March 2017

Baldwin, Collier, Venables, 29 March 2017, 915 reads

Regardless of what one may think of the decision, the British people have voted to leave the EU – a result that throws up historic challenges as well as historic opportunities. This column introduces CEPR's latest Policy Insight, which suggests that Brexit should be viewed as an important opportunity for fresh thinking.

Piketty, Saez, Zucman, 29 March 2017, 2939 reads

The rise of economic inequality is one of today’s most hotly debated issues. But a disconnect between the different data sets used to measure and understand inequality makes it hard to address important economic and policy questions. In this column, the authors highlight the findings from their attempt to create inequality statistics for the US that overcome the limitations of existing data by creating distributional national accounts.

Grigorieff, Roth, Ubfal, 29 March 2017, 2465 reads

There has been a surge of anti-immigrant sentiment in the US and many European countries. This column uses survey results to show that accurate information about numbers of immigrants changes opinions on whether there are too many immigrants, but not on policy towards them. More detailed information on the characteristics of immigrants, however, can increase support for pro-immigrant policies, particularly among those who start off with the most negative views on immigration.

Caldera, de Serres, Gori, Röhn, 28 March 2017, 2660 reads

Severe recessions have been frequent among OECD countries over the past four decades. This column explores the implications of various broad types of policy to minimise the risk and frequency of such episodes for the trade-off for the growth-fragility nexus. Product and labour market policies improve growth but are essentially neutral with regards to economic risks, while better quality institutions increase both growth and economic stability. Macroprudential and financial market policies, on the other hand, entail a trade-off between growth and risk.

Cecchetti, Schoenholtz, 28 March 2017, 2215 reads

US monetary policy has been the target of substantial criticism over the years. This column outlines one key area where the Federal Reserve has done remarkably well – managing price stability.  Its ability to control inflation is a key reason that, for the sake of the US and global economies, the Fed’s independence should be preserved.

Bayoumi, Eichengreen, 27 March 2017, 3273 reads

Asymmetric aggregate supply and demand disturbances across its regions prevent the smooth functioning of a currency union. This column argues that the disturbances in peripheral regions of the US show more symmetry with those in the anchor region than is the case for the Eurozone. Moreover, disturbances to the GIPPS, which previously were in Europe’s periphery, have become more correlated with disturbances to the anchor (Germany) compared to other Eurozone countries. Hysteresis operating via the financial sector may provide an explanation for this development.

Andrews, Criscuolo, Gal, 27 March 2017, 6042 reads

Even before the Global Crisis, productivity growth had slowed in many OECD countries. This column argues that the global slowdown at the aggregate level masks a deterioration in both productivity growth within firms and a process of creative destruction. Using a cross-country firm-level database for 24 countries, the authors reveal an increasing productivity gap between the global frontier and laggard firms, fewer exits by weak firms, and a decline in entry. These problems have been compounded by the failure of policy to encourage the diffusion of best practices in OECD countries.

Akcigit, Grigsby, Nicholas, 27 March 2017, 3129 reads

The impact of immigration on US economic development has become a controversial issue in recent policy debates. This column, arising from a study linking Federal Census data with patent records, examines the historical role of immigrant inventors in the process of US technological innovation. Immigrant inventors appear to have been of central importance to American innovation during the 19th and 20th centuries, both through their own inventive activity and through their influence on domestic inventors.

Hsieh, Li, Ossa, Yang, 26 March 2017, 3685 reads

Trade economists typically believe that in addition to lower prices for imported goods, trade liberalisation also brings import variety and domestic productivity gains. This column accounts for these ‘new’ gains in a careful reconsideration of the Canada-US Free Trade Agreement. Although the agreement did see improvements in Canadian income associated with import variety and domestic productivity, these were far outweighed by the welfare loss associated with the reduction in domestic variety. Nonetheless, Canadian welfare did improve overall when one takes into account the ‘traditional’ gains associated with lower import prices.

Fitzgerald, Haller, Yedid-Levi, 25 March 2017, 4072 reads

Tariffs across the world may be set to increase for the first time in generations, but the impact of this on trade will depend on the way in which exporters and potential exporters make decisions. Using data on Ireland's manufacturing exports, this column describes how the evolution of quantities and prices for export entrants suggests an important role for the customer base in explaining exporter behaviour. 

Maloney, Valencia Caicedo, 24 March 2017, 4499 reads

The generation and diffusion of scientific knowledge and technology are assumed to be drivers of modern economic growth, but there is a lack of firm empirical evidence of this. This column uses the first detailed data on the density of engineers in the western hemisphere to argue that historical differences in innovative capacity, as captured by the density of engineers in 1880, explain a significant fraction of the Great Divergence. The results confirm the imperative of developing higher-order human capital.

de Bromhead, Fernihough, Lampe, O'Rourke, 24 March 2017, 6013 reads

With Brexit looming, and protectionist pressures mounting elsewhere in the developed world, the question of whether trade policy matters is taking on more significance. This column looks at the extent to which trade policy was responsible for the shift towards intra-imperial trade in the interwar period. Both tariffs and quotas increased the Empire’s share of British trade, suggesting that trade policy mattered more for interwar trade patterns than the cliometric literature has suggested.

Borin, Di Nino, Mancini, Sbracia, 23 March 2017, 4446 reads

Recent global trade growth is even more disappointing than global GDP growth. This column argues that this unexpected weakness of trade relative to GDP is related to the high volatility and pro-cyclicality of real trade flows, and that cyclical forces are the main drivers. It also shows that the accuracy of existing trade forecasts can be improved using real-time data on business conditions.

Casey, Galor, 23 March 2017, 4205 reads

Most policies that target climate change – such as carbon taxes and cap-and-trade programmes – have long-term benefits but short-term economic costs. This column argues that population policies may not be subject to this trade-off. In particular, policies that reduce population growth can have a direct positive effect on income per capita as well as lowering growth of carbon emissions. Such policies could play an important role in the portfolio of actions aimed at mitigating climate change.

Philippon, Salord, 22 March 2017, 3596 reads

Failed financial firms should not be bailed out by the taxpayers. Europe, unfortunately, has a weak track record of following this principle of good governance and sound economic policy. The banking union, with its new approach to supervision and resolution, is meant to improve this matter. This column introduces a new Geneva Special Report on the World Economy which reviews the resolution side of the banking union. 

Buiter, 22 March 2017, 5904 reads

A border tax adjustment from origin-based taxation to destination-based taxation is under consideration for corporate profit tax in the US. This column investigates the implications of such an adjustment for the nominal exchange rate, assuming the real equilibrium of the economy is unchanged. While conventional wisdom is that the currency of the country implementing the adjustment will appreciate by a percentage equal to the VAT or corporate profit tax rate, a depreciation of the same magnitude is just as likely. 

Griffith, O'Connell, Smith, 21 March 2017, 4467 reads

Governments have long used taxation to correct for the socially costly overconsumption of alcohol, but as the external cost of overconsumption varies across drinkers, a single tax rate is not optimal. This column argues that variation in preferences for different products and in price responsiveness across heavy and light drinkers provides scope to improve welfare by varying tax rates across alcohol products. The proposed framework is well suited to addressing other sources of external costs, such as obesity.

Autor, Dorn, Hanson, Pisano, Shu, 20 March 2017, 13194 reads

The discussion of the decline in US manufacturing during the 2016 presidential election campaign largely focused on job losses. This column examines the effects of Chinese import competition on another metric for the health of the US manufacturing sector – innovation.  Firms whose industries were exposed to a greater surge of Chinese import competition from 1991 to 2007 experienced a significant decline in their patent output as well as their R&D expenditures. While politicians’ ‘obsession’ with manufacturing is primarily due to job losses, an accompanying reduction in innovation may well affect economic growth in the longer term.

Jansen, Rollo, Solleder, 19 March 2017, 5139 reads

Standards and regulations form an inherent part of international trade. This column presents evidence – based on two novel datasets – that suggests that for firms the distinction between voluntary standards and government regulations is blurred, that export revenues of small firms are hit twice as hard by burdensome regulations as those of large firms, and that firms active in larger markets have access to a higher number of voluntary standards.

Wood, 18 March 2017, 10839 reads

In defending trade from misguided protectionism, economists argue that the main killer of manufacturing employment around the world has been technology, not trade. This column explores how globalisation has caused the sectoral structures of countries to conform more closely to their factor endowments. In the skill-abundant developed regions, manufacturing became more skill-intensive, while in skill-scarce and land-scarce Asia, labour-intensive manufacturing expanded. In land-abundant developing Africa, Latin America, and the Middle East, by contrast, manufacturing contracted.

Desmet, Gomes, Ortuño-Ortin, 17 March 2017, 6545 reads

Diverse countries tend to have more conflict, lower development, and worse public goods, possibly due to antagonism between groups. Based on recent research mapping local linguistic diversity across the entire globe, this column argues that local interaction with people of other ethnolinguistic groups can mitigate the negative effect of overall diversity on a country’s outcomes in health, education and public goods. This finding lends support to policies that influence the local mixing of ethnolinguistic groups.  

De Santis, 16 March 2017, 7625 reads

French sovereign spreads have risen in recent months, coinciding with debate over the euro ahead of the country’s presidential elections in May. Italian sovereign spreads have been rising since the beginning of 2016. This column argues that investors are not pricing a break-up of France from the Eurozone. Most likely, they are pricing the possibility that the newly elected French government will not have enough supremacy to undertake important economic reforms. Market perception of redenomination risk in Italy, on the other hand, is rising slowly. 

Shirai, 16 March 2017, 6391 reads

The Bank of Japan has been pursuing quantitative and qualitative monetary easing since 2013, but has failed to achieve its target of a stable 2% inflation rate. This column explores the Bank’s recent practices and performance, and identifies four structural factors that have contributed to the limited impact of unconventional monetary easing on aggregate demand and inflation. The Bank now needs to come up with more objective projections for the timing of achieving its price stability target. 

Kanbur, Wang, Zhang, 15 March 2017, 14843 reads

Sharply increasing inequality became an integral part of the narrative on Chinese development since the beginning of the reform process in 1978. Over the past decade, however, many studies have argued that inequality has been plateauing, or even declining. This column uses several datasets, including household surveys and regional-level government statistics, to show evidence of a mitigation of inequality in the early 21st century, and indeed, declining rates over recent years. Possible drivers of this turnaround are urbanisation, transfer and regulation regimes, and tightening rural labour markets.  

Booth, Yamamura, 14 March 2017, 6065 reads

Differences in attitudes to competition or risk may contribute to explaining gender gaps in wages and other labour market outcomes. This column analyses performance data from speedboat races in Japan revealing that women tend to race more slowly against men than against other women only, while men are faster in mixed-sex races. This finding may be driven by the skewed gender balance towards men in mixed-sex races triggering awareness of gender identity for both men and women, with implications for other activities in which men and women compete and women are outnumbered, such as the STEM disciplines.

Carrière-Swallow, Gruss, Magud, Valencia, 13 March 2017, 7301 reads

The rate at which consumer prices rise following a depreciation of the currency, known as the exchange rate pass-through, has been declining. The column uses a decomposition of exchange rate pass-through into the component that can be attributed to pricing of imported goods at the dock, and the second-round effects on domestically produced goods and services, to show that reductions in second-round effects are largely responsible for the decline in pass-through. Enhanced monetary policy credibility is strongly associated with this reduction. 

Antràs, Fort, Tintelnot, 12 March 2017, 9080 reads

A growing body of economic research documents the potential negative effects of increased trade integration, often with a focus on increased Chinese import penetration. This column argues that some US firms benefit significantly from increased import opportunities as they lower their costs and expand. Protectionism in the form of higher domestic tariffs would decrease these domestic firms’ competitiveness both at home and abroad.

Benati, Lucas, Nicolini, Weber, 11 March 2017, 10203 reads

Most economists and central bankers no longer consider money supply measures to be useful for conducting monetary policy. One reason is the alleged instability of the relationship between monetary aggregates. This column uses data from 32 countries and spanning up to 100 years to argue that the long-run demand for money is alive and well. Results show a remarkable stability in long run money demand, both within and across countries. Nonetheless, short-run departures can be large and persistent, and further research is needed.

Campos, Coricelli, 10 March 2017, 7957 reads

After 1945, the economies of the six founding members of the European Union grew faster than the UK's economy. Margaret Thatcher’s reforms in the mid-1980s have been credited with reversing this relative decline. This column argues that there is little empirical support for this explanation, and that a more credible turning point was around 1970 when the UK finally began the process of joining the European Economic Community. 

Bentolila, García Pérez, Jansen, 09 March 2017, 5816 reads

Long-term unemployment is one of the most persistent consequences of the Great Recession, particularly in Spain, where external factors were compounded by domestic problems. This column analyses the mechanisms that worked to create such widespread and persistent long-term unemployment. To improve the prospects of the long-term unemployed, Spain should step up its efforts to implement effective active labour market policies.

Boz, Cubeddu, Obstfeld, 09 March 2017, 12252 reads

After intensifying through the 2000s until the Global Crisis, the ‘uphill’ flow of capital from poor to rich countries decelerated and has recently reversed. This column documents that saving shifts by China, commodity-exporting emerging and developing economies, and advanced economies played key roles in accounting for the apparently puzzling pattern in the pre-crisis decade. Ongoing policy uncertainties in advanced economies mean large and persistent downhill flows of capital are unlikely in the near term. Going forward, capital flows to emerging and developing economies will need to be supported by policies that enhance the benefits of inflows, temper capital flow volatility, and improve the resilience and depth of domestic financial markets.

Michalopoulos, Papaioannou, 08 March 2017, 5383 reads

Over the past decades, economists working on growth have ‘rediscovered’ the importance of history, leading to the emergence of a vibrant, far-reaching inter-disciplinary stream of work. This column introduces the third and final eBook in our three-part series which examines key themes in this emergent literature and discusses the impact they have on our understanding of the long-run influence of historical events on current economics. This volume focuses on the Americas and Europe and examines how events from history have helped shape their post-war economic identities.

Hayakawa, Urata, Yoshimi, 08 March 2017, 5417 reads

The emergence of mega-regional trade agreements is likely to complicate the trading environment as the ‘noodle bowl’ of overlapping trade agreements gets bigger. This column argues that when multiple preferential tariff schemes are available, exporters' choice of scheme depends on the coverage of products, the extent of tariff reduction, and the ease of complying with rules of origin. These dimensions should all be taken into account when designing mega-regional trade agreements to encourage their utilisation. 

Cabrillac, Gauvin, Gossé, 07 March 2017, 5386 reads

Interest in nominal GDP-indexed bonds has grown in the context of the debate on how to prevent future sovereign debt crises. This column uses simulations up to 2040 to identify which countries would benefit from using such bonds instead of conventional debt. By issuing GDP-indexed bonds, these countries would protect their debt ratios against deflation and recession, and investors could benefit from the catching-up of emerging economies, could partially hedge their currency risk, and could diversify their portfolio compared to equity. The contribution of GDP-indexed bonds to international financial stability would justify international coordination to promote their use.

Buch, Tonzer, Weigert, 06 March 2017, 5405 reads

In response to the Global Crisis, governments have implemented restructuring and resolution regimes backed by funds financed by bank levies. Bank levies aim to internalise system risk externalities and to provide funding for bank recovery and resolution. This column explores bank levy design by considering the German and European cases. The discussion points to the importance of structured policy evaluations to determine the effects of levies.

Hayakawa, Kim, Yoshimi, 05 March 2017, 6887 reads

Some exporters prefer to use most-favoured nation rates even when exporting to a fellow member of a free trade agreement. This column analyses the effect of exchange rates on the utilisation of free trade agreements, focusing on the ASEAN-Korea agreement. A depreciation of an (ASEAN) exporter’s currency against the (Korean) importer’s currency enhances utilisation rates of the trade agreement’s tariffs, with implications for the design of rules of origin. 

Cagé, Rueda, 04 March 2017, 5613 reads

Throughout history, religious change is known to have brought about significant economic change in many countries. This column, taken from a recent Vox eBook, looks at the effects of the Christian missionary activity that expanded throughout African countries from the middle of the 19th century. It shows how the diversity of investments brought by Christian missionaries to the region had different, and sometimes conflicting, effects on long-term development.

Mojon, 04 March 2017, 7208 reads

In the last two decades, there has been substantial co-movement of US and Eurozone interest rates. This column shows that the ECB’s unconventional monetary policy has largely succeeded in decoupling nominal interest rates in the Eurozone from those in the US since 2014. This has been especially true for rates of up to five years’ maturity since the rise in US interest rates following the election of Donald Trump. 

Mitaritonna, Orefice, Peri, 03 March 2017, 5786 reads

Despite numerous studies exploring how immigration affects local labour markets, there is limited evidence on the impact of immigrants on firms’ productivity levels. Using detailed, firm-level data from France, this column explores how firms react to an increase in the supply of immigrant workers. Provinces with a large increase in immigrant supply experienced higher productivity growth, especially among firms that were initially less productive. This suggests immigration can promote convergence in firm size and productivity levels. 

Ca' Zorzi, Kolasa, Rubaszek, 03 March 2017, 6820 reads

Macroeconomic models have been criticised for their inability to forecast exchange rates better than the random walk model. This column argues that open-economy DGSE models are useful in forecasting the real exchange rate but not the nominal exchange rate, owing to their failure to capture adequately the international co-movement of prices. They correctly predict, however, that the bulk of the real exchange rate adjustment occurs through the nominal rate. The central role of the nominal rate in restoring price competitiveness in flexible exchange rate regimes can be exploited from a forecasting perspective. 

Jedwab, Kerby, Moradi, 02 March 2017, 6890 reads

At the turn of the 19th century, sub-Saharan Africa was the least urbanised region in the world, with only about 50 cities of more than 10,000 inhabitants. By 2010, the number of cities had increased to almost 3,000. This column, taken from a recent VoxEU eBook, explores how colonial railroad investments transformed Africa’s economic geography, and asks whether economic outcomes would have been different and development delayed without the railroads.

de la Croix, Doepke, Mokyr, 02 March 2017, 14250 reads

The role of specific institutions was important in giving Europe a technological advantage well before the Industrial Revolution. This column argues that apprenticeships were crucial to Europe’s rise. Unlike in the extended families or clans in other parts of the world, apprentices in Europe’s guild systems could learn from any master. New techniques and innovations could thus spread rapidly across the continent, without being constrained by family lines.

Michalopoulos, Papaioannou, 01 March 2017, 7669 reads

The Scramble for Africa has contributed to economic, social, and political underdevelopment by spurring ethnic-tainted civil conflict and discrimination and by shaping the ethnic composition, size, shape and landlocked status of the newly independent states. This column, taken from a recent VoxEU eBook, summarises the key findings of studies that use high-resolution geo-referenced data and econometric methods to estimate the long-lasting impact of the various aspects of the Scramble for Africa.

Castanheira, Ornaghi, Siotis, 01 March 2017, 6462 reads

Conventional wisdom holds that increased competition improves market outcomes. This column argues that the link from competitiveness to allocative efficiency is weaker than this wisdom would suggest. Using evidence of generic substitutes of previously patent-protected drugs, it shows that firms can use non-price instruments which affect – or even reverse – the way competitive shocks alter market outcomes, with significant welfare implications.

Beck, Underhill, 01 March 2017, 7476 reads

The institutions and even the very idea of the EU are under fire, with feelings of disenfranchisement among large parts of the population driving support for populist movements across the continent. This column introduces a new eBook that brings together analyses of this multidimensional crisis and of the way out - the future of the European Union. A worryingly common message is that muddling through will not be enough to save the EU as a political project.

Cecchetti, Schoenholtz, 01 March 2017, 6135 reads

Policymakers and economists have been looking for ways to make it easier to manage increasing debt burdens. This column assesses one possible solution: GDP-linked bonds that tie the size of debt payments to an economy’s wellbeing. There are clear benefits to a government from issuing GDP-linked bonds, but establishing investor confidence in these instruments will require a better approach to the obstacles posed by data revisions and changes in methodology.