Are emerging markets a threat to jobs and competitiveness for the industrialised countries? This column argues that such concerns are often based on myths. Armed with the facts, policymakers in mature economies should focus on the opportunities emerging markets present rather than viewing them as a threat.
Should Greece leave the Eurozone? This column argues that aggressive restructuring of Greek debt within the Eurozone, rather than departure, is the best option.
In the late 1980s, developing nations that had eschewed all forms of liberalisation began to cut their import tariffs unilaterally. This column explains how the communication-technology revolution was the shock that altered the political-economy equilibrium against infant-industry protection and in favour of joining international supply chains which involved tariff liberalisation.
If Greece leaves the Eurozone, many expect that it that will be forced to default. This column argues that need not be the case.
Joining a global supply chain is one of the few ways for low-income countries to industrialise in today’s competitive market. Rules on their use of imported fabric therefore have important consequences for development. This column exploits a quasi-experimental situation to show that the gains from rich nations applying more relaxed rules on imported inputs are huge – six times greater than the simple act of removing tariffs.
The so-called resource curse suggests that resource booms are bad for development. One reason put forward is that fighting over resource rents leads to armed conflict. This column argues the evidence identifying resources as a cause of conflicts is weak and that the policy focus should be on institutional reform, rather than on resources per se.
Before the global crisis, central banks could reply ‘inflation targeting’ to virtually any question about their policymaking and the ‘Great Moderation’ seemed to back them up. The crisis has put a stop to this smugness. Central banks are now engaged in emergency evasive manoeuvres and are scrambling for new intellectual anchors. This column argues that emerging market central banks should target price stability while being mindful of disequilibrium exchange rate movements.
Europe’s banks are in bad shape. Slowing growth and rising capital adequacy ratios would stretch any bank. Doubts about sovereign debt and the Eurozone’s future may push some EU banks over the edge. Now the EU has decided how to implement the principles of the latest round of globally coordinated banking regulations – Basel III. This column argues that the EU has got it wrong.
Now is probably not a great time to be talking about further monetary integration – even if it is in Asia. But this column argues that the ASEAN+3 has taken a number of significant steps recently to further deepen monetary integration. The next steps should be to introduce a regional weighted currency basket and expand membership.
What are the main reasons for reversals in the implementation of structural reforms? This column puts forward the novel idea that reversals in different reforms are driven by different factors. It also presents new and supporting evidence showing that: foreign direct investment inflows reduce the likelihood of privatisation reversals; worsened terms of trade increase the probability of external liberalisation reversals; and labour strikes propel reversals in price liberalisation.
Lead articles in academic journals tend to receive more citations than other articles. But does this mean they are any better? This column suggests that two-thirds of the additional citations that leading papers receive seem to be due to coming first in the journal, while only one-third are because they are genuinely better quality.
New-paradigm globalisation – driven by lower coordination costs rather than trade costs – is changing the nature of international commerce, the political economy of trade liberalisation, the nature of trade agreements and much more. This column, using data on Japanese multinationls, presents evidence that the nature of FDI is also changing away from the traditional classification of ‘horizontal’ or ‘vertical’.
Many policymakers and academics are now agreed that a banking union, together with some form of fiscal union, is needed if the Eurozone is to emerge from the crisis in one piece. This column argues that while the current proposals for a banking union still need to be fine tuned, the crisis calls for swift and bold action.
News reports today are full of negative stories on the Eurozone. This column presents evidence of a much-overlooked benefit. The common currency has led to increased financial integration and in turn increased risk sharing, which helps to significantly reduce output shocks. Those arguing for a break up of the Eurozone should take note.
Conventional wisdom states that the dollar took over as the leading international currency after the Second World War. This column presents new evidence from the bond markets suggesting it was much earlier in the 1920s. This implies that inertia and lock-in effects in international currencies are not all they’re cracked up to be and that the shift to a multipolar currency system might happen sooner than commonly believed.
Politicians who rail against socialism or capitalism always adopt a more moderate stance after they come into office. This column argues this is because we are still experiencing the consequences of the industrial revolution. The current state of that process involves a widely accepted compromise between aggregate prosperity and distributional equality.
We like to think that we have moved on from the Middle Ages, but do universities from that period have something to teach us about the role of government in education? This column thinks so.
What is the effect of trade on inequality? This column presents a unique study examining wage inequality in Brazil after liberalisation. Starting from a closed economy, the column finds that wage inequality will initially rise as only some firms take advantage of the new opportunities. But as trade costs continue to fall and more firms start to trade, wage inequality peaks and begins to fall back.
The Eurozone debt crisis has emerged as the single biggest threat to the global outlook. Applying event study methodology, this column estimates the responsiveness of equity and bond markets in developing countries and emerging markets to crisis news between 2005 and 2011. Whereas global crisis news had a consistently negative effect on equities and bonds, the Eurozone crisis looks thankfully more mixed and limited, so far.
Germany’s fiscal response to the crisis was timid compared with those of China and the US. This column uses business-cycle connectedness indices to show that Germany should follow in the footsteps of China and increase its domestic spending so that it will generate net positive connectedness to others. Germany was able to increase its exports thanks to the fact that countries like the US, China and Japan stimulated domestic spending significantly.
Paul Seabright of the Toulouse School of Economics talks to Viv Davies about his book, "The War of the Sexes: how conflict and cooperation have shaped men and women from pre-history to the present”. He explains how game theory can shed light on the complex dynamics that create both conflict and cooperation between the sexes. They discuss the connection between the rise of modern capitalism and the rise of feminism, monogamy and marriage and whether there will ever be sexual equality.
One of the key problems in Europe is the lack of competitiveness. With this in mind, this column presents a report looking at how European firms responded to the global financial crisis of 2008 and 2009 and finds lessons for today’s troubles. Chief among them - there is no one-size-fits-all solution.
It is no secret that Americans work more than Europeans – 30% more according to recent studies. Many economists point to higher taxes in Europe as a major cause. This column suggests that divorce rates also play a role, particularly for women's labour supply.
The EZ crisis reveals critical flaws in the Eurozone’s design. This column argues that failing to abolish national central banks left the door open for national interests to interfere with the natural workings of the financial system and Hume’s adjustment mechanism. This flaw – and the omission of a European Banking Authority with real teeth – will come back to haunt Europe in the months and years to come.
It is not just the OECD countries where fiscal policy is the subject of fierce debate. This column presents results from an “event analysis” carried out on a database of 140 countries over the period 1972-2005. It suggests that, for developing countries at least, a fiscal stimulus can be effective – provided the rest of the economy is stable and the fiscal deficit is low.
Between January 2002 and August 2008, the nominal oil price rose from $19.7 to $133.4 a barrel. This column gathers evidence on the role of this rise in prices in the global crisis. It suggests that oil prices had a direct impact on household expenditure on gasoline and increased mortgage delinquency rates. It adds that it also had many indirect impacts, notably though interest rate increases due to monetary policy.
Greece’s economic and financial crisis is quickly deteriorating and there is no strategy – or even a coalition government – to figure out what to do next. This column looks at the lessons from Argentina’s default in 2001 and argues that Greece’s road to necessary economic reforms, fiscal sustainability and recovery may be even more daunting.
Unsustainable debt along Europe’s periphery is bringing the euro to breaking point. But this column argues that this is not simply the result of fiscal ill-discipline. After 2010, the Eurozone crisis went from a fiscal crisis to a balance-of-payments crisis – with different prescriptions for policy.
Recent sizeable increases in youth unemployment are compromising the school-to-work transition of recent school graduates. This column uses optimal matching, a method borrowed from molecular biology, to study the transitions from school to work in Europe and the US. It argues the share of youth facing serious difficulties on the labour market is 18 percentage points smaller in the US than in Europe. In Europe, 30% of youth face difficulties settling into the labour market and another 15% are trapped in long-term unemployment or inactivity.
Might more inflation be good for the US and Europe? This column looks at the housing market in the US and argues that, with houses dropping in price, buyers are playing a waiting game. And as buyers keep delaying, the price drops further. Given the importance of property in many economies, the knock-on effects are severe. Yet one way to break this vicious cycle is with inflation.
Regional integration schemes that include natural-resource-abundant countries have by and large been unsuccessful. Part of the reason is the uneven distribution of gains when resource-poor and resource-rich countries integrate. This column presents new evidence suggesting that the slow progress of regional integration efforts in the Middle East and North Africa can be explained by the reluctance of resource-rich countries to enter into trade agreements that will hurt them.
Much of the debate over public finances in the US relates to the amount of debt, this column explores the type of debt. It criticises the recent suggestion that the US Treasury should start issuing floating rate notes.
In Greece and Spain, around half of all workers under 25 are now unemployed. In Italy, Ireland, and Portugal, the rate of youth unemployment is around one in three. But this column argues that we shouldn’t go blaming austerity; even when these countries were booming, youth unemployment was still painfully high. The problem is far deeper.
With French and Greek voters rejecting austerity, politicians are once again taking the government spending debate seriously. This column argues that the voters are right – it is a bad idea to tighten fiscal policy when growth is so feeble. But the column adds that, wherever one looks, the road away from austerity looks desperately blocked.
Global value chains and the international fragmentation of production challenge well-established trade policy models and raise new issues. Yet research has been hindered by the limited availability of proper statistics. This column introduces the World Input-Output Database (WIOD), a new public data source that offers unique opportunities to study the effects of fragmentation on a range of socioeconomic and environmental issues.
If it were a business, the Mafia would be one of Italy’s most successful and one of the largest in Europe. But how did it come to be so powerful? This column argues that it began with control of the international lemon trade in the 19th century.
For some commentators, the recent financial crises are a sign that financial development has gone too far. Yet there are still countries where such concerns are the stuff of dreams. This column focuses on why the level of financial development in poor countries remains so low and what policymakers can do about it.
Eurobonds have been proposed as a solution to the crisis, but Germany is wary of guaranteeing the entire debt of EZ countries. This column suggests the more politically feasible Euro-coupon solution. EZ countries would issue bonds at market interest rates and transfers between countries would harmonise the effective interest rates.
At the start of the 1920s, Russia’s economy suffered the greatest economic catastrophe of a turbulent 20th century. This column argues that measuring this experience yields lessons for the relationship between state capacity, government policies, and economic development.
Shadow economies – sometimes called the black market or informal economy – exist in every country. But how big are they? This column presents some new approaches to estimating their size and uses them to compare shadow economies across rich and poor countries over the last 60 years.
International food prices are on the rise and becoming increasing volatile, reaching crisis levels in recent years. This column argues that one overlooked reason for this is the rise in protectionist policies aimed at restricting food exports.
Are migrants paid more or less than their native colleagues? This column provides a unique insight by looking at data from an industry where there are many foreigners and where their relative quality can be easily measured – professional football in Italy.
In the 2000s, emerging economies reduced their business cycle co-movement with G7 economies. Did this macroeconomic autonomy enhance the relevance of local fundamentals as drivers of emerging market returns? This column argues it did not, due to the role of benchmarked institutional investors.
Voters in France, Greece, Italy, and Germany rewarded politicians who opposed austerity. This column argues that attempts to fulfill campaign promises will run up against a hard constraint. The countries whose voters are calling for looser fiscal policies are those where public spending rose fastest since the birth of the euro. The only way out of today’s difficulties is to use the flexibility already in the fiscal compact and continue with bold implementation of the economic reforms that are under way.
Are central banks printing vast quantities of money? This column explains how money-multiplier economics (central banks create reserves that allow commercial banks to create money) no longer holds. Today, non-bank financial institutions play a pivotal role in money/liquidity creation, but hold no reserves. Their lending depends on “private reserves”, mainly highly liquid government securities. Creating more ‘public’ reserves by buying such ‘private’ reserves doesn’t trigger money creation – it just substitutes among reserve types. Open-market purchases only create money if they swap a monetary base for assets that are no longer accepted at full value as collateral in the market.
The Eurozone debt crisis has led to increasing imbalances among Europe’s central banks, the causes and consequences of which are the subject of fierce debate. But this column argues that the discussions are missing a fundamental point – the extent to which the German financial sector and German savers benefit from this arrangement.
As companies come under the strain from growing pension liabilities, how are they likely to respond? This column looks at hundreds of the largest public companies in the UK and finds that these firms tend to make up their funding shortfalls by paying lower dividends to shareholders, rather than cutting back on investments.
Can organised crime divert public spending? This column presents evidence of the Mafia influencing public transfers and argues that geographically targeted aid should take into account the risk that at least part of the funding feeds into organised crime.
Most people’s wellbeing is permanently affected by unemployment. This column argues that the unhappiness is due to a loss of identity, rather than daily experiences. Using German data, it shows that the long-term unemployed become happier upon entering retirement, thus changing social category, even though this does not change their daily lives.
The sustainability of government finances is very much the topic of the day. But the issue poses serious questions for the future, particularly how well off today’s younger generations will be compared with their parents. This column argues that the Ponzi scheme being played by the US government amounts to "fiscal child abuse" and is close to game over. For today's children the American dream will be just that – a dream.
Europe’s finance ministers are currently deciding on the legislation intended to implement the Basel III international agreement on bank capital, leverage, liquidity, and risk management. This column argues that many officials, within Europe and beyond, severely underestimate the importance of this debate for reaching a global standard for financial regulation.
How can governments limit excessive and unstable credit growth? Should they raise capital requirements for banks? This column looks at evidence from a policy experiment in the UK. It finds that UK-regulated banks did cut back on credit supply but that there was still ‘leakage’ from foreign banks.
The ECB has managed a massive expansion of its balance sheet with long-term refinancing operations. This has been called the equivalent of quantitative easing, as done by the Fed and the Bank of England. This column thus argues that the main obstacle for the ECB is not tight limits on the purchase of government bonds. Rather, it is the absence of a banking and fiscal union and the heterogeneity within the Eurozone that reduces the effectiveness of the ECB instruments.
According to official statistics, the UK and Europe are heading for recession, while the US is recovering. This has led some to suggest that European economies are moving in the opposite direction to the US. This column, written by the co-founders of Now-Casting, presents new now-casting estimates that put Europe and the US even further apart.
Mindless austerity is losing policy credibility in some Eurozone nations. This column suggests governments shouldn’t mix long-term growth and fiscal discipline nor produce another Lisbon strategy. Instead, they should adopt a framework for fiscal policy cooperation, restructure debts, and remember that fiscal discipline is for the long run.
The recent growth performance in sub-Saharan Africa has been remarkable given that, for over four decades since 1960, real GDP per capita growth had been dismal, averaging less than 0.5% per annum. This column, using within-country variation and instrumental variables, argues that increases in openness to trade are behind this performance.
The persecution of Jews during WWII is one of the darkest and most puzzling chapters of recent history. This column asks how economics can help our understanding, particularly of how people’s attitudes to Jews have changed over time. It argues that ‘cultural economics’ shows that there is more to understanding how people behave than looking at their incentives.
The sovereign debt problems in European countries have increased the interest in fiscal watchdogs. This column draws lessons from the evolution of the oldest such institution, the Netherlands Bureau for Economic Policy Analysis. It suggests starting with a conventional approach focusing on monitoring and analysing the government budget only to later contribute to broader policy issues.