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This edition was written by Tristan Loa, Andrew Rosin, Jack Spira and Louise Sheiner.
Available statistics on foreign direct investment report only the jurisdiction of proximate—often intermediate—investors. Jennie Bai of Georgetown and co-authors match financial statements and patents of over 160,000 firms in 159 countries, from 2012 to 2021, to their ultimate global owners. They find that Chinese foreign investment rose 20% per year, reaching a level surpassed only by that of the U.S. This investment is heavily concentrated in developed economies and in innovative sectors such as manufacturing and science. Analyzing the performance of foreign firms acquired by Chinese owners, the authors find that while capital and R&D investment increase following acquisition—crowding out R&D investment by peer firms—patents and returns on assets do not. At the same time, Chinese firms, which are often state-owned, see a sharp increase in patents after acquiring a firm in a developed economy. Privately owned Chinese firms also tend to integrate vertically by acquiring foreign firms that then become suppliers to Chinese entities. "By redistributing innovative effort from host-country market-based firms toward state-led entities that internalize gains at home," the authors conclude, "Chinese global ownership introduces a novel mechanism through which national industrial policies exert extraterritorial effects."
It is well-established that employment slows cognitive decline for workers at or near retirement age. Less is known, however, about this relationship at pre-retirement ages, when meaningful cognitive decline can first appear. Using 12 waves of the Health and Retirement Study dataset between 1996 and 2018 as well as employment information from County Business Patterns, Noah Arman Kouchekinia, David Neumark, and Tim A. Bruckner of UC Irvine estimate the causal effect of employment on cognitive decline for middle-aged workers. Among men aged 51 to 64, the authors find that a 10 percentage point decline in the average local employment rate is associated with a 0.11 standard deviation decline in cognitive scores. The authors suggest that efforts to increase employment among pre-retirement age workers—for example, by encouraging work among Social Security Disability Insurance recipients or implementing hiring subsidies—would not only improve retirement security but also boost cognitive health and reduce the social costs of dementia.
Leon Huetsch of the University of Lausanne, Dirk Krueger of the University of Pennsylvania, and Alexander Ludwig of the European University Institute find that the quality-adjusted relative price of modern health goods declined by about 2.5% per year between 1940 and 2020, reflecting faster productivity growth in the modern health sector than in the broader economy. Using a counterfactual in which the modern health sector never emerges and households re-optimize, they estimate that modern health accounts for about one quarter of postwar gains in adult life expectancy. They also find that public R&D subsidies during World War II helped launch the modern health sector and raised later life expectancy.
"My concern is really about the series of legal attacks on the Fed which threaten our ability to conduct monetary policy without considering political factors. And I want to note here this has nothing whatsoever to do with verbal criticism by elected officials. I've never suggested that such verbal criticism is a problem and neither has anyone else here. But these legal actions by the administration are unprecedented in our 113-year history and there are ongoing threats of additional such actions. I worry that these attacks are battering the institution and putting at risk the thing that really matters to the public which is the ability to conduct monetary policy without taking into consideration political factors," says Jerome Powell, outgoing Federal Reserve Chair.
"It is so important for our economy, for the people that we serve, that they can depend over time on a central bank that operates that way, free of political influence. It's part of the absolute foundation of this amazing economy that we have. It's just one of the many reasons why the U.S. economy is the envy of the world.
"That piece of institutional architecture separates successful countries from unsuccessful countries. It is extremely important, not for the people who work at the Fed at any given time, but for the people that we serve, that the Fed remain able to conduct monetary policy in a way that doesn't get pulled into politics trying to help or hurt any particular politician or political party. It's critical for the people that we serve."
About the Hutchins Center on Fiscal and Monetary Policy at Brookings
