Bloomberg News

Migrating Inventors Make U.S. Top Destination: Cutting Research

April 11, 2013

Migrating inventors choose the U.S. over all other destinations, according to economists at the World Intellectual Property Organization in Geneva.

Canada and Australia are the next most popular among 17 countries studied from 1990 to 2010, while Germany, Italy and the U.K. are the least, said economists Carsten Fink, Ernest Miguelez and Julio Raffo in a report based on patent data and published at a migration conference in London this week.

The American advantage is even greater when only migrants from countries outside the Organization for Economic Cooperation and Development are accounted for, reflecting sizeable inflows into America by skilled Indian and Chinese inventors, the report said.

The findings help dilute concerns expressed by such economists as Robert Gordon of Northwestern University that the U.S. is approaching a period of weak economic growth that requires immigration of high-skilled workers to avoid.

At a time when American universities have warned it’s getting harder for students to secure visas, the study says in its conclusion that “restrictive immigration policies may have some negative effects on the inflows of skilled workers.”

The pool of talent is probably growing too. Data from the United Nations shows the estimated migrant population worldwide was 213 million in 2010, a 58 percent increase from 1990. The migration rate of inventors reached as much as 9 percent in the 2000s, the economists said.

That shows migration is a “critical pillar of the ongoing process of globalization,” they said.

* * *

The Federal Reserve’s ability to withdraw stimulus may be complicated by how much foreigners need dollars. The complication may delay a correction in the central bank’s balance sheet by a year and force it to sell assets, according to Barclays Plc. (BARC)

The Fed is the world’s supplier of dollars, Joseph Abate, a strategist at Barclays, noted in an April 10 report. The amount of currency outstanding has important implications for the path of monetary policy.

Prior to the start of quantitative easing, such cash was the single largest liability on the central bank’s balance sheet. Barclays, one of 21 primary dealers that trade with the Fed, estimates reserves of assets will reach $2.6 trillion by the end of this year, compared with about $1.2 trillion in paper money in the economy.

As much as 65 percent of all U.S. currency circulates outside the U.S., Abate said, although the exact amount is unknown because of underreporting and limited data collection. When the Fed comes to withdraw stimulus, it will only achieve equilibrium when its securities portfolio has shrunk back to the level of total circulating currency plus some excess reserves.

“Assuming it does not sell any of its securities and allows its portfolio to shrink passively through maturing roll- offs, then the critical element determining when the Fed reaches equilibrium becomes the speed of U.S. currency growth,” New York-based Abate said.

While domestic demand for dollars is driven by the interest rate, how much people abroad want to hold greenbacks is more likely to reflect precaution and the hunt for a stable store of value or medium of exchange, according to Abate.

Without asset sales, and assuming currency maintains its 8 percent growth, the Fed’s portfolio could reach equilibrium by early 2019, he said. By contrast, if foreign demand and currency growth slow, then it may take a year or longer to achieve balance.

“The unknown foreign demand for currency adds an additional dimension of complexity to the Fed’s already difficult exit strategy and could -- if the adjustment were slow enough -- push the Fed into selling assets,” said Abate, a former economist at the Federal Reserve Bank of New York.

* * *

Stiffer international competition prompts makers of high- value goods to improve the quality of their products even further, while manufacturers of lower-quality goods don’t share that incentive.

So say Mary Amiti of the Federal Reserve Bank of New York and Amit Khandelwal, who teaches at Columbia University’s Graduate School of Business. Using data covering more than 10,000 products from 56 countries that export to the U.S., they found lower tariffs induce firms that already manufacture very high quality goods to make them even better.

For OECD members, a 10 percentage-point decline in tariffs increases quality growth by 5.6 percent for those products viewed as being the best.

By contrast, firms producing low-quality goods are discouraged from upgrading as they would face more rivals, the economists said on the New York Fed’s Liberty Street Economics blog. A 10 percentage point decline in tariffs decreases quality growth for those companies by 4.2 percent.

“If a firm is close to the world frontier it is in its interest to invest in innovation in order to stay in that top position,” the authors said. “However, if a firm is a long way from the frontier, it realizes that even if it invests in costly innovation it still won’t be able to catch up to the firms already at the frontier.”

* * *

The growing need for central banks to deliver financial stability may have implications for monetary policy.

A study published this month by the International Monetary Fund found that trying to control financial imbalances in addition to setting monetary policy makes central banks manage interest rates more aggressively.

Rate cuts are deeper, albeit shorter-lived, than they otherwise would be, said economists Itai Agur and Maria Demertzis in the report, titled “‘Leaning Against the Wind’ and the Timing of Monetary Policy.”

“By keeping cuts brief, monetary policy tightens as soon as bank risk appetite heats up,” the study said.

One central bank already balancing financial and economic stability is the Bank of England. It took up powers to regulate the financial industry this month with its Financial Policy Committee. That organization, charged with assessing broad risks in the financial system, now operates on an official basis after two years of having interim status.

A separate report published April 8 by Jamie Dannhauser, an economist at Lombard Street Research Ltd., said the FPC’s push for banks to hold more capital may require officials to keep monetary policy easy to offset the headwind to growth.

* * *

China accounts for an average 5 percent of international inflation, according to the Bundesbank.

In an effort to gauge the importance of the world’s fastest-growing major economy, researchers Sandra Eickmeier and Markus Kuhnlenz in Frankfurt looked at 38 nations between 2002 and 2011.

They found that China’s export prices, competitiveness and influence over commodity prices do influence global inflation dynamics, with producer prices tending to be more strongly affected than consumer costs. The effect on different regions is no greater than 13 percent.

* * *

Of the world’s largest 2000 companies, 204 were majority- owned by governments in 2010-2011. They accounted for $327 billion in sales, equivalent to almost 6 percent of global gross domestic product, according to the OECD.

In a study published this month, the Paris-based group said ownership of the state-owned enterprises is spread over 37 nations. China leads the list with 70 such companies, followed by India with 30.

The combined sales of the firms totaled $3.6 trillion in the year. That represents more than 10 percent of the aggregate sales of the 2000 companies and exceeds the gross national incomes of countries including the U.K. and Germany.

Their combined market value of $4.9 trillion corresponds to 11 percent of global market capitalization of all listed companies.

* * *

Central banks are looking to broaden the type of assets they hold, according to a survey of monetary authorities responsible for more than $6.7 trillion in reserves.

Amid low interest rates on U.S. Treasuries and declines in major currencies such as the dollar, central banks are looking elsewhere for yield, the April 7 study by Central Banking Publications found.

More than three-quarters of respondents were investing in or considering the Australian and Canadian dollars. Almost a quarter said equities were either part of their stockpiles or would be within five years. Half said they had increased the number of assets or locations they invest in.

Sixty central banks, which together control just over half of global reserves, responded to the poll.

* * *

Waste management is a $1 trillion market, providing opportunities for investors as it shifts to business from being a mandatory public service.

That’s according to Bank of America Merrill Lynch, which says poor waste management is a global reality. Only 25 percent of the 11 billion tons collected each year is recycled or recovered and 3.5 billion people lack access to basic services for dealing with waste.

The issue will only worsen as volumes outpace urbanization and economic growth, equity strategists Sarbjit Nahal and Valery Lucas-Leclin and research analyst Julie Dolle said in an April 5 report.

The need to deal with waste means the industry could be worth up to $2 trillion by 2020, with Europe facing the toughest strategic challenge and Asia and South America the fastest growth. Companies that stand to benefit include Germany’s BASF SE and DuPont Co. (DD:US) of the U.S., according to the report.

To contact the reporters on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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