Ross Levine, Chen Lin, Zigan Wang, 26 June 2017

While the causes and consequences of mergers have received a lot of scholarly attention, geographic factors have thus far been neglected. Using US data, this column argues that greater geographic overlap of the subsidiaries and branches of two bank holding companies increases the likelihood of the two merging, and also boosts the cumulative abnormal returns of the acquirer, target, and merged companies. It also discusses how network overlap can affect synergies and value creation.

Marc Auboin, Floriana Borino, 26 June 2017

In recent years there has been debate over whether the global trade slowdown and related fall in trade-to-income elasticity was structural or cyclical. This column estimates the standard import equation for 40 advanced and developing economies using an import intensity-adjusted measure of aggregate demand. This measure allows the authors to predict 90% of changes in global imports. The slowdown in global value chains explains more than half of the remaining share of the global trade slowdown, while protectionism does not appear to be statistically significant.

Ravi Kanbur, 25 June 2017

Political economy discourses in areas such as the nature of market failure, the case for government intervention on grounds of efficiency and equity, and the interplay between economic and political forces have run for generations. This column provides an overview of the life of Nobel Prize-winning economist W Arthur Lewis, who was a critic of laissez-faire economic policies, but who also acted as a check on extreme statist interventions, arguing against heavy state subsidy to industry on purely economic grounds.

Nathan Nunn, Raul Sanchez de la Sierra, 25 June 2017

Beliefs about origins, life after death, and rituals that activate supernatural processes to help people navigate life, despite being almost certainly incorrect, are common in developing countries. This column examines the role of ‘magical’ beliefs in warfare in the context of the Democratic Republic of the Congo. Belief in a spell that offers protection from bullets helped villagers liberate their village, and others in the area, from militias, providing an example of how the ‘right’ amount of ‘wrong’ beliefs can achieve a socially efficient outcome.

Almut Balleer, Nikolay Hristov, Dominik Menno, 24 June 2017

Research into the aggregate effects of financial frictions in the economy generally assume that they do not affect whether (and which) firms adjust prices, something this column argues that should be taken into account. In particular, financial frictions change the composition of firms that reset prices and cause the degree of nominal price rigidity to vary over the business cycle, which has important consequences for how inflation and output respond to aggregate shocks.

Other Recent Columns: