Globalization: Contents and Discontents — Shanta Deverajan vs Easterly

Two interesting sessions from a research conference held in Kuala Lumpur- we recommend watching Shanta Deverajan’s and Easterly’s talks.

The World Bank Development Research Group based in Kuala Lumpur is organizing its third international conference, with the theme Globalization: Contents and Discontents. The conference aims to bring together policymakers and academics to discuss the consequences of various aspects of globalization including trade, migration, financial flows, cultural exchanges and the diffusion of ideas.

Keynote Speech: Shanta Devarajan (Senior Director, World Bank): “Has Globalization Gone Too Far — or Not Far Enough?”

Keynote Speech: William Easterly (New York University): “Markets and Development: Is the Washington Consensus Still Alive?”

Related:

Q&A: Dr. Woan Foong Wong on the Implications of Transport Costs on International Trade

Question: What inspired you to write about the implications of transport costs on international trade?

The reason I got into writing about trade and transport was through learning about shipping laws in the US. Typically, shipping from one port to another had several requirements for the sake of national security laws. But this also meant that the US shipping industry was quite protected, and thus uncompetitive and expensive. What I found intriguing was one particular feature of the transportation industry: when goods are moved from the US to China, for example, the ship carrying these goods will go back and forth due to its sheer size and containerization. And thus, this ‘bus-like’ schedule which I call the round-trip effect, creates very interesting interdependencies between countries in ways we would otherwise not think of.

Question: Why is this topic important for research and policy?

When we think about trade, we often don’t consider how trade actually happens. Quite a lot of logistics come into play here. I’m very interested in the mechanics of international trade and the interdependencies this creates. For example, when Malaysians buy goods from China, you will also have to engage logistical companies and containers to transport the goods. Due to the round-trip effect, if demand is affected by protectionist policies like tariffs, this will cause spillovers to the other direction. This shows us how tariffs could potentially backfire as countries may end up taxing their own exports to the very country that they are trying to hurt.

I work on understanding how trade costs are affected by transportation and this can be very relevant for policymaking. As a policymaker looking to impose tariffs, there are lots of these potential spillovers that should be considered. While we don’t usually see tariffs as the most efficient way of dealing with international trade, this round-trip effect is certainly another channel of consideration for policymakers that I aim to highlight.

Q & A: Young Malaysian Researcher on Preventing Financial Crises

Question: You have written on financial stress and crisis. Why do you think this is an important topic for research and policy analysis?

Boon Hwa: The first time I became aware of financial crises was in April 2007. Back then, things were starting to get worse in the United States and Europe. There were lots of studies starting to come out, which looked at the historical experiences of financial crises and its devastating effects. This included statistics showing that recoveries from crises are very prolonged with very severe displacements in the labor market leading to large income losses.

It’s shocking to see this happening once every 10–15 years. For me, the frequency of crises puts forth a very strong case to have a financial market surveillance system within policymaking institutions. One that can detect a crisis from when it starts in its nascent stages to when it becomes a full blown crisis to when it starts to recede. The reason we want this is so that at every stage of the crisis the policy response will be fine-tuned according to the needs of the financial system and the needs of the real economy.

Question: What can be done to prevent or mitigate the effects of financial crises?

The research finds that before a crisis erupts, it actually happens gradually over time. However, there is a tipping point after which things happen very quickly. When this happens the effect it has on confidence and liquidity is very sudden. The paper finds that an aggressive and quick policy response is needed. There is no one size fits all solution in terms of policy but there needs to be policy to restore stability in the financial system so that it can play its role in intermediating credit and liquidity so that real economic activity can resume. A challenge for policy is to restore confidence so that risk aversion doesn’t hold back spending by the private sector.

Question: What do you think about the need for policy coordination across countries and the role of central banks during a financial crisis?

Financial crises tend to be more severe when there’s a regional dimension to it, when a crisis from one country spreads to other countries. During the global crisis, there was a lot of policy coordination amongst central banks to provide US dollar liquidity in the easing of monetary policy. To a big extent this helped provide a signal to financial markets that big institutions are taking note of the severity of the crisis and acting on it. The other aspect of regional cooperation that is really important is that as a country’s financial system develops and becomes big and looks to expand to other countries, surveillance of institutions need to involve cooperation across borders.

How About We Try Modern Monetary Theory in a Small Country First?