December 2017

Baldwin, 24 December 2017, 6648 reads

Team Vox wishes to thanks all its readers and contributors for making 2017 another great year for the site. Vox will post no new columns between 25 December 2017 and 2 January 2018. 

De Haas, Ferreira, Kirchmaier, 24 December 2017, 9285 reads

How boards perform their dual role of supervisor and advisor of corporate management is difficult to observe from outside of the company. This column presents a survey of non-executive directors in various emerging markets which reveals substantial variation in the structure and conduct of boards as well as in directors’ perceptions about the local legal environment. Directors who feel adequately empowered by local legislation appear less likely to vote against board proposals, and also form boards that play a stronger role in the company’s strategic decision making. 

Bell, Chetty, Jaravel, Petkova, Van Reenen, 24 December 2017, 14937 reads

Relatively little is known about the factors that induce people to become inventors. Using data on the lives of over one million inventors in the US, this column sheds light on what policies can be most effective in increasing innovation. In particular, it shows that increasing exposure to innovation among women, minorities, and children from low-income families may have greater potential to spark innovation and growth than traditional approaches such as reducing tax rates.

Cagé, 23 December 2017, 6074 reads

Conventional wisdom holds that more media competition makes citizens more informed, and that it improves the functioning of democracies. This column tests this claim using data on local newspaper circulation in France. It finds that increased media competition leads to business stealing and to a decrease in the coverage of public affairs news by local newspapers. It also has a negative impact on local election turnout. While competition is key to the quality of the media environment, the results highlight that more media competition is not necessarily socially efficient.

Bazzi, Fiszbein, Gebresilasse, 23 December 2017, 8401 reads

More Americans than Europeans oppose redistribution and government intervention in areas such as healthcare, gun control, the minimum wage, and pollution control. This column argues that the longstanding American culture of 'rugged individualism' is rooted in the history of the frontier. Even accounting for individual-level support for the Republican Party, areas in the US with greater historical frontier experience still exhibit greater opposition to redistribution and government regulation today.

Aghion, Akcigit, Hyytinen, Toivanen, 23 December 2017, 13570 reads

Innovation is a crucial element of modern societies, but who becomes an inventor? This column shows that parental income affects the probability of someone becoming an inventor, but that this impact is greatly diminished once parents’ socioeconomic status, parents’ education, and the individual's IQ are controlled for. Overall, the results suggest a prominent role for parental education and for IQ in explaining an individual’s probability of inventing.

Avdjiev, Bogdanova, Bolton, Jiang, Kartasheva, 22 December 2017, 5399 reads

The promise of contingent convertible capital securities as a bail-in solution has been the subject of considerable theoretical analysis and debate, but little is known about their effects in practice. This column reviews the results of the first comprehensive empirical analysis of bank CoCo issues. Among other things, it finds that the propensity to issue a CoCo is higher for larger and better-capitalised banks, and that their issue result in statistically significant declines in issuers' CDS spreads, indicating that they generate risk-reduction benefits and lower the costs of debt.

Lin, Morck, Yeung, Zhao, 22 December 2017, 7152 reads

Chinese stocks rose sharply overall on news of President’s Xi’s 2012 policy cracking down on corruption, but non-state-owned enterprises in the country’s least liberalised provinces actually lost value. This column argues that China has taught the world something interesting – that prior market liberalisation makes anticorruption reforms more valuable. Once market forces are activated, bribe-hungry officials no longer grease the wheels but instead become pests and invite eradication.

Hengel, 22 December 2017, 29102 reads

When evaluated by narrowly defined quality measures, women are often found to outperform men. This column uses an analysis of almost 10,000 articles in top economics journals to show that one area where this is the case is clarity of writing. Tougher editorial standards and/or biased referee assignment may force women to write better, and may also reduce their productivity.

den Haan, Ellison, Ilzetzki, McMahon, Reis, 21 December 2017, 8614 reads

Cryptocurrencies have been a staple of news headlines in 2017. The latest Centre for Macroeconomics and CEPR survey suggests that the majority of leading European economists do not believe that these currencies are currently a threat to the stability of the financial system, or will be in the next couple of years. A majority of panel members, however, are in favour of greater regulatory oversight, primarily because of concerns that the anonymity and opacity of cryptocurrencies facilitate tax evasion and other criminal activities.

Brandao-Marques, Gelos, 21 December 2017, 5410 reads

Some have speculated that the rise in nonbank financing has weakened the transmission mechanism of monetary policy. This column used international data to investigate this claim. Overall, the evidence suggests that nonbanks tend to respond more strongly to monetary policy than banks. Although monetary policy remains potent in an environment with more nonbank intermediation, it will need to continuously adapt to changes in the transmission mechanism.

Bredtmann, Otten, Rulff, 21 December 2017, 5103 reads

Little is known about how unemployment shocks are absorbed within the household. This column uses longitudinal micro data for 28 European countries to investigate the effect of husbands’ job loss on wives’ labour supply. Overall, there is evidence that women increase their labour supply in response to their husband losing a job. However, the response varies over both the business cycle and across different welfare regimes.

Farhi, Maggiori, 20 December 2017, 17314 reads

The US has been leveraging itself in recent decades, piling up public and external debt – a trend that could jeopardise the special position the dollar occupies in the international monetary system. This column argues that the US is risking another ‘Triffin’ event, in the form of a confidence crisis and a run on the dollar. The current situation echoes that of the UK in the 1920s and the US in the 1960s. The crises that ended both episodes marked dramatic turning points in the history of the international monetary system.

Chen, Los, McCann, Ortega-Argiles , Thissen, van Oort, 19 December 2017, 7468 reads

Analyses of the impact of various types of Brexit at the national level hide a lot of regional economic heterogeneity. This column deploys a new interregional dataset to quantify the shares of regional labour income that are exposed to the implications of Brexit for trade, taking into account the indirect effects of supply chain relations. The results show that much more is at stake for UK regions than for the rest of the EU, with the exception of Ireland.

Sanchez de la Sierra, 19 December 2017, 6601 reads

We have theories of why states form, but until now no systematic data on the process. This column uses a new dataset on 650 locations in the Democratic Republic of the Congo to explain why armed actors may create the functions of a state. When a village's output was valuable but could not easily be taxed, armed actors developed sophisticated fiscal and legal administrations to extract revenue. Household welfare improved only when these stationary bandits had ties to the population.

Baldwin, Vihriälä, 19 December 2017, 14409 reads

Despite the setbacks globalisation has faced in recent years from reactionary politics, the advent of artificial intelligence and robotisation are set to ensure its continuation. Domestic policy must therefore be designed in such a way as to reap the rewards of globalisation while avoiding its pitfalls. This column uses the case of Finland to show how this can be done. Finland has grown faster than its peers over two waves of globalisation, despite enduring substantial setbacks. In both its successes and challenges, it is an important example of the need for deliberate policies to prepare for future disruptions.

Blundell, Pistaferri, Saporta Eksten, 18 December 2017, 4166 reads

Households can insure their living standards against shocks to wages or employment through the allocation of goods and time. This column presents a model for couples’ decisions on how much to consume or save and how to allocate their available time to three activities – work, leisure, and the care of children – and uses the model to simulate behaviour in response to new policies. The results suggest that the reduction of the mother's childcare time should be an important part of any analysis of the consequences of policies or external shocks that incentivise mothers with young children into work.

Razin, Sadka, 18 December 2017, 4056 reads

The ongoing advance of globalisation has created a genuine need for international tax reforms. This column explores potential reforms and their likely effects, using a model with flexible prices. Residence-based income taxation is shown to have welfare advantages over source-based taxation, though at the cost of a larger trade deficit. Non-transitory border taxes are shown to be ineffective at reducing this deficit.

Tomita, 17 December 2017, 10795 reads

Driverless vehicles are expected to become a reality on our roads in the near future. This column reviews research into the effects this will have on the economy and on society. New business models for truck operators and delivery companies, commuters putting the time they would have been driving to more productive use, and fewer accidents and greater efficiency on the road are among the developments that will benefit the economy. At the same time, driverless cars will become a major means of transport for elderly people in rural areas, while in urban areas the number of cars owned for personal use will drop sharply.

Kuld, O'Hagan, 16 December 2017, 6826 reads

Many theories have been posited for the growth in co-authorship in economic research output. This column uses new findings to assess the viability of the different explanations. Lower costs of global communication and increased pressure to produce greater research output play a role, but more information on hiring, promotional, and funding practices is required to assess the relative importance of the various factors behind the trend.

Huberman, Leshno, Moallemi, 16 December 2017, 16513 reads

Cryptocurrencies have caught the attention of industry, academia, and the public at large. This column analyses an economic model of a cryptocurrency system featuring user-generated transaction fees, focusing on Bitcoin as the leading example. The Bitcoin system requires significant congestion to raise revenue and fund infrastructure or risk collapse in the long term. Moreover, the current design of the system – specifically the processing of large but infrequent blocks of transactions – makes it less efficient at raising revenue.

Nowzohour, Stracca, 15 December 2017, 11734 reads

At an intuitive level, economists and non-economists alike find it plausible that economic sentiment and economic developments are related. This column surveys recent theoretical and empirical work on the role of sentiment as a driver of the business cycle. Sentiment measures are found to be weakly correlated at the country level, but highly correlated across countries. Further, sentiment seems most closely correlated with economic and financial variables, and tends to be forward looking.

Heinz, Jeworrek, Mertins, Schumacher, Sutter, 15 December 2017, 4709 reads

Any organisation that needs to restructure, cut wages, or make layoffs needs to know how the employees who are not affected will respond. This column presents a field experiment which revealed that the perception that employers are unfair – in this case, as a result of layoffs – reduces the performance of employees who have not been not directly affected. As part of the experiment, experienced HR managers were able to successfully anticipate the consequences of unfair employer behaviour on unaffected workers.

Carrère, Olarreaga, Raess, 15 December 2017, 6553 reads

Protecting workers through the inclusion of labour clauses in trade agreements has become more common since the first such causes were included in NAFTA, but some argue that by increasing labour costs in developing countries, they represent a form of protectionism. This column uses new data to argue that there is no evidence for adverse effects on trade from labour clauses. When such clauses are strong, and if they emphasise cooperation in their implementation, they have a positive effect on the commercial interests of developing countries.

Kyle, Ridley, Zhang, 14 December 2017, 4777 reads

Governments use various tools to promote scientific research, and the resulting innovations or knowledge can cross borders. This column examines whether governments and organisations adjust their funding of medical research in response to the funding decisions of others. The results suggest an increase in US government funding is associated with a decrease in funding by others. While this evidence is consistent with free riding, qualitative evidence suggests it reflects the optimal reallocation of funds.

Ohyama, 14 December 2017, 4030 reads

The length of time industries prosper varies significantly. This column examines why some industries grow and prosper for a long period of time through the lens of submarket creation and destruction. Using data from the Japanese Census of Manufacture, it shows that the creation and the destruction of products allow an industry to continue attracting new entrants, that start-up and spinoff firms are more likely to enter a newly created submarket than incumbent firms, and that new entry is encouraged when unrealised business opportunities are reallocated smoothly.

Caballero, Farhi, Gourinchas, 13 December 2017, 8638 reads

The US has seen a fall in real interest rates but stable real returns on productive capital in the last few decades. This column argues that these divergent trends are inherently interlinked, and arise from a combination of a rise in the capital risk premium, an increase in monopoly rents from mark-ups, and capital-biased technical change. With these secular trends unlikely to reverse anytime soon, we are likely to live in a prolonged era of low interest rates, high capital risk premia, and low labour share.

Corsetti, Crowley, Exton, Han, 13 December 2017, 19656 reads

As the recent UK Parliament Select Committee hearing revealed, there is a dearth of analysis of the sector-level risk to exports of a ‘no deal’ Brexit scenario. This column presents an analysis by sector and product, and delivers both good and bad news. In a scenario where trade reverts to WTO rules, the good news is that one-third of UK exports to the EU will remain tariff-free. The bad news is that one-quarter of exports will face high tariffs and/or the risk of restrictive quotas or antidumping duties.

Evenett, Fritz, 12 December 2017, 10057 reads

The focus of much of the literature on the trade impact of crisis-era protectionism on import restrictions is misplaced. This column introduces the latest Global Trade Alert report, which shows that while import restrictions played their part in holding back European exporters, trade-distorting subsidies were more important.

Algan, Guriev, Papaioannou, Passari, 12 December 2017, 8153 reads

A wave of populism has been gaining ground in the West since 2012. This column uses regional data for 26 European countries to explore how the impact of the Great Recession on labour markets has affected populist voting, political attitudes, and trust. The results indicate a strong link between unemployment and voting for non-mainstream (especially populist) parties. Unemployment is also correlated with increasing distrust of national and European parliaments.

Crafts, Klein, 12 December 2017, 6526 reads

The geography of industrial production changed dramatically during the 20th century both across and within countries. This column provides new estimates of changes in the spatial concentration of US manufacturing from 1880 to 1997. The average level across all industries fell by more than half over the period. Although creative destruction has had a strong spatial component, almost all industries can be described as significantly spatially concentrated at all times. 

Aizenman, Jinjarak, Ngo, Noy, 11 December 2017, 6057 reads

The Global Crisis and its aftermath has focused attention on increasing inequality, and specifically on declining real incomes of the working poor. Comparing the US to Germany, this column argues that pushing more students to degree-granting colleges may no longer be the most efficient way to deal with the challenges caused by the decline in manufacturing employment affecting, in particular, lower-income households. Well-resourced, well-targeted vocational training can prove to be a better long-term investment in skill acquisition to help ameliorate the difficulties faced by workers whose prospects look to be quite bleak.

Micossi, 11 December 2017, 4293 reads

Negotiations on the banking union in the Eurozone have been stuck ever since the Italian government assembled a blocking minority opposing further discussions on proposals to reduce legacy risks in banks’ balance sheets. This column argues that completing the banking union should once again be given priority, and that the European deposit insurance scheme could move forward immediately by providing in its early phase that the ESM would offer a liquidity line to national deposit guaranty schemes that had exhausted their funds, with no sharing of losses.

Nicoletti, Salvanes, Tominey, 10 December 2017, 4434 reads

Developed countries have seen substantial increases in the number of women who return to work after having a child. This is due to a host of well-researched factors, including tax credit incentives and increased availability of child care. This column analyses another factor determining mothers’ labour supply – the peer effects of women in their family. It finds that for each hour worked by a family member, women work up 30 minutes a week purely due to the peer effect. This finding is important for determining the direct and indirect effectiveness of policies encouraging women to work after having children.

Wu, Liang, 09 December 2017, 6611 reads

It has been claimed that over 40% of China’s post-reform GDP growth could be attributed to growth in total factor productivity. This column argues that this claim is based on a mis-specified model applied to misused aggregate data. Using a growth accounting framework, it shows that Chinese ICT-producing and ICT-using manufacturing industries were the most important drivers of productivity growth between 1981 and 2012, enabling the economy to compensate for heavy productivity losses caused by misallocation of capital and government interventions.

Cassan, Vandewalle, 09 December 2017, 3678 reads

Many policies are designed along a particular identity dimension, such as gender or ethnicity. However, such efforts overlook the fact that individuals are associated with several identity dimensions at a time. Using Indian data, this column demonstrates how the intersection of different identity dimensions may lead to unanticipated effects. It shows that political quotas for women in local elections change policies not only in favour of women, but also in favour of low castes.

Angrist, Caldwell, Hall, 08 December 2017, 7755 reads

Ridesharing services like Uber and Lyft have disrupted taxi markets in many countries around the world. This column examines the differences between rideshare services and taxis from the driver’s point of view. It argues that the crucial difference comes down to the need to lease a medallion to drive a taxi versus the pro rata fee that rideshare services charge. Many high-volume drivers display ‘lease aversion’, opting for the pro rata rideshare service despite the lease model for taxis offering a better return.

Bowles, KIrman, Sethi, 08 December 2017, 25092 reads

Hayek pioneered the informational view of markets in which prices are messages, and his dynamic vision of the economy provides the basis of an alternative to the equilibrium methodology that today underpins the economics of information. This column argues, however, that these contributions do not support, and may even give reason to doubt, the limited government policies that Hayek advocated.

di Mauro, Demian, van de Kerke, 08 December 2017, 6109 reads

It is well-established in theoretical and empirical models that an exchange rate movement affects exports, but we are far from a consensus on the size and relevance of this effect. Macro-based analyses tend to yield very low values for the elasticity of exports to the exchange rate, while micro- or sectoral-based estimations tends to be higher. This column shows that one reason for the disagreement is that macro estimations fail to incorporate the characteristics of the underlying distribution of firm productivity and its asymmetries. Doing so generates higher elasticity estimates than the macro estimations, and greater country-level diversification.

Bertocchi, Dimico, Lancia, Russo, 07 December 2017, 3597 reads

Voter turnout in modern democracies tends to be lowest among the young, and politicians are likely to be less responsive to their demands as a result. This column focuses on preregistration, a reform aimed at facilitating voter registration among young Americans. Examining the link between the political participation of various age groups and policy decisions, it shows that adopting preregistration has shifted government spending toward higher education and increased student financial aid, and has promoted an episode of youth enfranchisement.

Mann, Püttmann, 07 December 2017, 15003 reads

Researchers disagree over whether automation is creating or destroying jobs. This column introduces a new indicator of automation constructed by applying a machine learning algorithm to classify patents, and uses the result to investigate which US regions and industries are most exposed to automation. This indicator suggests that automation has created more jobs in the US than it has destroyed.

Ghironi, 07 December 2017, 5495 reads

Most macroeconomists have accepted that their tools need to incorporate more real world phenomena, such as financial intermediation and labor market frictions. Fabio Ghironi discusses the need to incorporate more microeconomics to macroeconomics.

Evenett, 06 December 2017, 16691 reads

David Ricardo made one of the enduring contributions to the analysis of international trade with the publication in 1817 of his “On the Principles of Political Economy and Taxation”. This column introduces a new eBook in which leading analysts assess the contemporary relevance of Ricardo’s Principle of Comparative Advantage.

Burnard, Panza, Williamson, 06 December 2017, 4532 reads

Jamaica was considered to be exceptionally rich in the 18th century. Modern historians have tended to perpetuate this idea. This column uses novel methods to shed new light on living standards and inequality in colonial Jamaica. While the country was one of the most expensive places on the planet at the time, this wealth rested in the hands a very small white, slave-owning elite. The rest of the populace, many in slavery, lived at the very edge of subsistence.

Tente, von Westernhagen, Slopek, 06 December 2017, 3157 reads

Regulators are still debating the amount of capital needed to support bank losses in a financial crisis. This column presents a new, pragmatic stress-testing tool that can answer the question under macroeconomic stress scenarios. The method models inter-sector and inter-country dependence structures between banks in a holistic, top-down supervisory framework. A test of 12 major German banks as of 2013 suggests that while there is enough capital in the system as a whole, capital allocation among the banks is not optimal.

Altunbaş, Binici, Gambacorta, Murcia, 05 December 2017, 5744 reads

The main objective of macroprudential tools is to reduce systemic risks – in particular, the frequency and depth of financial crises. Most studies look at the impact of macroprudential measures on credit growth, focusing on country-wide data or bank-level information. This column presents new evidence using credit registry data at the bank-firm level to evaluate the impact on bank risk measures. Results show that macroprudential tools help stabilise credit cycles and contain bank risk.

Bignon, Vuillemey, 04 December 2017, 4583 reads

To improve financial stability after the Global Crisis, regulators have mandated the use of central clearing counterparties for standardised derivatives. While they are designed to insulate investors against counterparty risk, the central clearing counterparties themselves can fail. This column uses historical data to discuss how this can happen. The results show the risks to financial stability when a central clearing counterparty starts gambling for its resurrection.

Baqaee, Farhi, 04 December 2017, 11315 reads

Mounting evidence suggests that average mark-ups in the US economy have been increasing. This column argues that about half of measured aggregate productivity growth over the last 20 years can be accounted for by firms with higher mark-ups increasing their relative size. This implies that the slowdown in pure technology growth is even slower than suggested by aggregate productivity statistics. Eliminating mark-ups would increase the productivity of the US economy by about 40%.

Cecchetti, Schoenholtz, 03 December 2017, 4905 reads

The Global Crisis dramatically revealed the severity of ignorance about risk exposure in the global financial system. A major issue is the complexity of legal structures with webs of subsidiaries and a lack of consolidated information systems. This column describes efforts to address these failings through the launching of a global legal entity identifier. The initiative offers great promise for addressing the complex information problems. However, network externalities imply that its success will depend on participation and adoption incentives.

Finley, Franck, Johnson, Michalopoulos, 02 December 2017, 12809 reads

Political revolutions often bring swift regime change leading to short-run economic change, but the long-term consequences are less clear. Some argue that revolutions pave the way for capitalist market growth, while others argue they are only political in nature with limited economic consequence. This column uses extensive evidence from the French Revolution to show that the effects vary across the country and over time. The analysis speaks to questions of concern to developing countries regarding the relationship between institutional change, inequality, and long-run economic development. 

Irsova, Havranek, Herman, 02 December 2017, 6545 reads

The original rationale for daylight saving time was energy savings. This column reveals, however, that the modern empirical literature on the topic finds no savings on average. The extent of savings is related to latitude – regions at higher latitude enjoy slightly more savings, but subtropical regions consume more energy because of daylight saving time. Even in Scandinavia, the savings amount to just 0.3% of annual energy consumption. Policymakers must look at other effects of daylight saving time to justify the continued use of the policy.

Defever, Riaño, 01 December 2017, 5686 reads

Received wisdom suggests that the majority of exporters in a country sell most of their output domestically. This column presents recent research that casts doubt on this assumption. The distribution of export intensity varies substantially and in most countries there are ‘twin peaks’, with some firms exporting a lot of their output, and others a little. This would be consistent with a standard model of international trade if the model were adjusted to recognise that firms differ in the demand they face in each market.

Urata, Kato, 01 December 2017, 7077 reads

Many governments have engaged in free trade agreements to facilitate the growth of regional production networks and global value chains, but critics argue that such agreements damage domestic industries. This column uses Japanese evidence to show that free trade agreements can increase the significance of the domestic industry in a country’s supply chain networks through intra-firm trade, and restrain the hollowing-out of the domestic industry.