country; and it also reduces domestic spending and brings it more in line with a country’s production. Read More… 1 Comment »Multilateralism on Currency IssuesMarch 24, 2010By Arvind Subramanian in Global Development Tags: China, IMF, World Trade Organization
This article also appeared in the Business Standard. Back in 1971, the then US Treasury Secretary, John Connolly, told his European counterparts that the dollar was “our currency, but your problem”. Today, it seems that China has returned that favour. Its currency has become a problem for the US. Not just the politics but the intellectual climate has become charged with even Nobel laureate Paul Krugman urging strong trade action against China. Treasury Secretary Tim Geithner has a damned-if-I-do-damned-if-I-don’t choice facing him in mid-April, when he is required by law to pronounce on whether China is a currency manipulator. Read More… Comment »Arvind Subramanian: The Triumph of EconomicsDecember 29, 2009By Arvind Subramanian in Global DevelopmentThis blog post was originally published in the Business Standard. The Greatest Depression that could so easily have happened in 2009 but did not is the tribute that the world owes to economics. In 2008, as the global financial crisis unfolded, the reputation of economics as a discipline and economists as useful policy practitioners seemed to be irredeemably sunk. Queen Elizabeth captured the mood when she asked pointedly why no one (in particular economists) had spotted the crisis coming. And there is no doubt that, notwithstanding the few Cassandras who had correctly prophesied gloom and doom, the profession had failed colossally. Read More… 1 Comment »Coordinate Capital ControlsNovember 25, 2009By Arvind Subramanian in Capitol Flows/Financial Crisis, Economic Development Tags: Capital Flows, IndiaThis op-ed originally appeared in the Business Standard. By Arvind Subramanian / New Delhi November 25, 2009, Around the peak of the global financial crisis, in late November 2008, I wrote a column which concluded: “Some time in the not-too-distant future, when the storm clouds recede, when the rupee is at, say, Rs 50 to the dollar, Indian exports will be hypercompetitive, and Indian growth prospects will be restored to pre-crisis levels of 8-9 per cent. At that stage, capital, attracted by the higher returns, will once again come pouring into India. That is almost certain (Nov. 26, 2008).” Read More… Comment »The IMF beyond IstanbulSeptember 30, 2009By Arvind Subramanian in Capitol Flows/Financial Crisis, Global Development, International Financial Institutions, International Monetary Fund Tags: Capital Flows, IMF, International Financial InstitutionsThis post originally appeared in the Business Standard. Wanted: An Asian Managing Director and new approaches to capital flows. The IMF will strike a triumphalist tone at its forthcoming annual meetings in Istanbul. Some of this will be warranted because the IMF’s record in responding to the global financial crisis was commendable, even if its record leading up to it was less stellar (see http://www.iie.com/realtime/?p=942 for more details). Read More… Comment »Tires, Globalization, China, and the WTOSeptember 15, 2009By Arvind Subramanian in China, Global Development, World Trade OrganizationThis post also appeared on the Real Time Economic Issues Watch blog. The decision by the United States to slap a 35 percent tariff on tire imports from China is, of course, significant. It follows a decision last week by the US Department of Commerce to impose countervailing duties on imports of steel pipe from Chinese firms. In the world of the 24/7 news cycle, one trade action may be an accident but two will be interpreted as a trend. The perception of escalating trade tensions between the United States and China cannot be avoided. And the timing is awkward—two weeks ahead of the G-20 Summit of world leaders at Pittsburgh where President Obama is host and, the in the eyes of the Chinese, now also the perpetrator of these trade actions. This trade action raises three very interesting issues: one about United States–China relations; one about globalization; and one about China itself. Take each in turn. In terms of United States–China economic relations, tires and any tariffs imposed on them are chump change. Their significance arises for broader reasons. The undiscussed elephant in the room in United States–China trade relations is the Chinese exchange rate. As long as the perception persists that China is an export juggernaut because of its policy of maintaining an undervalued exchange rate, there will be trade conflict. Tires and steel are the small sores that erupt because the underlying infection has not been cured. Resolving the currency issue may remain key to maintaining more stable trade relations between the two countries. This will not be easy to resolve because it goes to the heart of the process of China becoming an international player. China can either follow its export-led mercantilist growth strategy, or it can become a responsible international player. It cannot accommodate both objectives easily. A second interesting aspect of the tire dispute is that the petition seeking tariff increases was brought not by domestic tire companies but by the United Steelworkers, representing employees. Globalization has very different impacts on factors of production that can easily move around, such as capital, and those that cannot move around—like blue-collar workers. The latter will be more affected by competition from abroad. Firms can more easily relocate to protect their profit margins. In the tire case, the second largest American tire manufacturer actually has operations in China. It was against the trade action. Goodyear, the largest manufacturer, is ambivalent about the trade action. Globalization will increasingly drive a wedge between the interests of workers and companies, and to that extent globalization may be easier to sustain because increasingly integrated global companies will have less incentive to seek protection. In the tire case, however, the Obama administration is listening to its core constituency, labor unions, in part because of the help it needs in passing healthcare and other domestic legislation. A final angle relates to Chinese sentiment and self-regard. China has reacted very strongly against the tire tariffs, threatening to retaliate with tariffs of its own against goods from the United States. It sees the American action as aggressive and feels slighted. But last month when a WTO panel ruled in favor of the United States against restrictions imposed by China, China’s reaction was far more muted and moderate, and even accepting. When the trade action is unilateral, on the other hand, the atmosphere engenders more visceral, nationalistic responses. This suggests that multilateralism still offers the best hope for managing trade relations with China, a proud and sometimes prickly power, aspiring to superpower status. 1 Comment »Climate Change—Winning the NarrativeAugust 28, 2009By Arvind Subramanian in Climate Change, Global Development Tags: Cap And Trade, Carbon Accounting, Climate ChangeThis post originally appeared as a column in India’s Business Standard. Narratives matter. Not just for creating and sustaining nationhood as Isaiah Berlin famously argued. They also matter critically in international negotiations. At the moment, India is not winning the battle of the narrative on climate change. And that’s a worry. Read More… 2 Comments »The G-20: An Idea from IndiaAugust 26, 2009By Arvind Subramanian in Asia, International Financial Institutions, Regions Tags: G-20, IMF, RegionsThis post originally appeared as a column in India’s Business Standard. In the run-up to the G-20 Summit in London in April, China created a frisson of excitement by pushing for the use of Special Drawing Rights (SDRs) as an alternative to the dollar as a global economic currency. To be sure, there was self-interest in China’s dèmarche. It is also true that when China now talks, people must listen. But, the Chinese proposal was taken seriously—indeed for a few months, the global economic policy-making chatterati could talk of little else—because it had enough objective appeal and systemic relevance. In all the discussions about the reform of the international economic architecture and the G-20 process, India’s predominant concern has been with getting a seat at the table. This desire for influence is appropriate and attaining it is long overdue. International economic arrangements, especially at the IMF and World Bank, are outdated and inequitable. Redressing these anomalies is a worthy endeavor. But acquiring influence cannot become an end in itself. “Influence for what” is a question that India needs to continually ask. Read More… 4 Comments »It’s Not All Downhill from Here: The Uphill Flow of Skill-Intensive Goods and FDI from Developing CountriesAugust 10, 2009By Arvind Subramanian in Economic Growth, Global Development Tags: Add new tag, Capital Flows, FDI, Foreign Direct Investment, Globalization, Protectionism, TradeWe tend to think of globalization in the following way: the rich world exports financial capital, technology, sophisticated goods, and entrepreneurial and managerial skills in the form of foreign direct investment (FDI) to developing countries; the latter, in turn, export people, resources, and low-skilled goods to the rich world. Well, it turns out that globalization no longer respects these clean distinctions. Many recent studies have examined movement of capital from developing to high-income countries, with the assumption that only flows of finance could defy our expectations. But, increasingly, even flows of of sophisticated goods and FDI are going in both directions, a phenomenon Aaditya Mattoo and I call “Criss-crossing Globalization” in our latest paper. Countries such as China are exporting sophisticated goods to OECD countries, and countries such as India, Brazil, and South Africa are exporting FDI to the rich world. Think of Indian TATA’s takeover of the UK’s Jaguar, China’s Lenovo’s acquisition of IBM, Brazil’s success exporting commercial aircraft to high-income countries, and the growing exports of skilled services from Israel and India to OECD markets, and it’s clear that something significant is happening. We call these flows of skill-intensive goods and FDI from poor countries to rich countries “uphill flows”—uphill because they are defying the normal pattern of comparative advantage. What are the consequences for countries that send goods and services uphill? Our preliminary work suggests that such countries experience positive economic growth as a result. If this is true, it suggests that policies that promote skill-intensive patterns of production and specialization—even if they go against natural comparative advantage—may need to be considered by developing countries. A second consequence—and one that will perhaps play out more in the future—relates to the political economy of international trade and investment negotiations. When flows are two-way, perceived objectives of high-income and developing countries are more in sync with one another, which makes the political economy much more conducive to reaching agreement on common international rules. This could be good for all countries, developed and developing. 2 Comments »
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Is China poised to take over from the United States as the world’s most economically dominant power?
