Peter Egger, Gabriel Loumeau, Nicole Loumeau, 03 November 2020

China’s transport infrastructure network has experienced unprecedented growth, both in terms of length and quality, in the last two decades. Using hand-collected and digitised data on the Chinese road and railway networks over time, this column discusses the magnitude and the long-run consequences of the country’s transport infrastructure changes. It finds that increased network centrality fosters regional convergence in population and, to a lesser extent, in real per-capita incomes. Facilitated goods transport and increased technology diffusion contribute the lion’s share of these effects.

Alexander Chudik, Kamiar Mohaddes, M. Hashem Pesaran, Mehdi Raissi, Alessandro Rebucci, 19 October 2020

The Covid-19 pandemic is unprecedented in its global reach and impact, posing formidable challenges to policymakers and to the empirical analysis of its direct and indirect effects within the interconnected global economy. This column uses a ‘threshold-augmented multi-country econometric model’ to help quantify the impact of the Covid-19 shock along several dimensions. The results of the analysis show that the global recession will be long lasting, with no country escaping its impact regardless of their mitigation strategy. These findings call for a coordinated multi-country policy response to the pandemic.

Ufuk Akcigit, Sina T. Ates, Josh Lerner, Richard Townsend, Yulia Zhestkova, 24 September 2020

The US military community has highlighted the potential security threat posed by foreign venture investments in Silicon Valley, particularly from Chinese stakeholders. This column presents a theoretical and empirical analysis of the relationship between venture capital and national security, focusing on the ability of overseas firms to gain a domestic technological advantage through investing in the US tech sector. The growing importance of this the technology sector, as well as the national security issues at stake, mean that understanding the correlations is a vital avenue of future research.

Saleem Bahaj, Ricardo Reis, 21 September 2020

Only a handful of currencies are regularly used for cross-border payments, with the US dollar dominating almost any measure of international use. This column analyses the preconditions for a currency to achieve international status and asks whether government policies can assist in this process. Theoretically, it argues that international status depends on several thresholds, including a currency’s volatility, the size of the issuing country, and the borrowing costs involved. Empirically, it shows that swap line agreements signed by the People’s Bank of China significantly increase the likelihood of renminbi usage in the following months, signalling the effectiveness of this policy.

Benny Kleinman, Ernest Liu, Stephen Redding, 17 September 2020

The increasingly prominent role of China in the world economy has led to widespread discussions concerning the balance of power, trade relations, and economic development. This column presents a new ‘friends and enemies’ model which is used to show that significant growth and welfare effects have stemmed from China’s shifting role, and that changes in trading clusters have varied across different sectors. The findings also suggest that as countries become less economically friendly in terms of the welfare effects of their productivity growth, they also become less politically friendly in terms of foreign policy. 

Andreas Fuchs, Lennart Kaplan, Krisztina Kis-Katos, Sebastian S. Schmidt, Felix Turbanisch, Feicheng Wang, 16 September 2020

China assumed an important role during the worldwide outbreak of COVID-19 as the main exporter of critical medical goods such as face masks and disinfectants. However, shipments of medical goods have been turned into propaganda campaigns by Chinese state media, raising the question if access to medical goods is granted upon political goodwill. This column uses official monthly trade data from Chinese Customs to investigate the emerging trade patterns, both for commercial exports and donations of medical goods. It shows that both existing trade linkages and political ties to Chinese provinces can help to attract Chinese medical goods.

James Heckman, Bei Liu, Mai Lu, Jin Zhou, 21 August 2020

Research has shown that home visiting programmes are effective and relatively low cost compared to other early childhood programmes. This column evaluates the impacts of one such programme targeted at left-behind children in rural China, based on the influential Jamaica Reach Up and Learn programme. The programme substantially improves child language, cognitive, fine motor, and socioemotional skills, with 90% of these gains come from boosting child skills, and the rest coming from improving the utilisation of existing skills. Growth profiles reveal that China REACH is on track to reach or exceed the growth profiles of the highly successful Jamaica Reach Up programme.

Bo Li, Jacopo Ponticelli, 06 August 2020

The lack of an efficient and independent judicial system can impede economic development by negatively affecting firms’ ability to invest, innovate, and reallocate capital towards more productive projects. This is indeed a concern for China. This column exploits the introduction of specialised bankruptcy courts in different Chinese cities between 2007 and 2017 to examine its effects on the local economy. Specialisation leads to faster resolution of bankruptcy cases, especially for state-owned firms. It also increased local firms’ average product of capital and decreased the share of labour employed in zombie-intensive industries compared to cities where insolvency is still resolved exclusively by civil courts.

Robert Feenstra, Chang Hong, 25 July 2020

In December 2019, the US and China reached a Phase One agreement, which mandates China to purchase additional imports from the US worth $200 billion in 2020 and 2021. This column shows that the most efficient way for China to increase imports from the US is to mimic the effects of an import subsidy. For agricultural products, this subsidy would need to be as high as 42% for 2020 and 59% for 2021 in order to meet the target. Such subsidies would divert agricultural imports away from other countries, especially decreasing Chinas imports from Australia and Canada.

Michèle Belot, Syngjoo Choi, Egon Tripodi, Eline van den Broek-Altenburg, Julian C. Jamison, Nicholas W. Papageorge, 24 July 2020

Almost all countries in the world have implemented drastic measures to contain the COVID-19 pandemic. This column documents the effects of the epidemic and containment measures using representative individual data on age and income from three Western and three Asian countries. Younger groups in all countries have been affected more, both economically and non-economically. Differences across income groups are less clear and less consistent across countries. The young are less compliant and supportive of the containment measures, no matter how hard they have been affected by them.

Peter Petri, Michael Plummer, 09 July 2020

The US-China trade war has negatively affected global growth and trade prospects, redirecting supply chains and leading to inefficiencies. However, this column suggests that emerging mega-regional trade agreements, including the Comprehensive and Progressive Agreement on Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, have the potential to compensate for the trade war by reducing regional costs. Such agreements are likely to lead to deeper integration within Asia, especially among Japan, China, and Korea. They could also trigger further economic distancing between Asia and the US, and a large increase in the influence of China.

Stefano Federico, Fadi Hassan, Veronica Rappoport, 25 June 2020

In a period where the backlash against trade and globalisation is at historical high point, it is crucial to understand the frictions that prevent a full realisation of the gains from trade. This column takes evidence from Italy and contributes to the debate by identifying a novel channel: the endogenous funding constraint of banks whose loan portfolios are affected negatively by the liberalisation. There are spillovers between ‘losers’ and ‘winners’ from trade that operate through banks, which hinder the reallocation of resources towards firms that should actually expand after the liberalisation.

Robert Gilhooly, Carolina Martinez, Abigail Watt, 22 June 2020

China has implemented a wide range of measures to support the economy through the ongoing coronavirus shock. This column examines China’s policy response, and suggests that the recent loosening in financial conditions should support activity over the next six to nine months, but it will only be at best half that seen in 2016 and a third of that after the Global Crisis given the relative change in financial conditions thus far. Moreover, the policy levers are at best only 40% of that deployed during the Global Crisis. This contrasts with the approach of many other countries, which have reacted more aggressively to the coronavirus shock. 

Yiping Huang, 17 June 2020

Although coronavirus infection rates have dropped considerably in China and businesses are starting to return to something resembling normality, there is still a high state of alert and outbreaks are treated with an immediate and firm response.
Huang Yiping, recorded 21 May 2020 at CEPR / LSE IGA / SPP webinar on:
Recovering from COVID-19 – China and global value chains in the wake of the pandemic

Karlo Kauko, 22 May 2020

Many observers have had a sceptical attitude towards Chinese banks’ official disclosures of non-performing loans. A loan should be classified non-performing if the customer stops servicing the loan. Therefore, hidden problems in the loan portfolio would manifest themselves as a suspiciously low interest revenue. Using this simple idea, this column sheds light on the likely distribution of hidden non-performing loans in Chinese banks. It finds that loan quality problems became more commonplace in 2016. Surprisingly, hidden NPLs seem more common in strongly capitalised banks and large banks, but also in banks that rely on interbank funding.

Bernard Hoekman, Douglas Nelson, 08 May 2020

Prior to the re-emergence of tariff nationalism as espoused by the Trump administration, subsidies were becoming a central source of trade tensions between major economies. The prospect of trade conflicts associated with the use of such instruments to combat climate change was increasing. Policy responses to the COVID-19 pandemic have led to a massive increase in subsidisation of firms in many countries. This column argues for a revisit of current approaches to addressing subsidy conflicts. The need for cooperation between the major economies to manage the international competitive spillovers of subsidies was evident pre-COVID-19. It has now become much more urgent.

Sebastian Horn, Carmen Reinhart, Christoph Trebesch, 04 May 2020

COVID-19 is wreaking economic havoc, and its most severe consequences are likely to be felt in the developing world. Recession, depressed commodity prices, collapsing cross-border trade, and a flight to safety in financial markets have set the stage for a replay of the 1930s and 1980s debt crises. This column presents insights from a comprehensive new dataset on China’s overseas lending and shows that developing countries are much more indebted to China than previously known. Any effort to provide meaningful debt relief to the most vulnerable countries must encompass the debts owed to China.

Yi Huang, Chen Lin, Pengfei Wang, Zhiwei Xu, 23 March 2020

With the COVID-19 outbreak having officially become a pandemic, it is essential to consider not just how to prevent further public health crises but also economic and financial crises. This column suggests that in both cases, recent lessons from China are instructive. China enacted aggressive public health policies that appear to have been effective, at least in the short term. But the measures taken to stem the public health crisis may still lead to a domestic economic meltdown that could infect international trade.

Alejandro Cuñat, Robert Zymek, 17 February 2020

Most countries exhibit large variation in bilateral trade balances across their trade partners. This column argues that it is possible to use gravity trade models to describe the sources of this variation with greater clarity, but that a large portion of the variation still remains poorly understood. It also shows that tariffs imposed during the US-China trade war will reduce the US-China trade deficit in the long run, but only by worsening the US trade balance with other trade partners almost one-for-one.

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