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.
Longfeng Ye, Peter E. Robertson, 01 February 2016
Daniel Waldenström, 20 December 2015
Recent work on the importance of wealth and capital shows that it has fluctuated grossly over time in Europe. This column examines whether this pattern carries over to smaller, late-industrialising countries by looking at new historical evidence from Sweden. After being low in the pre-industrial era, Swedish wealth levels came into line with the rest of Europe in the 20th century. However, government wealth grew much faster and became more important in Sweden, largely due its public pension system. These findings highlight the role of economic and political institutions in the long-run evolution of national wealth.
Javier Cravino, Andrei Levchenko, 23 November 2015
Large exchange rate swings remain a prominent and recurring feature of the world economy. This column uses household consumption patterns to examine the distributional impact of the devaluation of the peso during Mexico’s ‘Tequila Crisis’. Cost of living increases are found to be 1.25 to 1.6 times higher for the poor compared to the rich. In the interests of equity, exchange rate policy should take account of such distributional impacts.
James Feyrer, Erin T. Mansur, Bruce Sacerdote, 16 November 2015
Fracking has driven an oil and natural gas boom in the US over the past decade. This column examines the impact these mining activities have had on local and regional economies. US counties enjoy significant economic benefits, including increased wages and new job creation. These effects grow as the geographic radius is extended to include neighbouring areas in the region. The results suggest that the fracking boom provided some insulation for these areas during the Great Recession, and lowered national unemployment by as much as 0.5%.
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.
Fatih Guvenen, Fatih Karahan, Serdar Ozkan, Jae Song, 29 April 2015
Many policy design issues depend crucially on the nature of the idiosyncratic risks to labour income. The earning dynamics literature has typically relied on an implicit or explicit assumption that earnings shocks are log-normally distributed. This column challenges conventional knowledge by bringing in new evidence from a very large administrative dataset on US workers. It presents evidence suggesting income shocks exhibit substantial deviations from log-normality, and that shock persistence depends on income levels as well as the size and sign of the shock.
Tony Atkinson, Salvatore Morelli, 26 March 2014
Inequality – long ignored – is now centre stage in debate about economic policy around the globe. This column introduces the Chartbook of Economic Inequality, a summary of long-run changes in economic inequality for 25 countries over more than 100 years.
Robert C Feenstra, Robert Inklaar, Marcel Timmer, 02 September 2013
Why some countries are richer than others is among the most difficult and important questions in economics. Yet, the Penn World Table, widely used to compare living standards across countries, has faced criticism in recent years. This column discusses how the new version of the tables both addresses these criticisms and provides a wider range of tools that will help researchers gain insight into why income differs across countries.
Sambit Bhattacharyya, Jeffrey G. Williamson, 10 August 2013
What distributional effect do natural-resource booms have on wealth, income and economic power? Using Australia as a case study, this column argues that resource booms tend to exacerbate inequality. The distributional impact of commodity-price shocks in Australia yield important lessons for primary producers from the developmental south, and it’s important for resource-rich developing countries to design appropriate policies to tackle this inequality.
Diego Comin, Martí Mestieri, 28 May 2013
Cross-country inequality is persistent. This column draws on economic history to explain the mechanisms by which dramatic cross-country differences in income emerge. We can reduce inequality through policies that facilitate the penetration of new technologies in poor and middle-income countries. Such policies can go a long way towards reducing existing cross-country income disparities.
Markus Brückner, Mark Gradstein, 04 April 2013
Average income per capita is strongly correlated with more schooling, but this relationship is more complex than it appears. This column presents new research showing that a large part of the correlation is attributed to the causal effect of economic prosperity on the formation of human capital via schooling.
Pierre-Richard Agénor, Otaviano Canuto, Michael Jelenic, 21 December 2012
Many of the emerging economies of the last two decades are now ensnared by ‘the middle-income trap’, in which middle-income countries don’t quite push through to high income status. This column presents recent research suggesting that, if governments act early and decisively to improve access to advanced infrastructure, enhance the protection of property rights, and reform labour markets, trapped economies – like their East Asian counterparts in the 1990s – can push on through.
Tullio Jappelli, Luigi Pistaferri, 02 April 2010
How does consumption respond to a change in income – whether expected or unexpected, temporary or permanent? This column reviews evidence from diverse sources and suggests that if financial market arrangements and liquidity constraints are binding, even changes in income that are predictable can have a significant effect on consumption. This supports the idea that tax changes can have a considerable impact on expenditure.
Andrew E. Clark, 02 April 2010
Andrew Clark of the Paris School of Economics talks to Romesh Vaitilingam about his research on the relationship between income and health, which examines changes in the health and health behaviours (smoking and drinking) of British people who win prizes in the national lottery. The interview was recorded at the Royal Economic Society’s annual conference at the University of Surrey in March 2010.
Jonathan Guryan, Erik Hurst, Melissa S. Kearney, 05 July 2008
Everyone knows that educated people earn more, smoke less, are less likely to be obese and live longer. This column discusses recent research that shows more educated parents also spend more time with their kids – a result ripe with implications for the inter-generational persistence of income and health inequalities.
Daron Acemoglu, Simon Johnson, James A Robinson, Pierre Yared, 20 August 2007
Why are some societies democratic, others not? Why do some societies develop modern effective nation states, while others do not? Why do some societies experience revolutions, while others undertake more gradual change? And finally, why are some relatively prosperous, while others are not?