July 2017

Shirai, 31 July 2017, 8477 reads

Portfolio rebalancing through large-scale asset purchases is one of the major transmission channels under the zero lower bound. This column assesses whether the channel has been effective in Japan, focusing in turn on financial institutions, firms, and households. Japanese firms and households are notoriously risk averse, limiting the effectiveness of the portfolio rebalancing channel. These results suggest that more drastic structural reforms and growth strategies are needed.

Blanchard, 30 July 2017, 10731 reads

The Trump administration has been outspoken in its criticism of NAFTA, which the president has called “the worst deal ever made”. This column, taken from a recent Vox eBook, argues that reversing the current NAFTA policy environment would not simply wind back the clock to the pre-agreement economy from 20-plus years ago. Instead, it would throw spanners and blockages into today’s very different and deeply integrated North American economy.

Bofinger, Ries, 29 July 2017, 14010 reads

There is a broad consensus that the global decline in real interest rates can be explained with a higher propensity to save, above all due to demographic reasons. This column argues that this view relies on a commodity theory of finance, which is inadequate for analysis of real world phenomena. In a monetary theory of finance, household saving does not release funds for investment, it simply redistributes existing funds. In addition, the column shows that at the global level, the gross household saving rate has declined since the 1980s, as well as net saving rates.

Graham, 28 July 2017, 15587 reads

Despite the long-held belief that high levels of inequality in the US signal future opportunity, a number of studies suggest that this is no longer the reality. This column examines trends in inequality from the perspective of well-being and focuses on non-economic aspects of welfare, including hope. The results reveal stark differences across people, races, and places in the US. Poor minorities – and blacks in particular – are much more hopeful than poor whites, while urban places are more hopeful than are rural ones, as are places with higher levels of diversity.

Nickel, 28 July 2017, 9064 reads

The past decade has seen a growing role for global slack in Phillips curve approaches, as opposed to the traditional focus on domestic slack. This column explores whether augmenting Phillips curves by measures of foreign slack can help to better explain past developments in underlying inflation. A majority of specifications, both with and without foreign slack, are found to yield very similar results. Even for periods when domestic slack differed substantially from foreign slack, like between 2012 and 2016, the effects seem to be rather small.

Gibbons, Overman, Lyytikainen, Sanchis-Guarner, 27 July 2017, 11068 reads

New government policy initiatives aim to reverse the trend of declining investment in Britain’s road network. This column asks whether such investment generates economic benefits, either locally or nationally. Places with improved accessibility from new major roads over 1998-2008 experienced increases in the number of local firms and, consequently, higher local employment. At the same time, businesses already operating in these areas shed workers while maintaining existing levels of output, implying higher labour productivity.

Gancia, Ponzetto, Ventura, 26 July 2017, 19458 reads

The number of countries in the world more than halved during the first wave of globalisation, but then rose significantly during the second. Border changes have been much more peaceful during this second wave, and this column asserts that these observations are consistent with a theory in which political structure adapts to expanding trade opportunities. Globalisation makes borders costly. In its early stages, borders are removed by increasing country size, while in later stages, the cost of borders is removed by creating peaceful economic unions, leading to a reduction in country size.

Baudin, de la Croix, Gobbi, 25 July 2017, 8952 reads

The fertility of women in developing countries is higher on average than in developed countries, yet many women in developing countries remain childless. This column argues that understanding the causes of why some women choose childlessness is important if we wish to predict the impact that development policies have on the demographic transition of poor countries.

Smith, Thomassen, 24 July 2017, 9529 reads

Many consumers buy multiple types of goods from a single location (or firm) to save on shopping costs, turning these goods into pricing complements. Using data from the UK, this column shows that the internalisation of these complementary effects by supermarkets greatly improves the competitiveness of grocery supply. It also argues that one-stop shoppers have a greater pro-competitive impact on supermarket pricing than multi-stop shoppers.

Kondo, 23 July 2017, 10806 reads

The large literature on agglomeration economies attests to the higher average productivity of firms in larger cities. However, this literature focuses on positive externalities, and a second potential mechanism – selection against less productive firms – has received little empirical attention. This column explores how these two mechanisms contribute to higher productivity in Japanese cities. Consistent with earlier work considering the case of France, no evidence for a selection effect is found.

Carbonnier, 22 July 2017, 9654 reads

Economists can help better understand and address some of today’s toughest humanitarian challenges. This column argues that the economics of war and disaster – which includes foreign aid – is largely untapped as a field of study and practice. While humanitarian economics has the potential to improve our knowledge of these problems, and the outcomes for those affected by them, it must take account of the ethical and epistemological issues, and the benefits of interdisciplinary cooperation.

Clemens, Hunt, 21 July 2017, 23647 reads

Sudden inflows of refugees have been shown to have little or no impact on native wages, but recent research has challenged this consensus, using instrumental variables to show uniformly large detrimental effects. This column argues that these new results were due to problems with the strategy used and, in the case of the Mariel boatlift, the composition of the sample. Correcting for these flaws, the impact of immigration on average native-born workers remains small and inconsistent, with no evidence to show a large detrimental impact on less-educated workers.

Gobillon, Milcent, 21 July 2017, 6193 reads

It is widely believed that the goal of keeping health expenditures under control while increasing the quality of the healthcare system can best be achieved by giving a greater role to market forces. This column evaluates the effect of a pro-competition reform implemented in France over 2004-2008 on hospital quality. It finds that the impact on quality depends on the managerial autonomy of hospitals. And due to the French healthcare market structure, the overall effect of the reform has been limited.

Piketty, Yang, Zucman, 20 July 2017, 21264 reads

Between 1978 and 2015, China moved being from a poor, underdeveloped country to the world’s leading emerging economy. But relatively little is known about how the distribution of income and wealth within the country changed over this period. This column presents the first systematic estimates of the level and structure of China’s national wealth since the beginning of the market reform process. The national wealth-income ratio increased from 350% in 1978 to 700% in 2015, driven mainly by the increase of private wealth.

Aizenman, Jinjarak, Estrada, Tian, 19 July 2017, 6830 reads

The impact of the Global Crisis of 2008 played out differently in middle-income countries compared to developed countries. This column argues that the associations of growth level, growth volatility, shocks, institutions, and macroeconomic fundamentals have changed in important ways after the crisis. Educational attainment, share of manufacturing output in GDP, and exchange rate stability appear to increase the level of economic growth. Exchange rate flexibility, education attainment, and lack of political polarisation reduce the volatility of economic growth.

Hara, 19 July 2017, 7219 reads

Although the gender wage gap in Japan has been decreasing over the last 15 years, it remains large. This column shows that both the ‘glass ceiling’ and the ‘sticky floor’ exist in the Japanese labour market. The country’s human resource management system and a culture which rewards those who are willing to work outside of regular hours are to blame.

Schivardi, Sette, Tabellini, 18 July 2017, 7620 reads

There is a widespread perception that under-capitalised banks can prolong crises by misallocating credit to weaker firms and restraining credit to healthy borrowers. This column explores the extent and consequences of credit misallocation in Italy during and after the Eurozone Crisis. Bank undercapitalisation may have been costly in terms of misallocation of capital and productive efficiency in the medium term due to the higher exit of healthy firms, but it had at best a limited role in aggravating the recession induced by the Eurozone Crisis.

Crafts, Mills, 17 July 2017, 14960 reads

Estimates of trend total factor productivity growth in the US have been significantly reduced, contributing to fears that the slowdown is permanent. This column provides an historical perspective on the relationship between estimated trends in total factor productivity growth and subsequent outcomes. It argues that In the past, trend growth estimates have not been a good guide for future medium-term outcomes, and ‘techno-optimists’ should not be put off by time-series econometrics.

Datta, Dhingra, 16 July 2017, 10186 reads

The economies of Europe and the United States are inextricably linked and in an ideal world, a number of factors motivate a trade deal such as the Transatlantic Trade and Investment Partnership. This column, taken from a recent VoxEU eBook, argues, however, that given the Brexit referendum in the UK and the election of Donald Trump as US president, as well as a number of other pre-existing complications, achieving such agreements will be highly contentious. 

Chevalier, Dolton, Lührmann, 15 July 2017, 6453 reads

Feedback has been found to improve exam performance in the context of higher education, but demand for feedback is low among students when obtaining it requires unrewarded effort. This column evaluates how the provision of extrinsic incentives affects students’ effort and performance. Having online learning assessments count towards final grades is found to trigger large participation increases, and better subsequent exam performance. Given the low cost of these interventions, they offer particular promise in higher education.

Cecchetti, Schoenholtz, 14 July 2017, 9032 reads

The US Treasury recently published the first in a series of reports designed to implement the seven core principles for regulating the US financial system announced in an Executive Order from President Trump. While Trump's stated principles provide an attractive basis for making the financial system both more cost-effective and safer, this column argues that, at least when considering the largest banks, adopting the Treasury’s recommendations would make the financial system less safe. And, it would do so with little prospect for boosting economic growth.

de Ridder, Teulings, 13 July 2017, 12391 reads

Around the world, growth has yet to recover to its pre-Global Crisis trend. This column uses the crisis as a quasi-natural experiment to test the endogenous growth hypothesis, which suggests that output has not recovered because the crisis affected the rate of technological progress. Firms that preferred a bank that was more severely affected by the crisis experienced a large fall in R&D investment and a persistent fall in output in subsequent years. This suggests a direct link between R&D and future productivity, as predicted by endogenous growth models.

Buti, Deroose, Leandro, Giudice, 13 July 2017, 8765 reads

Despite much being done to strengthen the Economic and Monetary Union, it remains incomplete and this is one of the main reasons for the Eurozone's lacklustre economic performance in the recent years. While there are still diverging views on how to "cross the river", there is also a political and economic window of opportunity to complete the EMU architecture. This column discusses the ideas presented in a new European Commission Reflection Paper aimed at relaunching the debate on how to move forward, with a focus on bridging the differences between the member states that stress responsibility and risk reduction and those calling for solidarity and risk sharing.

Mueller, Rohner, Schönholzer, 12 July 2017, 5493 reads

The nature of military and social conflict has changed in the last three decades, particularly in the way it impacts civilians locally. This column presents new research that models localised conflict based on the spatial configuration of groups, using evidence from conflict in Northern Ireland. The model can help target policies at the origin of attacks and with attempts to change the interaction between local groups, reducing conflict in the short-to-medium term.

Jokela, Pekkarinen, Sarvimäki, Terviö, Uusitalo, 11 July 2017, 10909 reads

There is strong empirical evidence of a secular rise in intelligence, but a lack of consistently measured data has hampered the identification of a similar increase in non-cognitive skills. Based on an analysis of half a million Finnish males, this column presents evidence that a long-term increase in scores for traits such as self-confidence, sociability, and leadership motivation has taken place. Just as with cognitive abilities, higher test scores for personality traits predict higher earnings.

Cazes, Garnero, Martin, 10 July 2017, 11657 reads

Trade union membership has been declining since the 1980s. Recently, however, there has been renewed interest in the potential of collective bargaining to address rising wealth inequality and poor wage growth. This column presents an OECD report on collective bargaining institutions and practices across member countries and selected emerging economies. Despite substantial variation across member countries, the overall pattern is one of a broad decline in the use of collective bargaining to set the terms of employment.

Hayakawa, Matsuura, 09 July 2017, 6528 reads

Foreign direct investment has generally been found to have positive effects for firms in their home country. There are, however, concerns about potential negative effects for other domestic firms in the investing firm’s supply chain. This column uses Japanese firm-level data to explore the supply chain effects of foreign direct investment. Foreign direct investment does not appear to have adverse effects on domestic transaction networks. Rather, the positive effects of firms’ foreign investing are found to spread to the whole economy through their supply chains.

Cahuc, Carcillo, Minea, 08 July 2017, 7140 reads

Despite the substantial costs associated with subsidised employment programmes targeting low-skilled youths, little is known about their effectiveness in easing school-to-work transitions. This column evaluates the effectiveness of such programmes for high-school dropouts in France with various types of labour market experience. Work experience, even in the market sector, is not always sufficient to increase the chance of very low-skilled youths being called for interview by an employer, suggesting that measures such as temporary jobs in the non-market sector or hiring subsidies in the market sector should be conditional on getting a certification of skills at the end of the employment period, at least for previously unskilled youths.

Black, Breining, Figlio, Guryan, Karbownik, Nielsen, Roth, Simonsen, 08 July 2017, 7207 reads

Despite the policy importance of understanding the relationships between them, very little evidence exists on the causal effects siblings have on one another. This column investigates outcomes for families in which the third-born child has a disability, and shows that the oldest children have better educational outcomes than the middle children, who due to birth order are more likely to be more affected by a common sibling spillover. We may be able to measure greater returns to investments that relieve the effects of negative shocks to children if we consider the effects on siblings too.

Bach, Calvet, Sodini, 07 July 2017, 23616 reads

A growing literature conjectures that wealthy households earn higher average returns, which can further exacerbate wealth inequality. Using Swedish administrative data, this column shows that the wealthy indeed earn higher returns on their asset portfolios. These high returns are primarily due to high levels of compensated risk. Households at the top of the wealth distribution further exhibit highly heterogeneous investment performance due to high levels of idiosyncratic risk.

Bauer, Hamilton, 07 July 2017, 12683 reads

Several recent empirical papers have challenged the ‘spanning hypothesis’, which holds that the level, slope, and curvature of bond yield curves are sufficient to forecast returns and estimate bond risk premia This column argues that these studies suffer from a previously unrecognised standard error bias. Controlling for this bias, false positives are found to be between six and twelve times more likely, suggesting that the evidence against the spanning hypothesis is substantially less convincing than would appear from the studies.

Hoggarth, Jung, Reinhardt, 07 July 2017, 8950 reads

Partly as a result of the Global Crisis, assessments of capital inflows and their impact on market efficiency and technology transfer have begun to take into account their association with financial crises. This column argues that the riskiness of inflows depends on the type of lender and its currency denomination. It finds that equity flows are more stable than debt flows, non-banks more stable than banks, and local currency more stable than foreign. Macroprudential policies can support the stabilisation of inflows.

Barba Navaretti, Calzolari, Pozzolo, 06 July 2017, 6577 reads

There is a growing awareness that non-performing loans generate risks of financial instability and constrain lending growth, and that coordinated action to solve the problem in Europe is both necessary and achievable. This column discusses proposals for state-supported vehicles, such as asset management companies, put forward by the main international organisations and prominent scholars to deal with the large backlog of non-performing loans. Part of this backlog will be resolved through market-based solutions, but due to market failures and capital shortages of critical banks, state-supported schemes are also deemed necessary.

Evenett, Fritz, 06 July 2017, 7447 reads

The year to date has seen profound changes in G20 protectionist dynamics.This column presents the lastest Global Trade Report, which asks whether President Trump’s bluster has accomplished what the G20 failed to deliver – namely, less protectionism.

Morikawa, 06 July 2017, 9726 reads

Given the early stages of diffusion of many AI and robotic technologies, it is too early to measure the impact of these innovations on jobs. This column uses comprehensive survey data from Japan to measure the extent to which workers across different industries, levels of education, and occupations perceive their jobs to be at risk. Workers with adaptable skills acquired through higher education (particularly in science and engineering) or occupation-specific skills (particularly those in human-intensive personal services) are less worried about their jobs being replaced by AI and robotics.

Demirgüç-Kunt, Horváth, Huizinga, 06 July 2017, 5474 reads

Monetary policies pursued by lending countries may have negative spillovers for financial stability in emerging markets, because monetary policy is transmitted through its effect on the aggregate supply of cross-border loans. This column uses data on the international syndicated loan market to argue that foreign bank ownership in a borrower country reduces the negative impact of lender-country monetary policy on cross-border syndicated loan supply. This suggests that countries could stabilise their cross-border credit supply by reducing restrictions on foreign bank entry into local markets.

Broadberry, Wallis, 05 July 2017, 7699 reads

Most analysis of long-run economic performance abstracts from short-run fluctuations and seeks to explain improved performance through an increase in the rate of growth. Using data on annual rates of change of per capita income reaching back to the 13th century for some countries, this column show that improved long-run performance has actually occurred primarily through a decline in the rate and frequency of shrinking. Structural change, technological change, demographic change and the changing incidence of warfare offer at best a partial explanation; a full understanding requires a consideration of institutional change.

Acemoğlu, Akcigit, Hanley, Kerr, 05 July 2017, 12375 reads

Substantial headway has been made in the transition to clean technology, but recent political developments threaten this progress. This column examines the transition process using a microeconomic model of competition in production and innovation between clean and dirty technologies. The results suggest that production taxes can deal with dirty emission externalities, while research subsidies are sufficient to redirect innovation towards clean technologies. However, delaying intervention will drastically slow down the overall transition.

Bisin, Verdier, 04 July 2017, 8896 reads

The recent literature has assumed that institutions and culture are distinct drivers of growth and development. Building on a new theoretical model, this column argues that culture and institutions interact to determine socioeconomic outcomes. The framework can be used to explain the persistence (or otherwise) of extractive institutions, the formation of civic capital, and the emergence of property rights protection.

Beck, 04 July 2017, 7697 reads

The recent resolutions of the Spanish Banco Popular and of two smaller Italian banks – Veneto Vanca and Banca Popolare di Vicenza – can be seen as a first important test for the banking union. This column assesses the progress made over the past three years. It argues that a ‘never bailout’ rule is inefficient, especially if referring to legacy problems; that a crisis should be resolved before a new regulatory framework is put in place; that to avoid national solutions, we need to go to a complete banking union; and finally, that the process will take some time, and new institutions and regulations are only a small step.

Rodrik, 03 July 2017, 51105 reads

Populism has been on the rise for quite some time, and it is doubtful that it will be going away. This column argues that the populist backlash to globalisation should not have come as a surprise, in light of economic history and economic theory. While the backlash may have been predictable, however, the specific forms it took were less so, and are related to the forms in which globalisation shocks make themselves felt in society.

Morikawa, 03 July 2017, 4493 reads

Occupational licensing is a common solution to the information asymmetry that exists in many professions and services. Using original survey data from Japan, this column examines how occupational licensing affects labour participation and wages. A majority of respondents are found to possess occupational licenses, and licensing is positively associated with labour force participation, particularly amongst women and the elderly.

Hammar, Waldenström, 03 July 2017, 14775 reads

Recent studies have analysed trends in global income inequality, but for most people in the world, labour earnings represent the vast majority of their income. This column uses a new global database on occupational earnings since 1970 to examine trends in earnings inequality between countries’ high- and low- earners, between countries, and between occupational groups. Global earnings inequality has fallen over the past half-century, and so has inequality within occupations, with main equalisation in the late 1990s and 2000s.

Johannesen, Stolper, 02 July 2017, 7570 reads

Whistleblowing should improve immoral behaviour beyond the perpetrators exposed, according to standard economic theories of crime, but this has not always been the case. This column uses the example of offshore banking to examine whether whistleblowing successfully deters future immoral or criminal behaviour. Based on the evidence of the first whistleblowing event relating to tax evasion in 2008, an increase in the perceived probability of a leak should be expected to deter the demand and supply of criminal offshore banking services and reduce the earnings of offshore banks.

Thorbecke, Kato, 01 July 2017, 6847 reads

Since 2007, there have been large changes in the Swiss franc. This column shows that exchange-rate appreciations do not affect the exports, profits, or stock returns of Swiss companies making sophisticated products. In contrast, rises in the franc decrease the exports, profits and stock returns of firms producing medium-high-technology goods. An economy’s production structure is important for weathering exchange-rate fluctuations.

Clark, Pinkovskiy, Sala-i-Martin, 01 July 2017, 14031 reads

Unofficial indicators of Chinese GDP often suggest that Beijing’s growth figures are exaggerated. This column uses nighttime light as a proxy to estimate Chinese GDP growth. Since 2012, the authors’ estimate is never appreciably lower, and is in many years higher, than the GDP growth rate reported in the official statistics. While not ruling out the risk of future turmoil, the analysis presents few immediate indications that Chinese growth is being systematically overestimated.