PSL Quarterly Review

On economic and financial imbalances in the new geopolitical framework

Ignazio Visco — 2025-06-27

This paper explores how global economic and financial imbalances have evolved amid rising protectionism and geopolitical tensions. While globalisation and technological change have had a positive impact on global growth and poverty reduction, they have also led to increased inequality, environmental degradation and debt. The paper discusses the structural causes and consequences of growing external and domestic imbalances, focusing on the sharp deterioration in the US net international investment position and the increase in market power among dominant technology firms. Besides creating market uncertainty and likely causing a recession, the significant unilateral reorientation of US trade and financial strategy could have major implications for international monetary and financial stability. Further weakening of global dialogue, cooperation, and commitment to institutional reform would make addressing savings-investment mismatches, managing the dominance of mega-tech firms, and navigating the transition towards a more balanced and resilient global system particularly challenging.

The paradox of policy competition: A simple post-Keynesian theory of how beggar-thy-neighbour FDI-led growth strategies work in principle but not in practice

Ryan Woodgate — 2025-06-27

In recent decades, governments around the world have increasingly used various forms of state aid to try to attract and retain the business activity of foreign-owned multinational corporations. Yet, in most cases, this “commercialisation of state sovereignty” (Palan, 2002) has failed to catalyse foreign investment and economic growth as intended. This paper seeks to understand the general failure of such commercialised state strategies, while also explaining how demand and income growth in some notable exceptions (e.g., Ireland and Singapore) can be understood. To this end, a simple demand-led framework is presented that suggests that foreign-targeted state aid may lead to beggar-thy-neighbour, FDI-driven growth in one economy if certain conditions are met, such as there being sufficiently little policy competition from other countries. It is argued that the exceptional cases tend to be the early movers and that state aid for the attraction of foreign multinationals is unlikely to be an effective growth strategy in the current environment of intense state competition.

Surplus approach, Historical Materialism, and precapitalist economies: Some open questions

Sergio Cesaratto — 2025-06-27

In the classical economists’ surplus approach retrieved by Sraffa (1951; 1960) and Garegnani ([1960] 2024), institutions regulate the material basis of society and, in particular, the extraction and distribution of the social surplus. In this regard, classical theory provides a material anchor, alternative to neoclassical New Institutional Economics, to anthropological, archaeological and historical studies of precapitalist economies. Expunged of any teleological meaning, Marx’s Historical Materialism (HM) is a natural source of inspiration for this interdisciplinary perspective. The nature and dynamics of Marx’s notion of modes of production (MOP) are not, however, firmly defined and have been the object of over-complicated doctrinal disputes among Marxists. Since I am unable to provide a comprehensive overview of these debates, I will limit myself to a few aspects that seem to me to be most central or that best convey the issue. The question of MOP dynamics is the most relevant and complex. All in all, the most mature Marx leaves us a very flexible reading of HM as a method of connecting economic, social, and institutional history that can be broadly shared by non-Marxists.

Southern Europe and the Frugal Four: Pathological external indebtedness?

Andrea Carrera — 2025-06-27

This research uses linear correlation and time-series analysis to examine the evolution of the external debt accumulated in periods of current account deficits and reserve purchases. Statistical data of GIPS countries (Greece, Italy, Portugal and Spain), Ireland, and the United States show that a significant portion of the external debt cannot be explained by balance-of-payment (BoP) analysis. Similarly, the study finds that the external debt of the “Frugal Four” countries (Austria, Denmark, The Netherlands and Sweden) is also higher than explainable through BoP data. The research suggests that, due to the very structure of the international payment system, a country’s over-indebtedness is chronic in nature rather than due to behavioural or cultural factors. To tackle the issue, the development of international central banking is thus suggested.

What factors influence Chinese government bond yields?

Tanweer Akram — 2025-06-27

This paper models the dynamics of long-term Chinese government bond (CGB) yields based on an autoregressive distributive lag (ARDL) approach. It examines whether the current short-term interest rate has a decisive influence on long-term CGB yields, after controlling for various macroeconomic variables. The estimated models all show that the current short-term interest rate has an economically and statistically significant effect on the long-term CGB yields of various maturity tenors. John Maynard Keynes claimed that a central bank’s policy rate exerts an important influence over long-term government bond yields through the current short-term interest rate. The paper’s findings evince that Keynes’s claim holds for China, implying that the actions of the People’s Bank of China(PBoC) are a key driver of the long-term CGB yields.