The role of equities in Europe’s capital markets has diminished since the Global Crisis and is only slowly recovering to its prior level. This column argues that revitalising its equity markets has much to offer Europe in terms of funding business growth, creating jobs, and delivering long-term pension returns for the ageing population. The root causes of Europe’s underutilised equity markets are both cultural and regulatory. Understanding and addressing these barriers are the next necessary steps towards the full utilisation of equities.
Christian Krohn, 12 February 2016
Keting Shen, Jing Wang, John Whalley, 05 January 2016
Many argue that China has had a higher total factor productivity growth rate than India and the US since the late 1970s. This column assesses changes in China’s technology gaps between both the US and India from 1979 to 2008 with a constant elasticity of substitution production framework. The calculations suggest that the technology gap between China and the US was significantly larger than that between India and the US for the period before 2008.
Ata Can Bertay, Di Gong, Wolf Wagner, 02 November 2015
Since the Global Crisis, a broad discussion about the future of securitisation has emerged. This column presents new evidence on the relationship between securitisation and economic growth. The impact of securitisation depends on the underlying type of collateral. Securitisation of business loans may encourage investment and spur economic activity, but securitisation of consumer loans may at the aggregate divert resources away from productive purposes.
Tommaso Ciarli, Chiara Kofol, Carlo Menon, 27 October 2015
Though some studies propose that entrepreneurial activity increases during conflicts, macro evidence shows that a conflict is damaging to growth. This column argues that the conflict in Afghanistan did not contribute to economic development because it caused regressive structural changes at the micro level. It reduced employment opportunities and increased self-employment in activities that have low returns. To improve the economic resilience, self-employment in activities that are less affected by conflict should be stimulated.
Axel Dreher, Vera Eichenauer, Kai Gehring, Sarah Langlotz, Steffen Lohmann, 18 October 2015
There is no consensus on whether foreign aid is effective in boosting the economy of the recipient country. This column suggests that there is no evidence that aid affects growth. This finding does not imply that aid is necessarily ineffective. Much of the aid is not given to affect growth in the first place, but as humanitarian aid following disasters, to fight terror, please political allies, or influence decisions in important international organisations. Such aid should thus be evaluated with its own goals in mind.
Hyunbae Chun, Tsutomu Miyagawa, Hak K. Pyo, Konomi Tonogi, 09 October 2015
Economists increasingly stress the importance of investment in intangibles such as human and knowledge capital as a way to stimulate economic growth. This column examines how intangibles contribute to economic growth in Japan and Korea. Though intangible investment has increased in both countries in recent decades, the amount of tangible investment has been greater. This is different from what is observed in western advanced economies, which can be explained by the less developed financial markets in eastern Asia.
Thorsten Beck, 30 September 2015
The relationship between finance and growth has recently returned to the top of the policy research agenda, with several papers questioning earlier results indicating a positive link. This column suggests a different interpretation of the early findings. While there can be too much finance, as many countries have found out in recent crises, this does not imply that there is too much financial development.
Elias Papaioannou, 07 September 2015
The focus of European policymaking in the 1990s was on meeting a set of nominal criteria. This chapter argues that instead the focus should be on institutional reform and convergence. The main issues that need to be addressed are related to state capacity (tax collection), property rights protection, investor rights, red tape, and administrative-bureaucratic quality. If Europe is to proceed with an even closer union, it should set up institutional rather than nominal targets.
Thorsten Beck, Haki Pamuk, Ravindra Ramrattan, Burak Uras, 12 September 2015
The focus of the financial inclusion debate has been mainly on credit and savings services. This column provides evidence that more effective payment systems can help ease small businesses’ access to external finance, ultimately resulting in faster economic growth. The success story of M-PESA in Kenya shows that mobile money technology not only increases financial inclusion of households, but also alleviates small firms’ financing constraints.
Pablo Druck, Nicolas Magud, Rodrigo Mariscal, 16 August 2015
The strength of the US dollar can impact the economic activity in emerging economies in various ways. This column argues that appreciation of the dollar mitigates the impact of real GDP growth in emerging markets. The main transmission channel is through an income effect. As the dollar appreciates, commodity prices fall, depressing domestic demand via lower real income, and as a result real GDP in emerging markets decelerates. Emerging markets’ growth is expected to remain subdued, reflecting the expected persistence of the strong dollar.
Matthieu Bussière, Claude Lopez, Cédric Tille, 07 August 2015
Exchange rate appreciations could potentially have a damaging effect on competiveness and domestic production. This column argues that the relationship between exchange rate appreciations and growth depends on the underlying shock. Appreciations due to the surge of capital inflows could be relatively less favourable for growth. Concern about appreciations is therefore well-founded when they are due to shocks in global financial markets.
Bernardin Akitoby, Sanjeev Gupta, Abdelhak Senhadji, 18 July 2015
There has been a heated debate about the effectiveness of fiscal policy as a countercyclical tool but little evidence on how it can support growth. This column shows that fiscal policy can lift medium- and long-term growth in both advanced and developing economies. But all fiscal reforms are not equal in their growth dividend. Successful reforms are often part of a broader reform package and can balance the growth-equity trade-off.
Tomohiko Inui, Makiko Nakamuro, Kazuma Edamura, Junko Ozawa, 02 May 2015
In order to achieve sustainable growth, Japan should make an efficient use of its labour force. However, female labour force participation and the share of women in leading positions in Japan remain low. This column investigates the impact of board diversity on firms’ innovative activity using Japanese firm-level data. The findings suggest that board diversity is associated with innovation only for firms that have already acquired diverse management skills.
Roland Bénabou, Davide Ticchi , Andrea Vindigni, 19 April 2015
History offers many examples of the recurring tensions between science and organized religion, but as part of the paper’s motivating evidence we also uncover a new fact: in both international and cross-state U.S. data, there is a significant and robust negative relationship between religiosity and patents per capita. Three long-term outcomes emerge. First, a "Secularization" or "Western-European" regime with declining religiosity, unimpeded science, a passive Church and high levels of taxes and transfers. Second, a "Theocratic" regime with knowledge stagnation, extreme religiosity with no modernization effort, and high public spending on religious public goods. In-between is a third, "American" regime that generally (not always) combines scientific progress and stable religiosity within a range where religious institutions engage in doctrinal adaptation.
Branko Milanovic, Roy van der Weide, 29 November 2014
A breakthrough in understanding the link between growth and inequality came from ‘unpacking’ inequality – looking at inequality measures for different segments of the population rather than just an aggregate measure. This column presents novel research that also ‘unpacks’ growth, investigating the impact of inequality on growth for different groups across the income distribution. Inequality toward the lower end of the distribution hinders growth for the poor, but not for the rich.
David Dollar, Tatjana Kleineberg, Aart Kraay, 19 November 2014
Concerns about inequality are at the forefront of many policy debates. While inequality has increased in many countries over the past few decades, in others it has decreased. This column uses data from 117 countries over the past four decades to investigate the importance of such changes in inequality, as well as of overall economic growth. Whereas inequality changes in most countries have been small, differences in overall growth performance have been large. Policymakers should therefore be careful not to undermine growth in the quest for greater equality.
James Boughton, 15 September 2014
The international financial system is not working fine and reforms of regional and global institutions are much needed. This column discusses some of the transformations that the IMF could implement in order to keep pace with the changes in the world economy. One problem for the credibility of the IMF is the G20 in its current design and organisation. Institutional reforms, however, should be combined with advances in economic policy in order to promote economic growth and financial stability.
Matthijs Lof, Tuomas Malinen, 25 May 2014
Public debt and economic growth are historically negatively correlated. This column discusses new evidence that rejects the debt-to-growth causality. After estimating the effects between debt and growth in both directions, there is no evidence that high indebtedness suppresses economic growth. The effect of growth on debt is the main driver of the negative correlation.
Angus Armstrong, Francesco Caselli, Jagjit Chadha, Wouter den Haan, 14 April 2014
Fears that the financial crisis will have a significant negative impact on long-term UK economic growth are unfounded, according to a majority of the UK macroeconomics profession surveyed by the Centre for Macroeconomics (CFM). What’s more, the inaugural CFM survey, summarised in this column, indicates some optimism about the UK’s immediate capacity for higher growth: while roughly half of the respondents share the views of the Office of Budget Responsibility, the other half is substantially more optimistic about the capacity for the economy to recover.
Iftekhar Hasan, Tuomas Takalo, 24 January 2014
Efficient retail payments are associated not only with lower direct costs but also with indirect benefits, and ultimately – with enhanced economic growth. This column presents research on different retail payment habits in the Eurozone. A correlation exists between the forms of payment in a country and its recent economic fortune. There are a number of methods to promote more efficient payments. The biggest challenge to increase the efficiency of retail payments in Europe is the heavy regulation and barriers to entry of new payment methods.