Policy makers must learn from history, but they should know which historical episodes to look to. Central bankers seem to have been focusing on the 1930s, but here one of the world’s leading macroeconomists suggests that the 1970s provides more appropriate lessons.
Exporting industries loathe real exchange rate appreciations that hurt their ability to sell abroad. But this column says that such shocks are also good news, as they may trigger industry restructuring and spur productivity growth.
The democratic peace – the regularity that democracies do not go to war with each other – is one of the most robust findings in political science. This column presents recent research showing that democratic leaders unable to seek another term in office behave like autocrats. Accountability to voters in the next election lies at the heart of the democratic peace.
Robert Barro and Steven Levitt, in their role as popular columnists, promoted a Harvard graduate student’s article which refuted Amartya Sen’s claim that discrimination accounted for the 100 million “missing women”. In his role as editor, Levitt published the article in the Journal of Political Economy. Now that the article’s central claim has been refuted – most notably by its author – it’s time to tell the ‘morality tale’.
Ben Olken of MIT talks to Romesh Vaitilingam about his research on bribery in the Indonesian trucking industry – and the lessons for policy efforts to reduce corruption. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Colin Camerer of Caltech talks to Romesh Vaitilingam about his research programme on ‘neuroeconomics’ – the creation and use of data on brain processes to suggest new underpinnings for economic theories, which explain how much people save, why there are strikes, why the stock market fluctuates, the nature of consumer confidence and its effect on the economy, and so on. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Growth begets further growth, which is good news for both China and India. But this column argues that it is easier to create or improve a market than to build state capacity, which means that China, with its lagging private sector, is likely to fare better than India, which has deteriorating institutions.
More than 100 million women are “missing” in developing countries. A popular paper recently attributed unbalanced sex ratios at birth, particularly in China, to Hepatitis B. This column summarises a large body of evidence refuting that claim. Discrimination, not biology, remains to blame.
A correction of international imbalances seems inevitable. What will that entail? This column presents estimates of the changes in trade flows required to rebalance the world’s current accounts and analyses which countries will bear the burdens of adjustment.
It has become conventional wisdom that international investors’ unusual fondness for US assets helps explain the persistence of the US current account deficit. This column argues that US financial assets have not been demonstrably more attractive than those of other industrial economies.
America has a growing skills problem. This column emphasises the importance of early environments in determining skills. It suggests that to promote skills, public policy should refocus attention to the early years of childhood and away from its current emphasis on the later years.
As WTO negotiations have failed, pragmatists have embraced preferential trade agreements. This column presents new evidence on the Anglo-French treaty of 1860 and argues that, contrary to all conventional wisdom, history’s most celebrated bilateral deal did not stimulate trade. That lesson should give pause to modern advocates of preferential trade agreements.
Chinese enterprises are making high profile forays into foreign markets. While these firms’ motivations are explained by traditional theories of multinational enterprises, this column identifies notable characteristics of many Chinese companies that make them distinct. China’s cultural context, market structures, and resources may necessitate changing our thinking about multinational enterprises’ strategies and motives.
The subprime crisis is the joint product of perverse incentives and historical flukes. This column explains why market actors made unrealistic assumptions about mortgage-backed securities and how various regulatory policies exacerbated the problem. The crisis will necessitate changes in monetary policy, regulation, and the structure of financial intermediation.
David Audretsch of the Max Planck Institute of Economics and Indiana University talks to Romesh Vaitilingam about his research programme on entrepreneurship – the key institutional drivers and constraints; the impact of globalisation and new technology; the links to growth and competitiveness; and the public policy issues. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Where do clusters of entrepreneurs come from? Josh Lerner of Harvard Business School talks to Romesh Vaitilingam about his research on peer effects and early-career entrepreneurship, which analyses data on HBS alumni. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Lawrence White of New York University talks to Romesh Vaitilingam about the role of economics and economists in antitrust policy, notably for analysing the potentially anti-competitive effects of mergers, the impact of vertical restraints like bundling, and the use of predatory pricing. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Financial globalisation has made current account balances more sensitive to volatile variables like asset prices and interest rates. This column says that greater current account volatility may be good news if it comes in the form of countercyclical risk sharing.
Many students may be left behind in societies with curricula that cater to the elite.
Many banks are raising fresh capital but not as fast as they are reporting fresh write-downs. Unless regulators push banks to rebuild their equity bases more quickly, the crisis will be more painful and protracted than necessary. Merrill Lynch is a salutary example.
China’s one-child policy led to an explosion of the boy-girl ratio in the ‘80s and ‘90s. As this “only child” generation reaches adulthood, problems – including rising crime rates – are starting to appear.
Analysts suggest that rising oil prices will sharply reduce international trade. This column argues to the contrary, noting that transport costs constitute a limited share of trade costs. Moreover, evidence from the first wave of globalisation suggests that higher shipping costs are unlikely to significantly dampen international commerce – only protectionism would seriously threaten trade.
Yves Zenou talks to Romesh Vaitilingam about his research on the sources of differences in school performance between students of different races, which uses data on friendship groups among American teenagers. He finds that having a higher percentage of same-race friends has a positive effect on white teenagers’ test scores but a negative effect on black teenagers’ test scores.
This spring, the US government handed out $100 billion in tax rebates. Twentieth century economic thinking – permanent income hypothesis, Ricardian equivalence, and the like – suggests that most would have been saved, as Martin Feldstein recently argued. Not so. Recent research on microdata shows that the typical family increased spending by 3.5% when the rebate arrived, boosting overall nondurable consumption by 2.4% in 2008Q2. The number should be 4.1% in 2008Q3.
Do good-looking people earn more, how much more and why? Is the effect the same for men and women? Does buying clothing and beauty treatments raise earnings power? Daniel Hamermesh of the University of Texas at Austin talks to Romesh Vaitilingam about his research programme on the impact of people's physical appearance on their pay and other life outcomes. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Scott Barrett of Johns Hopkins University talks to Romesh Vaitilingam about his research programme on disease eradication and other global public goods. He discusses the enormous benefits from the eradication of smallpox in 1977 and the constraints on current efforts to eradicate polio; as well as the economics of global public goods more generally, including protecting the Earth from asteroids and climate change. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Sovereign wealth funds are a hot topic, but they’re poorly understood. Four popular myths are that sovereign wealth funds are (1) about “them” not “us”, (2) all the same in their opacity, (3) a net benefit to the international financial system, and (4) not like hedge funds. This column explodes those myths and outlines a framework of reciprocal responsibility for sovereign investors and their investment recipients.
Many development organisations are working on the Millennium Development Goals, but will any of them be held accountable when the targets are not met? This column introduces the importance of mapping the “global development finance non-system” in order to identify agencies’ overlap, activity duplication, and mission creep. International reform will be mammoth task.
The Blair government’s healthcare reforms sought to reduce patient waiting times through targets and sanctions – crude instruments of which economists are often sceptical. But this column says that they worked.
Transparency is the new trend in central banking, but it has both costs and benefits. This column discusses research aimed at identifying the optimal level of transparency. The results suggest that US and European central banks may be too transparent.
A decade after the Asian financial crisis, this column summarises the lessons learned about capital account liberalisation. Many developing countries are likely to move towards greater financial openness, which is desirable – if done right.
Economics is mathematically intensive, and mathematically underprepared economics students are sure to struggle. Unfortunately, this column reports, at least one UK remedial course did little to help its students.
How did the adoption of the euro boost international trade? This column analyses microeconomic evidence from France, showing that fewer firms now export, but those that do export more products to more destinations in Europe.
Stalin’s mass killings are often viewed as the acts of a deranged dictator. This column suggests that such violence may have been the Soviet leader’s rational attempt to avoid losing power in a revolution.
Dale Jorgenson of Harvard University talks to Romesh Vaitilingam about his projections for the growth of the US economy over the next 10 to 25 years, focusing particularly on the impact of information technology and labour supply. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Do people’s personal experiences of economic fluctuations affect their attitudes to risk? Ulrike Malmendier of the University of California, Berkeley, talks to Romesh Vaitilingam about her research on the impact of stock market returns and inflation early in life on risk-taking later in life. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
The ‘ethnosizer’ is a new measure of the intensity of a person's ethnic identity, using information on language, culture, social interaction, history of migration and ethnic self-identification. Klaus Zimmermann, who has developed the measure, talks to Romesh Vaitilingam about its explanatory power for the economic outcomes of migrants in Germany.
Many policy assessments, such as the effect of a currency revaluation on trade balances, are sensitive to the share of domestic content in a country’s exports. The current method might be problematic for countries with a high share of processing exports, such as China, Mexico and Vietnam. This column introduces a new method for calculating domestic content shares and presents some striking estimates for China. The share of domestic content in China’s exports is about 50%, much lower than most other countries: this implies that an exchange rate appreciation is likely to have a smaller effect on China’s trade surplus than for other countries.
Has the dollar fallen far enough? How large are unsustainable international imbalances? This column presents new estimates of fundamental equilibrium exchange rates, concluding that the US dollar has fallen enough with respect to the euro and pound but is overvalued against Asian currencies.
Manmohan Singh has political capital and needs a legacy. This column suggests that the prime minister focus his energies on reforming higher education – a badly lagging sector that needs deregulation, liberalisation, and globalisation.
Crime rises when US welfare recipients run short of cash at the end of the month. This column discusses research that links the timing of financially-motivated crime and the timing of welfare payments. Cities that make monthly welfare payments see a clear monthly crime cycle, whereas cities that spread out the payments do not.
Multinational enterprises’ foreign labour practices frequently come under fire. This column presents new evidence on how foreign takeovers affect workers’ wages and non-wage working conditions. The results suggest foreign investment is worth encouraging.
Many in the press and economics profession have portrayed John McCain as the free trade candidate in the upcoming US election. This column defends Barack Obama’s trade policies and criticises those labelling him a protectionist. It argues that Mr Obama is pro-trade and aims to maximise welfare rather than economic growth.
Italy may be headed for recession. The government's fiscal position would allow it to use prudent tax cuts to prevent recession, but its new budget plan only signals trouble.
Stock options increasingly dominate CEO pay packages. This column outlines when economic theory suggests that options-heavy compensation is in shareholders’ interests. The answer is that boards of directors are likely giving too many executive stock options.
Widespread child labour may slow economic development in a number of ways, and legislation reducing child labour might break such a poverty trap. Why is such legislation rare? This column looks at the historical experience of the United States in eradicating child labour and suggests that industries highly dependent on child labourers may be the political stumbling block.
The development gap between former Soviet states is striking – top performers like Estonia have joined the European Union while others, such as Georgia, lag far behind. What accounts for these differences? In the case of Estonia, this column attributes them to successful institutional reforms, good governance, and investments in education.
The WTO talks were as much a distraction as an opportunity. The agenda was aimed at a world that no longer exists. Negotiations of some form should and will resume: the questions are "where?" and "between whom?" Success will require a different game, with different rules and different players. This column considers the options.
The breakdown of the Doha Round this week makes a deal implausible for another year or two. This column argues that this is an opportunity for world trade powers to identify ways to adapt the WTO to the needs of the 21st Century. Although difficult, the outcome of such talks could hardly be worse than the fear-driven, adrenalin rush that the WTO membership embarked upon seven years ago in Doha.
Arab countries face major unemployment problems that must be addressed. This column outlines the challenge and potential means of making progress.
Philippe Martin talks to Romesh Vaitilingam about his research with Thierry Mayer and Mathias Thoenig on the ambiguous relationship between globalisation and war – both civil war and war between states. They find that trade deters severe civil conflicts but fosters less severe ones. And trade created by regional trade agreements is pacifying in terms of wars between states, but greater overall openness has the opposite effect.
Family background plays a crucial role in children’s outcomes in later life – but what is the specific impact of health in childhood (including in utero) on educational attainment, earnings and the likelihood of being in poverty in adulthood? Janet Currie of Columbia University talks to Romesh Vaitilingam about the latest research evidence. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.
Major welfare reform legislation passed the US Congress in August 1996 by a broad bipartisan majority and was signed into law by President Clinton. Rebecca Blank of the University of Michigan talks to Romesh Vaitilingam about how US welfare reform has worked out – the successes and the downside – and where it goes next, including comparable policies in Europe. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.