Browse by Tags

Members of the Pacific Alliance opened their annual summit in Colombia yesterday, amid expectations that the Latin American free-trade bloc will soon be inviting more members . The continued growth of the alliance, and its outreach to Asia, may be off the radar a bit in the U.S., but it is a key player in the shaping of the global economy. The Economist points out that Latin America is engaged in an interesting tug of war between two different economic groups and their approach to free trade. The Pacific Alliance is largely made up of the market-led nations along the western edge, while Brazil leads the more regionally focused Mercosur. Here is how it maps out: Read A continental divide here .

What's in an acronym? Would the BRIC nations, by any other acronym smell as sweet [as places to do business]? In this Big Think video, Daniel Altman discusses some key distinctions between Brazil, Russia, India, and China (and Korea and South Africa). There are good reasons to invest in each country. And there good reasons to be skeptical about business prospects in each.

Brazil's finance minister, Guido Mantega , has been sharply critical of the Federal Reserve's latest round of quantitative easing, calling it "protectionist" and warning that it could spark a currency war . José Antonio Ocampo , former United Nations Under-Secretary-General for Economic and Social Affairs and former Finance Minister of Colombia, is reluctant to pick a side. Writing at Project Syndicate , Ocampo argues that "both sides are right": In particular, expansionary monetary policies in the US (indeed, in all advanced countries) are generating high risks for emerging economies. Because interest rates must remain very low in developed countries at least for the next several years, there are now strong incentives to export capital to higher-yielding emerging economies. But such capital inflows threaten exchange-rate overvaluation, rising current-account deficits, and asset-price bubbles, all of which have in the past led to crises in these economies. In short, the medium-term benefits that emerging economies could receive from faster growth in the US are now being swamped by short-term risks generated by the “capital tsunami,” as Brazilian President Dilma Rousseff has called it. The basic problem is the lack of a broader agenda that would make the Fed’s position consistent with that of Mantega and other emerging-country officials. That agenda must include two issues of global monetary reform that remain unaddressed: coordinated global regulation of capital flows in the short term, and a long-term shift toward a new international monetary system based on a true global reserve currency (possibly based on the International Monetary Fund’s Special Drawing Rights). The US could benefit from such policies, as capital-account regulation would force investors to find opportunities at home, while a true global reserve currency would free the US from concerns – and harsh rebukes – about the implications of its monetary policy on the global economy. At the same time, emerging markets would gain the full benefits of expansionary monetary policy in the US, to the extent that it boosts demand for their exports. Read The Federal Reserve and the Currency Wars here .

We may need to be prepared to see a decrease in production from automakers, and the economic impact on the economy from those cutbacks. In the following interview with The Wall Street Journal's Chester Dawson , Nissan and Renault CEO Carlos Ghosn says that the ongoing struggles in the EU are forcing Nissan and its competitors to reconsider their output. Ghosn also discusses other key factors for Nissan's economic outlook--such as growth in China. And while he is focused on his own company, there are lessons in his outlook for all global companies:

The 2012 Olympic Games are well underway in London, and we're anxious to see whether hosting the games has positive economic benefits for the UK. But while we await meaningful data, let's get way ahead of ourselves and look at Rio 2016. According to a Goldman Sachs report, The Olympics and Economics 2012 , Brazil has a need to make significant infrastructure improvements. So in that regard, hosting the Olympic Games, and the World Cup just two years from now, presents the perfect excuse to catch up to other key emerging economies. Here is a look at how Brazil measures up against other emerging economies in key infrastructure investment: From the report: In recent years, Brazil has embraced a set of conventional market-friendly macroeconomic policies that allowed the economy to overcome a number of structural imbalances and attract record high levels of foreign capital. This, in tandem with a favourable external backdrop on average, has led to important social and economic gains over the last 15 years. Happily, the benefits of growth and overall macro-financial stability have trickled down the income scale. For example, the middle class has grown significantly over the past decade—an estimated 31mn people were lifted out of poverty between 1999 and 2009, and more than 100mn people are now part of the middle class (i.e., more than half of the population). Furthermore, the middle class is expected to reach around 60% of the population by 2018. The opportunities presented by these transformations should not be underestimated, as there are now as many middle-class and high-income earners in Brazil as the combined population of France and Britain. In all, the days of large fiscal deficits, high inflation and debt levels, external imbalances, and economic booms and busts have given way to smoother business cycles. Despite these advances, potential growth (at slightly below 4% per year) is still low in absolute terms and in comparison with other more dynamic EM and fellowBRIC economies. This is a reflection of structural impediments to growth that have yet to be addressed: a large infrastructure deficit after years of low investment, low domestic savings, a high and distortionary tax burden, high levels of labour informality, still comparatively low levels of human capital, and a low degree of openness to trade. In this regard, hosting two very large global sporting events presents an opportunity to boost investment in infrastructure. Brazilian government estimates suggest that up to US$50bn (about 2% of GDP) will be spent over the next seven years in preparation for these two large events. Hopefully, this will generate large long-term multiplier effects in the economy and boost potential GDP growth in the years to come. Infrastructure gains should have a strong economic influence following the Games. The hope in Rio is to see overall economic benefits following the Games as Seoul and Barcelona did, and not feel the weight of debt that other cities have felt. Read the full report here .

Attitudes of people around the world toward free market economies have shifted since the start of the global economic crisis, according to the latest survey from the Pew Research Center 's Global Attitudes Project . Take a look: What catches your eye? The 2012 numbers for Brazil and China catch our attention. Overall, the outlook of citizens in emerging economies come across as significantly more positive in the survey results. People across Europe and the U.S. see less economic opportunity for themselves than previous generations. And people living in Arab nations are the most dissatisfied with their economic plight, and see little hope for improvement. But people living in China, Brazil, India, and Turkey are almost giddy in comparison: The Chinese, in particular, are quite positive about their economic situation, with 92% saying they are better off than the previous generation, 83% are satisfied with current national economic conditions, 70% feel they are financially more prosperous than they were five years ago and 69% are happy with their own personal economic circumstances. But the Brazilians are even more upbeat when it comes to their personal finances (75%), and 72% say they are better off financially than five years ago. In contrast, the Turks and Indians, while positive, are generally less optimistic across a range of indicators than are their emerging market counterparts. Thinking about the future, while strong majorities of Brazilians (84%) and Chinese (83%) think the economy will improve over the next 12 months, only a plurality of Indians (45%) and Turks (44%) agree. Regarding their children’s future, only in China (57%) does a majority think the next generation will have an easy time exceeding the well-being of their parents. And the median for Brazil, China, India and Turkey is a more pessimistic 35%. Nevertheless, taken together the four emerging market countries are much more optimistic than Americans (only 14% think their kids will have an easy time climbing the economic ladder) or Europeans (a median of 9%). Brazilians (69%) and Indians (67%) are among the strongest believers that hard work leads to success. But the Turks (50%) and the Chinese (45%) are more skeptical. Brazilians (75%), Chinese (74%) and Indians (61%) are among those with the greatest faith in capitalism. Turks (55%) are slightly less committed to the free market. As might be expected, people in emerging markets who have higher incomes are generally more positive in their economic outlook, with some notable exceptions. Upper-income Brazilians and Indians are much more likely to say that their economy is doing well than are their low income compatriots. But there is no effective difference in assessment of the economy between low-income and high-income Chinese or Turks. And, given the recent relative success of their economies, it may not be surprising that Indians and Turks who are well off are particularly supportive of the current free market system. Read the full report here .

Public investment in crime reduction can have a marked positive effect on housing prices. That's the finding of a recent study by New York Fed economist Benjamin Mandel and Claudio Frischtak --head of the Brazilian consulting company Rio-based consulting company Inter.B. Mandel and Frischtak looked at the relationshio between crime and housing prices in Rio. Specifically, they looked at efforts to wrest control of some of Rio's poorest favelas from gangs through a program that set up police units called Unidade Pacificadora da Policia (UPP). They found that the implementation of the UPPs led to higher housing values across the city. They summarized their findings in a post at the New York Fed's Liberty Street Blog : Using detailed monthly data on residential property prices in Rio’s formal housing market, as well as on homicide and robbery rates in each of Rio’s neighborhoods, we formally test the hypotheses that neighborhoods closer to a UPP station experienced larger-than-average decreases in crime and larger-than-average increases in house prices after the UPP was put into place. We also exploit the staggered timing of the policy across the individual UPPs by estimating the effect of each one on house prices and crime. We find that, for properties close to a UPP, house and apartment prices increased by an average of 5 to 10 percent, homicides decreased by an average of 10 to 25 percent, and robberies decreased by an average of roughly 10 to 20 percent. To gain perspective on the economic significance of the decrease in crime due to the UPPs, we use our regression results to construct counterfactual price and crime rates and, in addition, citywide statistics. The idea is to subtract out the effect of the UPPs in nearby neighborhoods and then combine these statistics with those of more distant neighborhoods to compute average prices and crime rates for the city as a whole. One can then compare the actual changes in house prices and crime rates over time to the counterfactual series, which estimates the same statistics in the absence of the policy. The average actual price level for house and apartment sales in the city of Rio is illustrated in the chart below. The price level rose approximately 100 percent between January 2008 and August 2011. In the absence of the UPPs, the overall house-price index in Rio would have grown by 15 percent less, illustrated by the dotted line. We note that since we do not observe house prices inside the favelas themselves, our estimated price effects are quite likely to be underestimates of the true citywide effects of the policy. Read the full post here . The full report is available (PDF) here .

The markets, or rather investors , are waiting for the EU summit to begin this week, in hopes that there will be some clear signs of what policies Europe's leaders will try next to avert a deepening debt crisis. Business and policy leaders in emerging economies will be watching closely as well. At Project Syndicate , Dominique Moisi says there is no room for schadenfreude now. In the past, emerging market leaders may have pointed to Europe's woes to stress their own success, they must be careful not to look at the situation without taking any pleasure from a crisis that is hampering their own growth. Until recently, Europe was a sort of mirror that confirmed for the major emerging economies the spectacular nature of their own success. They could contrast their high growth rates with Europe’s high levels of debt. They could oppose their “positive energy” with the pessimism dominating European minds. They were only too willing to advise Europe to work harder and spend less, as legitimate pride mingled with an understandable desire to settle historical scores and attenuate their legacies of colonial submission and humiliation. But, today, emerging countries are growing very concerned with what they rightly perceive as the serious risks to their own economies implied by excessive weakness in Europe, which remains the world’s trade leader. Moreover, Europe’s malaise threatens many of these countries’ political stability as well, given the close connection – especially in China – between the legitimacy of existing arrangements and the continuation of rapid economic growth. If the crisis in Europe were to cause annual GDP growth to fall below 7% in China, 5% in India, and 3% in Brazil, these countries’ most vulnerable citizens would be hardest hit. They were never part of the “culture of hope,” based largely on material success, that played a key role in these countries’ success. If social inequalities were to reach new heights, their frustration and resentment could manifest itself fully. In that case, Europe could suddenly become a very different mirror for emerging countries, revealing, if not accentuating, their own structural weaknesses. And that is why, just as Europe must save the Greek economy or Spain’s banks at all costs, emerging countries must do whatever they can to contribute to the rescue of the European economy. As Europe has learned, the longer one waits, the higher the cost – and the lower the chance of success. Read Emerging Markets’ Europe Problem here .