January 2019

Behrens, Boualam, Martin, Mayneris, 31 January 2019

Urban planners are increasingly willing to adopt policies to temper neighbourhood changes and to assist potential losers from these changes, but how can future spots of gentrification be anticipated? This column studies gentrification in New York and Philadelphia between 1990 and 2010 to provide evidence on the micro-geographic scale of the process and the role that businesses play in it. It identifies a small group of about 20 industries whose presence in a poor neighbourhood increases its likelihood of gentrifying.

Bircan, 31 January 2019

Evidence is mixed on the effects of multinational activity on productivity and competitiveness in host economies. This column provides new evidence that multinationals’ productivity effects may be previously under-estimated. Results suggest that ownership structure of multinationals and foreign acquisitions play an important role in driving aggregate productivity growth.

Baker, Kueng, McGranahan, Melzer, 30 January 2019

During and after the Global Crisis, economists and policymakers proposed a commitment to increase consumption taxes in the future as a way to shift consumption to the present. This column tests the impact of this unconventional fiscal policy using data on car sales. It finds that households respond dramatically to planned tax increases, but this depends on them having access to credit so they can bring forward their spending.

Friewald, Nagler, 30 January 2019

Previous studies show that conventional factors, such as firm-specific and macroeconomic variables, do a poor job of explaining yield spread changes. Using data from the US corporate bond market, this column shows that over-the-counter frictions explain around 23% in the variation of the common component and one third of the total variation in yield spread changes. The combination of search and bargaining frictions is slightly more important for the dynamics of yield spread changes than inventory frictions. The findings are broadly consistent with leading theories of intermediation frictions in over-the-counter markets.

Hubbard, 30 January 2019

Harold Demsetz, who passed away earlier this year, was an enormously influential figure in industrial organisation, the economics of organisation, and law and economics. This column, written by a friend and colleague, outlines some of his most influential ideas and characterises his thinking as rigorous, insightful and highly relevant to central problems in industrial organisation and business strategy today.

Ch, Shapiro, Steele, Vargas, 29 January 2019

It is widely accepted that war between states can lead to increased fiscal capacity. Yet, there is no similarly clear, historically consistent accounting of how civil wars have affected state capacity and tax revenues. Using recent evidence from Colombia, this column shows that municipalities affected by internal conflict have tax institutions consistent with the preferences of the parties that have managed to inflict more violence in the past. Internal armed conflict can help interest groups capture municipal institutions for their own private benefit, impeding state-building.

Lopez, Sautmann, Schaner, 29 January 2019

Healthcare systems around the world battle high rates of overtreatment. This column investigates the role of patient demand in this, using a randomised evaluation of malaria treatment at public health clinics in Mali. It finds no evidence of doctors attempting to increase treatment rates or intensity, instead heightened demand from patients sometimes pressured doctors into going against their own professional judgement and writing a prescription anyway. In such situations, interventions that make it easier for doctors to resist patient demands could help sustain subsidies and reduce overtreatment.

Lim, Dixon, van Ours, 28 January 2019

One version of Okun’s law specifies a relationship between the change in the unemployment rate and output growth. This column uses US labour market flows data to investigate this relationship between 1990 and 2017. It finds that the net flows between employment and unemployment are sensitive to changes in growth but respond differently to positive and negative changes. This implies that the US Okun relationship is stable but asymmetric, the effect of a change being larger in contractionary periods than in expansionary ones. 

Stráský, Claveres, 28 January 2019

Calls to complement national automatic stabilisers and the ongoing financial integration in the euro area with a common fiscal instrument have provoked a mixed response. This column, part of the VoxEU debate on euro area reform, uses a dynamic stochastic general equilibrium model of the euro area to show that fiscal risk sharing brings an additional layer of stabilisation compared to national stabilisers, particularly when monetary policy is constrained by the effective lower bound. It also argues that an unemployment reinsurance scheme could be designed in such a way that it would benefit all members of the currency area and would not lead to permanent transfers among countries.

Altomonte, Bonacorsi, Colantone, 28 January 2019

Amid Brexit and protectionist moves by President Trump, many observers are warning about the negative effects that a rise in trade barriers could have on growth. This column first highlights the important role acquired by deep-water ports as main hubs for trade during 1995-2007 and how they have allowed countries to gain from trade.  It then shows that becoming embedded in global value chains is a powerful determinant of growth, even if it implies that a growing share of gross exports represents value added that has been produced in foreign countries. 

Birgisdóttir, Hauksdóttir, Ruhm, Ásgeirsdóttir, 27 January 2019

Studies on the relationship between business cycles and health have come up with conflicting results. This column uses the case of Iceland’s economic collapse in 2008 to argue that the context and nature of macroeconomic fluctuations are key. Looking at the Icelandic business cycle in general suggests that hard economic times appear to be good for heart health, but the collapse, which was particularly dramatic and sudden, increased the incidence of ischemic heart disease. 

Chabé-Ferret, Gobbi, 26 January 2019

Between the early 1940s and the late 1960s, the secular decline in fertility that started at the turn of the 19th century in most developed countries was interrupted by a massive baby-boom. This column argues that although much attention has focused on this boom, fertility rates preceding it were abnormally low. The evidence suggests that economic uncertainty can explain a substantial part of the major swings in fertility over the 20th century.

Hamermesh, Biddle, 26 January 2019

People combine goods and time in household production, and theory suggests that as their wage rates rise, they will substitute goods-intensive for time-intensive activities. However, it is not clear how activities that take essentially no, or minimal, amounts of spending, such as sleeping or watching TV, fit into the theory. This column uses data from time diaries for the US, France, and Germany to demonstrate that not all non-work time is the same, and different components of non-work time respond differently to changing incentives.

Young, 25 January 2019

In our second podcast on the The European Bank for Reconstruction and Development's report on Work in Transition, Tim Phillips talks to Nate Young about how the growth of large cities in EBRD regions affects economic growth and wellbeing.

Giupponi, Landais, 25 January 2019

Labour hoarding – the practice of retaining excess employees during a negative shock – could potentially help firms avoid re-hiring and training costs when economic conditions improve and act as a form of insurance for workers. This column uses Italian micro data to show how labour hoarding in the form of short-term work programmes can be beneficial despite being ineffective in the long term.

Blundell, Preston, 25 January 2019

Sir James Mirrlees, co-recipient of the 1996 Nobel Memorial Prize in Economic Sciences, passed away in August 2018. This column outlines how his work has transformed economists’ understanding of their discipline – from the principles of tax design to the theory of contracts and beyond. By conceiving of policy questions in terms of information asymmetries between governments and taxpayers, Mirrlees demonstrated how to conduct convincing analysis of redistributive objectives together with incentive effects in the design of general tax systems and public policy more broadly. His ability to simplify complex problems in ways that reveal their tractable essence means that his work has yielded insights that have reverberated throughout the discipline. It has also proved highly fruitful for practical policy design.

Martino, Di Porto , Naticchioni, 24 January 2019

Legalisation of immigrant workers is a simple policy to implement and can be very effective in reducing undeclared labour, yet economists know relatively little about how host economies are affected. This column analyses Italy's largest ever legalisation to examine how the policy affects firms’ employment, shapes legalised migrants workers’ careers, and affects their co-workers. Despite regularising firms experiencing only very short-lasting employment growth, legalised migrants remained strongly attached to the formal labour market. High mobility of migrants to other firms, provinces and industries is an important driver of the results, helping to ensure that co-workers’ careers were not affected by the reform.

Merlevede, Theodorakopoulos, 24 January 2019

Studies of the implications of trade openness for local economies rarely address the domestic supply chain. This column examines whether indirect effects of internationalisation affect the domestic supply chain. Micro-level data for manufacturing firms across 19 EU countries, combined with input-output tables, show that domestic access to intermediate inputs that are also exported leads to higher levels of efficiency.

Eggertsson, Summers, 24 January 2019

Several central banks implemented negative policy rates in response to the financial crisis, but there is little consensus on the overall effect of this policy. This column examines the transmission of policy rates to bank lending rates, focusing on the case of Sweden. While the first two cuts in negative territory by the Riksbank appear to have been transmitted to lending rates, transmission seems to have broken down for the second two cuts. The findings suggest diminishing returns on interest rate cuts at negative rates.

Abel, Tenreyro, Thwaites, 23 January 2019

Concentrated labour markets, in which workers have few choices of potential employers, reduce the wages of workers when they are not covered by collective wage bargaining agreements. But these types of agreements have become much less common in the past 20 years. This column uses employee-level data to show that even though UK labour markets have not on average become much more concentrated, concentration – which varies a great deal across regions and industries – is having a bigger impact on wages than before.

Harrigan, Reshef, Toubal, 23 January 2019

Economists have studied the nexus between labour demand, globalisation, and technology adoption for decades, but quantifying the relative importance of these factors is challenging. Using firm-level data from France, this column proposes a new measure of productivity based on the number of workers in technology-related occupations. It finds large effects of importing, ICT, and R&D on the relative demand for skilled workers through their effects on productivity. Interestingly, the demand for both skilled and unskilled workers rises when firms hire ‘techies’ or engage in offshoring.

Erikson, Vestin, 22 January 2019

It has been suggested that the response of bank lending rates to interest rate cuts may become weaker when the policy rate passes below a certain level. This column argues that in the case of Sweden, the pass-through of policy rate cuts below zero to the economy has been reasonably good and monetary policy has been effective even at negative policy rate levels.

Revoltella, 22 January 2019

Europe is at risk of falling behind its global competitors. In a period of radical technological transformation, European firms are investing too little, with a gap both in tangible and intangible investment compared to the US. This column calls for a ‘retooling’ of Europe’s economy in relation to skills, innovation finance, the business environment, infrastructure, and deepening the Single Market.

Goodhart, Ashworth, 22 January 2019

Canada is the first major developed nation to have legalised recreational cannabis use. This column argues that movements in cash in circulation around the time of legalisation seem to provide early evidence that Prime Minister Trudeau’s policy has already been successful in crimping the black economy. If around one-quarter of the cannabis market remains illegal, as recently estimated by Statistics Canada, over time legalisation could reduce the size of the total underground economy by around 4% or 5%.

Michel, Hambÿe, Hertveldt, 21 January 2019

Domestic value creation is shaped by how and to what extent economies integrate into global value chains. This column argues that further insights can be gained by distinguishing export-oriented and domestic market firms in standard indicators of global value chain integration and participation. Using data for Belgium, it documents that export-oriented firms differ from domestic market firms in terms of input structure and import patterns. These two types of firms play different roles in determining the nature of a country’s global value chain participation.

Aksoy, De Haas, 21 January 2019

Technological innovation can help to shift labour from sectors with low levels of productivity (such as agriculture) to higher-productivity sectors (manufacturing and, increasingly, services), with a profound impact on the nature of work and the types of skills that are in demand in the workplace. This column examines how this transformation is impacting jobs and employment across emerging Europe. The findings suggest that robotisation can explain only 13% of the total decline in the employment rate observed in these countries between 2010 and 2016.

Crowley, Exton, Han, 21 January 2019

Uncertainty over the future of the world trading system is at its highest since the introduction of GATT in 1947. The US-China trade war and suggestions that President Trump intends to withdraw the US from the WTO have significantly raised uncertainty in the global economy. Meanwhile, uncertainty over the future of the UK-EU trading relationship spiked on 15 January when the UK parliament overwhelmingly rejected the negotiated terms of the UK’s withdrawal from the EU. This column documents that an earlier period of heightened trade policy uncertainty for the UK – the period following the Brexit referendum in June 2016 – depressed the UK’s international trading activity, with some UK businesses choosing to not enter the EU market while others chose to exit. 

Gross, 20 January 2019

Creativity, despite its importance, is rarely studied by economists. The column uses the outcome of design competitions to evaluate whether positive ratings and strong competition spur creativity. Positive feedback with little competition reduces creativity, while the presence of small numbers of highly rated competitors increases it. But as the numbers of strong competitors increases, designers are increasingly likely to give up entirely.

Galor, Özak, Sarid, 20 January 2019

Evidence suggests that ancient regional variations in geographical characteristics contributed to the differential formation of culturaland linguistic traits, which in turn shaped development and inequality in today’s world. This column discusses how geographical characteristics are linked to the emergence of long-term orientation and the future tense, how they shaped distinct gender roles and possibly contributed to the emergence of grammatical gender, and how ecological diversity is connected to the emergence of hierarchical societies and reflected in politeness distinctions in language.

Collins, Zimran, 19 January 2019

Negative sentiment towards immigrants is often based on fears about their ability to integrate into economic, political, and social institutions. This column analyses the impact of the influx of Irish immigrants into the US in the 19th century. It shows that the children of immigrants had assimilated in terms of labour market outcomes within one generation, providing some perspective for the current debate about immigration policy.

Guriev, 18 January 2019

The European Bank for Reconstruction and Development has published a report that investigates how work is changing in Europe and Asia's transition economies. Tim Phillips talks to the Bank's chief economist, Sergei Guriev, about who is working, how, and where.

Fishback, Fleitas, Rose, Snowden, 18 January 2019

Although severe crises in housing markets contributed to both the Great Recession of 2007 and the Great Depression of the 1930s, the role that housing-related financial frictions played in the crises has yet to be explored. This column investigates the impact that foreclosures had on the supply of new home mortgage loans during the housing crisis of the 1930s. It shows that an increase in foreclosed real estate on a building and loan associations’ balance sheets had a powerful and negative effect on new mortgage lending during the 1930s.

Davis, Hausman, 18 January 2019

Rises and falls in oil prices impact the macroeconomy, the stock market, investment, and of course the value of oil and gas firms. What happens to the fortunes of the leaders of those oil and gas firms? This column argues that the compensation of US oil and gas executives is closely tied to oil prices – much more closely than economic theory would predict. Theory says that executives should be rewarded for the value they bring to a firm, and that they should be incentivised to take the best actions on behalf of the firm. With billions of dollars at stake each year, boards and shareholders may want to revisit how compensation is structured at these firms.

Anagol, Balasubramaniam, Ramadorai, 17 January 2019

Although economic agents should discern signals from noise when drawing from experience, recent evidence suggests decision-making can be based on both noise and signal components. This column uses a natural experiment of IPO lotteries in India to show that randomised gains cause winning investors to increase applications to future IPOs and substantially increase portfolio trading volume in non-IPO stocks relative to lottery losers. Investors appear to draw inferences about their skill from noise. 

Fendel, Mai, Mohr, 17 January 2019

The flattening of the US yield curve has left academics, central bankers and market commentators divided, with one camp interpreting it as a sign of impending recession (in line with historical patterns), and the other camp arguing that this time is different given unprecedented changes in monetary policy and other structural forces. This column argues that the ECB’s quantitative easing programme undermined the performance of term spreads as predictors of recessions. It suggests and tests a modified term spread and several other variables that are more successful at predicting recessions. 

den Haan, Drechsel, 16 January 2019

It is unavoidable that empirical models are misspecified in various ways, but adopted empirical methodologies rarely address this. This column focuses on the misspecification of exogenous structural disturbances which are the forces that drive fluctuations in modern business cycle models. It shows that the conclusions drawn from estimated models can be severely distorted if structural disturbances enter the model in an incorrect way, even if the misspecification is minor. It proposes the novel concept of an agnostic structural disturbance, which can be used to detect and correct for misspecification of structural disturbances. While agnostic in nature, studying how ASDs affect model properties enables us to give them an economic interpretation.

Egger, Loumeau, 16 January 2019

Innovative activity is unevenly distributed geographically, with regional characteristics such as global market accessibility or an innovation-promoting policy environment affecting the spatial distribution. Using global data on regional characteristics, regional patenting output, and innovation-promoting policy environments, this column examines the origins of innovation clusters, and particularly the role of R&D tax policy instruments, in attracting innovative firms. It estimates that innovation-promoting R&D tax policy instruments contribute to about one-tenth of the long-term economic growth around the globe.

Crafts, 15 January 2019

Brexit in 2019 and the banking crisis in 2007 to 2009 are usually seen as unrelated events. This column argues that they are in fact closely connected. The austerity policies embarked on in response to the fiscal damage resulting from the banking crisis triggered the protest votes of left-behind voters, which at the margin allowed Leave to win the referendum vote. The implication is that the economic costs of the banking crisis are much larger than is usually supposed.

Kalemli-Ozcan, Laeven, Moreno, 15 January 2019

Euro area corporate sector investment collapsed post-crisis, especially in periphery countries. The column uses firm and bank data to investigate whether corporate debt accumulated during the boom years was responsible. Firms with higher leverage or firms that borrowed more decreased investment more, especially when linked to weak banks. These channels explain about 60% of the decline in aggregate corporate investment during the crisis.

De Jong, Gilbert, 15 January 2019

The Stability and Growth Pact has been criticised by some for imposing fiscal tightening during recessions, and by others for a lack of compliance. Using a database of all country-specific Excessive Deficit Procedure recommendations since the introduction of the euro, this column shows that the corrective arm of the pact, which is procyclical by design, is an important driver of euro area fiscal policy. The preventive arm, which is designed to avoid the need for such procyclical policies, is much less effective and reform of the pact should focus on addressing this.

Mody, Nedeljkovic, 14 January 2019

The ECB’s actions in the wake of the Global Crisis have been described as hesitant, relative to other central banks. Based on analysis of financial markets' response to the ECB's interventions during the euro crisis, this column argues that central bank interventions are effective if they clearly signal a commitment to reinvigorating the economy and if they address the source rather than the symptom of financial stress. The ECB did not follow these principles, limiting its ability to improve financial market sentiment. 

Allen, Dobbin, Morten, 14 January 2019

A vigorous debate exists about the economic benefits of building a border wall between the US and Mexico. Yet, empirical evidence to guide the debate has lagged behind. This column studies the economic impact of the Secure Fence Act of 2006, which built 550 new miles of fence on the US–Mexico border. At a construction cost of $7 per person, the fence led to a small reduction in migration but had negligible effects on the economy, with high-skilled US workers losing $4.60 per year in income, and low-skilled US workers gaining just $0.36 per year. 

Shimizutani, 14 January 2019

Social security reforms in advanced economies may give people incentives to work past retirement age. The column estimates the financial incentives to work or retire at each age for elderly men and women in Japan. There is a correlation between series of social security reforms to reduce generosity and the recent recovery of employment rates for men aged 60-69 and for women aged 55-64.

Titl, Geys, 13 January 2019

Despite public concerns about the role and influence of big donors on politics, questions remain regarding the mechanisms behind political favouritism to donor corporations. Using 2006–2014 data on political donations and public procurement allocations in the Czech Republic, this column finds that firms that increase their donations to a political party see the value of their public procurement contracts rise in the following year. Contracting authorities appear to engage in different forms of strategic behaviour to favour corporate donors, who tend to face fewer competitors in more regulated and open procurement procedures.

Mbaye, Moreno Badia, Chae, 12 January 2019

Since the financial crisis researchers have extensively explored the dangers of excessive public debt, but excessive private debt has received less attention. This column documents a common form of indirect private sector bailout that goes largely unnoticed. Whenever households and firms are caught in a debt overhang and need to deleverage, governments come to the rescue through a countercyclical rise in public debt. This indirect substitution takes place even in the absence of a crisis.

Grossman, 11 January 2019

It blows the minds of economists when voters choose protectionist policies that, they point out, make most of them poorer. Gene Grossman tells Tim Phillips how trade models can explain this, if they incorporate insights from other social sciences.

Aidt, Chadha, Sabourian, 11 January 2019

Unanimous agreement on the UK’s Brexit question is clearly not going to be achievable. But as this column argues, using a sequential voting system, it is within reach to structure the democratic process so that a voting procedure is fair to all views and the outcome is preferred by a majority to any other alternatives.

Fuster, Goldsmith-Pinkham, Ramadorai, Walther, 11 January 2019

The use of machine learning in credit allocation should allow lenders to better extend credit, but the shift from traditional to machine learning lending models may have important distributional effects for consumers. This column studies the effect of machine learning on mortgage lending in the US. It finds that machine learning would offer lower rates to racial groups who already were at an advantage under the traditional model, but it would also benefit disadvantaged groups by enabling them to obtain a mortgage in the first place.

Boeri, Mishra, Papageorgiou, Spilimbergo, 11 January 2019

The claim by populist leaders to have a monopoly on representing ‘the people’ stands in contrast with the concept of liberal democracy, which is based on pluralism where different groups represent different interests and values. Using data from several waves of the European Social Survey, this column demonstrates that individuals who belong to associations are less likely to vote for populist parties. Alexis de Tocqueville appears to have been right when he wrote almost two centuries ago that civil society is a key defence of liberal democracy.

Hoffmann, Maslov, Sørensen, Stewen, 10 January 2019

Bank-to-bank lending in the euro area has increased, direct cross-border lending has not. The column shows that dependence on domestic banks reduces risk-sharing in a crisis, reducing GDP growth in affected country-sectors. Benefits from banking integration are only robust to global shocks if banking integration takes the form of cross-border lending to firms and households.

Han, Meyer, Sullivan, 10 January 2019

Economic wellbeing depends on the consumption of not just goods and services, but also the consumption of time. This column looks at leisure and consumption together for the same families by imputing the amount of leisure families consume in the Consumer Expenditure Survey, and finds a negative relationship between consumption and leisure. Accounting for both leisure and consumption implies somewhat less inequality in society, and suggests that social welfare policies and the business cycle can alter the economic wellbeing of families by both altering resources consumed and through their effect on leisure.

Hamrick, Rouhi, Mukherjee, Feder, Gandal, Moore, Vasek, 09 January 2019

The surge of interest in cryptocurrencies has been accompanied by a proliferation of fraud, largely in the form of pump and dump schemes. This column provides the first measure of the scope of such schemes across cryptocurrencies. The results suggest that the phenomenon is widespread and often quite profitable, and highlight the need for concerted efforts from industry and regulators to fight cryptocurrency price manipulation. 

Dinlersoz, Hyatt, Kalemli-Ozcan, Penciakova, 09 January 2019

The financing behaviour of private US firms has been somewhat neglected in the firm dynamics literature. This column presents a new dataset for studying these firms’ behaviour and explores how the Great Recession affected their growth. The results show substantial heterogeneity in leverage by firm age and size among private firms, but not among public firms. 

Cui, Sterk, 09 January 2019

The effects of quantitative easing are poorly understood, in part because standard models of monetary policy predict that it doesn't work. This column uses a model in which households can be unequal and hold assets with different degrees of liquidity to show that quantitative easing can provide a powerful stimulus to the macroeconomy, and that it avoided a large decline in output and inflation during 2009. Nevertheless, side-effects on inequality mean that social welfare tends to be lower under quantitative easing than under conventional policy.

Ekkayokkaya, Jirajaroenying, Wolff, 09 January 2019

Retail investors are generally considered to be uninformed noise traders, but a recent literature suggests that such investors accumulate novel information about smaller stocks. Using new data from Thailand, this column argues that retail investors systematically outperform institutions, especially domestic institutions. In addition, retail investors have a comparative advantage in executing trades of small stocks. 

Frean, Pauly, 08 January 2019

Both healthcare spending levels and growth in the US have exceeded other developed countries for many years. With healthcare costs rising at an unsustainable pace, a greater percentage of workers in the US are being enrolled in high-deductible health plans. This column estimates the relationship between high deductibles and the growth in total healthcare spending on all medical goods and services. It finds that deductible levels have a considerable effect on spending growth, and suggests that the natural next step is to explore whether or how that affects health outcomes.

Jia, Jin, Wagman, 07 January 2019

The EU’s General Data Protection Regulation was a landmark piece of legislation stipulating how businesses approach consumers’ privacy with regards to data. Using EU and US data, this column explores how the legislation impacted technology venture investment. The implementation of GDPR had an immediate, pronounced, and negative effect on investment. However, these results do not necessarily constitute a welfare loss, and the long-term effects of GDPR remain to be seen. 

Dhyne, Konings, Van den bosch, Vanormelingen, 07 January 2019

Although information technology has reshaped the way businesses operate, measuring IT capital in firms is challenging. Using an exceptionally rich firm-level dataset from Belgium, this column finds that large firms benefit more from IT than small firms, and that IT explains about 10% of the productivity dispersion. IT has contributed to Belgian GDP and productivity growth prior to the Global Crisis, but the recession seems to have led firms to forgo investment in IT. Achieving optimal IT investment levels could reinvigorate productivity growth.

Dauth, Findeisen, Moretti, Südekum, 06 January 2019

Large internal wage disparities between cities are a common feature in countries around the world. Using data from Germany, this column argues that one key driver of this is rising assortative matching of high-quality workers and plants in large cities. One promising strategy to reduce spatial wage disparities is to improve matching within small cities.

Battaglia, Gulesci, Madestam, 06 January 2019

Small firms in developing countries are commonly thought to be prevented from making profitable investments by lack of access to credit and insurance markets. This column uses evidence from an experiment in Bangladesh to show that repayment flexibility leads to substantial improvements in business outcomes and socioeconomic status, as well as lower default rates. The results are driven by an increase in entrepreneurial risk taking, suggesting that lack of insurance is an important constraint for small firms but that a simple financial product that increases repayment flexibility can be an effective tool for enabling growth.

Bauer, Cahlíková, Celik Katreniak, Chytilová, Cingl, Želinský, 05 January 2019

The economic consensus is that groups behave in a more self-regarding way than individuals, which affects their members’ decision-making. This column describes new evidence from experiments in Slovakia and Uganda that supports an alternative hypothesis from social psychology that simply being a member of a group makes us more anti-social to outsiders. Within-group cohesion in organisations may also have a dark side, fostering hostility to outsiders.

Miles, 04 January 2019

If our wealth has been acquired unjustly in the past, does that injustice fade or persist? David Miles of Imperial College tells Tim Phillips how economics can help to answer this question.

Bosker, Westbrock, 04 January 2019

Much has been written about the opportunities and threats arising from the international fragmentation of production processes. This column introduces a novel theoretical approach to track down the different, sometimes conflicting, ways in which shocks spread through global value chains. It suggests that what matters most is not a country's access to the technologies and markets of its direct trading partners, but its exposure to changes in the larger production network.

Comerford, Rodriguez Mora, 04 January 2019

Populists in Europe are contesting the perceived benefits of economic integration between countries. This column uses data on trade frictions to estimate the long-run impact of trade frictions on GDP if countries in Europe were to be more or less integrated. Negative between-country impacts, such as from Brexit or an EU collapse, imply a GDP reduction of between 1-3%. The potential trade benefits of a 'United States of Europe', on the other hand, may be an order of magnitude greater for its members.

L. Cermeño, Enflo, 03 January 2019

Urban growth is crucial for modernisation, and the wave of new towns in China since the 1980s is one example of a strategy employed by policymakers to encourage the process. This column analyses the long-run success of a town foundation policy in Sweden between 1570 and 1810. While the ‘artificially’ created towns failed to grow in the short term, they eventually began to grow and thrive, and today are as resilient as their medieval counterparts. 

Palomino, Marrero, Rodríguez, 03 January 2019

The American Dream is grounded in the US being the land of opportunities, but real opportunity requires mobility across generations. This column examines the influence of parents’ income on the income of their children in the US for the period 1980-2010. Parental income has a greater influence, implying lower levels of mobility, for families with the highest and lowest levels of income. Education also plays a stronger role in economic persistence at both tails of the income distribution, while race affects mobility in the middle and lower parts of the distribution. 

Bughin, Pissarides, 02 January 2019

Europe’s social contracts to protect their citizens from socioeconomic risks are based on an inclusive growth model characterised by a more egalitarian view of revenue generation and distribution. But this model is under strain, with various global trends placing upward pressure on inequality that could intensify. This column suggests that keeping the essence of Europe’s current inclusive growth model does not preclude it from adapting its current social contracts to protect its citizens, whatever the disruptions that lie ahead.

Veldkamp, Farboodi, 02 January 2019

Technological change is making it possible to process more and more information. This column looks at the implications of this for trading strategies. It finds that growth in the amount of data investors can process is a logical and predictable cause of a shift from fundamentals-based to order flow-based strategies. 

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