Emerging markets face their fifth consecutive year of slowing growth. This column examines the nature of the slowdown and appropriate policy responses. Repeated downgrades in long-term growth expectations suggest that the slowdown might not be simply a pause, but the beginning of an era of weak growth for emerging markets. The countries concerned urgently need to put in place policies to address their cyclical and structural challenges and promote growth.
M Ayhan Kose, Franziska Ohnsorge, Lei (Sandy) Ye, 07 January 2016
Andrew Berg, Andrea Presbitero , Luis-Felipe Zanna, 05 January 2016
Recent policy recommendations suggest that the output growth ‘bang’ for each additional ‘buck’ of public investment depends on the efficiency of public investment spending. This column argues that high-efficiency and low-efficiency countries may have similar growth impacts from additional public investment spending. This is because efficiency and scarcity of public capital are likely to be inversely related across countries. Efficiency and the rate of return need to be considered together in assessing the impact of increases in investment.
Mariacristina De Nardi, Giulio Fella, Fang Yang, 22 December 2015
Thomas Piketty’s "Capital in the Twenty-First Century" quantified the evolution of wealth inequality and concentration over time and across a number of countries. This column examines existing macroeconomic models of wealth inequality through the lenses of the facts and ideas in Piketty’s book. It further examines the importance of the mechanism that Piketty champions – post-tax rate of return on capital. Gaps in existing knowledge and directions for future research are identified.
Marco Buti, Vitor Gaspar, 10 December 2015
Designing fiscal policy for today’s complex and uncertain economic climate is a problem that perplexes governments worldwide. This column proposes a solution – a new fiscal architecture with strengthened but budget-neutral automatic stabilisers. It won’t be easy, but overcoming predominantly political challenges will help foster steady and enduring growth.
Peter van Bergeijk, 07 December 2015
The analysis and forecasts of the IMF are well covered in the press. This column deals with a less noted development in the data provided by the IMF, namely the nominal decrease in Gross Planet Product. Since the IMF forecast both positive growth and positive inflation, the nominal shrinkage of GPP puts into question the consistency of the IMF World Economic Outlook data and forecasts.
Kevin Daly, Tim Munday, 28 November 2015
The fallout from the Global Crisis and its aftermath has been deeply damaging for European output. This column uses a growth accounting framework to explore the pre-Crisis and post-Crisis growth dynamics of several European countries. The weakness of post-Crisis real GDP in the Eurozone manifested itself in a decline in employment and average hours worked. However, decomposing growth for the Eurozone as a whole conceals significant differences across European countries, in both real GDP growth and its factor inputs.
Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, 27 November 2015
Economists often disagree on China’s prospects. This column provides the results from a survey of top UK-based macroeconomists by the Centre for Macroeconomics (CFM). It turns out that three quarters of the experts believe that China’s annual growth rate will be less than 6% over the next ten years or so. But the panel is divided on whether the slowdown will have a significant impact on the UK economy.
Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Pozzolo, 18 November 2015
Small and medium-sized enterprises are supposed to be the key to growth, everywhere. These enterprises are risky, and when they are so important to the well-being of an economy, someone must bear the risk of funding them. This column argues that there is a real need for policymakers to focus on how we finance SMEs, as getting the institutions and structures right can pay dividends in the long run.
Carlo Favero, Vincenzo Galasso, 18 October 2015
Demographic trends in Europe do not support empirically the secular stagnation hypothesis. Our evidence shows that the age structure of population generates less long-term growth but positive real rates. Policies for growth become very important. We assess the relevance of the demographic structure for the choice between macro adjustements and structural reforms. We show that middle aged and elderly individuals have a more negative view of reforms, competitiveness and globalization than young. Our results suggest that older countries -- in terms of share of elderly people -- should lean more towards macroeconomic adjustments, whereas younger nations will be more supportive of structural reforms.
Anton Cheremukhin, Mikhail Golosov, Sergei Guriev, Aleh Tsyvinski, 02 September 2015
Economists tend to focus on reforms that came after 1979 when explaining China’s soaring economic growth. This column argues that they shouldn’t. Mao’s policies also had a huge effect and should not be ignored. Economists and policymakers would do well to look further back in history. A long-term perspective might also help them bust a few myths along the way.
Chun Chang, Kaiji Chen, Daniel Waggoner, Tao Zha, 01 August 2015
China’s spectacular growth over the 2000s has slowed since 2013. The driving force behind the country’s growth was investment, so the key to understanding the slowdown lies in understanding what sustained investment in the past. This column shows how a preferential credit policy promoting heavy industrialisation explains the trends and cycles in China’s macroeconomy over the past two decades. This policy was not without negative consequences, particularly in terms of the distortions it introduced for business finance. Going forward, China needs to focus on creating the right incentives for banks to make loans to small productive businesses.
Jaume Ventura, Joachim Voth, 27 July 2015
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.
Uri Dadush, 13 March 2015
Manufacturing is often seen as the key to sustainable export and productivity growth in developing countries. This column argues that, while manufacturing played a key role in some countries’ development, high growth can be sustained without relying primarily on manufacturing. A process of learning, productivity improvement, and investment that touches all sectors characterises the most successful economies. Policies that artificially favour manufacturing should instead give way to maximising learning from the frontier in all sectors of the economy.
Alan Auerbach, Kevin Hassett, 03 March 2015
Piketty's justification for his proposed wealth tax relies on the notion that the rate of return on capital exceeds economic growth. This column challenges this basis, arguing that it fails to account for risk. The authors also examine the relative merits of a consumption tax, which may be more valid.
Jan van Ours, 27 February 2015
The Great Recession has been characterised by an unprecedented decline in GDP, and unemployment rates remain above pre-Great Recession levels in many countries. This column argues that economic growth is a ‘one size fits all’ solution for the problem of unemployment, because the unemployment rates of different kinds of workers are strongly correlated within countries. That said, economic growth affects above all the position of young workers, and so benefits mostly those who need it the most.
Jason Furman, 20 February 2015
The US economy has strengthened considerably in recent years, presenting an opportunity to address the 40-year stagnation in incomes for the middle class. This column provides historical and international context for the key factors affecting middle-class incomes: productivity growth, labour force participation, and income inequality. It also outlines President Obama’s approach to economic policies – what he terms “middle-class economics” – which is designed to improve all three.
Michael Huberman, Christopher Meissner, Kim Oosterlinck, 06 February 2015
Understanding the relationship between trade and growth is still at the core of the economics profession. This column seeks to identify the pathways by which globalisation affects economic growth looking at the case of Belgium in the decades preceding the First World War. It argues that the collapse in fixed export costs promoted the entry of uncompetitive firms into export markets and as the trade component of GDP rose, the share of high performing firms contracted, slowing growth.
Stephen Terry, 17 January 2015
For over a century, economists have expressed concerns with short-termism. In particular, long-term growth and investment could be sacrificed for the sake of short-term profit targets. This column examines short-termism using US firm level data on R&D and earnings targets. The author develops a macroeconomic model of long-term growth with short-term manager incentives. Managers appear to manipulate R&D to meet profit targets. The theoretical analysis suggests that such short-termism leads to 1% lower firm value together with around 0.1% lower long-term growth for the economy each year.
Enrico Minelli, 19 December 2014
Growth and inequality are back at the centre of the economic debate. This column presents a framework for interpreting Thomas Piketty’s data based on Paul Romer’s model of endogenous growth. Two balanced growth regimes are possible in this framework: one (‘merit’) with a low capital–output ratio, a high interest rate, and high growth; and another (‘rent’) with a higher capital–output ratio, a somewhat lower interest rate, and much lower growth. An increase in the returns to physical capital accumulation compared to innovation could explain a shift from ‘merit’ to ‘rent’.
Brian Pinto, 17 December 2014
Since the Global Crisis, concerns have grown that advanced economies are suffering from secular stagnation. This column discusses the lessons that can be learnt from the economic transition of central and eastern Europe and the emerging-market crises of the late 1990s and early 2000s. Structural reform is particularly costly in the context of a debt overhang and an overvalued exchange rate. However, the crux is not debt restructuring per se, but whether economic governance changes credibly for the better following it.