1/5
More evidence of the exorbitant burden the US dollar creates for the US economy? This interesting paper by @BenignoGianluca, @LucaFornaro3, and @mw_econ argues that unfettered capital inflows into the US reduce American productivity growth.
crei.cat/wp-content/upl…
More evidence of the exorbitant burden the US dollar creates for the US economy? This interesting paper by @BenignoGianluca, @LucaFornaro3, and @mw_econ argues that unfettered capital inflows into the US reduce American productivity growth.
crei.cat/wp-content/upl…
2/5
The reason, they say, is because, paradoxically, cheap access to foreign capital "leads to a contraction in economic activity in tradable sectors, which are the engine of growth in our economies."
The reason, they say, is because, paradoxically, cheap access to foreign capital "leads to a contraction in economic activity in tradable sectors, which are the engine of growth in our economies."
3/5
They discuss this in terms of a "resource curse" in which an overvalued dollar causes a shift in economic activity from manufacturing to services.
This part so far is pretty well understood and Matt Klein and I wrote about it.
They discuss this in terms of a "resource curse" in which an overvalued dollar causes a shift in economic activity from manufacturing to services.
This part so far is pretty well understood and Matt Klein and I wrote about it.
4/5
What their analysis adds is the insight that manufacturing, more than services, is the engine of productivity growth, and by undermining US manufacturing, unfettered capital inflows into the US reduce its contribution to technological innovation.
What their analysis adds is the insight that manufacturing, more than services, is the engine of productivity growth, and by undermining US manufacturing, unfettered capital inflows into the US reduce its contribution to technological innovation.
5/5
The authors add that "since innovation in the United States determines the evolution of the world technological frontier, the result is a drop in global productivity growth."
The authors add that "since innovation in the United States determines the evolution of the world technological frontier, the result is a drop in global productivity growth."
For those who have trouble with the link, the paper is "The Global Financial Resource Curse" by Gianluca Benigno, Luca Fornaro and Martin Wolf
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