Full Aug. 24, 2011 Biographical essay Jeff Frankel

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This has all changed over the last 30 years. Geography has entered international economics. I can’t take any credit for the change. Krugman is the one who can.

Okay, so what was my idea? Perhaps the most ubiquitous and intractable obstacle plaguing all of empirical economics, especially macroeconomics, is the problem of causality. We observe that countries that engage in more international trade tend to benefit from higher incomes. But does trade cause growth or does growth cause trade? “Correlation need not imply causality.” In a 1999 article, David Romer and I used the gravity model of bilateral trade to try to solve the causality question. Newton’s theory of gravity says that the attraction between two bodies is proportionate to the product of their sizes and inversely related to the physical distance between them. The gravity theory of trade says that trade between two countries (or provinces) is proportionate to their sizes and inversely related to the economic distance between them. Size can be measured by population. Economic distance can be measured by geographic distance and other variables to capture transport costs, linguistic and political barriers, and so forth. The gravity model predicts bilateral trade quite well.14 In the paper with Romer, we used the gravity model, first, to come up with an exogenous predictor of each country’s overall level of trade and then to test whether economic growth, other things equal, had blessed those countries that were geographically well-situated for trade, versus those that were remote, landlocked, or otherwise encumbered. The answer was yes. We now felt better able to claim that, in the case of trade and growth, the relationship was indeed causal. A “point estimate” is that the difference between a hypothetical country with no trade (say, Burma) and one where exports plus imports total 200% of GDP (say Singapore) is by itself worth an 80% increase in income over 20 years.

I have used the geographic determinants of trade to address the causality problem in many other areas as well. “The Endogeneity of the Optimum Currency Area Criteria,” with Andy Rose, found that higher trade between a pair of countries leads to more synchronized business cycles. Another paper with Andy found that international trade is good for some measures of environmental quality, such as local air pollution, but not others, such as greenhouse gas emissions. A paper with Eduardo Cavallo found that countries that are more open to international trade were less likely to suffer severe financial crises.
Become an economist; see the world

My career has afforded me the luxury of indulging my geographic interests in a more tangible way as well. International economics does not, like the field of development economics, oblige one actually to spend time in countries without reliable running water and electricity, at least not for more than a few weeks at a time. But I have been able to travel widely, always on somebody else’s nickel. Some institution in the host country pays. (For years I competed against my brother regarding who had been to more countries.15 Eventually he dropped out, complaining that it was an unfair competition because my travels were so heavily subsidized.) Most trips are simply for conferences. But sometimes it is teaching, sometimes research, sometimes consulting.

It all started at the mid-point of my graduate studies at MIT. In 1976, Dick Eckaus and our other professors packed five of us -- Krugman, three other classmates, and me -- off to Portugal for a summer. I remember thinking, on the plane going over, “what do we know about advising a government?” The man we were to work for, Jose da Silva Lopes, Governor of the Central Bank, apparently thought the same thing, when we arrived in Lisbon and he saw how young we were. Eventually we proved, both to ourselves and to our host country, that we had something to offer after all. A little bit of economic reasoning can take you further than you might think.

One story from that first experience at advising long ago stands me in good stead, every year when I need to explain to my students the concept of seignorage. We were living in hotels. At the end of the first month, we had to pay the bill. But for bureaucratic reasons, the wire transfers we were expecting had not yet come through. We apologetically explained our problem to the Governor. Responding “no problem,” he summoned an aide who took us to the basement where the printing presses were turning out the national currency. They counted out enough escudos to tide each of us over. I don’t know if the Bank of Portugal ran the printing presses for an extra few seconds that day; if so, it was truly seignorage.

More of the important conferences take place in the United States and Western Europe than in the rest of the world. But the rest of the world is in some sense more interesting. The other places where I have become most involved (in the superficial way that we jet-setting international economists are accustomed to) include: Japan, Korea, China, Central Europe, the Gulf, Latin America, South Africa, and Mauritius. One benefit of having had what is by now a long line of students – first at Berkeley and now at Harvard -- is that one finds them years later all over the world (often in important positions of responsibility). It can make the trips especially interesting.

I got married, just as this book went to press. Kathy Moon is a smart and beautiful professor, who teaches political science at Wellesley College, not far away. By coincidence she, like I, was born in San Francisco. She is of Korean descent, and an expert on Asian-American relations. Perhaps, as occurred to me half a century ago in California, the next big leap is indeed to Asia.

1“Republican and Democratic Presidents Have Switched Economic Policies,” Milken Institute Review, 2003, vol. 5, no. 1, pp. 18-25

2 “Dornbusch's Overshooting Model After Twenty-Five Years,” International Monetary Fund's Second Annual Research Conference Mundell-Fleming Lecture, IMF Staff Papers, 2002, vol. 49.

3 At the same time, at least one critic had wild conspiracy theories along the lines that Sachs had once been seen together at a meeting with Summers and Fischer, and that this elite cabal must have plotted together the deliberate downfall of Russia and Asia. Needless to say, the conspiracy theory at one extreme is even more wrong than the inference of personal animosity at the other extreme.

4 Black swans had been discovered in Australia in 1697.

5 I followed Don Regan, then Secretary of the Treasury, into the White House, because I thought he was going to the same meeting I was. The Secret Service assumed that I was his aide, even though I was not deliberately trying to make it look that way. Intimidated, they neglected to ask for identification. I was somewhat surprised when we ended up in the Oval Office, but did not immediately realize there had been a mix-up of meeting dates.

6 I reviewed the history of what CEA chairs have done over the years, when they find themselves at odds with the White House, in “What an Economic Adviser Can Do When He Disagrees with the President,” Challenge, May/June 2003, 29-52.

7 Beyond the academics, I could add to the list Fred Bergsten, Director of what is now the Peterson Institute of International Economics, from whom I learned something about identifying hot policy issues, running a meeting, and talking to the press. And Joe Stiglitz, the CEA Chair who hired me, from whom I (wish I had) learned the knack of insouciance under pressure.

8 We did not announce the March 2001 peak until 8 months later. We did not announce the December 2007 peak until 12 months later. We are even slower at announcing the ends of recessions. http://nber.nber.org/cycles/main.html .

9 In 2004 there was some White House pressure to move the starting date of the recession from the first quarter of the Bush Administration to the last quarter of the Clinton Administration (presumably as another way of escaping feared blame). The NBER Business Cycle Dating Committee decided not to make such a revision, based on an objective consideration of the data. (I have never heard any member of the committee raise any political consideration, at that time, before, or since.) The episode is one illustration of the benefits of having institutions such as the NBER BCDC independent and thereby protected from political influence. The federal statistics-collecting agencies – in particular, the Bureau of Economic Analysis in the Commerce Department (which compiles GDP numbers) and the Bureau of Labor Statistics in the Labor Department (which compiles employment and CPI numbers) – are also thoroughly insulated against political interference, contrary to casual and irresponsible inferences made by many commentators over the years.

10 I do blame Bush for the severity of the 2007-09 recession, incidentally, and did before it arrived ! “Rather it’s the next recession that is going to be his fault. I don’t know when that will be. But when it

comes, we are not going to have the ability to use fiscal policy, to cut taxes, the way they did in 2001. [because the inherited deficit will already be too high]” -- from "A Debate on the Deficit," Challenge, 47, no. 6, Nov. 2004, p. 22-23.

11 The expansion of the 1990s was led by growth in private sector demand and employment, whereas the expansions of the 1960s, 1970s, and 1980s had been led by fiscal expansion on the part of the federal government, as was the decade of the 2000s.

12 At least I became committed to the Clinton-Gore version: although President Clinton signed the treaty, he said that he would not submit it to the Senate for ratification unless and until developing countries took on commitments that were qualitatively similar in nature to those agreed by industrialized countries. “You’re Getting Warmer: The Most Feasible Path for Addressing Global Climate Change Does Run Through Kyoto,” in Trade and Environment: Theory and Policy in the Context of EU Enlargement and Transition Economies, J.Maxwell and R.Reuveny, eds. (Edward Elgar Publ., UK), 2005.

13 It all started with a fascination with maps. My lifelong mode of doodling has been to draw maps freehand. I have never gotten around to patenting my special “Styrofoam cup” projection: I draw a map of the world around the sides of a coffee cup. (It is superior to the Mercator projection in that the greater land masses in the northern hemisphere are neatly accommodated by the tapered shape of the Styrofoam cup.)

14 In the mid-1990s I had already used it to estimate what were usual geographic patterns of trade, in order to evaluate questions such as, for example, whether trade was unusually concentrated inside the East Asia region, or in regional trade blocs generally (co-authored with Shang-Jin Wei and Ernesto Stein).

15 My brother, Morgan, with whom I am very close, lives in Washington. (His job, as Senate Legal Counsel, does not take him abroad.)

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