EU-India trade talks began well in June 2007. India’s rapidly expanding role in the world economy as a buyer and seller make this an important free trade agreement for the EU, as recent research shows, but prospects for success are uncertain.
Targets and trading must be at the heart of a global agreement to reduce greenhouse gas emissions, according to Sir Nicholas Stern delivering the Royal Economic Society’s 2007 annual public lecture today, ahead of next week’s world summit on climate change in Bali.
The third essay in this 4-part series argues that central banks should have a direct role in financial supervision.
The public debate on offshoring has created more heat than light to date, but researchers are beginning to get a picture of its real economic impact. New evidence from Italy, based on firm-level data and a direct measure of offshoring, shows that offshoring of parts and components boosts domestic productivity while offshoring of services does not.
Europe’s capital markets are far from integrated. Here is some very innovative research that combines financial integration measures with ‘social capital’. It turns out that the market fragmentation stems in a large part from a lack of trust and confidence in certain regions and nations – things that the EU cannot directly affect.
The second essay in this 4-part series discusses the lesson from the Bank of England’s recent experience, arguing that a lender of last resort is no substitute for a well-designed deposit insurance mechanism.
How much should service-sector workers in rich nations fear offshoring competition from much lower paid workers in India? New research suggests that distance still provides signification protection, almost as much in services as it does in goods. Once again the death of distance has been greatly exaggerated.
Here is the first in a series of 4 essays exploring the lessons from the subprime turmoil. It sets the stage for the series, arguing that financial crises are intrinsic to the modern economy, but both individuals and governments should make adjustments to reduce the frequency of financial crises and their impact on the broader economy.
Much of the growing wage inequality stems from increased inequality between firms rather than within firms, suggesting inequality is driven by changes in firm-level productivity related to new technology rather than to international trade or institutions. Trade protectionism or re-energising unions may do relatively little to reverse the increase in inequality.
Did Apple forgo potential revenue for years? Until recently, its iTunes music store employed uniform pricing. This column uses a willingness to pay survey to show how alternative pricing schemes could have raised more revenue. Non-uniform pricing might have raised revenues by as much as 28%, and Apple could have substantially increased its revenues without reducing consumers’ welfare.
France is in the throes of a vicious circle. Corporatism and state intervention undermine solidarity, destroy social dialogue and reinforce mutual distrust, thus feeding demands for more corporatism and state intervention. Here are some ideas on how to fix it.
The Subprime troubles caused a liquidity shock, but there is little reason to believe that a substantial decline in credit supply under the current circumstances will magnify the shocks and turn them into a recession. We have not (yet) arrived at a Minsky moment.
New research shows that raising the level of mothers’ education pays large intergenerational returns with kids benefiting, for example, from extra parental investment in their education. Policies that promote women’s education should take account of this in their design and evaluation.
The consensus story: Resource abundance boosts GDP in the short-run but hinders or reverses the development of growth-enhancing institutions and thus long-run growth. New evidence suggests that this works by worsening corporate transparency, capital allocation and growth.
Research on US data shows that high immigration cities experienced higher wage and housing price growth. Immigration had a positive productivity effect on natives overall, but important distributional effects. Highly educated natives enjoyed the largest benefits while the less educated did not gain (but did not lose much either).
In a May 2007 essay, Martin Feldstein argued that a drop in US mortgage refinancing would raise US personal saving and this would necessitate a fall in the dollar. That’s looking pretty good at the moment. Here his basic logic is explained.
To reduce the chances of another subprime-like crisis without stifling innovation, financial market regulators should work to increase standardization of securities, especially derivate instruments, and encourage their trade on organised exchanges.
Data on a thousand European firms show that an extra euro of R&D spending raises their 'Tobin's q' by 0.7 euros. R&D reporting, however, is not required in most European nations, so financial markets may be failing to properly value and thus reward innovative investments. One step towards the ‘knowledge economy’ would be to require Europe’s publicly-listed firms to disclose their R&D.
The global financial system shows signs of stress – turmoil, not a systemic financial crisis. Risk is being repriced and the unwinding will take some time. Now is the time to think carefully about longer-term reforms needed to improve the stability of the international financial system.
Inflation targeting proponents view central banks’ responsibilities as minimalist. But the subprime crisis shows that central banks cannot avoid taking responsibilities that include the prevention of bubbles and the supervision of all institutions that are in the business of creating credit and liquidity.
The allegation: China extracts rents and technology from foreign competitors, thus allowing it to grow even faster and longer than most would have imagined possible. The evidence: China’s industrial policies have been successful in attracting foreign investment, but not necessarily in increasing the sophistication of its own firms through technology transfer.
Here are some hard facts countering the myth that Western MNEs have hollowed out their domestic economies in their quest to build up China as the world’s factory.
The creed: Trade creates winners and losers, but the winners win more than the losers lose, so governments should boost public support for trade by creating ex ante mechanisms that share the pains and gains. Here is some evidence that it actually works.
Patenting has soared in recent decades, but much intermediate knowledge is protected by industrial secrecy, so relaxing patent protection must impact the secrecy option. Recent research suggests that the relationship between patent protection and knowledge transmission is hump-shaped and sector-specific. This suggests that patent protection standards should be sector-specific.
Raising the retirement age is one of the standard solutions for Europe’s aging problem. But won’t this only increase their unemployment rate? New empirical evidence suggests that increasing the retirement age is unlikely to produce a band of workers who are too old to work but too young to retire.
Much of the public-policy thinking on globalisation – the Lisbon agenda, for example – focuses on winning and losing sectors. A network of teams working in tandem on eight national, firm-level datasets shows that, increasingly, both winners and losers can be found within the same sector. The analysis of firm-level data reveals new facts that are essential for future policy-making on competitiveness and globalisation.
Classic analysis by Obstfeld and Rogoff says that the dollar still has a long way to fall. Some new theory and recent simulations suggests that US trade response may be bigger than expected and so the dollar may have fallen enough.
Electoral reforms that strengthen parties and lengthen the life of governments are likely to be good for some aspects of public policy, but they may strengthen the impact of party factions on spending and thereby foster excessive redistribution. Reforms aimed at governability are just one step along the path toward better governance.
The Basel Committee on Banking Supervision and the Basel II framework were intended to mitigate or prevent crises like the subprime mess. The valuation practices and market transparency recommended by the Committee fall short of what is needed.
Opponents of international tax harmonisation argue that tax competition can rein in the tax-raising powers of big-government ‘Leviathans’ and thereby act as a force for good. An analysis of taxation across Swiss municipalities lends support to that argument.
‘Aid for trade’ is not the miracle solution for development and globalisation. Economists and policymakers must scrutinise the specific design of each measure, assess its potential impact on the terms-of-trade and consider the specific donor/recipient pair.