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.

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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)

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

Moderator:
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.

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.

Çağatay Bircan, Zsoka Koczan, Alexander Plekhanov, 21 April 2020

Small businesses, especially in retail and services sectors, which account for the vast majority of employment in the European region, have borne the brunt of the COVID-19 crisis. This column provides estimates of job displacement and surveys the policy measures taken by 38 emerging economies in Europe, Central Asia, and the Southern and Eastern Mediterranean in response to the economic disruptions. Given the predominance of small businesses in employment, job displacement rate in many of these economies is expected to reach 30%.  In the presence of constraints on fiscal measures and limited administrative capacity to disburse funding, second-best measures such as price control have been implemented widely.

Reshad N Ahsan, Laura Panza, Yong Song, 18 April 2020

While the relationship between trade and war is ambiguous, some argue that diminished trade can pose a threat to global peace by lowering both the opportunity costs of war and the cost of raising an army. This column examines the relationship between Atlantic trade and war in Europe between 1640 and 1896, a period in which intra-European conflict decreased dramatically. It finds that the growth in Atlantic trade lowered the probability of intra-European conflict by 15 percentage points.

Richard Baldwin, 31 March 2020

Richard Baldwin IHEID/CEPR explains why the lessons learned from SARS have informed Asian responses to Covid-19, while others have failed to heed those warnings and make adequate preparations for the unfolding pandemic.
Taken from the CEPR / RIETI webinar 'Economics in the time of Covid-19: The economic impact on Asia', held March 24 2020

Arnoud Boot, Elena Carletti, Rainer Haselmann, Hans‐Helmut Kotz, Jan Pieter Krahnen, Loriana Pelizzon, Stephen Schaefer, Marti Subrahmanyam, 24 March 2020

Iain Begg, David Miles, 10 January 2020

In 2020, the UK and the EU will try to strike a post-Brexit deal in financial services. At the SUERF conference in Amsterdam, David Miles and Iain Begg explain to Tim Phillips what's at stake in the negotiations, and who would suffer most if there's no deal.

Thomas Keywood, Jörg Baten, 07 December 2019

Due to their lower standards of living, Eastern and Central Eastern Europe are losing their young, well-educated and energetic population to the West. The scarcity of data that reach far enough back in time makes it challenging to explain the longstanding East–West differences. This column explores the relationship of economic development with human capital – specifically, elite numeracy – and violence. It concludes that the absence of violence played a significant role in economic development through elite numeracy formation.

Laurence Boone, Debora Revoltella, 06 December 2019

For the past two years, global growth outcomes and prospects have steadily deteriorated, while investment growth has collapsed. This is particularly the case in Europe. This column argues that reducing policy uncertainty, rethinking fiscal policy, and acting vigorously to address the challenges raised by digitalisation, climate change, and persistent inequalities all have the potential to reverse the current slippery trend and lift investment and living standards. 

Andrés Rodríguez-Pose, Tobias Ketterer, 18 November 2019

Institutions are an important ingredient for economic growth. Using data from European regions for the period 1999-2013, this column shows that government quality matters for regional growth, and that relative improvements in the quality of government are a powerful driver of development. One-size-fits-all policies for lagging regions are not the solution. Government quality improvements are essential for low-growth regions, and in low-income regions, basic endowment shortages are still the main barrier to development. 

Cevat Giray Aksoy, Panu Poutvaara, 05 September 2019

About 1.4 million refugees and irregular migrants arrived in Europe in 2015 and 2016, but little is known about their socio-demographic characteristics and motivations. This column presents the first large-scale evidence on why those who crossed the Mediterranean in 2015 and 2016 had left their home countries. While the vast majority were escaping conflict, the main motivation for a significant number of migrants from countries such as Algeria, Egypt, Morocco, and Pakistan was a desire to seek out better economic opportunities. People who are educated to secondary or tertiary level are more likely to migrate than people with lower levels of education, particularly when fleeing a major conflict, and these people are more likely to head for countries that have more comprehensive migrant integration policies.

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