Most Read: This Month
Study after study has shown that those who live with children are less satisfied with their lives than those who do not. Is there something wrong with these empirical analyses? Or is it that happiness measures are unreliable? This column argues that the results are correct but that comparisons of the wellbeing of parents and non-parents are of no help at all for people trying to decide whether to have children.
Rich people typically lean right politically. Are they motivated by deeply moral views or self-interest? This column argues that money makes you right-wing. It shows that lottery winners in the UK are more likely to switch their allegiance from left to right.
Income inequality has been growing in many economies over the past two decades, and it is currently historically high. This column adds two new contributors to the popular explanations of increased inequality. Fiscal consolidations, especially those following the recent crisis, can increase inequality, mostly by affecting the long-term unemployment. A second source that leads to a persistent increase in inequality is capital account liberalisation. Therefore, the effects of these policies on inequality should be taken into account when deciding upon policy designs.
Criticism of Gross Domestic Product (GDP) as an indicator of the health of the economy has grown in recent years, in part because of a new focus on measures of subjective well-being or ‘happiness’. This column argues that the debate needs to distinguish between the different purposes of measurement: economic activity, social welfare, and sustainability are distinct concepts and cannot be captured by a single indicator. There are good arguments for paying less attention to GDP and more to indicators of welfare and sustainability, but it would be a mistake to adjust or replace GDP.
The world has globalised massively yet some worry that academic publication has not. This column provides new evidence from 76,046 papers published during 1985-2004 in the top 202 economics journals. It shows that GDP per capita accounts for 75% of the variation in the country-focus of publications, suggesting the overrepresentation of the US is not an anomaly. Yet a closer look at top-five journals reveals a US bias that cannot be explained by data or researcher quality.
A popular view among economic commentators is that rich countries face a serious risk of deflation, and should adopt aggressive macroeconomic stimulus policies to ward it off. This column argues that despite similar headline inflation rates, the US, Europe, and Japan in fact face very different macroeconomic conditions. In the US, much of the recent disinflation is attributable to positive supply-side developments. In Europe, an aggressive round of quantitative easing might encourage policymakers to delay the reforms that are necessary to avoid a prolonged Japanese-style malaise.
How many people are poor worldwide? This column explains that the answer depends on whether one uses survey of national-accounts data to anchor country distributions of income. It then argues that night-time lights suggest that national accounts offer a better estimate. Developing world poverty may be as low as 4.5% in 2010, much lower than the path constructed by surveys.
How Americans form and dissolve families has changed dramatically since 1950. One of these changes has been an increase in assortative mating, i.e. how likely a person is to marry someone of similar educational background. This column argues that since education is an important determinant of income, these patterns of matching have had an important impact on the economy's distribution of income.
Market-based mechanisms such as cap-and-trade can tackle externality problems more efficiently than command-and-control regulations. However, politicians in the US and Europe have retreated from cap-and-trade in recent years. This column draws a parallel between Republicans’ abandonment of market-based environmental regulation and their recent disavowal of mandatory health insurance. The author argues that in practice, the alternative to market-based regulation is not an absence of regulation, but rather the return of inefficient mandates and subsidies.
The strong rebound of manufacturing production following the Great Recession of 2008–09 has generated renewed interest in the sector among analysts and policymakers. This column argues that a detailed look at the data suggests that claims of a US manufacturing renaissance are unwarranted. Yet, there remain factors that could support a greater contribution from the manufacturing sector to overall US growth in the years ahead.
Inequality has the potential to undermine growth. However, greater redistribution requires higher tax rates, which reduce incentives to work and save. Moreover, the evidence that inequality is bad for growth might simply reflect the fact that more unequal societies choose to redistribute more, and those efforts are antithetical to growth. This column presents evidence from a new dataset on pre- and post-tax inequality. The authors find that income equality is protective of growth, and that redistributive transfers on average have little if any direct adverse impact on growth.
The financial crisis showed that European banks were much more fragile than expected. This column discusses some of the changes implemented by banks since the crisis. Overall, their responses have been minor. Currently, most banks remain highly leveraged, yet yielding low returns. Redressing this could require a reduction of non-core assets and/or a slashing of operating costs. Ultimately, something has to give. European banks have yet to reach a post-crisis equilibrium.
A new literature is trying to understand the economic effects of violent conflict through micro studies. This column argues that cooperation between the cross-country literature and micro studies is needed to better assess the economic costs of conflicts and hence inform policymakers on the benefits of a military or diplomatic intervention.
Who wields supreme power over the ECB? This column analyses the recent ruling by the German Constitutional Court that the ECB cannot act as lender of last resort. Although seemingly couched by the referral of this decision to the European Court of Justice, this is a bid for power and the return to the pre-crisis paradigm of ‘ultra posse nemo obligatur’.
Political connections affect economic outcomes in emerging markets. This column discusses new evidence showing that something similar goes on in the US. Over the ten trading days following the announcement of Timothy Geithner as Treasury Secretary, financial firms with a connection to Geithner experienced a cumulative abnormal return of about 12% relative to other financial sector firms. This reversed when his nomination ran into trouble due to unexpected tax issues.
There is growing evidence that adverse infant health can have lasting effects on human capital formation and economic outcomes in adulthood. Among others, the poor environmental conditions have been linked to increased infant mortality and poor health. This column looks at the long-run effects of early-life pollution exposure. Using the Clean Air Act enacted in 1970 as a policy experiment, the study finds an association between reduced pollution and labour-market outcomes 30 years later. Reduced-pollution increases labour-force participation rate for affected individuals, which translates into a 1% increase in annual earning for an average individual in a cohort.
Whereas the Millennium Development Goal of reducing extreme poverty by half was achieved by 2010, the global hunger rate has only fallen by a third since 1990. Differences in survey design may account for part of this discrepancy. This column presents the results of a recent experiment in which households were randomly assigned to different survey designs. These different designs yield vastly different hunger estimates, ranging from 19% to 68% of the population being hungry.
Greece needs debt reduction. This column argues that instead of offering another lengthening of maturities and reduction in interest rates, Eurozone leaders should seize the occasion and implement debt-for-equity swaps that would encourage foreign investment, speed privatisation and jumpstart the Greek economy.
Financial development and growth have long been linked. This column argues that there remain fundamental lacunae in our understanding of the finance-growth nexus. Three main areas for future research are identified: aid, institutions and technology.
Despite substantial integration, national borders still provide a large obstacle to trade in Europe. This column shows that much of these ‘iceberg costs’ can be attributed to underdeveloped infrastructure, namely roads. Improving international roadways to the level of national ones could substantially raise gains to trade.
There is a strong link between entrepreneurship and growth – young firms were responsible for almost all net job creation in the US economy over the last 30 years. This column presents new research into the responsiveness of firms of different ages to investment opportunities. Firms aged 0–23 months create about twice the total number of new jobs in response to local income shocks than firms that are more than six years old.
All firms need capital. Much research addresses the choice between issuing various types of securities – for example, between issuing debt and equity. However, another method of financing has received relatively little attention – selling non-core assets, such as property, divisions, or financial investments. This article explains the conditions under which an asset sale is the preferred means of raising capital, and highlights how a manager should go about deciding between selling assets and issuing securities.
When a dispute in the WTO does not reach any resolution, the offended member country can request the right to retaliate against the offender. This column reviews the profile of most common retaliation-requesting members. There is a preference among certain countries to either pursue retaliation, or resist compliance. The magnitude of requests and the means of retaliation are also discussed. Overall, requesting retaliation is an important tool of analysis, as it often reveals a country’s goals in the WTO disputes.
The recent crisis revealed that lending by foreign banks can be more cyclical than that by domestic banks. This column presents research showing that bank ownership structure mattered, at least in the case of the UK. Foreign bank branches cut their lending more sharply than did foreign subsidiaries, thus, amplifying the domestic credit cycle. This finding suggests policymakers should pay close attention to risks that stem from foreign bank branches when they are ‘alive’, not only when they are ‘dead’ and pose an even greater financial instability.
Ukraine’s ‘February Revolution’ is threatened by the nation’s dire economic straits. The column discusses short- and long-term changes that are necessary to get the nation through this crisis and back on the track to stability.
The GNI is often regarded as the best indicator of a country’s living standards, but it does not record unilateral transfers – most importantly remittances – which are amongst the largest types of income inflows to developing countries. For many developing countries GNDI is significantly larger than GNI, from 3% for India to 75% for Liberia. This column argues that GNDI is preferable, since GNI masks heterogeneity in purchasing power.
At the peak of the Global Crisis, the US dollar appreciated and US Treasury yields fell, suggesting that foreign investors were purchasing US assets in general. Actually, they were fleeing only into short-term Treasury bills. This column discusses recent research showing that there are indeed no securities which are consistently a safe haven across different crisis episodes – not even US assets. However, a peculiarity of the US securities is that foreign investors do not necessarily ‘run for the exit’, even when a crisis has its epicentre in the US.
Growth in Russia comes from few natural-resource-linked sectors and to a few firms; the economy is currently less diversified than it was during the Soviet times. This column presents evidence that the emergence of new firms is not the binding constraint on diversification: it is the poor survival odds of new firms, created by long, deep Russian economic slumps. More competition would help to drive out less efficient, older firms, and create space for young and efficient ones to survive and thrive.
Language is not only a tool of communication but also of empowerment and cultural identity. This column presents evidence that mandatory instruction in Catalan strengthened perceptions of regional identity and boosted political support for Catalanist parties. This evidence of the efficacy of multiculturalist policy should instruct policymakers in ethnically diverse societies.
The question of why people vote has intrigued social scientists for decades. This column discusses a model of voting due to social image motivations and presents empirical tests based on it. In this model, an individual would be motivated to vote because of an anticipation of being asked after the election. The results of a conducted field experiment suggest that the anticipation of being asked provides a large motivation to vote. In fact, the motivation is as large as being paid $5-15 to vote. Applying this methodology to other elections would provide more rigorous evidence about the validity of the proposed model.
Europe aims to implement Liquidity Coverage Ratio regulation by the end of 2014. This column discusses recent evidence on its impact. It finds that EU banks have not adjusted by reducing lending to the real economy, to SMEs, or to trade finance. Despite this adjustment, substantial liquidity risk exposure remains. Overall, the benefits of the LCR outweigh the costs by far.
The US has once again ranked among the top two recipient countries for foreign direct investment. This column examines the effects of these large FDI inflows on the US domestic economy. Foreign multinationals are – alongside US-headquartered American multinationals – the most productive and highest-paying segment of the US economy. In addition, they provide positive spillovers to US firms. About 12% of the total productivity growth in the US from 1987 to 2007 can be attributed to productivity spillovers from inward FDI.
Economic theory predicts that international environmental agreements will fail due to free-rider problems, and previous empirical work suggests that such agreements do not in fact reduce emissions. This column presents evidence that the Basel Convention and Ban on trade in hazardous waste has also been ineffective. The authors find no evidence that Annex-7 countries that ratified the Ban slowed their exports to non-Annex-7 countries as the agreement requires.
Although teen birth rates have been decreasing in the past two decades, teen motherhood continues to be an important public policy issue. Women who give birth as teens (and their children) have much worse outcomes as adults than those who did not. An alternative explanation is that teen mothers have had disadvantaged childhoods. This column reviews research that tries to disentangle the causation from the correlation, using biological fertility shocks. The most consistent results state that there are no large adverse adult outcomes stemming from teenage motherhood. The key to reduce teen pregnancy is changing the environment. Policies should focus on providing opportunities that disadvantaged women would not like to forgo due to a teen birth.
After joining the WTO in 2001, China has entered into a number of trade agreements. Those currently in consideration are substantially larger than the initial ones. China, more than any other large economy, needs to attempt to enhance its export growth, which has turned negative in 2013. This column discusses some of China’s trade agreements and summarizes the implemented negotiation strategy. The impact of these trade agreements on China’s economic growth also deserves attention.
The economic literature has paid scarce attention to the tens of millions of people who are displaced by conflict or forcibly relocated. This column analyses outcomes for 12 million Germans relocated from central and eastern Europe following the second world war. Labour-market outcomes were generally negative, but positive for women relocated from rural areas. Interestingly, children of migrants made greater educational investments than their native counterparts.
The surge in unemployment in many EU countries has prompted concerns that the underlying structural unemployment has shifted upwards, so that high rates of joblessness could persist also once the recovery is on a solid footing. In this column we draw on recent analysis (European Commission, 2013) and focus on two issues: to what extent the reduced efficiency of labour market matching is contributing to growing structural unemployment? Which are the main drivers of matching efficiency across the EU?
Urbanisation and GDP per capita are positively correlated across countries. However, when the sample is restricted to developing countries, urbanisation and growth are more loosely related – particularly in Africa. This column argues that the low share of manufacturing in developing-country cities may help to explain this discrepancy. Strengthening urban finances, embracing technology, improving skills, and stimulating the formal sector will help cities to promote growth. Since decisions affecting urban development can have lasting impact, longer-term planning deserves greater attention than it is currently receiving.
Excessive drinking during pregnancy is known to harm the foetus, but estimating the effects of moderate prenatal alcohol consumption is difficult, since mothers who choose to drink may differ systematically from those who do not. This column presents recent research showing that a genetic variant in a maternal alcohol-metabolising gene (ADH1B) is negatively related to prenatal alcohol exposure, and unrelated to any of the background characteristics associated with prenatal drinking. Using this genetic variant as an ‘instrumental variable’, the authors find strong negative effects of prenatal alcohol exposure on child educational achievement.
Firms hoping for regulatory favours may direct their business purchases towards firms controlled by politicians, who benefit from the additional revenue. This column provides evidence from Italy consistent with this channel. It shows that the share of advertising on Berlusconi’s televisions increased while he was in power, and this even more so in the most regulated industries.
Recent research has sought to quantify the magnitude of the welfare gains from trade. One of the main findings from this literature is that the gains from trade are relatively modest. This column suggests a channel that the standard approach typically abstracts from. It argues that trade induces changes in domestic productivity through a more efficient organisation of production within the supply chain.
- A tale of two depressions: What do the new data tell us? February 2010 updateEichengreen, O’Rourke
- The ECB’s stealth bailoutSinn
- Educated in America: College graduates and high school dropoutsHeckman, LaFontaine
- Eurozone breakup would trigger the mother of all financial crisesEichengreen
- Panic-driven austerity in the Eurozone and its implicationsDe Grauwe, Ji
DellaVigna, Durante, Knight, La Ferrara
Ostry, Berg, Tsangarides
Allen, Eichengreen, Evans
Greenwood, Guner, Kocharakov, Santos
CEPR Policy Research
- The buyer margins of firms' exportsCarballo, Ottaviano, Volpe
- Commodity and Equity Markets: Some Stylized Facts from a Copula ApproachDelatte, Lopez
- Ethnic Unemployment Rates and Frictional MarketsGobillon, Rupert, Wasmer
- Finance and Poverty: Evidence from IndiaAyyagari, Beck, Hoseini
- The Manipulation of Basel Risk-WeightsMariathasan, Merrouche
- Making city lights shine brighterYusuf, Leipziger
- The euro in the 'currency war'Bénassy-Quéré, Martin
- The roots of shadow bankingPerotti
- What’s wrong with Europe?Baldini, Manasse
- How the EZ crisis is permanently changing EU institutionsMicossi