Economic Review, Third Quarter 2004

 To view an Economic Review article using a PDF reader, click on the article title. If you do not have a PDF reader, you can download a reader from this site. 

  • Offshoring in the Service Sector: Economic Impact and Policy Issues
  • By C. Alan Garner

    The United States continues to run an international trade surplus in services, but business stories frequently appear about service-sector jobs moving offshore. Many Americans are particularly concerned about the loss of skilled, well-paid jobs in such fields as computer programming and accounting. These jobs seemed relatively secure at a time when many manufacturing jobs were being lost to import competition. Similarly, telephone call centers, once viewed as an economic development opportunity in some areas, increasingly are moving to low-wage countries, such as India and the Philippines. Reflecting this growing concern, some members of Congress and state legislators have focused attention on the offshoring of service jobs and production, even introducing legislation to limit the outsourcing of jobs to other countries.

    Offshoring raises many questions for policymakers and the general public. For example, which service jobs will be affected most by import competition? What are the most likely effects of service-sector offshoring on U.S. output, employment, and, most important, our standard of living? Is offshoring really a problem that requires restrictive government actions, or are other kinds of policies more appropriate to give Americans the highest possible living standard?

    Garner examines the economic effects of offshoring and possible policy responses. He finds that although the offshoring of service jobs hurts some workers, offshoring should not permanently lower U.S. employment or production. Moreover, the average living standard can benefit over the long run if the nation adopts policies to retrain displaced workers and move them into expanding industries.

  • What Can Regional Manufacturing Surveys Tell Us? Lessons from the Tenth District
  • By William R. Keeton and Michael Verba

    The Federal Reserve Bank of Kansas City conducts a monthly survey of over 100 manufacturers across the Tenth District. Other Federal Reserve Banks conduct similar surveys of manufacturers within their districts, as do a number of regional associations of purchasing managers.

    The increased attention paid to regional manufacturing surveys makes it important to know what kind of information these surveys provide. These surveys differ from other data sources by collecting only qualitative information, such as the direction of change in activity. The surveys could be useful either because they tell us something about regional manufacturing conditions, or because they signal something about manufacturing conditions in the nation as a whole. Another issue is whether the main contribution of the surveys is timely information about current conditions or accurate forecasts of future conditions. Finally, in deciding whether the surveys are worth the time and effort of conducting them, it is important to know whether they add any information beyond that contained in other publicly available data on the manufacturing sector—data such as industrial production and manufacturing employment.

    Keeton and Verba address these issues by examining the information content of the Kansas City Fed Manufacturing Survey. They conclude that the main value of the survey is providing information about current and future manufacturing conditions in the district, especially on variables such as production, orders, and capital spending, for which no independent data exist at the regional level The Kansas City Fed survey can also be a useful source of indirect information about national manufacturing conditions. In particular, results from the survey can be combined with similar information from other regions to obtain a more complete picture of national manufacturing activity than is available from other published data.

  • Can Rural America Support a Knowledge Economy?
  • By Jason Henderson and Bridget Abraham

    Knowledge has become the new premium fuel for economic growth in the 21st century. Knowledge fuels new ideas and innovations to boost productivity – and to create new products, new firms, new jobs, and new wealth. Some analysts estimate that knowledge-based activity accounts for half of the gross domestic product in Western industrialized countries. In the United States, knowledge-based industries paced gross domestic product growth from 1991 to 2001, and their importance has accelerated since 1995.

    In rural America, as elsewhere, a variety of factors make knowledge-based growth possible: high-skilled labor, colleges and universities, vibrant business networks, and infrastructure. Some rural communities are already leveraging these assets to transform their economy. Many other rural places, however, have yet to tap this rich economic potential.

    Henderson and Abraham use empirical evidence to identify the factors that are essential to rural knowledge-based activity. They then describe how some rural communities are leveraging these factors to build their own knowledge economy.

  • New Approaches to Rural Policy: Lessons from Around the Worl--A Conference Summary
  • By Mark Drabenstott, Stephan Weiler, and Nancy Novack

    New approaches to rural policy are badly needed, as past reliance on subsidies and policies focused on a single sector are yielding diminishing results. Fortunately, a new frontier of policy experiments is emerging, and this frontier holds great promise in helping rural regions seize new economic potential.

    This was the consensus of more than 120 leading officials and rural policy experts from around the world who gathered near Washington, D.C., on March 25-26, 2004, to explore new approaches to rural policy. The conference was jointly sponsored by the Federal Reserve Bank of Kansas City, the Organization for Economic Cooperation and Development, the Rural Policy Research Institute, and The Countryside Agency (UK).

    Amid a flurry of new initiatives, participants agreed that new rural policies generally have two distinguishing features. First, they focus on exploiting each region’s distinct economic assets instead of trying to develop a sector that will “lift all boats,” as in most developed nations historically, where the sector of choice for rural regions has been agriculture. Second, public funds are aimed at constructing the public goods that will spur private sector investments. Indeed, investment is a strong theme of many new initiatives, with a deliberate attempt to scale back subsidies.