Terence Cheng, Joan Costa-i-Font, Nattavudh Powdthavee, 31 July 2015

Economists have traditionally viewed healthcare as a luxury good – consumption of it will increase more than proportionally as income rises. This column challenges this view, exploiting the windfall of lottery winnings to estimate elasticities for healthcare demand in the UK. Results suggest that income elasticities for public healthcare services are close to zero. A medium to large windfall is found instead to increase the uptake of private health insurance and preventative services. This suggests that rising incomes will increase private sector demand, but will leave public healthcare demand unchanged.

Bálint Horváth, Harry Huizinga, Vasso P. Ioannidou, 31 July 2015

When banks invest heavily in sovereign debt, and in domestic sovereign debt in particular, the result is a debt home bias. This column presents evidence of a partially voluntary and partially involuntary sovereign debt home bias among large European banks. This bias is stronger if the sovereign is risky and shareholder rights are strong or the government has a positive ownership in the bank. Also, banks with a strong home bias are valued positively by the stock market.

Graziella Bertocchi, Arcangelo Dimico, 30 July 2015

HIV/AIDS is an endemic economic problem for significant parts of Africa. This column presents evidence suggesting that the demographic shock induced by the slave trade still shapes the contemporary family structures and sexual behaviour of many African countries. Policymakers and human rights organisations should understand that the struggle against HIV/AIDS involves the eradication of deeply rooted beliefs and practices.

Nicholas Crafts, Alex Klein, 30 July 2015

There is increasing evidence that cities offer externalities that raise labour productivity. This column looks at the contribution of US cities to productivity growth at the turn of last century. The findings show that increased specialisation, promoted by improved transportation, was the key to productivity growth. Today’s policymakers should heed this lesson.

Rosario Crinò, Laura Ogliari, 29 July 2015

The production of high-quality goods influences key aspects of countries’ economic performance, including growth and development. This column argues that removing credit market imperfections may help countries transition from the production of low-quality to high-quality goods, especially in industries that are more sensitive to financial frictions.

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