Economic history

Andrés Rodríguez-Pose, Marko Stermšek, 21 November 2014

One frequently used argument in favour of secession is that there are economic benefits from independence. However, whether or not this is the case remains largely unexplored. This column addresses this question by examining the economic implications of secession in the case of the former Yugoslavia. The authors find that independence had no favourable economic impact. The way secession was achieved, however, mattered. Whereas secession without real conflict did not leave any noticeable economic impact, violent secession has, by contrast, led to a significant destruction of wealth. 

Hiau Looi Kee, 21 November 2014

The conventional thinking about foreign direct investment is that it may create jobs but also take away market opportunities from domestic firms. This column suggests another spillover to consider. If foreign firms require higher quality inputs, domestic firms who share suppliers with foreign firms gain access to better local inputs. It then argues that this spillover effect can explain a third of the productivity gains within Bangladeshi firms during 1999-2003.

Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, 21 November 2014

Would the economic benefits of devolving full income tax powers to the Scottish Parliament and Welsh Assembly outweigh the costs? Not according to an overwhelming majority of respondents to the monthly survey of the Centre for Macroeconomics (CFM), summarised in this column. A smaller majority of CFM experts do not accept the economic case for establishing 'English votes for English laws' with the same tax and spending powers as the Scottish Parliament.

Rui Cartaxo Mano, Tarek Hassan, 20 November 2014

A common view in international finance is that currency trades make money because high-interest-rate currencies tend to appreciate. This column argues that this view is flawed, suggesting that currency risk premia may be much simpler than previously thought. The carry trade has little to do with the appreciation of the currency, but instead exploits persistent differentials in interest rates across countries. It is thus important to understand why some currencies have persistently higher interest rates than others.

Victor Lavy, Avraham Ebenstein, Sefi Roth, 20 November 2014

Admission to higher education often depends on the results of high-stakes tests, but assessing the consequences of having a ‘bad day’ on such tests is challenging. This column provides evidence from a dataset on Israeli high-school students. Random variations in pollution have measurable effects on exam performance, and these in turn have significant effects on students’ future educational and labour-market outcomes. The authors argue that placing too much weight on high-stakes exams may not be consistent with meritocratic principles.

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