2004 News Releases

For immediate release:
September 27, 2004

Media contact:
James Hoard
Phone: (214) 922-5307
e-mail: james.hoard@dal.frb.org

Texas Economy, Pension Plans and Globalization Focus of Dallas Fed Publication

DALLAS—The latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy examines the effect of oil prices on the Texas economy, the future of pension plans and some myths and realities of globalization.

In “The Effect of High Oil Prices on Today’s Texas Economy,” director of energy economics and microeconomic policy analysis Stephen P.A. Brown and senior economist and vice president Mine Yucel find that higher prices still benefit the state, but not as they once did.

“Our analysis reveals that the relationship between oil prices and the Texas economy breaks between 1987 and 1988, which indicates that the effects of changing oil prices on the economy were different in 1970-87 than in 1988-2002,” Brown and Yucel write.

Between 1970 and 1987, a 10 percent increase in oil prices would have produced a 2.6 percent increase in Texas gross state product and a 1 percent increase in employment. Conversely, between 1988 and 2002, a similar price increase would have led to a 0.4 percent rise in gross state product and virtually no increase in employment.

Higher energy prices also no longer result in considerably increased oilfield activity, specifically rig count numbers and employment; the authors attribute this to changes in technology.

In “Is the Pension System a Liability?” economists Mark G. Guzman and Fiona Sigalla state that despite high-profile cases of financially troubled companies cutting contributions to worker retirement plans, the future of most pensions and the Pension Benefit Guarantee Corporation insurance fund (PBGC) appears to be favorable.

Guzman and Sigalla conclude that “while recent years have been challenging for defined benefit plans and the PBGC, businesses and government have responded with both market and temporary legislative solutions. The economic rebound and temporary legislative relief will help all but the most troubled pensions revive and this bodes well for the PBGC’s long-term survival.”

In “Globalization: Myths and Realities,” senior economist and policy advisor Jim Dolmas explores three common misconceptions: that globalization is bad for the environment, that it encourages child labor and that it is a new phenomenon.

Dolmas points out that globalization can actually spur environmental improvements. “Foreign direct investment can introduce more up-to-date—and often cleaner—production techniques in place of older, less environmentally friendly ones,” he writes.

Additionally, child labor conditions can either improve or worsen; however, “poor households that see their real incomes rise through trade may have less need to rely on the labor of their children,” he writes. This income effect was evident in Vietnam, which gradually liberalized its trade policy during the 1990s.

Dolmas notes that globalization is not new but actually in its second wave since the mid-19th century.

Find the September/October 2004 issue of Southwest Economy online at www.dallasfed.org.

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