Global economy

Julian di Giovanni, Andrei Levchenko, Isabelle Méjean, 11 February 2016

The business cycles of countries with greater bilateral trade and multinational production linkages are more closely correlated. But the meaning of this empirical relationship is not well understood. Some contend that these linkages allow for the transmission of shocks across countries, while others argue that countries that trade more with each other are similar in other ways and are thus subject to common shocks. Using data from France, this column examines the properties of international co-movement at the firm level. Even after controlling for common shocks, there is still substantial evidence of transmission of shocks through trade and multinational linkages. Furthermore, trade linkages matter more than multinational ones, especially when it comes to the aggregate impact. 

Robert Barro, 04 February 2016

China’s diminished growth prospects are in the news and seem to spell bad news for just about everybody. This column assesses the evidence, arguing that China’s economic growth will be much slower from now on, reducing international trade. Perhaps the biggest challenge for China will be future political tensions in reconciling economic dreams with economic realities.

Longfeng Ye, Peter E. Robertson, 01 February 2016

The World Bank has identified 37 countries as being in a ‘middle-income trap’, but few formal tests of the middle-income trap hypothesis exist. This column presents a new test based on a more nuanced observation that incorporates information on a country’s long-run growth path. Only seven out of 46 middle-income countries are found to be potentially ‘trapped’. Some countries that are usually considered to be trapped may just be growing very slowly.

Daron Acemoglu, Ufuk Akcigit, William Kerr, 30 January 2016

How shocks reverberate throughout the economy has been a central question in macroeconomics. This column suggests that input-output linkages can play an important role in this issue. Supply-side (productivity) shocks impact the industry itself and those consuming its goods, while a demand-side shock affects the industry and its suppliers. The authors also find that the initial impact of an industry shock can be substantially amplified due to input-output linkages. 

Michael McMahon, Martin Ellison, Ethan Ilzetzki, Ricardo Reis, Wouter den Haan, 28 January 2016

The beginning of 2016 has seen dramatic developments in key markets, including falls in share prices, low oil prices, and a slowdown in some emerging market economies. This column summarises the views expressed on these issues by leading experts in the monthly Centre for Marcoeconomics survey. While all recognise the considerable uncertainty in the world economy, fewer than a third fear that these events will have a significant negative impact on the UK’s economic recovery. The prevailing argument is that any negative effects of lower foreign demand and market instability will be compensated by the benefits of lower oil prices.

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