Pietro Santoleri, Andrea Mina, 19 July 2020

Direct public support for business R&D is common practice in many countries, but evidence on its causal effects has been mixed. This column exploits discontinuity in the assignment mechanism of the first large-scale European R&D grant programme to assess the impact of the policy. The results indicate that direct grants have positive and sizable effects on a wide range of firm-level outcomes suggesting that R&D grants are an effective policy tool. 

Henk Jan Reinders, Dirk Schoenmaker, Mathijs van Dijk, 13 July 2020

The severe economic impact of the COVID-19 pandemic could threaten financial stability. Since accounting-based methods report loan losses with a delay, this column adopts a real-time, market-based assessment of the impact on corporate loan portfolios. Using European stock market data, it estimates that the market-implied losses for euro area banks could reach over €1 trillion, or, depending on the scenario, 7-43% of available bank capital.

Nicolas Gonne, Olivier Hubert, 08 July 2020

The shutdown of passenger air travel at the height of the COVID-19 pandemic slowed the spread of the disease but caused major economic losses for the sector. This column presents a cost-benefit analysis of the global freeze of passenger air traffic. While any conclusion is highly dependent on a handful of factors, including the controversial and difficult-to-calculate ‘value of a statistical life’, the simulations provide useful anchoring points at a time when governments are contemplating reopening air routes, as well as in the face of a potential second wave of infections.

John Hassler, Per Krusell, Morten Ravn, Kjetil Storesletten, 07 July 2020

The responses to Covid-19 have had direct economic consequences of historic proportions. In reaction to this challenge, this column was prepared by four main authors and then discussed within a large group of research-active macroeconomists who also signed the final document. The column discusses the nature of the shock and the challenges for economic policy in Europe in the current and next phases of the crisis. In addition to outlining some basic principles for guiding domestic economic policy, it also calls for clear communication of policy to minimise uncertainty, for cooperation across countries along several dimensions, and for a clear and unified strategy in the management of national debts.

Pierre Dubois, Morten Sæthre, 04 July 2020

Differences in regulated pharmaceutical prices within the European Economic Area create arbitrage opportunities that pharmacy retailers can access through parallel imports. For prescription drugs under patent, parallel trade affects the sharing of profits among an innovating pharmaceutical company, retailers, and parallel traders. This column discusses recent findings showing that in a country which does not regulate pharmacy retailers’ margins, retailer incentives to bargain lower wholesale prices play a significant role in fostering parallel trade penetration, and that banning parallel imports would benefit manufacturers.

Philippe Aghion, Helene Maghin, André Sapir, 25 June 2020

The COVID-19 pandemic has shed light on the structural dichotomy between the models of capitalism operating in Europe and the US; the former offers better protection for its citizens while the latter shows greater economic dynamism. This column argues that for all the harm COVID-19 has caused, the crisis has also provided an opening to rethink the versions of capitalism practised on both sides of the Atlantic. Some degree of convergence towards a better model is desirable, the authors suggest, and perhaps even possible.

Alina Kristin Bartscher, Sebastian Seitz, Sebastian Siegloch, Michaela Slotwinski, Nils Wehrhöfer, 18 June 2020

In the absence of viable medical responses to combat the ongoing Covid-19 pandemic, policymakers have appealed to the social responsibility of their citizens to comply with social distancing rules. This column explores how regional differences in social capital can affect the spread of Covid-19, focusing on seven European countries. The results suggest that areas with high social capital registered between 12% and 32% fewer Covid-19 cases from mid-March until mid-May. A case study of Italy validates the independent role of social capital, showing a consistent reduction in excess deaths and documenting a reduction in mobility prior to the lockdown as a mediating channel.

Thomas Plümper, Eric Neumayer, 11 June 2020

Is Covid-19 a ‘rich man’s disease’, as many citizens in poorer countries believe it to be? This column descibes how in Germany, infections began with individuals returning from skiing holidays. In the first phase of the pandemic, infection rates were higher in richer areas and lower in more socially deprived districts. In the second phase, the ability to socially distance oneself mattered more – an ability that is itself socioeconomically stratified. Richer districts are now seeing fewer new infections, and the initial safety advantage of more socially deprived districts has disappeared.

Çağatay Bircan, Ralph De Haas, Helena Schweiger, Alexander Stepanov, 03 June 2020

As lockdown measures continue, or are relaxed only gradually, many small businesses continue to experience significantly reduced turnover. This column reports on a firm-level analysis across 16 emerging markets, and three Western European comparator countries, in order to gauge the potential risks associated with debt-driven COVID-19 support. The overall goal is to prevent a wave of bankruptcies that could break valuable relationships between firms and their suppliers and employees. However, liquidity support in the form of additional bank lending may create debt-overhang problems in the future and therefore requires careful targeting.



You are invited to a CEPR Policy webinar on:
Europe in the time of Covid-19 and beyond
Join us on Wednesday 3 June 2020
13:00-14:00 (BST, London), 14:00-15:00 (CST)

Agnès Bénassy-Quéré, Paris School of Economics - University of Paris 1 Panthéon-Sorbonne and CEPR
Beatrice Weder di Mauro, President, CEPR

Tim Phillips, CEPR 

There is no doubt that the Covid crisis represents a challenge for European unity and another crash test for the euro. Europe has been, and will likely remain, one of the most Covid-infected regions in the world and, while doing nothing was not an option and would itself have disrupted economic activity, the forceful reactions of national governments to the pandemic, through various strategies combining social distancing, testing/quarantining and lockdowns, have triggered an economic crisis at least twice the size of the 2009 crisis. Furthermore, the recovery is likely to be slow due to depressed consumption and investment, and it will require fast reallocations in both the labour market and the capital market.

A small positive observation in this crisis has been the degree of engagement of economists in an intense debate with policymakers on the appropriate responses to ëflatten the economic recession curveí and to safeguard the most impacted groups from the economic fallout of the health crisis.

Agnès Bénassy-Quéré and Beatrice Weder di Mauro have edited a new CEPR eBook, which illustrates the intense effort of the academic community during this time. Join them both in this webinar to discuss the collection of VoxEU columns that were selected for this eBook.

Register online: https://us02web.zoom.us/webinar/register/7515910173526/WN_UaKkj3YKRIm5Y1GS84eZag

Jeffrey Chwieroth, Andrew Walter, 23 May 2020

Although necessary, many of the economic policy responses to the COVID-19 crisis may end up damaging political incumbents in the medium and long term. This column presents evidence suggesting that voters expect great things from their leaders in deep crises. Yet the potential for great disappointment arises from the inevitable perceived inequities that will follow from the coronavirus crisis bailouts. As the pandemic exacerbates existing divisions within societies, the political costs predicted implies that only a minority of the most skilled political leaders are likely to survive this crisis.

Nicolas Ajzenman, Cevat Giray Aksoy, Sergei Guriev, 05 June 2020

The impact of the 2015 refugee crisis on sending and receiving societies has received significant scholarly attention. But there is little research on how the crisis affected ‘transit countries’ through which migrants travelled. This column studies 800 localities in 18 European countries to discover how local populations responded to the temporary presence of forced migrants. Data show that entrepreneurial activity of residents living closer to refugee routes fell considerably, and while anti-migrant sentiment increased in these areas, attitudes towards other minorities remained unchanged.

Helsinki Graduate School of Economics Situation Room, 21 May 2020

Effective management of the COVID-19 crisis requires real data in real time, often drawn from multiple sources. This column describes how researchers in Finland have created a remote-access ‘Situation Room’ that allows for real-time analysis of the Finnish economy, both for the government and for the wider public. The results from the study provide useful insights for policymakers in Finland and beyond.

Olivier Darmouni, Oliver Giesecke, Alexander Rodnyansky, 20 May 2020

The share of firms’ borrowing from bond markets has been rising globally. This column argues that euro area companies with more bond debt are disproportionately affected by surprise monetary shocks, compared to firms with mostly bank debt. This finding stands in contrast to the predictions of a standard bank lending channel and points toward frictions in bond financing. This provides lessons for the conduct of monetary policy in times of hardship such as COVID-19, when the corporate sector suffers from liquidity shortages.

Massimo Morelli, 08 May 2020

Political participation is an important, and often neglected, channel through which economic insecurity, reductions in trust, and changes in cultural attitudes all affect populism. This column argues both the demand for and supply of populism depend on mobilisation, and that populism can be seen as a mobilisation campaign strategy. While this framework explains the recent surge of populism, it also provides reasons to believe that the populism wave could be temporary. The column also discusses possible consequences of the Covid-19 crisis for populists in and out of power.

Erica Bosio, Simeon Djankov, 06 May 2020

With lockdown measures in place almost worldwide now, cash-flow represents a significant concern for firms across multiple sectors. It remains to be seen exactly which types of business will be able to weather the coming storm. This column estimates the survival time of nearly 7,000 firms in a dozen Southern European and emerging market economies. Under the assumptions that firms have no incoming revenues, the median survival time across industries ranges from 8 to 19 weeks. Once collapsed export demand is taken into account, the median survival time falls to between 8 and 14 weeks.

Rémi Jedwab, Noel Johnson, Mark Koyama, 03 May 2020

The Black Death was accompanied by violence against Europe's Jewish communities. But not all Jewish communities were persecuted. This column outlines two countervailing effects that can help explain this variation: a scapegoating effect – as the disease worsened, there was an incentive to blame the outgroup – and a complementarities effect – Jews performed important roles in the medieval economy and these services became more valuable in the wake of the plague. Together, these effects shed light on the conditions under which prejudice and violence against minorities can be exacerbated or limited.

Bary Pradelski, Miquel Oliu-Barton, 30 April 2020

The tourism industry has already been heavily impacted by the Covid-19 pandemic, and a ‘cancellation’ of the summer season would further push many European countries towards an unprecedented economic crisis. This column proposes to elevate the authors’ recently proposed zoning approach to the pan-European level. Allowing ‘green bridges’ to exist between regions where the virus is under control – regardless of whether the latter are in the same country – could help save the tourism sector, the economic viability of several European countries, and probably also the balance within the European Union. 

Stephen P. Ferris, Jan Hanousek, Jiri Tresl, 30 April 2020

Corporation corruption is an issue that remains at the forefront of regulatory policy. This column examines the persistence of corruption among a sample of privately held firms from 12 Central and Eastern European countries. Creating a proxy for corporate corruption based on a firm’s internal inefficiency, it is suggested that corruption can enhance a firm’s overall profitability. A channel analysis reveals that inflating staff costs is the most common approach by which firms divert funds to finance corruption. Corruption may persist simply because of its ability to improve a firm’s return on assets.

Zsoka Koczan, Alexander Plekhanov, 22 April 2020

While flexible labour markets normally facilitate economic adjustment during crises, recent Google search data suggest that the widespread Covid-19 lockdowns may impede this adjustment process. This column explores how labour market structures may determine how employment levels across middle-income countries are affected by the shock. The impending job and income losses are likely to be most severe where fewer people have permanent contracts, where many are self-employed, and where more people work for small firms and in retail. In the long term, these asymmetric impacts may further increase the demand for public-sector jobs.



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