June 2018

Parker, Vogl, 30 June 2018, 5323 reads

The short-term success of cash transfers as a form of direct aid has been well recognised in recent research. This column combines Mexican census data with data on a major conditional cash transfer programme to analyse the longer-term effects on the subsequent generation. It finds that such programmes had important positive effects on education and labour market outcomes for men and women, suggesting conditional transfer programmes are successful in raising the children of recipients out of poverty.

Lee, 30 June 2018, 4652 reads

Participation in global value chains is a key element of the industrialisation strategies of developing nations. To date, most research has focused on goods and the manufacturing sector. This column explores the role of services in global value chains. Trade agreements that liberalise services are found to foster global value chain trade, especially for developing country exporters and those that allow service exports without local presence.

Dhingra, Whelan, Frieden, 29 June 2018, 4013 reads

2 years on from the UK’s referendum vote to leave the EU, substantial questions about the path to Brexit remain. In this special edition of Vox Talks, Tim Phillips talks to Swati Dhingra, Karl Whelan, and Luc Frieden about how the process of Brexit negotiation is itself impacting UK households already, from food price inflation to bilateral trade relations across Europe. The data suggests these effects are not transitory, but will persist beyond the current climate of policy uncertainty.

McGaughey, Raimondos, 29 June 2018, 6196 reads

Researchers and policymakers often refer to ‘foreign firms’, but how do we define a firm as ‘foreign’ and does it matter for our policy conclusions? This column argues due to the dominant practice of using only direct ownership links to identify the owners of a firm, the commonly used definition of a foreign firm captures only half of the foreign firms that exist. Indirect ownership link turns out to be pivotal for identifying firms that appear to be domestic but are in reality foreign, with implications for the measurement of FDI productivity spillovers.    

Albert, Monras, 29 June 2018, 4875 reads

Immigrants usually spend part of their time, savings, and income in their country of origin and not where they currently live. This column uses US data to argue that the resulting difference in consumption patterns relative to natives has profound implications for the types of cities that immigrants are attracted to. It shows that immigrants redistribute economic activity towards large, expensive cities. These cities tend to be more productive, so immigrants have a positive effect on overall output.

Casarico, Facchini, Frattini, 28 June 2018, 4171 reads

European countries have recently experienced an extraordinary inflow of asylum seekers. Using a theoretical framework and US data, this column studies the key economic triggers which prompt policymakers to implement immigration legalisation programmes. It shows that the more restricted the occupational opportunities of undocumented immigrants and the smaller the fiscal leakage to undocumented immigrants via the welfare state, the more desirable an amnesty is. 

Diez, Leigh, Tambunlertchai, 28 June 2018, 5955 reads

The rise in the market power of large firms is assumed to affect economic activity, but measuring either market power or its effects is challenging. Based on firm-level data for 74 countries, this column shows that market power has increased around the world, driven mostly by 'superstar' firms. Higher markups are initially associated with increasing investment and innovation, but the reverse is true when market power becomes too strong. The share of income paid to workers also declines with rising market power.

Chetty, Hendren, Jones, Porter, 27 June 2018, 23864 reads

The sources of racial disparities in income have been debated for decades. This column uses data on 20 million children and their parents to show how racial disparities persist across generations in the US. For instance, black men have much lower chances of climbing the income ladder than white men even if they grow up on the same block. In contrast, black and white women have similar rates of mobility. The column discusses how such findings can be used to reduce racial disparities going forward.

Carta, Rizzica, 26 June 2018, 4768 reads

A growing number of advanced economies are opting for highly subsidised childcare systems. But studies have shown mixed effects of subsidised childcare on children’s outcomes, suggesting a potential trade-off between promoting female labour supply and providing the best care for children. This column shows that an expansion of subsidised childcare in Italy increased female labour supply without hurting children’s outcomes. Childcare could be made more cost-effective by making it conditional on the mother’s employment status, or incentivising firms to provide corporate childcare options.

Cecchetti, Schoenholtz, 26 June 2018, 3688 reads

Over the past six years, more than 1.2 billion adults have gained at least basic financial access through a financial institution or their mobile phone. This column discusses the benefits of financial inclusion, key trends regarding access since 2011, and the means for achieving the World Bank’s goal of universal financial access. It also argues that if the nations of Africa develop institutions to support strong, stable and balanced growth—including the necessary financial apparatus—they can become the primary drivers of global expansion in the remainder of the 21st century.

Bossone, Costa, 25 June 2018, 5610 reads

A correct application of the general principles of accounting raises fundamental doubts about the current conceptions of money. This column argues that such an application allows the inconsistency whereby cryptocurrencies are not a debt liability if they are issued by private-sector entities, but become so if they are issued by central banks, to be resolved. In both cases, cryptocurrencies actually represent equity capital of the issuing entities, a conclusion that should greatly assist national monetary and financial authorities in shaping regulations.  

Jordà, Schularick, Taylor, Ward, 25 June 2018, 7146 reads

Asset markets in advanced economies have become more integrated than ever before in the history of modern finance. This is especially true for global equities starting in the 1990s. This column argues that this increase in synchronisation is primarily driven by fluctuations in risk appetite rather than in risk-free rates, or in dividends. US monetary policy plays a major role in explaining such fluctuations, and this transmission channel affects economies with both fixed and floating exchange rates, although the effects are more muted in floating rate regimes.

Ben Yahmed, Bombarda, 24 June 2018, 4442 reads

Trade liberalisation has been shown to affect formality rates in labour markets. This column exploits the Mexican trade liberalisation episode in the 1990s, to explore the labour market impact of reductions in import tariffs across gender and sectors. Within disaggregated tradable sectors, the probability of working formally has increased for both men and women in Mexico. Considering regional adjustments,exposure to trade liberalisation has had different effects across genders and tradable versus non-tradable sectors.

Varian, 23 June 2018, 5550 reads

Brexit has sparked interest in trade agreements between Britain and the Commonwealth. This has a precedent in the Edwardian era, when the Dominions adopted policies of imperial preference toward imports from Britain. This column argues that New Zealand’s policy of imperial preference, enacted in 1903, was ineffective in diverting trade toward Britain, suggesting that trade policies within the British Empire or Commonwealth do not always achieve what they intend. 

Campa, Serafinelli, 22 June 2018, 4722 reads

Attitudes towards work and gender simultaneously shape, and are shaped by, the conventions, practices, and policies in a given place and time. This column explores how politico-economic regimes affect attitudes towards gender roles and labour, exploiting the rise and fall of the Iron Curtain. Results show that women in state-socialist regimes tended to have less negative and less traditional views of work and labour force participation.

Campos, 22 June 2018, 2714 reads

The issue of how to reform the EU is well discussed in research and policy. But through which institutions and in which order these reforms should take place is less well debated. Nauro Campos discusses the role of Europe’s institutions in its successes and failures. Based on the findings of the recent CEPR eBook, “Bretton Woods, Brussels, and Beyond: Redesigning the Institutions of Europe”, he suggests that the risks of not reforming these institutions are at least another recession across Europe, but also threats to the European project itself.

Karabarbounis, Neiman, 22 June 2018, 5564 reads

Comparing US GDP to the sum of standard measures of payments to labour and imputations of payments to capital results in a large and volatile residual term. Using US data, this column argues that this ‘factorless income’ does not entirely reflect economic profits or unmeasured investment flows. Instead, it likely emerges due to a gap between the cost of capital that firms actually face and the Treasury yields typically used to calculate capital rental rates. These results are important for policy and for understanding historical macroeconomic trends. 

Duijm, Schoenmaker, 21 June 2018, 4070 reads

The European economy is recovering, and banks are thinking once more about mergers. This column demonstrates that, while cross-border mergers have been predicted before, most European bank mergers have consistently been domestic. Regulatory hurdles and relatively low concentration in some of the countries of Europe suggest this may continue.

Papaconstantinou, 21 June 2018, 3774 reads

The policy discussion on euro area reform has entered a critical phase. This column, part of the VoxEU debate on euro area reform, attempts a ‘what if’ experiment based on the proposals in the recent CEPR Policy Insight. Focusing on the Greek case, it looks at the counterfactual case of such proposals having already been implemented at the outset of the crisis and examines their potential role in preventing the outbreak of the crisis or mitigating it once it was underway.

Ravallion, Jolliffe, Margitic, 20 June 2018, 12048 reads

When the poorest gain, the lower bound, or ‘floor’, of the distribution of living standards rises. Using microdata spanning the last 30 years, this column argues that the floor in the US has been sinking, alongside rising top incomes. The floor would have fallen further without public spending on food stamps, which helped protect the poorest in the wake of the 2008 financial crisis.

Cohen-Setton, Vallee, 20 June 2018, 3480 reads

The authors of the recent CEPR Policy Insight argue that the euro area needs an alternative to the current system of fiscal rules and financial penalties to discipline fiscally wayward members. This column, part of the VoxEU debate on euro area reform, argues that by not complementing their proposals with recommendations in the monetary realm, the authors have missed an opportunity to provide a balanced reform package that would not only increase fiscal discipline and risk sharing, but also enhance liquidity provision.

Gunessee, Milner, Niu, 19 June 2018, 4482 reads

Trade liberalisation is expected to have ushered in an era of increased globalisation. This column uses a measure of overall trade protection comprising tariff-equivalent non-tariff measures and tariffs to examine whether protectionism has fallen or increased over the past two decades. The results suggest that overall protection levels have not decreased despite tariff liberalisation, as non-tariff measures have proliferated both across sectors and countries. These measures are now the main source of trade protection.

Falk, Becker, Dohmen, Enke, Huffman, Sunde, 19 June 2018, 6110 reads

Vast inequalities exist within societies as well as across nations. This column uses a new dataset to show that preferences vary substantially across and within societies, and that these differences are related to differences in economic outcomes at the individual and aggregate levels. The findings suggest that institutional reform should take into account how institutions may interact with preference differences. 

Byrne, Rice, 19 June 2018, 6025 reads

While the effect of Brexit on trade between the UK and the remaining EU member states has received considerable attention, to date little work has considered the issue of non-tariff barriers. This column explores how increased documentary compliance and border delays will affect EU members’ exports to the UK. Time-sensitive goods are found to be most at risk of suffering from increases in non-tariff barriers. Based on current trade composition, Latvia, Ireland, and Denmark are the trading partners that will be most affected.

Kocherlakota, 18 June 2018, 13916 reads

Modern macro models offer insights into the outcomes of adopting entire policy regimes, but in reality, policymakers are rarely required to make such broad-ranging policy decisions. This column suggests how theoretical and applied microeconomics can be used to develop a framework for modern macroeconomic policymaking, and demonstrates how game-theoretic principles could be used to make series of sequential policy decisions. While this approach requires large amounts of data, it would allow academic macroeconomists to refocus on important policy questions.

Maggiori, Neiman, Schreger, 18 June 2018, 6964 reads

Currency is a far more important factor for cross-border capital flows than is typically assumed. This column demonstrates that investors exhibit a strong bias toward securities denominated in their home currency even when investing in bonds issued by developed countries, implying that the majority of foreign firms that do not issue foreign currency bonds typically do not borrow from abroad directly. A key exception to this pattern is the US, as the global taste for dollars enables smaller firms that issue only dollar-denominated bonds to access foreign capital. The benefit that the dollar’s status offers the US appears to have increased since the Global Crisis at the expense of the euro.

Fouka, Mazumder, Tabellini, 17 June 2018, 4019 reads

The ability of a state to accommodate diverse populations depends on how successfully immigrant groups can assimilate. The column use data from the south-north migration of 1.5 million African Americans between 1910 and 1930 to show that the appearance of other low-status groups can promote assimilation among pre-existing immigrants. The new low-status group makes existing immigrants appear less socially distant to natives. This suggests that assimilation policies that target native attitudes might as promising as interventions directed at immigrants.

Foster, Grim, Haltiwanger, Wolf, 17 June 2018, 6366 reads

Measuring innovative activity itself, rather than proxies such as R&D expenditures or patent volumes, is difficult. This column shows how patterns of economic activity can be used to measure increased innovative activity within firms. This ‘searching for black holes’ approach can be used to better understand the connection between innovation and productivity dispersion and growth.

Cravino, Lan, Levchenko, 16 June 2018, 4640 reads

Monetary policy shocks can affect different types of agents differently. These distributional effects can have important consequences for policy effectiveness. Using US data, this column explores how shocks differentially affect the prices faced by households with different incomes. The results suggest that middle-income households’ consumption baskets have more volatile prices than those of high-income households, and they are therefore more exposed to monetary policy shocks.

Danielsson, 15 June 2018, 8007 reads

Are cryptocurrencies the future of money, Ponzi schemes, speculators’ dreams, or just a prosperity gospel? While there is money to be made in the short run, this column argues that cryptocurrencies are lousy investments and will eventually reach a price of zero.

Doménech, Otero Iglesias , Steinberg, 15 June 2018, 4531 reads

Deepening of EMU cannot wait until all countries have carried out all their domestic reforms, both risk sharing and risk reduction need to proceed simultaneously. In fact, all euro area countries are exposed to the risk of an incomplete monetary and economic union but with very asymmetric costs. This column, part of the VoxEU debate on euro area reform, argues that this risk can only be tackled with common instruments and policies at the European level, whose mere existence will reduce not only its magnitude but also its asymmetric consequences. 

De Feo, 15 June 2018, 2963 reads

The presence of a local criminal organisation can be linked to slower economic and social growth, and this holds true of the Sicilian Mafia. Giuseppe De Feo discusses his recent research on how the Mafia came to be, and its impact on Sicilian growth since its inception. The threat of Peasant Fasci organisations in the 1890s led landholders and politicians to turn to the Mafia to combat pressure from the peasant class. Since then, the Mafia's existence seems to have reduced literacy and health outcomes, and limited the provision of a variety of local public goods.

Furman, Powell, 15 June 2018, 6867 reads

The fraction of Americans employed fell between 2007 and 2017, during which time employment rates rose in many other advanced economies despite these countries also facing a similar headwind of an ageing population. This column shows how the biggest driver of this was employment among women, which stagnated in the US while increasing in most of the other advanced economies.

Mai, 14 June 2018, 9134 reads

The rise in global debt has continued unabated following the Global Crisis. This column argues that elevated debt levels will continue to put downward pressure on equilibrium interest rates across the world’s major economies, constraining central bank efforts to normalise rates and supporting the thesis that global equilibrium interest rates have fallen.

Monnet, 13 June 2018, 4904 reads

In the Bretton woods system, capital controls ensured the independence of monetary policy. This column argues that it is impossible to understand how they worked without understanding their role in supporting credit controls at the time, which were used to fight inflation without raising the domestic interest rate. This may be relevant today in emerging markets in which central bank instruments still resemble those used under Bretton Woods. 

Aksoy, Carpenter, Frank, Huffman, 13 June 2018, 5648 reads

Earnings gaps and ‘glass ceilings’ have been extensively documented for women and racial minorities. This column explores whether similar limits to advancement are present for sexual minorities, using data from the UK. Although gay men are found to be more likely than similar heterosexual men to report managerial authority, they seem to be restricted to low-level managerial positions, with little representation at higher levels. Similar glass ceiling effects are found for lesbians and bisexual adults, and the evidence is suggestive of discrimination playing a role. 

Bofinger, 12 June 2018, 13014 reads

The digitalisation of money has the potential to change traditional structures of the financial system. This column discusses four areas in which it may have an impact, and argues that while digitalisation will not erode the importance of central banks, banks could be massively challenged by new forms of intermediation. 

Cooley, Henriksen, 11 June 2018, 6619 reads

Demographic change represents an important contributing factor to the slowdown of long-run growth. This column explores some of the channels through which this occurs and how the effects of demographic change can be mitigated. Policies that target consumption-saving choices, labour-leisure choices, and human capital accumulation over the lifecycle are likely to be most effective.

Goodhart, Hudson, 11 June 2018, 7014 reads

The increasing income and wealth inequalities within countries is one of today’s great social concerns. This column describes how the tendency towards increasing indebtedness in much earlier societies was held in check by debt-cancellation Jubilees, and discusses ways to deal with today’s debt overhang and accompanying wealth inequalities. The funding of a modern Jubilee could come mostly, perhaps entirely, from a land/or property tax.

Bonfiglioli, Crinò, Gancia, 10 June 2018, 6154 reads

To date there has been little systematic evidence on the role of firms in explaining country performance. This column explores how the products of firms from all over the globe fare in competition in the US market. Results show that the countries that capture larger market shares have more exporters, producing higher-quality products, with a more dispersed distribution of firm attributes. Larger and richer markets are characterised by a more dispersed distribution of sales and quality, and a higher incidence of superstar firms.

Gans, 10 June 2018, 8394 reads

Philosophers have speculated that an AI tasked with a task such as creating paperclips might cause an apocalypse by learning to divert ever-increasing resources to the task, and then learning how to resist our attempts to turn it off. But this column argues that, to do this, the paperclip-making AI would need to create another AI that could acquire power both over humans and over itself, and so it would self-regulate to prevent this outcome. Humans who create AIs with the goal of acquiring power may be a greater existential threat.

Caselli, Ciccone, 09 June 2018, 4251 reads

Contributions to the development accounting literature suggest that human capital plays only a modest role in explaining the large income gaps across the world. This column reviews some of these studies to assess the impact of the relative efficiency and relative supply of high- versus low-skilled workers in labour markets. It concludes that differences in skill premia across countries are not due to differences in human capital embodied in skilled workers, but rather to differences in country-specific technological and institutional environments.

Jensen, Lampe, Sharp, Skovsgaard, 08 June 2018, 14496 reads

Denmark is a paragon of economic development because it rapidly modernised its agriculture 150 years ago by using technology and cooperatives. This column argues that Denmark's development story has in fact been misrepresented. Rapid agricultural development was the end of a process begun by landed elites in the 18th century. It may be a mistake to cite the case of Denmark to argue that a country with a lot of peasants and cows can cooperate its way out of underdevelopment.

Cecchetti, Schoenholtz, 08 June 2018, 2170 reads

Global remittances total $600 billion annually - equivalent to about four times the value of development assistance. Yet despite huge innovations in the underlying technology, the cost of remittances remains persistently high, at around 7% on average. Stephen Cecchetti and Kim Schoenholtz discuss the causes of this, and suggest some options available to policymakers to lower costs. The G8, G20 and Sustainable Development Goals targetting lower remittance costs could be realised by a two-pronged approach of educating consumers on the one hand and fostering competition among providers on the other.

Duncan, Martínez García, 08 June 2018, 4711 reads

Understanding what helps forecast inflation is important for any modern economy, but analysis remains limited in the emerging market economy context. This column presents recent findings on inflation forecasting in such economies, showing that a variant of the simple random walk model specification seems difficult to beat. The strong forecasting performance of this model can be observed even though many emerging economies have adopted a de facto or de jure inflation-targeting regime.

Azar, Marinescu, Steinbaum, Taska, 07 June 2018, 4917 reads

The effect of increasing product market concentration on the labour market is sometimes overlooked because the labour market is often assumed to be entirely competitive. This column discusses the definition of labour markets and analyses the circumstances in which employers have monopsonist power to set wages, thus contributing to the growing debate over whether market concentration might be one cause of stagnant wages and other labour trends. 

Cornelissen, Dustmann, Raute, Schönberg, 07 June 2018, 5070 reads

Many countries operate universal childcare programmes that are open to all pre-school age children. This column analyses data from Germany to show that attending universal childcare at age three improves the school readiness of children from immigrant and disadvantaged family backgrounds far more than of children whose parents have higher socioeconomic status. Yet despite this potential to level the playing field between rich and poor, children who would gain the most from attending childcare early are also those who are least likely to attend. This calls for policies to encourage the enrolment of disadvantaged children in such programmes.

Olafsson, Pagel, 07 June 2018, 5303 reads

A large literature analyses whether individuals save adequately for retirement and plan properly. This column uses a detailed panel of individual spending, income, account balances, and credit limits from a personal finance management software provider to investigate how expenditures, liquid savings, and consumer debt change around retirement. It finds that, upon retirement, individuals reduce their spending in both work-related and leisure categories. In addition, individuals reduce their consumer debt and increase their liquid savings, which is inconsistent with existing models of insufficient planning. 

Centeno, Castro Coelho, 06 June 2018, 23705 reads

Portugal has turned a corner. Having gone through a mild boom, a slump, and a severe recession, all packed into less than two decades, the Portuguese economy has re-emerged with a newfound strength. This column examines this recovery in detail, focusing on important structural reforms that have taken place in the last couple of decades in key areas such as skills, investment, export orientation, labour market, financial intermediation, and public finances. The effects of these reforms were compounded by time as well as efforts to reignite demand.

Ellul, Jotikasthira, Kartasheva, Lundblad, Wagner, 05 June 2018, 4311 reads

Systemic risk analyses have largely focused on the linkages among financial institutions’ funding arrangements, but there are increasing connections between insurers and the rest of the financial system. This column explores how systemic risk can originate from insurers’ business models. In the event of negative asset shocks, insurers’ collective allocation to illiquid bonds leads to an amplification of system-wide fire sales. These dynamics can plausibly erase up to 20-70% of insurers’ aggregate equity capital.

Battisti, Peri, Romiti, 05 June 2018, 3824 reads

Most of the evidence from studies analysing the effect of ethnic concentration on immigrants’ employment and earnings points to a positive effect of network size on labour market outcomes. This column uses data from social security records in Germany to show that a larger co-ethnic network in the location of first settlement can increase the short-run probability of finding a job but can also hinder human capital investment, limiting the benefits of the larger network over the long run.

Boulhol, Geppert, 04 June 2018, 12142 reads

As we live longer, the associated rise in the old-age dependency ratio puts pressure on pension systems and perhaps our standard of living. The column argues that, on average in the OECD, stabilising the old-age dependency ratio between 2015 and 2050 requires an increase in retirement age of a stunning 8.4 years. This number far exceeds the projected increase in longevity and increases in retirement age driven by pension reforms alone.

Ito, 03 June 2018, 4650 reads

Support for ‘anti-globalist’ policies across the developed world suggests that many people are concerned about the impact of globalisation on employment and wages. This column examines the wage premium for exporting among firms in Japan, using linked employer-employee data to control for other factors that may affect wages. Exports and wages clearly are correlated in Japan’s manufacturing sector, especially for smaller-scale plants and firms. 

de la Escosura, 02 June 2018, 6128 reads

Rising trends in GDP per capita are often interpreted as reflecting rising levels of general wellbeing. But GDP per capita is at best a crude proxy for wellbeing, neglecting important qualitative dimensions. This column explores the long-term trends in global wellbeing inequality using a new dataset. Inequality indices reflecting various aspects of wellbeing are shown to have been declining since WWI, unlike real GDP per capita inequality. 

Gorodnichenko, Pham, Talavera, 02 June 2018, 4449 reads

The rise of social media has profoundly affected how people acquire and process information. Using Twitter data on the Brexit referendum and the 2016 US presidential election, this column studies how social media bots shape public opinion and voting outcomes. Bots have a tangible effect on the tweeting activity of humans, but the degree of their influence depends on whether they provide information consistent with humans’ priors. The findings suggest that effect of bots was likely marginal, but possibly large enough to affect voting outcomes in the two elections.

Palma, Reis, 02 June 2018, 3930 reads

Can less democratic forms of government lead to higher literacy rates? This column uses a sample of over 4,000 individuals from military archives in Portugal to show that an autocracy can have greater educational success than a democracy if it has closer cultural alignment with the preferences of the masses. This understanding has implications for development policy in poor countries today. 

Haliassos, Balasubramaniam, 01 June 2018, 2690 reads

The Third CEPR European Workshop on Household Finance took place on 11 and 12 May in London. This column describes the papers that were presented at the workshop.

Qvigstad, Schei, 01 June 2018, 4431 reads

The minutes in which central banks justify their decisions vary considerably in length, and the same also applies to supreme court judgements. This column proposes criteria for ‘good’ justifications and asks whether these criteria are met in practice. It concludes that the Swedish Riksbank could look at the way the UK Supreme Court’s justifications have developed, the European Court of Justice could learn something from Paul Romer’s insistence on clear language, and the European Court of Human Rights Grand Chamber might draw inspiration from the length and clarity of the Central Bank of Iceland’s minutes.

Zettelmeyer, Leandro, 01 June 2018, 3443 reads

The euro area lacks a common safe asset, leaving banks to rely on bonds issued by their own countries and thus magnifying fiscal crises and contributing to financial fragmentation. To address this problem, an influential proposal advocates sovereign-bond backed securities, the most senior of which would play the role of safe asset. This column, which introduces a new CEPR Policy Insight, investigates whether criticism of the proposal’s reliance on securitisation is justified and compares it with alternatives that would not require tranching.

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