Economists have traditionally viewed healthcare as a luxury good – consumption of it will increase more than proportionally as income rises. This column challenges this view, exploiting the windfall of lottery winnings to estimate elasticities for healthcare demand in the UK. Results suggest that income elasticities for public healthcare services are close to zero. A medium to large windfall is found instead to increase the uptake of private health insurance and preventative services. This suggests that rising incomes will increase private sector demand, but will leave public healthcare demand unchanged.
When banks invest heavily in sovereign debt, and in domestic sovereign debt in particular, the result is a debt home bias. This column presents evidence of a partially voluntary and partially involuntary sovereign debt home bias among large European banks. This bias is stronger if the sovereign is risky and shareholder rights are strong or the government has a positive ownership in the bank. Also, banks with a strong home bias are valued positively by the stock market.
There is increasing evidence that cities offer externalities that raise labour productivity. This column looks at the contribution of US cities to productivity growth at the turn of last century. The findings show that increased specialisation, promoted by improved transportation, was the key to productivity growth. Today’s policymakers should heed this lesson.
HIV/AIDS is an endemic economic problem for significant parts of Africa. This column presents evidence suggesting that the demographic shock induced by the slave trade still shapes the contemporary family structures and sexual behaviour of many African countries. Policymakers and human rights organisations should understand that the struggle against HIV/AIDS involves the eradication of deeply rooted beliefs and practices.
Some have argued that the stock market serves as a ‘spare tire’ during banking crises by providing an alternative corporate financing channel. This column examines the claim using data for 36 countries spanning 20 years. The findings support the three core predictions of the spare tire view, suggesting that countries can insulate parts of their economy from future banking crises by designing appropriate legal frameworks.
The production of high-quality goods influences key aspects of countries’ economic performance, including growth and development. This column argues that removing credit market imperfections may help countries transition from the production of low-quality to high-quality goods, especially in industries that are more sensitive to financial frictions.
Every day, we are all exposed to all sorts of emotive and exhilarating media entertainment. But what, if any, are the measurable impacts? Are newspapers and periodicals, for instance, more important than soap operas? This column introduces a survey of the wide-ranging literature from the Handbook of Media Economics, presenting a number of surprising findings.
In recent decades, there has been an accelerated increase in top income inequality, particularly in developed countries. This column argues that innovation partly accounts for the surge in top income inequality and fosters social mobility. In particular, the positive effect of innovation on social mobility is due to new innovators.
Structural reforms of labour markets are almost universally advocated by international institutions. This column argues that some of the labour market reforms implemented in Europe during the Crisis were misguided. One problem is that when reforms are imposed on national governments by international institutions, they can backfire. To address this, the authors propose a new way to promote employment policies in Europe, which is based on positive conditionality.
Is debt really that bad? This column looks at the towering debts, rapid tax hikes, and constant state of war that led to Britain’s Industrial Revolution, showing that the devil is in the detail when assessing sovereign debt. When we consider the dangers of debt in today’s world, we should keep an eye on its potential benefits as well.
Economists have long understood that policy chosen by politics is unlikely to be socially optimal. This is because politicians face the probability of losing power and may discount the future too much, or act to improve their re-election probability. This column explores these issues taking into account the fact that future government revenue is uncertain. Public income volatility acts to reduce the efficiency of public policy. This has important implications for developing countries that rely on income from volatile sources, such as natural resource extraction.
How does Latin American well-being compare to the advanced nations? This column presents a new historical index of human development that allows for analyses of trends in Latin American development since 1870. The results unearth a number of puzzles that pit rising income against flagging developments in well-being.
The idea that Europe’s challenges could be addressed with further integration dates back to the beginning of the European project. This column argues that partial integration might not necessarily lead to more integration. In particular, such a strategy might not be successful in areas involving high heterogeneity costs that do not necessarily reduce with more integration. If further integration is to take place, European institutions may need to accept much more flexibility and have provisions not only for entry, but also for exit.
The Global Crisis has brought the ins and outs of bank stability to the attention of increasing numbers of academics and policymakers. But what is the impact of bank regulation and competition on bank opacity? This column presents one of the first evaluations of the impact of bank regulatory reforms on the quality of information disclosed by banks, which in turn helps us assess bank stability.
The growth of the asset management industry has raised concerns about its potential impacts on financial stability. This column assesses the systemic risk created by fund managers’ incentive problems and a first-mover advantage for end investors. Fund flows and fund ownership affect asset prices, and fund managers’ behaviour can amplify risks. This lends support to the expansion and strengthening of industry oversight, both at the individual fund and market levels.
In the run-up to WTO accession in 2001, China considerably liberalised its policy towards FDI. This column argues that foreign acquisitions contributed significantly to raising export activities and R&D activities, though rather through joint ventures than whole acquisitions.
Obesity is fast becoming a prominent global health issue. This column presents new evidence tentatively suggesting that variables related to the costs of eating – particularly whether there is a big discount warehouse nearby – are leading drivers of the rise in obesity occurring since the early 1980s. These findings should help policymakers work with businesses to find the best solution to tackle obesity.
Bankers’ compensation has been indicted as a contributing factor to the Global Crisis. The EU and the US have responded in different ways – the former legislated bonus caps, while the latter implemented bonus deferrals. This column examines the effectiveness of these measures, using US data from just before the Crisis. Caps are found to be more effective in reducing the risk-taking by bank CEOs.
The field that a college student majors in can affect labour market outcomes. But we know little of how exposure affects a student’s choice of major. This column shows that exposure to economics increases the probability to major in economics by 2.6 percentage points. This finding is driven by choices of male students. Exposure to the field then does not explain why relatively few women major in economics.
The size of cities in China – and the effects of city size on productivity – are important topics for urban economists. This column argues that the data used in many previous studies of Chinese cities do not stand up to scrutiny because they do not take nearly enough workers into account. More comprehensive data on city employment from China’s 2010 census suggest that there are lots of inefficiently small cities.
Theories of voluntary disclosure suggest that even when disclosure is voluntary, market forces can drive firms to completely reveal information about their quality. This column investigates these predictions in an experimental setting. Laboratory results suggest widespread failures of the theoretical predictions – senders do not fully disclose, and receivers are not fully sceptical about non-disclosure. This suggests a role for policymakers to help customers understand the sound of silence.
Were living standards during early industrialisation as terrible as we imagine? Robert Fogel, the Nobel prize-winning economic historian, taught us a great deal about studying long-term living standards through looking into people’s height. This column argues that one of Fogel’s early claims turns out to have, at best, a weak foundation. The measured decline of mean height during industrialisation reflects in large part the nature of the data sources, not necessarily changes in the height of the underlying populations. The Industrial Revolution did not necessarily make people shorter.
Workers who switch firms can lose firm-specific human capital. This column presents evidence of how moving to occupationally specialised firms can compensate workers for wage losses that are caused by ‘specific human capital’. When switches occur between firms that are very distant from each other in terms of their knowledge structure, occupationally specialised firms are prepared to pay a wage premium that can outweigh the costs of such long-distance switches.
Does material wealth make you happier? Recent literature and public discussion suggests that we believe widely that, in the long term, it doesn’t; especially if you are fairly wealthy and live in the West. But what if you’re poor and live in a developing country? This column presents new evidence that taking material improvements for granted is a common human behaviour that is present even among the extremely poor.
What explains the different effects of the crisis around the world? This column compares the 2007–09 crisis to earlier episodes of banking, currency, and sovereign debt distress and identifies domestic-credit booms and real currency appreciation as the most significant predictors of future crises, in both advanced and emerging economies. It argues these results could help policymakers determine the need for corrective action before crises hit.
Despite being a mainstay of macroeconomic theory for the past half century, the Phillips curve often receives the death knell from various commentators. These critiques often rely on results from data samples spanning relatively short periods. Using the case of Ireland, this column argues that short-term idiosyncrasies can explain the failure of the model in these contexts. Taking a longer historical view, the Phillips curve remains a useful macroeconomic model, at least in the Irish context.
There is a high likelihood that Grexit will be back on the table. This column argues that Greece can strengthen its negotiating position if it is prepared for exit. Grexit remains a disastrous choice, but it has become the default option for Greece and its creditors. However, preparing for Grexit does not mean leaving the Eurozone. A credible threat point may deliver a better outcome. The purpose of the exercise should be to make Grexit a plausible solution, then not to do it.
As numerous Greek MEPs opposed the Eurozone summit deal, implementation will require a broad coalition of political parties. This column argues that corruption in Greek politics will prevent the formation of such a coalition. The heavy debt service leads parties to invent extreme ways of responding to super-austerity and to strongly oppose direct reforms that challenge existing clientelism. The way out is to sign a new agreement that combines debt restructuring and radical transparency reforms, including naming-and-shaming practices, to block clientelism in the medium and long run.
Little is known about how social interactions are affected by geographical distance. This column argues that students tend to interact more with those who are highly central in the network of social contacts, and who are geographically closer. Geographical distance is then a hinder to social interactions.
In the past few years, the world has witnessed large swings in world relative prices, from oil, to metals, to food prices. This column examines how important these terms-of-trade shocks are in explaining GDP fluctuations. Using structural vector autoregression analysis, it shows that terms-of-trade shocks account for no more than 10% of business-cycle fluctuations in the majority of poor and emerging countries.
Understanding the determinants of firm performance is important if we want to improve how we do business. This column presents new research on corporate efficiency in Europe, highlighting the importance of firm characteristics such as firm ownership. Evidence suggests that a mix of majority and minority shareholders drives efficiency.
There has been a heated debate about the effectiveness of fiscal policy as a countercyclical tool but little evidence on how it can support growth. This column shows that fiscal policy can lift medium- and long-term growth in both advanced and developing economies. But all fiscal reforms are not equal in their growth dividend. Successful reforms are often part of a broader reform package and can balance the growth-equity trade-off.
Success of the German-inspired solution for the latest Greek crisis is far from assured. If it fails, the Eurozone may be changed forever. This column argues that the failure would lead to an outcome that has been favoured for decades by Germany’s Finance Minister, Wolfgang Schäuble. Perhaps the package the Eurozone agreed is just a backdoor way of getting to the ‘variable geometry’ and monetary unification for the core that the Maastricht criteria had failed to achieve.
High suicide rates are often cited as evidence of social failure. Despite this, some countries and regions that do very well in terms of happiness have among the highest suicide rates. This column explores this paradox using global data on suicide and self-reported life satisfaction. Although the paradox is confirmed for Eastern European and wealthy countries, inconsistent patterns emerge when other demographic factors are taken into account. This might reflect the empirical difficulty of explaining suicide, but might also be indicative of the unreliability of self-reports of happiness.
The Greek Crisis is a crisis rather than a problem due to the vulnerability of Greek banks. While the banks have deep problems, this column argues that these would have been mitigated if a fully operational banking union were in place. A full banking union requires joint banking supervision, joint bank resolution, and joint deposit insurance. The EZ only has the first so far. Completing the banking union must be part of any long-term solution.
Various theories suggest that exchange rate fluctuations and stock returns are linked. In this column, the authors find little evidence of a relationship between the two. Thus, a simple trading strategy that invests in countries with the highest expected equity returns and shorts those with the lowest generates substantial risk-adjusted returns.
Intergenerational mobility – the ability of less-advantaged children to achieve economic success – is held in high regard across the political spectrum in the US and other industrialised countries. But not much is known about its history. This column presents a new method that allows intergenerational measurement further back in time, as well as across more places and demographic groups. One firm result shows a large increase in intergenerational mobility after 1940 in the US South and among African Americans.
Greece’s reluctance to implement ‘the structural reforms required for debt sustainability’ is a recurrent theme in the debate on the EZ Crisis. This column qualifies this conventional wisdom by reassessing the relationship between Greece and the EU over the past four decades. Although Greece has implemented structural reforms that were substantial enough to bring about a turning point in its relationship with the EU, these reforms have been overly localised, badly sequenced and implemented by short-sighted political elites. The role that structural reforms can play in solving the current crisis should not be overestimated.
The ECB’s monetary policy has evolved rapidly over the past decade – from the adoption of the euro to the recent implementation of quantitative easing. This column discusses the effectiveness of the ECB’s policies. The single currency induced pro-cyclicality in the Eurozone periphery. The failure to adequately respond to the Lehman failure placed the burden to stabilise financial markets in the Eurozone onto the ECB, which as a consequence has become the lender of last resort in Eurozone sovereign debt markets. And finally, the persistent deflation and depression convinced the ECB to adopt an expansionary monetary stance.
In December, the 21st United Nations Climate Change Conference will be held in Paris. This column discusses how India – despite its image as a recalcitrant negotiator – has exhibited considerable initiative towards improving its environmental footprint in recent years. Along with a host of actions targeting emissions, deforestation, and alternative energy source, India has surpassed many developed nations in responding to recent declines in international energy prices. These efforts mean India will be able to make a substantial contribution towards the success of the negotiations in Paris
With mega trade deals currently being negotiated, it is imperative to fully understand the various effects of trade policy. This column focuses on the implications of product quality and the type of trade costs for trade policy. Using data on agricultural prices from Japan, it argues that specific trade costs are more sensitive to geographic distance than ad valorem costs. The welfare effects of policy initiatives such as improving infrastructure may hence be larger than previously thought.
Early childhood education has important effects on the academic readiness and ultimate life chances of children. This column examines how the introduction of the educational television show Sesame Street in the US affected primary school outcomes for disadvantaged children. Those from counties that had better access to the broadcast had superior educational outcomes through their early school years. These effects were particularly pronounced for black, non-Hispanic children, and those living in economically disadvantaged areas. The extremely low cost per child of such interventions make them ideal for addressing educational inequality in childhood.
Children can generate time-related and financial stress for their parents. This column argues that both parents are likely to experience increased levels of such stress, but new mothers are more likely to experience increases in time-related stress than new fathers. This increase is so costly to the new mother that it would require a doubling of her income in order to offset it.
When the ECB buys a Eurozone member’s bonds, the government pays interest to the ECB but the ECB rebates it to the government. If Greece repays its ECB-held bonds, it loses this ‘free borrowing’. This column argues that repayment is like ‘reverse QE’. To maintain its QE targets, more bonds from other EZ members must be bought – thus shifting the free borrowing from Greece to other EZ members. To avoid this perverse outcome, the ECB could extend the maturity of the Greek bonds.
Performance-enhancing drugs have been a controversial issue since competitive sports first began. This column argues that of the three major rationales for regulation – athletes’ health, fairness, and audience losses – the damage to audiences is the most convincing rationale for regulation. Evidence shows that doping causes measurable economic damage. Teams and leagues competing for audience attention may not internalise all externalities associated with doping, and they face a time-inconsistency problem when they discover it.
Monday’s deal was a political compromise consistent with the political constraints of Greece and its creditors. It is doubtful, however, that it will provide a long-term solution to Greece’s economic crisis. At a minimum, the momentum should be used to eliminate the option of Grexit once and for all. The bank-sovereign ties should be cut to turn Greek banks from a source of crises into a growth-supporting sector.
A primary policy tool for reducing pollution from motor vehicles in the US is to directly regulate fuel efficiency. This column investigates whether drivers respond to increased fuel efficiency standards by driving more. The evidence from a stimulus programme shows that households did not increase their driving due to increased fuel efficiency regulations, but they purchased smaller, cheaper, and less powerful vehicles.
The partitioning of Africa by European imperial powers in the late 19th century irreversibly transformed the long-term development trajectories of African economies. Yet, the motives for, and timing of, the scramble remain poorly understood. This column argues that the changes in African international trade over the course of the 19th century created an economic rationale for the African scramble. This episode offers insights that are relevant for current African economic development.
The new bailout deal for Greece was not easy. This column argues that it was also a failure. It will not be enough to recapitalise banks, it asks for structural reform that exceeds Greek capacities, and it raises the Greek debt-to-GDP ratio to unsustainable levels. In a few months or quarters, the programme will fail and the Grexit question will flare up again.
EU anti-cartel decisions have imposed billion of euros of fines in recent years, but private actions by cartel victims are also possible. This column discusses a 2014 EU Directive that facilitates private actions by cartel victims while attempting to reduce conflicts between private and public enforcement.
In 1997, Milton Friedman warned that when politics clashes with economics, the outcome is not a pretty one. This column reviews some of criticisms and weaknesses of the European macroeconomic system, taking a historic look at the decades leading up to the creation of the euro. The clash Friedman warned about is manifest now in Greece. The economic logic for dealing with Greece is clear, but politics continue to defy economics.
The sustainability of Greek debt is central to the negotiations. To date the sustainability calculations have been based on the IMF’s standard models for calculating sustainability for countries with market access. This column argues that these are not appropriate for Greece – a middle-income country with highly concessionary financing. The ESM should develop a new, appropriate analytic tool to reflect Greece’s special situation.
Uncertainty about fiscal policies can be damaging for economic performance, as it affects decisions about consumption, investment, and savings. This column argues that it is possible to reduce such uncertainty. Even if governments’ fiscal plans turn out to be (purposely) wrong ex post, they can convey useful information. It is just a matter of using the appropriate learning device whereby government promises are confronted every quarter with reality (i.e. what the government is actually doing).
Economic historians tend to explain US geographical development gaps in terms of industrialisation. But by the end of the 20th century, the richest counties had become specialised in services, rather than in manufacturing. This column evaluates how the service economy triggered this evident contrast between the urban and rural US. Market size causes localisation of non-agricultural activity, with the effect being stronger for services, especially knowledge services. Local policymakers can thus foster growth by attracting high-skilled workers to a region, with the multiplier effect eventually increasing the local market.
The rise of China has been identified as a major source of disruption for the manufacturing sector in high-income economies. This column argues that innovation helps firms to escape import competition from low-wage countries. It uses variation in R&D tax credits across years and US states to show that firms' R&D capital stock has a causal effect on their resilience to trade shocks.
Wealth inequality is back in the spotlight, but its determinants and the saving behaviour generating it are less clear. This column discusses the mechanisms in dynamic quantitative macro models that give rise to wealth inequality. Different mechanisms give rise to similar observed wealth concentrations, but have very different policy implications. A combination of better empirical analysis and richer models is needed to guide policy.
Limited insurance for long-term care threatens the sustainability of publicly funded social assistance programmes such as Medicaid in the US. This column looks at the effectiveness of a programme that encourages middle-income people to save for possible long-term care expenses. The evidence so far indicates that although this programme has indeed increased insurance applications, it has not increased insurance uptake.
The generosity of unemployment insurance is often cited as a reason for long spells of joblessness. But this view neglects other important, and potentially positive, economic aspects of such programmes. Using Austrian data, this column presents evidence that unemployment insurance has a positive effect on the quality of jobs that recipients find. This can in turn have a positive effect on future tax revenues, and has implications for the debate on optimal insurance generosity.
The Greek crisis is in a critical phase. This column, by the IMF’s Chief Economist, reflects on the various critiques of the handling to date of Greece’s problems.
Greek exit from the Eurozone has uncertain and potentially dangerous implications for all involved. This column, signed by 25 LSE economists, urges the Greek government and its creditors to act more responsibly. The first priority is to get Greece on a path of sustainable growth by relaxing austerity in the near term and linking debt restructuring to essential structural improvements.
Monetary policies of financial centre countries could have large spillover effects on smaller economies. This column argues that the strength of the links with the centre economies has been the major factor affecting financial conditions in emerging and developing countries. Open macro policies such as the exchange rate regime and financial openness are also important. An economy that pursues greater exchange rate stability and financial openness has a stronger link with the centre economies.
Contrary to the intent of the designers of what was to be an irreversible currency union, Greece may well exit the Eurozone. This column argues that default does not inevitably trigger the introduction of a new currency (or the re-activation of an old one). However, if ‘de-euroisation’ is the end game, then a forcible (or compulsory) currency conversion is likely to be a central part of that process, along with more broad-based capital controls.
Petroleum consumption in the US has, rather unbelievably, been decreasing of late. This column – from the Council of Economic Advisers, part of the President’s Executive Office – presents new evidence detailing this surprising decline, its causes, and its implications for the US economy and the efforts to slow climate change.
Most countries have a threshold below which businesses do not need to register for value added tax (VAT). This column looks at the costs and efficiency of VAT by analysing behavioural responses of firms to the registration threshold. Voluntary registration appears more likely when the cost of inputs is high or when the proportion of business-to-consumer sales is low. There is bunching around the threshold, and this is more likely when the cost of inputs relative to sales is low or the proportion of business-to-consumer sales is high.
China’s cities suffer from extremely high levels of air pollution, and Chinese consumers spend more than $US100 million on anti-smog products per year. Using recent internet sales data, this column explores how investing in such self-protection products varies for consumers with different income brackets. The urban poor are shown to be less likely to engage in this health-improving strategy. This suggests that cross-sectional income comparisons understate lifetime inequality.
Capital requirements for banks have been raised since the Global Crisis in order to increase their resilience during periods of distress. This column introduces a new online journal, the first issue of which publishes a set of articles that studies the trade-off between hedging systemic risk and expanding lending to the real economy.
The two lost decades in Japan and the Global Crisis of 2007–2009 have created new opportunities for economic growth. This column describes the evolution of productivity across sectors in Japan and the US and suggests that the greatest payoffs for Japan would come from combining the Trans-Pacific Partnership with domestic reforms and encouraging foreign direct investment.
A booming financial sector means economic growth. Or does it? This column presents new evidence showing that when the financial sector grows more quickly, productivity tends to grow disproportionately slower in industries with either lower asset tangibility or in industries with higher research and development intensity. It turns out that financial booms are not, in general, growth-enhancing.
Exports of the ‘BRICS’ nations all fell in the last quarter or two. This column, which presents the latest Global Trade Alert report, argues that foreign trade distortions are harming BRICS exports. At the same time, BRICS governments are distorting trade with their own policies. As the BRICS leaders meet for their annual summit this week, they ought to rethink their trade strategy.
The relationship between aggregate output and income inequality is central in macroeconomics. This column argues that greater income inequality raises the economic growth of poor countries and decreases the growth of high- and middle-income countries. Human capital accumulation is an important channel through which income inequality affects growth.
The financial crisis brought with it many challenges, both to prevailing disciplinary tenets, and for research and policy more generally. This column outlines the lessons that can be drawn from the financial crisis – issues like financial market failures, macro-prudential policy, structural changes of the financial system, and the European banking union. It argues for the inclusion of these topics in curricula for the next generation of finance students.
The events of recent years have made it all too clear that we need to better understand the links between the financial sector and the real economy. This column explores financial sector shocks and real economy shocks and presents new evidence suggesting that financial shocks are a significant source of macroeconomic fluctuations. Policymakers need to better take into account the role of the financial system when predicting the future and when readying remedies.
In Britain today, a majority of those in poverty live in working, rather than non-working, households. This challenges the long-held notion that paid work offers a route out of poverty. This column argues that structural changes in the labour market have brought about profound changes in the social security system. A failure to acknowledge these underlying changes means that dialogues about the political direction of the British economy can be problematic and potentially misleading.
Rich US retirees are known to spend their last years living it up in retirement hubs such as Florida. This column presents new evidence from the US suggesting that, in fact, those with high incomes run down their assets more slowly than implied by the basic life cycle model. Uncertainty over when they’re going to die and the possibility of high medical expenses – along with altruism and bequest motives – are important in understanding their low rate of spending.
Strengthening the banking sector through higher equity capital is one of the key elements of policies aiming to reduce the probability of crises. However, the ‘corporate debt bias’ – the tendency of corporate tax systems to favour debt over equity – is at odds with this objective. This column estimates the benefits for financial stability of eliminating the corporate debt bias. Fully removing the debt bias is estimated to reduce potential public finance losses by between 25 and 55% for the six large EU countries sampled.
Whereas some view the macroeconomy as overall stable and on a smooth long-run growth path, others argue it is unstable with repeated periods of booms and busts. This column suggests that the market economy is inherently unstable and booms and busts arise endogenously as the results of market incentives. Monetary policy is then perhaps not the right tool for addressing macroeconomic fluctuations. Instead, policies aimed at changing the incentives would be more appropriate.
Iceland and Ireland were both rocked by the fallout of the Global Crisis. This column argues that differences in currency arrangements affected the mechanisms of the boom and the collapse. Iceland’s banks collapsed because they did not have a lender of last resort in euros. Ireland did. But Iceland’s collapse and ensuing capital controls shifted the burden of debt restructuring onto foreign creditors to a much greater extent than in Ireland.
Home bias in banks’ holdings of domestic government debt could pose problems for financial stability and crisis management. This column discusses some of the determinants of this bias. Factors that increase macroeconomic instability are associated with higher home bias, while better investment opportunities in the private sector and better institutional quality reduce home bias.
Fear of stigmatisation might lead to hiding of behaviours and actions. This column presents evidence that stigma concerns can play a role in health seeking behaviour in the case of mental health. In particular, survey respondents under-report mental health conditions 36% of the time when asked about mental health conditions, and about 20% of the time when asked about prescription drug use. Conditions such as diabetes and cardiovascular diseases are less likely to be under-reported.
If more firms are established in developing countries, more jobs are created. But which type of firm creates the most jobs? This column presents evidence from Tunisia suggesting that once you’re established as a new and promising firm, it’s harder than it should be to grow and create jobs. Weak firm dynamics and imperfections in the market prevent the best firms from flourishing.
Two financial crises at the ‘sub federal’ are currently taking place – one in the Commonwealth of Puerto Rico, and the second one in Greece. This column highlights some surprising similarities between them, as well as the main differences. The Eurozone is a voluntary union of states which remain sovereign. But if Greece were part of the US, it could not hold a referendum, and its budget would be drawn up by a federal bankruptcy court. The key political difference is not austerity, but the fact that Greece’s debt is mainly to official creditors, who are ideal targets for political pressure.
Sadly, a large number of crimes are committed by ex-prisoners on their first day of release. This column presents evidence showing that on any given day the number of inmates released from incarceration significantly affects the number of offences committed on that day. ‘First-day recidivism’ can be eliminated by an increase in the gratuity provided to prisoners at the time of their release. It’s much cheaper than any other option.
Greece’s debt is 180% of GDP, which seems to make it insolvent without large primary surpluses. This column argues that since restructuring lowered the interest burden to just 2% of GDP, Greece is solvent – or would be with nominal GDP growth of just 2%. The ECB’s misdiagnosis has caused an unnecessary banking crisis. The solution is to accept that Greek debt is sustainable, so the austerity programme can be relaxed and liquidity support provided to the Greek banking sector.
Labour market regulations have important implications for both the incidence of cross-border acquisitions, and the outcomes for acquiring firms. This column explores how variations in labour regulations between countries affect cross-border acquisitions and subsequent firm performance. For a sample of 50 countries, firms are found to enjoy larger returns when they acquire a target in a country with weaker labour regulations than the acquirer’s home country.
High-frequency news analytics can increase market efficiency by allowing traders to react faster to new information. One concern about such services is that they might provide a competitive advantage to their users with potential distortionary price effects. This column looks at how high frequency news analytics affect the stock market, net of the informational content that they provide. News analytics improve price efficiency, but at the cost of reducing liquidity and with potentially distortionary price effects.
Barry Eichengreen’s VoxEU column arguing that the euro was irreversible has been viewed over 230,000 times. Now it appears to be wrong. In this column, originally posted on the website ‘The Conversation’, he looks to see where his predictions went wrong. Basically the economic analysis – which focused on bank runs – was right. He went wrong in overestimating the political competence of Greece and its creditors.
Industrialised and developing countries have differing fiscal strategies for dealing with the business cycle. But are countries’ strategies different according to whether they are industrialised? This column presents new evidence suggesting that the picture is complex. Procyclical fiscal policies remain the norm amongst most non-industrialised developing countries, but some key developing countries have recently moved toward a counter-cyclical stance as a result of strengthening institutions.
Japan was the first Asian nation to achieve modern economic growth. This column discusses new evidence suggesting that Japan’s growth started from a lower level than Britain’s and grew more slowly until the Meiji Restoration. The key to understanding modern economic growth seems to lie in identifying the forces that dampened growth reversals, rather than the forces responsible for growth itself.