The economic consequences of Covid-19 are often compared to a war, prompting fears of rising inflation and high bond yields. However, historically, pandemics and wars have had diverging effects. This column uses data extending to the 1300s to compare inflation and government bond yield behaviour in the aftermath of the world’s 12 largest wars and pandemics. It shows that both inflation and bond yields typically rise in wartime but remain relatively stable during pandemics. Although every such event is unique, history suggests high inflation and bond yields are not a natural consequence of pandemics.
COVID-19 has not only impacted inequality, it has also affected preferences for inequality. This column examines inequality aversion in Italy, Germany, and the UK. Surveys taken during the early stages of the pandemic higher aversion to income inequality than to health inequality in all three countries, consistent with the findings of other studies conducted before COVID-19. Focusing on the UK, it also finds that people have become more averse to inequality since the onset of the pandemic, especially when it comes to health. This effect is stronger among those not directly affected by the COVID-19 pandemic.
Under the African Growth and Opportunity Act in 2001, the US allowed duty-free entry of apparel products from eligible African countries. However, the end of the Multi-Fiber Arrangement in 2005 re-exposed African countries to significant international competition from Asia. This column finds that countries in Southern Africa and firms in Kenya that boomed during the period of high initial trade preferences went bust when the Multi-Fiber Arrangement expired. Subsequent growth was driven by new countries, notably Ethiopia, and by new firms in Kenya. These results are consistent with the complementary role of domestic reforms rather than the ‘infant industry’ benefits of trade preferences alone.
Whether or not large bilateral trade imbalances are a signal of non-reciprocal (or ‘unfair’) trade costs has been the subject of debate for some time, and was brought to the fore during President Trump’s time in office. This column argues that if the trading partners’ average trade costs with the whole of the world are taken into account, then the ‘unfair trade’ argument does not hold up. Using standard gravity modeling, the authors find that up to 88% of the variance in bilateral balances can be explained without making any reference to asymmetries in bilateral trade costs.
Latin America and the Caribbean suffered from several regional preconditions in advance of the Covid-19 crisis, including weak health infrastructure, low growth, and inefficient taxation. Now the pandemic threatens to leave the region with even higher poverty levels, greater inequality, and debts across virtually all countries. This column recognises the severity of these challenges but also provides reason to hope. If Covid-19 produces the political will to move the region towards better policy frameworks and execution, something positive could come of the crisis.
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