December 2008

Saint-Paul, 24 December 2008

This column surveys evidence describing the brain drain from Europe to the US. Europeans living in the US are exceptional – they are more educated, earn higher wages, are more likely to be employed, and more entrepreneurial than their American or European counterparts. Europe's growth prospects may be dramatically reduced by its best and brightest living in the US.

Debaere, Lee , Lee, 24 December 2008

Do firms reduce their domestic employment when they establish operations abroad? Evidence from South Korean firms suggests that the impact varies by destination and operation. This column shows that concerns about investment in developing countries slowing employment growth at home may have empirical support.

Frankel, 24 December 2008

Trade among euro members has increased 10-15% since the introduction of the euro, a far smaller effect than estimated prior to the currency's introduction. What explains the discrepancy between the European experience and previous history? This column explores the difficulty of explaining the difference.

Buti, Gaspar, 24 December 2008

This column looks back at the first ten years of the euro, from the uncertainty surrounding its adoption to the one caused by the current crisis. In between, the euro proved a resounding success. It is worth remembering the magnitude of the original challenge in order to use the crisis as an opportunity to strengthen European governance.

Editors, 24 December 2008

Team Vox thanks the 5.2 million visitors who have stopped by since Vox started in June 2007, viewing 15.2 million pages. We wish you all a healthful and restful holiday break. Vox will start posting again on 2 January 2009.

Debraggio, Rouse , Barrow, 23 December 2008

This column shows that randomised computer-aided instruction in mathematics increased student achievement and that the effect is larger for students in large, heterogeneous classes. Also, the costs of maintaining a computer-aided instruction lab are equivalent to those associated with reducing class sizes.

Alexopoulos, Cohen, 23 December 2008

This column claims that uncertainty shocks affect on economic activity with remarkable swiftness, strength, and durability. Capturing expectations of average citizens in Main Street through the use of keywords in main newspapers, it indicates a modest decline of uncertainty since October 2008, suggesting that the worst may be behind us.

Freixas, Parigi, 22 December 2008

This column argues that the financial crisis of 2007 and 2008 redefines the functions of the lender of last resort, placing it at the intersection of monetary policy, supervision and regulation of the banking industry, and the organisation of the interbank market.

Gros, 21 December 2008

Most countries need a fiscal stimulus, but how should it be implemented? This column assesses fiscal policy's potential to increase demand and argues that any meaningful boost must come from transfers to the private sector, not infrastructure investments. Tax cuts will be most effective in countries where households are net borrowers.

Blau, Kahn, Papps, 20 December 2008

This column shows that female immigrants’ labour supply reflects female labour supply in their country of origin. As more immigrant women arrive from countries with more traditional gender norms, the US female labour force participation rate may fall.

Rodrik, 19 December 2008

Dani Rodrik of the Harvard Kennedy School talks to Romesh Vaitilingam about the role of institutions in economic development. They discuss the use of ‘growth diagnostics’ to identify the binding constraints on economic activity and hence the priorities for policy and institutional reform, drawing on Rodrik’s experiences applying the framework to South Africa. The interview was recorded at the American Economic Association meetings in New Orleans in January 2008.

Bouckaert, van Dijk, Verboven, 19 December 2008

Most governments in Europe are interested in boosting broadband penetration. This column presents new evidence on how various forms of market structure affect penetration ratios. It turns out that inter-platform competition (e.g. DSL vs cable) promotes broadband penetration while intra-platform competition doesn’t.

Alexandre, Cardoso, Portela, Sá, 18 December 2008

Shortening the first cycle in higher education studies is one of the most controversial aspects of the Bologna reforms. Recent research suggests students are voting-with-their-feet in support of this reform as study programs adopting the Bologna principles have seen a rise in demand.

Francois, 17 December 2008

The worry about protectionism should not be centred on completing the Doha Round. This column suggests 80% of world trade is locked-in under legally binding tariffs and the real worry is that of excessive use of antidumping, countervailing duty, and safeguard protection, misguided public subsidies, rising protection in the poorest countries, and temptation in the US Congress to violate existing treaty commitments.

Sinn, 17 December 2008

This column says the core of the crisis lies in the legal provisions of limited liability. Europe and the world need stricter rules for financial traffic which are vital for the functioning of the financial capital markets.

Aidt, Gassebner, 16 December 2008

Are autocracies less integrated in the world economy than democracies? This column provides an overview of recent research on this question and argues that autocratic states trade less with the rest of the world than democracies. This may be one reason why many autocracies have failed to develop economically.

Qian, 15 December 2008

Respect for human rights is gaining in importance in international agreements, but who is to judge human rights performance? This column discusses new evidence that suggests national governments are not good judges. It draws on evidence from the US, which has long tied trade preferences to human rights performance, which shows the US government systematically under-reported human rights violations by Cold War allies.

Putterman, Weil, 14 December 2008

Inequality within countries is explained by the past history of populations more than by ethno-linguistic differences and linguistic distance. This column suggests what matters is the history of the people who live in a country today, more than the history of the country itself.

Baldwin, Evenett, 13 December 2008

Announcement that the WTO talks will not be put back on track this year – despite the G20’s November 15th commitment to do so – is the first concrete demonstration of the G20’s ineffectiveness. This column argues that the G20 should undertake a “Plan B” on world trade to restore G20 creditability and shore-up support for the WTO.

Putterman, Weil, 13 December 2008

This column introduces a five century migration matrix indicating the 1500 countries of residence of ancestors of each country’s current population. The power of regional origins is illustrated by the fact that 44% of the variance in 2000 per capita GDPs is accounted for by the share of the population’s ancestors that lived in Europe in 1500.

Evenett, 12 December 2008

Simon Evenett of the University of St Gallen talks to Romesh Vaitilingam about the latest e-book in Vox’s ‘What leaders should do in the crisis’ series, focusing particularly on the prospects for completing the Doha Round of world trade negotiations in the light of the economic crisis. The interview was recorded on Tuesday 9 December 2008.

Milesi-Ferretti, 12 December 2008

This column argues that the current combination of a weak dollar and a large current account deficit is primarily explained by long lags in the relation between US external accounts and the real effective exchange rate, high oil prices, as well as the "return differential” between US holdings of assets overseas and foreign holdings of US assets. An unwinding of the recent dollar appreciation to the level reached by the U.S. currency over the summer of 2008 could be consistent with a significant reduction in the US current account deficit over the next few years.

Freytag, Pehnelt, 11 December 2008

In a future phase of the crisis, the issue of sovereign debt relief is likely to arise. Such debt relief has historically been marked by political failure and short-term thinking, and not delivered promising results. Drawing on recent research, this column argues for tying debt relief to good governance goals is one way to improve the outcome.

Calvo, Loo-Kung, 10 December 2008

Emerging markets are weaker than the G7, and if they undertake expansionary monetary and fiscal policies like the G7, inflation and capital flight are likely surge. This column argues international financial institutions must take an unprecedented role in bailing out emerging markets as there is the serious risk that they resort to protectionism and nationalisation.

Martin, 10 December 2008

The current crisis offers an opportunity to set the world on the right track for addressing climate change. This column suggests governments should seize this chance to promote pro-environment fiscal stimuli and to embrace future pollution taxes to pay for them.

Huizinga, Laeven, 09 December 2008

It is unfortunate and economically costly if taxation rather than the availability of skilled labour or the quality of infrastructure determine the headquarter location decisions of multinational firms. This column suggests countries would do well to eliminate their international double taxation of foreign source income collectively by, for instance, EU-wide tax reform.

Cabrales, Dolado, García-Montalvo, 08 December 2008

Spain is in the throes of its deepest economic slump since the early eighties. Its economy suffers from weak productivity and is reliant on cheap credit. Its “dead” housing sector needs to shrink, but housing subsidies and a highly regulated labour market impede adjustment. This column proposes a series of reforms to improve the Spanish economy.

Reisen, 06 December 2008

The global credit crisis is testing the resilience and sustainability of emerging markets’ policies, this column warns. Even strong performers are not shielded against pure financial contagion, although they may well recover quickly once confidence is restored. In the future, development finance is likely to rely less on private debt.

Véron, Röller, 06 December 2008

European security concerns about foreign investment have produced opaque and inconsistent responses by national governments. This column makes the case for establishing a EU authority to address the issue in an open, comprehensive and sustainable manner rather than allowing the proliferation of disparate national regulatory initiatives. The openness of the EU investment environment is at stake.

Bosetti, Carraro, Sgobbi, Tavoni, 06 December 2008

Policymakers need to agree to the post-Kyoto climate architecture soon to implement it in 2012. Using a set of quantitative indicators, this column assesses a number of proposed international climate policy architectures and evaluates their economic efficiency, environmental effectiveness, distributional implications, and enforceability. Unfortunately, the most effective policies are the most costly and hardest to enforce.

Goodhart, 05 December 2008

Credit rating agencies were at the heart of the rise of securitisation, and securitised assets were at the heart of the Subprime problems. Plainly these agencies are slated for major reforms. This column presents the statement of an eminent group of financial economists on such reform.

Kotchen, Grant, 05 December 2008

Daylight saving time, designed for energy conservation purposes, is among the most widespread regulations on the planet. Surprisingly little evidence exists that it actually saves energy. This column, using a natural experiment, concludes that “saving” daylight has cost electricity.

Combes, Lafourcade, Thisse, Toutain, 05 December 2008

This column traces the economic evolution of France’s regions over the last 140 years to test the predictions of new economy geography. Both manufacturing and services experienced a bell-shaped curve of spatial development, in which spatial concentration initially increased and then decreased. While transport costs played a key role, positive spillovers are an increasingly important source of agglomeration gains.

Milgrom, 05 December 2008

Paul Milgrom of Stanford University talks to Romesh Vaitilingam about the application of auction theory, focusing particularly on the world’s most frequently used auction – the sponsored-search auction employed by many internet search engines. The interview was recorded at the annual congress of the European Economic Association in Budapest in August 2007.

La Ferrara, 05 December 2008

Eliana La Ferrara of Bocconi University talks to Romesh Vaitilingam about her research on the causes and consequences of conflict within countries, particularly in sub-Saharan Africa. The interview was recorded at the annual congress of the European Economic Association in Milan in August 2008.

Baldwin, Evenett, 04 December 2008 has just published another Ebook in our “What leaders should do in the Crisis” series; this one focuses on trade. Unless world leaders strengthen trade cooperation, new tariffs and competitive devaluations could trigger a protectionist spiral of WTO-consistent trade barriers. To rule this out, world leaders should: 1) Reduce protectionist pressures by fighting the recession with macroeconomic polices; 2) Translate APEC and G20 leaders’ words into deeds by agreeing a framework for concluding the Doha Round; and 3) Establish a real-time WTO/IMF surveillance mechanism to track new protection.

Eijffinger, 04 December 2008

This column introduces the newest Policy Insight on what the EU has been doing and should be doing in terms of managing the global crisis.

Bertola, Lo Prete, 03 December 2008

Globalisation seemingly erodes governments’ ability to redistribute wealth. This column presents new evidence of the tradeoff between integration and redistribution, showing that financial development has filled in where government has receded. The current crisis may pose political challenges to both financial development and economic integration.

Cohen, Razin, 02 December 2008

Do generous welfare states attract less-skilled immigrants? This column says yes, arguing that previous studies, which yielded mixed answers, failed to distinguish between open immigration regimes and those restricting immigration on the basis of skills. Welfare state generosity is found to have a negative effect on the skill composition of immigrants under the free migration regime.

Goldberg, Khandelwal, Pavcnik, 01 December 2008

One quarter of India’s manufacturing output growth during the 1990s stemmed from products that were not manufactured prior to the reforms. This column shows that this expansion of new products was driven in large part by access of Indian firms to previously unavailable imported inputs. Access to new imported intermediates therefore played an important role in the overall growth of the Indian economy.

Chinn, Wei, 01 December 2008

This column examines whether the pace at which a country’s current account balance adjusts to its average value depends upon the exchange rate regime. The benefits of exchange rate flexibility for current account adjustment are found to be greatly exaggerated. By some measures, a fixed exchange rate facilitates faster adjustment.


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