Viral Acharya, Raghuram Rajan, Jack Shim, 16 June 2020

While many theories of international borrowing emphasize its advantages, it has proven difficult to empirically establish a correlation between a developing country’s use of foreign financing and good outcomes such as stronger growth. This column proposes a theoretical framework that reconciles the above puzzle. It establishes that a developing country’s propensity to save is essential in determining whether the government’s ability to borrow in international markets is welfare improving for its citizens or not. Hence, debt is not always 'odious' and alternative policies such as debt ceilings may prove more useful, especially in the midst of the current pandemic.

Chang Ma, John Rogers, Sili Zhou, 13 May 2020

Forecasting the progress and impact of COVID-19 is central to the planning of policymakers around the world. This column provides a historical perspective by examining the immediate and bounce-back effects from six post-war disease shocks. GDP growth contractions are immediate and sizeable, but vary across countries. Despite an immediate ‘bounce back’, GDP tends to remain below its pre-shock level for several years. The negative effect on GDP is felt less in countries with larger first-year responses in government spending, especially on health care, and the indirect effects on GDP growth from affected trading partners are also important.

Jamus Lim, 11 May 2020

Large fiscal expenditures, as well as more loans by households and firms, will lead to sharp increases in public and private debt in the near future. The resulting debt burdens may impact both post-lockdown economic recovery and medium-run growth prospects. This column presents evidence on the effects of the total debt burden on output dynamics. The results suggest increases in total debt to GDP have significant negative effects on growth. Helping economies recover from the dramatic COVID-19 shock will require tackling both public and private borrowing. 

Leandro de la Escosura, Carlos Álvarez-Nogal, Carlos Santiago-Caballero, 07 May 2020

It is believed that living standards in world economies stayed roughly constant prior to 1800. This column presents data on Spanish population and economic development from 1277-1850 which challenges this view. Population and economic growth are found to evolve simultaneously, contradicting the Malthusian view. Spain was a frontier economy within Europe that, after a drop in living standards after the Black Death, grew steadily until the 1570s, when its path diverged from the rest of Europe. 

Ewout Frankema, Marlous van Waijenburg, 02 May 2020

Despite a clear positive relationship between education and income at the micro-level, raising educational attainment rates in the developing world have so far failed to lead to substantial and sustained economic growth. This column collects data on skill premia for 50 African and Asian countries for 1870-2010 and presents evidence of a dramatic fall in skill premia from initially very high levels for both Asia and Africa over the course of the 20th century. This convergence of skill premia to Western levels is shown to be negatively related to the relative supply of educated workers in those economies.

Petr Sedláček, Vincent Sterk, 25 April 2020

Startups are being hit hard by the COVID-19 pandemic and the lockdown. Introducing a ‘startup calculator’ that allows anyone to compute the aggregate employment losses under various economic scenarios, this column explores the effects of a decline in startup activity on aggregate employment. Job losses may be large and may last well beyond the pandemic itself.

Ana Venâncio, Victor Barros, Clara Raposo, 29 March 2020

Corporate tax is often seen as a constraint to entrepreneurial activity. This column uses evidence from a tax reform in Portugal to study the relationship between corporate taxes and the behaviour of entrepreneurs. Lower corporate taxes improve both the quantity and quality of entrepreneurial activity, inducing larger and more productive firms to the market, which are more likely to survive in the long term. The study suggests that, on average, the entrepreneurs who were able to take advantage of the reform are mostly male, relatively older, and well-educated individuals.

Alexander Dietrich, Keith Kuester, Gernot Müller, Raphael Schoenle, 24 March 2020

The effects of the COVID-19 pandemic on the global economy are still largely unknown. The short-term economic impact will depend importantly on people’s expectations of the overall effect, and the amount of uncertainty thereof. This column uses a survey of US households to show that the expected economic effect is negative, large, and highly uncertain. An asset-pricing equation is used to quantify the implication of these expectations for the natural rate of interest. The natural rate declines by several percentage points, suggesting a role for monetary accommodation to (partially) offset the shock.

Aida Caldera, Alessandro Maravalle, Lukasz Rawdanowicz, Ana Sanchez Chico, 23 March 2020

Global economic growth is expected to remain weak and significant downside risks persist. As room for conventional monetary policy is limited or exhausted, policymakers will need to rely increasingly on fiscal policy to stabilise the economy during the next economic downturn. This column presents new OECD estimates which suggest that automatic stabilisers on average offset 60% of a specific shock to market income across 23 OECD economies. However, there are marked differences across OECD countries leaving scope to make automatic stabilisers more effective.

Sebnem Kalemli-Ozcan, 12 December 2019

Sebnem Kalemli-Özcan discusses foreign direct investment and how local conditions can limit a country's capacity to take advantage of spillovers from the investment

Antonin Bergeaud, Gilbert Cette, Rémy Lecat, 05 December 2019

In most advanced economies, both real long-term interest rates and productivity growth have decreased since the early 1990s. The column demonstrates how a circular relationship links these two indicators. Until there is a technology shock, the relationship will converge to an equilibrium in which growth and interest rates are both low.

Sebastian Edwards, 30 November 2019

In a few decades, Chile experienced dramatic economic growth and the fastest reduction of inequality in the region. Yet, many Chilean citizens feel that inequality has greatly increased. Such feelings of 'malestar' triggered the violent social unrest of October 2019. This paper explains this seeming paradox by differentiating ‘vertical’ (income) inequality from ‘horizontal’ (social) inequality. It argues that the neoliberalism that created Chile’s economic growth is no longer effective and that Chile may be headed towards adopting a welfare state model.

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. 

Laurence Boone, Marco Buti, 18 October 2019

After years of solid growth, worldwide economic activity has slowed down sharply in 2019 while global trade has stalled. At October’s annual meeting of the IMF, policymakers have the difficult task of addressing the immediate policy challenges to support economic growth while also preparing our economies for the future. This column argues that while monetary policy is widely recognised as facing increasing constraints, fiscal policy and structural reforms need to play a stronger role. In particular, fiscal policy could become more supportive, notably in the euro area. Undertaking the right type of public investment now – in infrastructure, education or to mitigate climate change – would both stimulate our economies and contribute to making them stronger and more sustainable. 

Diane Coyle, 14 October 2019

Ufuk Akcigit, Emin Dinlersoz, Jeremy Greenwood, Veronika Penciakova, 24 September 2019

Differences between the majority of mediocre firms and the exceptional, innovative ones range from the founders’ backgrounds to their paths of innovation. This column assesses the impact of venture capital funding on the growth trajectories firms take. Employment and patenting data show venture capital-backed firms are likely to achieve greater success and contribute more significantly to the aggregate economy. The absence of venture capital funding would lower aggregate growth by 28%.

Tomoya Mori, 11 August 2019

The growth of large cities is often attributed to their proximity to exogenous, first-nature advantages. This column uses data on 450 Japanese cities to show that in fact, the regularity of agglomeration holds as a natural consequence of endogenous agglomeration and dispersion forces at the global or local level, rather than exogenous factors.

Jakob Brøchner Madsen, Peter Robertson, Longfeng Ye, 14 July 2019

The econometric evidence for the Malthusian trap in pre-industrial Europe has been weak. The column presents a new Malthusian model that, combined with new historical data for 17 countries, provides evidence of a much stronger Malthusian trap than the one found by previous research. This helps to explain the economic stagnation from the dark ages to the industrial revolution.

Rabah Arezki, Rachel Yuting Fan, Ha Nguyen, 29 June 2019

The debate on the middle-income trap has largely focused on East Asia and Pacific countries, but the countries of Middle East and North Africa have significantly lower growth, which drops at an earlier level of income. The column argues that one factor is MENA's slow adoption of general purpose technologies. Barriers to the adoption of such technologies in key sectors could be an important transmission channel for the middle-income trap.

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