The Hutchins Roundup brings the latest thinking in fiscal and monetary policy to your inbox. Have something you'd like us to include in the next Roundup? Email us and we'll take a look.
This edition was written by Tristan Loa, Chase Parry, Andrew Rosin, and Louise Sheiner.
Jaedo Choi of the University of Texas at Austin and co-authors find that joint ventures between U.S. multinational enterprises and Chinese firms from 1999 to 2025 led to an overinvestment in China that ultimately reduced U.S. welfare. These ventures created significant technology spillovers, directly boosting the sales, capital, and exports of the Chinese partner firms. The authors also find secondary spillovers, as other Chinese companies in industries with high foreign direct investment grew faster and became more technologically advanced. This rise in competition, in turn, led to slower growth in sales, employment, and innovation for U.S. firms in the same sectors. Comparing a ban on Chinese joint ventures in 1999 to one in 2025, the authors find that a ban in 1999 would have boosted U.S. welfare by 1.2% and reduced China’s by 10.3%, while a ban today would be harmful to overall U.S. welfare. This reversal, the authors suggest, is due to the narrowing technology gap, which now makes the short-run gains from market access more valuable than the medium-run effects of preventing competition.
Since the mid-1970s, fertility rates have declined dramatically around the world. Claudia Goldin of Harvard suggests that allowing women greater self-determination in the form of birth control and abortion access – which enabled women to marry later, obtain post-secondary and graduate education, and acquire more job experience – explains much of this trend. At the same time, Goldin argues,the lack of commitment from men to share in child-rearing responsibilities increased the opportunity cost of having children for college-educated women, further decreasing fertility rates. Goldin concludes that “even though the major factor in the decline of fertility is increased women’s agency, the real downside or obstacle is the need for husbands and fathers to reliably demonstrate their commitment.”
Enghin Atalay of the Federal Reserve Bank of Philadelphia and co-authors find that productivity growth in the U.S. manufacturing sector has been stronger than official statistics indicate. Between 1987 and 2009, total factor productivity (TFP) in the manufacturing sector increased by 1.2% per year but then decreased after 2009. The authors argue that this apparent decline reflects mismeasurement, as official indices understate quality improvements in the electronics sector, which has been the main driver of manufacturing productivity trends since the late 1980s. Comparing supply-side price indices with consumer-facing indices, they estimate that manufacturing TFP growth from 1997 to 2023 was understated by about 0.8 percentage point annually. Adjusting for this mismeasurement, productivity has continued to grow, though more slowly, since 2009.
“Some argue that leaving the neutral rate, which I will refer to as r*, out of the conversation makes sense because it is unobservable and therefore highly uncertain. But so are potential growth and the natural rate of unemployment, yet they are frequently updated and discussed. Because many r* estimates are based on empirical models requiring a great deal of time-series data, they can be backward-looking and slow to adjust. Moving too slowly to update a rapidly changing neutral rate raises the risk of policy mistakes," says Stephen Miran, Governor of the Federal Reserve Board.
“R* reflects the balance of saving and investment in an economy and it evolves over time with demographics, productivity, fiscal policy, and other factors. It is my view that previously high immigration rates and large fiscally driven decreases in net national saving, both of which raise neutral rates, were insufficiently accounted for in previous estimates of neutral rates. Monetary policy was not as tight as many believed. That same effect may be taking place today, but in the opposite direction. In my view, insufficiently accounting for the strong downward pressure on the neutral rate resulting from changes in border and fiscal policies is leading some to believe policy is less restrictive than it actually is.”
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
