The global market size of outsourcing doubled between 2000 and 2019. While most studies look at foreign outsourcing, this column uses new data on Indian firms to analyse the effects of increased competition from Chinese imports on the domestic outsourcing of manufacturing jobs. It finds that greater import competition is associated with a significant increase in domestic outsourcing. Additionally, it shows that this effect is only present in Indian states with pro-worker labour regulations. Thus, it highlights the important role of domestic institutions in how firms adapt to globalisation.
In many countries, children from families with lower socioeconomic status are less likely than those from higher socioeconomic status families to attend early childcare programmes. This column presents findings from a field experiment in Germany demonstrating that disadvantaged families have difficulties navigating the complex childcare application process, and providing information and personal assistance for applications can substantially reduce the socioeconomic gap in early childcare enrolment. To promote educational equality, policymakers should alleviate behavioural barriers to childcare and other formally non-selective social programmes.
During the COVID-19 pandemic, the debate on monetary financing has been reignited and several economists have called for governments to borrow from their central banks to finance larger deficits. This column looks to sub-Saharan Africa, a region where ‘fiscal dominance’ has long been widespread, for useful insights into this debate. It finds that central bank financing of government does have an inflationary impact through the exchange rate channel. Numerical legal limits on central bank financing can be an effective way to mitigate the risks, even if they are not always binding.
There is little consensus about the impact that the Western colonialism had on China’s economy. This column revisits a period that saw China end centuries of relative isolation and open dozens of ‘treaty ports’ to Western traders, which shifted the focus of capital markets from inland areas to the coast. Western influence also increased the number of banks, firm investment, as well as the adoption of steam engines and industrial machinery, and significantly lowered local interest rates.
One of the concerns in the debate on climate change is whether financial flows contribute to the reduction of emissions. This column looks at the role bond market-based and bank-based debt plays in the allocation of resources to fossil fuel in the context of the risk of stranded assets. The authors show that banks continue to provide financing to fossil fuel firms that the bond market would not finance as long as they do not price the risk of stranded assets. In this setting, stranded assets risks may have shifted to large banks.
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